AGM Group Holdings, Inc. — FY2020 Form 20-F
Business context and reporting period. This is an annual report for the year ended December 31, 2020, not a quarterly filing. AGM is a British Virgin Islands holding company with operations principally in China. It describes its continuing business as fintech software and trading education software and website services. The company voluntarily ceased its forex brokerage business in 2018 and sold Anyi Network, its accounting and ERP software business, in December 2020. The audited financial statements are prepared under U.S. GAAP.
Unit note: The selected-financial-data heading says amounts are in thousands of dollars, while the audited financial statements present the figures below as dollars. This summary follows the audited statements; verify the units against the filed statements.
Financial performance and liquidity
| Metric | FY2020 | FY2019 | Change / context |
|---|---|---|---|
| Continuing revenue | $53,305 | $330,000 | Down 84%; 2020 revenue was entirely from one customer. |
| Gross profit / margin | $14,771 / 28% | $286,944 / 87% | Lower revenue and higher wage, payroll-tax and overhead costs reduced margin. |
| Operating expenses | $1,027,920 | $1,496,818 | Down 31%, but still far above gross profit. |
| Operating loss | $(1,013,149) | $(1,209,874) | Loss narrowed 16%. |
| Net loss | $(1,071,648) | $(1,562,855) | Loss narrowed 31%; includes discontinued operations. |
| Operating cash flow | $(1,652,022) | $(196,393) | Cash use increased; includes discontinued operations. Continuing-operations cash use was $1,355,330. |
| Cash and cash equivalents | $664,605 | $1,462,590 | Down 55%. |
| Current assets / current liabilities | $6,085,521 / $2,422,344 | $7,305,317 / $2,662,888 | Reported FY2020 working capital: $3,663,177. |
| Total assets / liabilities | $6,114,954 / $2,422,344 | $14,514,013 / $2,662,888 | Assets fell primarily after the Anyi disposal and removal of discontinued-operation assets. |
| Related-party amounts due | $597,826 | $609,180 | Interest-free, unsecured and repayable on demand. |
The filing reports no off-balance-sheet arrangements and no material defaults. It does not expect to pay dividends in the foreseeable future. The $5,420,916 of prepaid expenses and other current assets includes a $4,937,664 advance for the proposed Yushu Kingo acquisition and a $400,000 unsecured, non-interest-bearing note receivable from the Anyi buyers.
Material changes, outlook and risks
- Business transition: The company launched FXSC, an online trading education and social trading platform, in July 2020. Its China futures trading software required an upgrade for new API monitoring rules; the company said the major upgrade was completed by the end of Q1 2021 and invited-client trials were underway. New products had not yet begun contributing materially to revenue.
- Anyi disposition: AGM sold Anyi Network and subsidiaries for stated consideration of $8 million: cancellation of 475,000 AGM shares valued at $7.6 million and a $400,000 cash payment due under an unsecured note by June 30, 2021. The company recorded a $347,990 disposal gain, offset by a $322,490 discontinued-operation loss, for a net discontinued-operation gain of $25,500.
- Going concern: The auditor highlighted substantial doubt about the company’s ability to continue as a going concern, citing substantial losses. Management plans to improve profitability, restructure operations and seek debt or equity financing, but says it cannot predict whether these actions will provide adequate liquidity. Despite reporting sufficient working capital for the next 12 months, cash was $664,605 and operating cash use was $1,652,022 in FY2020.
- Customer and supplier concentration: One customer generated all continuing revenue and one supplier accounted for all cost of revenue in FY2020. Loss of either relationship could have a material effect.
- Yushu Kingo proposal: The proposed real-estate acquisition calls for $20 million in cash and 2 million Class A shares, subject to conditions; $4,937,664 had already been advanced. Completion is uncertain. A 2021 supplement provides for return of the advance plus 10% interest if AGM terminates by October 31, 2021, or transfer of real property at a 20% discount to market if the sellers cannot repay. The company also reported a Safe Gold acquisition letter of intent and a prospective FXSC partnership with GMTK; neither is presented as a completed transaction.
- Controls, tax and regulatory exposure: Management concluded disclosure controls were not effective and identified continuing material weaknesses involving accounting expertise, governance oversight and control design. The company recorded uncertain tax-position liabilities amid uncertainty over PRC tax residency. Other risks include evolving PRC regulation, currency controls, COVID-19 disruption and potential U.S. trading restrictions under the HFCA Act if applicable audit-inspection requirements are not met.
- Ownership and contingencies: Class B shares carry five votes per share; directors and executive officers held approximately 74.93% of combined voting power. The filing reports no pending or threatened legal proceedings as of its report date, but describes potential legacy customer-claim and investigation risks related to the discontinued forex business.
Investor verification priorities
- Confirm the dollar units in the audited statements; the selected-data section labels amounts “in thousands,” unlike the audited statements.
- Reconcile the working-capital comparison: the reported balances imply a decline of $979,252, while the comparison table states a decline of $870,982. The table’s stated current-liability change also does not reconcile to the displayed balances.
- Verify collection of the $400,000 Anyi note and the status, recoverability and terms of the $4,937,664 Yushu advance, including the contractual repayment or property-transfer protections.
- Assess liquidity and funding needs against continuing operating cash burn, on-demand related-party balances and the auditor’s going-concern warning.
- Track revenue diversification, FXSC/futures-software commercialization, customer and supplier concentration, and remediation of material weaknesses in financial reporting controls.
- Review progress on the proposed acquisitions and partnership, PRC tax-residency exposure, and developments affecting PCAOB inspection and Nasdaq listing eligibility.