MMTEC, Inc. FY2023 Form 20-F Summary
Business context and reporting period
MMTEC, Inc. is a British Virgin Islands holding company whose principal operations are conducted through subsidiaries in China, Hong Kong and the United States. The company provides internet-based securities technology, consulting, investment banking, placement-agent and broker-dealer services to Chinese-speaking financial institutions and investors accessing global securities markets. The filing covers the fiscal year ended December 31, 2023, prepared under U.S. GAAP. It is an annual report, not a standalone fourth-quarter filing; the source does not provide separate Q4 results.
- NASDAQ-listed common shares: MTC.
- Shares outstanding at December 31, 2023 and April 30, 2024: 199,145,041.
- The company relocated operations from Beijing to Hong Kong beginning March 6, 2023 and reported 42 employees as of April 30, 2024.
Financial performance and key metrics
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $869,935 | $1,073,351 | Down 18.9% |
| Gross profit | $696,987 | $842,267 | Down 17.2% |
| Gross margin | 80.1% | 78.5% | Up 1.6 percentage points |
| Loss from operations | $4,840,337 | $5,911,618 | Improved 18.1% |
| Loss from continuing operations | $4,391,980 | $5,664,379 | Improved 22.5% |
| Income from discontinued operations | $53,267,761 | $19,003 | Material increase |
| Net income | $48,875,781 | Net loss of $5,645,376 | Turnaround |
| Net income attributable to MMTEC | $48,958,083 | Net loss of $5,645,376 | Turnaround |
| Net cash used in operating activities | $5,151,508 | $5,590,567 | Outflow decreased |
| Net cash used in investing activities | $86,538,549 | $3,544,105 | Substantially higher outflow |
| Net cash provided by financing activities | $89,666,750 | $1,750,140 | Substantially higher inflow |
FY2023 revenue consisted primarily of consulting services of $800,000, software sales and maintenance of $24,098, and placement-agent services of $45,837. Consulting services represented 92.0% of total revenue. Revenue from China was $824,098 and revenue from the United States was $45,837.
Operating expenses declined to $5,537,324 from $6,753,885, including selling and marketing expenses of $901,319, payroll and related benefits of $2,512,781, professional fees of $1,031,274 and other general and administrative expenses of $1,091,950. Research and development expenses were $363,958, compared with $828,869 in 2022.
The reported profit was driven almost entirely by discontinued operations, including an approximately $53.82 million gain on the sale of Alpha Mind. Continuing operations remained loss-making.
Financial position, liquidity and debt
- Total assets were $156,987,220 at December 31, 2023, compared with $11,415,507 at December 31, 2022. The increase primarily reflected a $153,050,301 secured note receivable from FLJ related to the sale of Alpha Mind.
- Cash and cash equivalents were $1,759,786, down from $3,812,772. Cash held in PRC financial institutions included $106,457 that was uninsured.
- Working capital was $1,029,589, down 86.9% from $7,861,288. Current assets were $3,023,537 and current liabilities were $1,993,948.
- Total liabilities were $34,622,814, compared with $2,031,156 in 2022. Convertible promissory notes totaled $32,278,403 at year-end.
- Short-term borrowings were $241,750 and there were no long-term borrowings. The short-term borrowing was non-interest-bearing, unsecured and repaid in April 2024.
- Operating lease liabilities totaled $640,623, including $373,860 due within one year.
- The company reported no income tax expense for 2023, 2022 or 2021 and had tax-effected net operating loss carryforwards of $18,865,999, subject to valuation allowances.
Management stated that available cash and expected cash inflows would meet anticipated requirements for the next twelve months. However, the company generated negative operating cash flow, has limited cash relative to continuing operating needs, and relies on capital-market financing, intercompany funding and asset monetization.
Material changes, unusual items and financing
- In June 2023, MMTEC acquired 85% of Alpha Mind for $99.65 million, including $91.65 million in cash, a $1 million prior deposit and a $7 million convertible promissory note.
- On December 28, 2023, MMTEC sold Alpha Mind to FLJ for consideration attributable to MMTEC of $153 million, received as a secured promissory note. The note is secured by Alpha Mind equity and assets.
- At December 31, 2023, the FLJ note, including accrued interest, totaled $153,050,301. The filing states that approximately $840,000 had been repaid as of the filing date. The note maturity was extended to June 30, 2024; if unpaid, MMTEC may convert the unpaid amount into FLJ shares at a 20% to 70% discount to market price.
- In November 2023, MMTEC disposed of MMBD Advisory, MM Capital, MM SPC and Fundex SPC. These businesses were reported as discontinued operations.
- Financing cash flow included $88 million of proceeds from convertible promissory notes and $1.67 million from short-term loans and other payables. Significant note conversions resulted in the issuance of 194 million shares during 2023.
- MMTEC had $1.43 million received from VG Master Fund SPC for shares that had not been issued at year-end; the amount was classified as shares to be issued and was repayable on demand.
- MM Global settled a FINRA matter involving a $450,000 fine, a $38,250 installment fee and a two-year prohibition on providing market access unless specified compliance enhancements were certified. The remaining payable was $209,250 at year-end.
- AssentSure PAC replaced MaloneBailey, LLP as independent auditor effective October 23, 2023. The filing reports no disagreements or reportable events associated with the change.
Outlook, risks and management commentary
Management expects continuing cash requirements for salaries, professional fees, accrued liabilities, business development and public-company costs. The filing provides no quantitative revenue, earnings or margin guidance. Management identifies technology development, financial advisory and investment banking, securities technology solutions and services to small and medium-sized funds and broker-dealers as areas of strategic focus, but continuing operations have not yet achieved profitability.
- FLJ note concentration: A substantial majority of assets is concentrated in the $153 million FLJ note. Failure to collect could materially reduce liquidity, assets and reported equity.
- Regulatory risk in China: PRC rules relating to data security, cybersecurity reviews, foreign investment, overseas offerings, CSRC filings, foreign exchange and dividend transfers may change quickly and could restrict operations or capital raising.
- Investment-company risk: The FLJ note and potential FLJ shares could cause MMTEC to be viewed as a transient investment company under the Investment Company Act if applicable asset thresholds are exceeded.
- Operating losses and liquidity: Continuing operations produced a $4.39 million loss and $5.03 million of operating cash outflow in 2023. The company may need additional financing.
- Customer concentration: One customer represented 92.0% of FY2023 revenue.
- Technology and cybersecurity: Service interruptions, software defects, cyberattacks, data breaches and dependence on third-party infrastructure could materially affect operations.
- Market and currency exposure: Financial-market volatility, competition, RMB exchange-rate movements and restrictions on converting or remitting RMB may affect results and liquidity.
- Listing risk: The filing states that the company was not in compliance with Nasdaq’s $1.00 minimum bid-price requirement and could face delisting if the deficiency is not cured.
- Control environment: Management concluded that disclosure controls and internal control over financial reporting were effective, but the company is an emerging growth company and its auditor did not provide an attestation opinion on internal controls.
Most important facts for investors to verify
- Whether FLJ paid the full $153 million note, including interest, by the June 30, 2024 maturity date, or whether MMTEC converted the note into FLJ shares.
- The collectability, collateral value and current fair value of the FLJ note, which represents the dominant portion of MMTEC’s assets.
- Current cash balances, operating cash burn, remaining convertible-note obligations and the company’s need for additional financing.
- Whether the company cured the Nasdaq minimum bid-price deficiency and remains in compliance with all listing requirements.
- The sustainability of the small continuing-operations revenue base after the Alpha Mind disposal and other discontinued operations.
- The status of PRC regulatory filings, including any CSRC, CAC, cybersecurity, foreign-exchange or data-security approvals that may apply to future offerings or operations.
- The impact of the 194 million shares issued through note conversions, the $1.43 million shares-to-be-issued balance and potential future dilution.
- The status of the FINRA market-access restrictions and remaining settlement payable.