AGM Group Holdings, Inc. — FY 2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone 2018 Q4 filing. Financial statements are presented under U.S. GAAP; amounts below are U.S. dollars unless noted.
Business context
AGM provides online trading-platform and computer-support services, plus program-trading technology and management services, principally to institutional clients. In September 2018, the company ceased its forex brokerage operations and suspended related AGMTrade activities following a change in PRC policy. It sold 90% of AGM Belize to Chairman Zhentao Jiang, retaining 10%. The remaining business is developing trading software and providing technology services and online financial education.
Financial results and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $5.113 million | $12.428 million |
| Gross profit / margin | $3.459 million / 68% | $9.079 million / 73% |
| Operating income (loss) | ($2.369 million) | $5.714 million |
| Continuing operations net income (loss) | ($1.786 million) | $4.420 million |
| Discontinued operations net loss | ($6.626 million) | ($0.520 million) |
| Net income (loss) | ($8.413 million) | $3.900 million |
| Operating cash flow | ($2.833 million), including discontinued operations | $6.564 million |
| Cash and cash equivalents at year-end | $7.865 million | $4.628 million |
| Working capital | $5.267 million | $4.914 million |
| Total liabilities | $3.131 million | $16.628 million |
Revenue fell 58% year over year. Operating expenses rose to $5.829 million, including $923,217 of bad-debt expense and $1.028 million of R&D expense. The discontinued-operation loss included a $2.712 million impairment of intangibles; a $5.072 million disposal gain partly offset the loss. Financing cash flow was positive $6.063 million, primarily reflecting share issuance and related-party borrowing, net of repayments. The balance sheet reports $1.348 million due to related parties, interest-free, unsecured and payable on demand.
The company reported no material long-term borrowings. Its current ratio was approximately 2.7 based on reported current assets and liabilities. Cash was held across several jurisdictions, with $388,162 reported in mainland China and most cash held outside mainland China.
Material changes versus the prior year
- Forex brokerage and AGMTrade were discontinued; the company recorded the disposal and related impairment in 2018.
- Revenue contracted sharply, gross margin declined by 5 percentage points, and results shifted from profit to loss.
- Bad-debt expense increased from $35,000 to $923,217; the company wrote off its receivables, leaving no net accounts receivable at year-end.
- Cash increased, while reported total assets declined to $8.850 million, principally as discontinued-operation assets and liabilities were removed from the balance sheet.
Outlook, risks and unusual items
Management planned to launch commodity-trading software and begin formal marketing in September 2019, and to introduce financial-training network services after June 2019. It also discussed a back-office system for private-equity firms and family offices and possible acquisitions. These are plans, not reported guidance; the filing provides no quantified revenue or earnings forecast.
- Going concern: The auditor’s report includes an explanatory paragraph stating that substantial losses raise substantial doubt about the company’s ability to continue as a going concern. Management cited planned new platforms and software, but said the outcome and availability of financing were uncertain.
- Customer funds and regulatory exposure: Access to certain forex-platform accounts holding customer deposits was restricted. The filing says the company remained liable for outstanding customer deposits and could not assure when it would regain access. It reports $82.9 million of historical customer deposits and $2.32 million returned by Jiang directly to former customers by year-end 2018.
- Concentration and related parties: The two largest customers generated approximately 43% of revenue; the three named major customers accounted for 62%. IIG Ltd., controlled by the chairman, generated 24% of revenue. The sale of AGM Belize was to the chairman, and the company also reported related-party revenue, financing and transactions.
- Other risks: PRC regulatory and legal uncertainty, potential PRC tax-residency exposure, foreign-exchange controls and currency risk, dependence on a limited supplier base, and limited insurance coverage. The company reported no hedging transactions.
- Auditor and controls: JLKZ CPA LLP issued an unqualified opinion on the 2018 financial statements, with the going-concern explanatory paragraph noted above. Management stated that disclosure controls and internal control over financial reporting were effective; the auditor did not audit internal controls.
Important facts for investors to verify
- Current status, recoverability and settlement of restricted customer funds and any remaining deposit obligations or related claims.
- Whether operating cash burn can be reversed and whether management’s software and education launches achieved commercial adoption and funding needs.
- Customer concentration, collectability and the basis for the $923,217 receivables write-off, including related-party exposures.
- Terms, approvals and independent valuation support for the AGM Belize sale to the chairman, including the reported disposal gain from liabilities assumed.
- Related-party balances and transactions, including the $1.348 million payable on demand, and the company’s continuing access to such support.
- Reconcile inconsistent figures in the filing: the audited statements report year-end cash of $7.865 million, while one MD&A table reports $7.862 million; the reported continuing-operations EPS is also inconsistent ($0.09 loss in the statements versus $0.08 in MD&A).