BAIYU HOLDINGS, INC. Overview
As of
Commodities trading business
The commodity trading business primarily involves purchasing non-ferrous metal products, such as aluminum ingots, copper, silver, and gold, from metal and mineral suppliers and then selling to customers. In connection with the Company's commodity sales, in order to help customers to obtain sufficient funds to purchase various metal products and also help upstream metal and mineral suppliers to sell their metal products, the Company launched its supply chain management service inDecember 2019 . The Company primarily generates revenues from selling bulk non-ferrous commodity products and providing related supply chain management services in the PRC. For the nine months endedSeptember 30, 2022 , the Company recorded revenue of$138,540,090 from commodities trading business and$1,190,976 from commodity distribution services and other related services, respectively.
For the three months ended
The Company sources bulk commodity products from non-ferrous metal and mines or its designated distributors and then sells to manufacturers that need these metals in large quantities. The Company works with upstream suppliers in the sourcing of commodities. Major suppliers include various metal and mineral suppliers such asKunsteel Group ,Baosteel Group , Aluminum Corporate ofChina Limited ,Yunnan Benyuan , Yunnan Tin, and Shanghai Copper. Potential customers include large infrastructure companies such as China National Electricity,Datang Power , China Aluminum Foshan International Trade,Tooke Investment (China ),CSSC International Trade Co., Ltd. ,Shenye Group , and Keliyuan.
Supply Chain Management Services
We offer a distribution service to bulk suppliers of precious metals by acting as a sales intermediary, procuring small to medium-sized buyers through our own professional sales team and channels and distributing the bulk precious metals of the suppliers. Upon executing a purchase order from our sourced buyers, we charge the suppliers with a commission fee ranging from 1% to 2% of the distribution order, depending on the size of the order. We also offer some other supply chain management services business. For the nine months endedSeptember 30, 2022 , the Company earned other supply chain management services revenue of$1,190,976 with 18 third-party customers, compared with a commodity distribution services revenue of$2,515,919 with 29 third-party customers for the same period endedSeptember 30, 2021 . Competition The Company mainly competes against other large domestic commodity metal product trading service providers such as Xiamen International Trade andYijian Shares . Currently, the principal competitive factors in the non-ferrous metals commodities trading business are price, product availability, quantity, service, and financing terms for purchases and sales of commodities.
Applicable Government Regulations
Shenzhen Baiyu Jucheng has obtained all material approvals, permits, licenses
and certificates required for our metal product trading operations, including
registrations from the local business and administrative department authorizing
the purchase of raw materials.
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Key Factors Affecting Our Results of Operation
The commodities trading industry has been experiencing decreasing demand as a
result of
We have a limited operating history having just started our commodities trading business in lateNovember 2019 . We believe our future success depends on our ability to significantly increase sales as well as maintain profitability from our operations. Our limited operating history makes it difficult to evaluate our business and future prospects. You should consider our future prospects in light of the risks and challenges encountered by a company with a limited operating history in an emerging and rapidly evolving industry. These risks and challenges include, among other things, ? inflation, which is expected to cause our suppliers to raise prices that
we may not be able to pass on to our customers, which could adversely
impact our business, including competitive position, market share and
margins;
? market rates of interest, any increase in which would increase the
interest payable on some of our borrowings and adversely impact our cash
flow;
? our ability to continue our growth as well as maintain profitability;
? preservation of our competitive position in commodities trading industry
in China ;
? our ability to implement our strategies and make timely and effective
responses to competition and changes in customer preferences;
? recruitment, training and retaining of qualified managerial and other
personnel; and
? the impact of strict governmental policies relating to coronavirus on our
operations and the overall conditions of the markets we operate.
Our business requires a significant amount of capital in large part due to our need to purchase a bulk volume of commodities, and expand our business in existing markets and to additional markets where we currently do not have operations.
Three Months EndedSeptember 30, 2022 as Compared to Three Months EndedSeptember 30, 2021 For the Three Months Ended September 30, Change 2022 2021 Amount % Revenues - Sales of commodity products - third parties$ 37,847,831 $ 51,364,489 $ (13,516,658 ) (26 )% - Sales of commodity products - related parties - 1,365,823 (1,365,823 ) (100 )% - Supply chain management services - third parties 40,724 2,043,494 (2,002,770 ) (98 )% Total Revenue 37,888,555 54,773,806 (16,885,251 ) (31 )% Cost of revenue - Commodity product sales - third parties (38,008,016 ) (51,358,653 ) 13,350,637 (26 )% - Commodity product sales - related parties - (1,429,486 ) 1,429,486 (100 )% - Supply chain management services - third parties (321 ) (11,913 ) 11,592 (97 )% Total cost of revenue (38,008,337 ) (52,800,052 ) 14,791,715 (28 )% Gross (loss)profit (119,782 ) 1,973,754 (2,093,536 ) (106 )% Operating expenses Selling, general, and administrative expenses (1,951,604 ) (2,226,398 ) 274,794 (12 )% Share-based payment for service - (141,400 ) 141,400 100 % Total operating cost and expenses (1,951,604 ) (2,367,798 ) 416,194 (18 )% Other income (expenses), net Interest income 4,659,595 1,809,398 2,850,197 158 % Interest expenses (149,308 ) 100,294 (249,602 ) (249 )% Amortization of beneficial conversion feature relating to issuance of convertible promissory notes (365,125 ) (619,025 ) 253,900 (41 )% Other income (expense), net 104,961 251,014 (146,053 ) (58 )% Total other income, net 4,250,123 1,541,681 2,708,442 176 % Net Income Before Income Taxes 2,178,737 1,147,637
1,031,100 90 %
Income tax expenses (874,815 ) (690,022 ) (184,793 ) 27 %
Net Income $ 1,303,922 $ 457,615 $ 846,307 185 %
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Revenue
For the three months endedSeptember 30, 2022 , we generate revenue from two sources, including (1) revenue from sales of commodity products, and (2) revenue from supply chain management services. Total revenue decreased by$16,885,251 or 31%, from$54,773,806 for the three months endedSeptember 30, 2021 to$37,888,555 for the three months endedSeptember 30, 2022 , among which revenue from commodity trading and supply chain management accounted for 99.9% and 0.1% of our total revenue for the three months endedSeptember 30, 2022 . For the three months endedSeptember 30, 2021 , revenue from commodity trading and supply chain management accounted for 96.3% and 3.7% of our total revenue for the three months endedSeptember 30, 2021 . The decrease of revenue from sales of commodity products is mainly due to COVID-19, as well as the depreciation of RMB against USD during the three months endedSeptember 30, 2022 . During the three months endedSeptember 30, 2022 , our operations inShanghai were temporarily affected due to the sporadic outbreak of COVID-19, which resulted in a decrease in revenue for the same period. But the extent to which COVID-19 affects our future results will depend on many factors and future developments, including new information about COVID-19 and any new government regulations which may emerge to contain the virus, among others.
(1) Revenue from sales of commodity products
For the three months endedSeptember 30, 2022 and 2021, the Company sold non-ferrous metals to 25 customers at fixed prices, and earned revenues when the product ownership was transferred to its customers. The Company earned revenues of$37,847,831 from sales of commodity products for the three months endedSeptember 30, 2022 , among which, $nil generated from the related party, compared with$52,730,312 from sales of commodity products for the same period in 2021, including$1,365,823 generated from the related party.
(2) Revenue from supply chain management services
In connection with the Company's commodity sales, in order to help customers to obtain sufficient funds to purchase various metal products and also help metal and mineral suppliers sell their metal products, the Company launched its supply chain management service business inDecember 2019 , which primarily consisted of loan recommendation services and commodity distribution services. For the three months endedSeptember 30, 2022 , the Company provided$40,724 commodity distribution services to third-party customers compared with$2,043,494 to the third-party customers for the same period in 2021.
Commodity distribution service fees
The Company utilizes its strong sales and marketing expertise and customer network to introduce customers to large metal and mineral suppliers, and facilitate the metal product sales between the suppliers and the customers. The Company merely acts as an agent in this type of transaction and earns a commission fee based on the percentage of the volume of metal products that customers purchase. Commodity distribution service fees are recognized as revenue when the Company successfully facilitates the sales transactions between the suppliers and the customers.
For the three months ended
Cost of revenue Our cost of revenue primarily includes cost of revenue associated with commodity product sales and cost of revenue associated with management services of supply chain. Total cost of revenue decreased by$14,791,715 or 28% from$52,800,052 for the three months endedSeptember 30, 2021 to$38,008,337 for the three months endedSeptember 30, 2022 , primarily due to a decrease of$13,350,637 in cost of revenue associated with commodity product sales from the third party. The cost of revenue decreased in line with the decrease in revenue. 28
Cost of revenue associated with commodity trading
Cost of revenue primarily consists of purchase costs of non-ferrous metal products. For the three months endedSeptember 30, 2022 , the Company purchased non-ferrous metal products of$38,008,016 from 18 third-party vendors compared with$51,358,653 from 11 third-party vendors and$1,429,486 from one related party vendor for the three months endedSeptember 30, 2021 .
Selling, general, and administrative expenses
Selling, general and administrative expenses decreased from$2,226,398 for the three months endedSeptember 30, 2021 to$1,951,604 for the three months endedSeptember 30, 2022 , representing a decrease of$274,794 or 12%. Selling, general and administrative expenses primarily consisted of salary and employee benefits, office rental expenses, amortizations of intangible assets and convertible promissory notes, professional service fees and finance offering related fees. Selling, general and administrative expenses for the three months endedSeptember 30, 2022 mainly included: (1) amortization of intangible assets of$951,619 , (2) amortization of discount of convertible promissory notes of$135,000 , and (3) salary of$509,721 for the three months endedSeptember 30, 2022 . Interest income Interest income was primarily generated from loans made to third parties and related parties. For the three months endedSeptember 30, 2022 , interest income was$4,659,595 , representing an increase of$2,850,197 , or 158% from$1,809,398 for the three months endedSeptember 30, 2021 . The increase was due to loans made to third-party vendors for the three months endedSeptember 30, 2022 .
Amortization of beneficial conversion feature and relative fair value of warrants relating to issuance of convertible promissory notes
For the three months endedSeptember 30, 2022 , the item represented the amortization of beneficial conversion feature of$365,125 and relating to the convertible promissory notes, and$619,025 for the three months endedSeptember 30, 2021 . Net income As a result of the foregoing, net income for the three months endedSeptember 30, 2022 was$1,303,922 , representing an increase of$846,307 from net income of$457,615 for the three months endedSeptember 30, 2021 . 29 Nine Months EndedSeptember 30, 2022 as Compared to Nine Months EndedSeptember 30, 2021 For the Nine Months Ended September 30, Change 2022 2021 Amount % Revenues - Sales of commodity products - third parties$ 138,540,090 $ 118,387,337 $ 20,152,753 17 % - Sales of commodity products - related parties - 23,292,454 (23,292,454 ) (100 )% - Supply chain management services - third parties 1,190,976 2,515,919 (1,324,943 ) (53 )% Total Revenue 139,731,066 144,195,710 (4,464,644 ) (3 )% Cost of revenue - Commodity product sales - third parties (138,848,770 ) (118,323,668 ) (20,525,102 ) 17 % - Commodity product sales - related parties - (23,347,003 ) 23,347,003 (100 )% - Supply chain management services - third parties (6,011 ) (15,555 ) 9,544 (61 )% Total cost of revenue (138,854,781 ) (141,686,226 ) 2,831,445 (2 )% Gross profit 876,285 2,509,484 (1,633,199 ) (65 )% Operating expenses Selling, general, and administrative expenses (6,075,090 ) (5,851,131 ) (223,959 ) 4 % Share-based payment for service - (1,836,442 ) 1,836,442 (100 )% Total operating cost and expenses (6,075,090 ) (7,687,573 ) 1,612,483 (21 )% Other income (expenses), net Interest income 13,416,254 6,854,491 6,561,763 96 % Interest expenses (388,750 ) (182,954 ) (205,796 ) 112 % Amortization of beneficial conversion feature relating to issuance of convertible promissory notes (898,783 ) (619,025 ) (279,758 ) 45 % Other income (expense), net (21,283 ) (135,344 ) 114,061 (84 )% Total other expenses, net 12,107,438 5,917,168 6,190,270 105 % Income Before Income Taxes 6,908,633 739,079 6,169,554 835 % Income tax expenses (2,585,583 )
(1,461,884 ) (1,123,699 ) 77 %
Net Income (Loss)$ 4,323,050 $ (722,805 ) $ 5,045,855 698 % 30 Revenue
For the nine months endedSeptember 30, 2022 , we generate revenue from the following two sources, including (1) revenue from sales of commodity products and (2) revenue from supply chain management services. Total revenue decreased by$4,464,644 or 3%, from$144,195,710 for the nine months endedSeptember 30, 2021 to$139,731,066 for the nine months endedSeptember 30, 2022 , among which revenue from commodity trading and supply chain management accounted for 99.1% and 0.9%, respectively, of our total revenue for the nine months endedSeptember 30, 2022 .
(1) Revenue from sales of commodity products
For the nine months endedSeptember 30, 2022 , the Company sold non-ferrous metals to 25 third-party customers at fixed prices, and earned revenues when the product ownership was transferred to its customers. The Company earned revenues of$138,540,090 from sales of commodity products for the nine months endedSeptember 30, 2022 compared with$141,679,791 for the same period in 2021.
(2) Revenue from supply chain management services
In connection with the Company's commodity sales, in order to help customers to obtain sufficient funds to purchase various metal products and also help metal and mineral suppliers sell their metal products, the Company launched its supply chain management service business inDecember 2019 , which primarily consisted of loan recommendation services and commodity distribution services.
Commodity distribution service fees
The Company utilizes its strong sales and marketing expertise and customer network to introduce customers to large metal and mineral suppliers, and facilitate the metal product sales between the suppliers and the customers. The Company merely acts as an agent in this type of transaction and earns a commission fee based on the percentage of the volume of metal products that customers purchase. Commodity distribution service fees are recognized as revenue when the Company successfully facilitates the sales transactions between the suppliers and the customers. For the nine months endedSeptember 30, 2022 , the Company earned commodity distribution commission fees of$1,190,976 from third-party vendors compared with$2,515,919 from third-party vendors for the nine months ended in 2021. Cost of revenue Our cost of revenue primarily includes cost of revenue associated with commodity product sales and cost of revenue associated with management services of supply chain. Total cost of revenue decreased by$2,831,445 or 2% from$141,686,226 for the nine months endedSeptember 30, 2021 to$138,854,781 for the nine months endedSeptember 30, 2022 , primarily due to a decrease of$2,821,901 in cost of revenue associated with commodity product sales. The cost of revenue decreased in line with the decrease in sales volume.
Cost of revenue associated with commodity trading
Cost of revenue primarily consists of purchase costs of non-ferrous metal products.
For the nine months ended
For the nine months endedSeptember 30, 2021 , the Company purchased non-ferrous metal products of$118,323,668 from 21 third-party vendors and$23,347,003
from
eight related party vendors.
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Selling, general, and administrative expenses
Selling, general and administrative expenses increased from$5,851,131 for the nine months endedSeptember 30, 2021 to$6,075,090 for the nine months endedSeptember 30, 2022 , representing an increase of$223,959 , or 4%. Selling, general and administrative expenses primarily consisted of salary and employee benefits, office rental expenses, amortizations of intangible assets and amortization of discount on convertible promissory notes, professional service fees and finance offering related fees. Selling, general and administrative expenses mainly consisted of: (1) amortization of intangible assets of$2,967,735 , (2) amortization of discount on convertible promissory notes of$354,333 , and (3) salary of$1,350,081 for the nine months ended September
30, 2022.
Share-based payment for service
OnMarch 4, 2021 , the Company issued 750,000 fully-vested warrants with an exercise price of$0.01 , with a five-year life, to an agent who was engaged to complete the warrant waiver and exercise agreements. The Company applied Black-Scholes model and determined the fair value of the warrants to be$1,695,042 . Significant estimates and assumptions used included stock price onMarch 4, 2021 of$2.27 per share, risk-free interest rate of one year of 0.08%, life of five years, and volatility of 71.57% for the nine months endedSeptember 30, 2021 .
On
For the nine months ended
Interest income Interest income was primarily generated from loans made to third parties and related parties. For the nine months endedSeptember 30, 2022 , interest income was$13,416,254 representing an increase of$6,561,763 , or 96% from$6,854,491 for the nine months endedSeptember 30, 2021 . The increase was due to a lot of growth of loans made to third-party vendors for the nine months endedSeptember 30, 2022 .
Amortization of beneficial conversion feature and relative fair value of warrants relating to issuance of convertible promissory notes
For the nine months ended
For the nine months ended
Net income (loss) As a result of the foregoing, net income for the nine months endedSeptember 30, 2022 was$4,323,050 , representing an increase of$5,045,855 from net loss of$722,805 for the nine months endedSeptember 30, 2021 .
Cash Flows and Capital Resources
We have financed our operations primarily through shareholder contributions, cash flow from operations, borrowings from third parties and related parties, and equity financing through private placement and public offerings of our
securities.
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As reflected in the accompanying unaudited condensed consolidated financial statements, for the nine months endedSeptember 30, 2022 , the Company reported cash inflows of$3,604,608 from operating activities. As ofSeptember 30, 2022 , the Company positive working capital of about$157 million .
During the nine months ended
The total gross proceeds from these transactions were
Based on the foregoing capital market activities, the management believes that the Company will continue as a going concern in the following 12 months.
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