MMTEC, Inc. — Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2022. The filing is an annual Form 20-F, not a standalone fourth-quarter report. Financial statements are prepared under U.S. GAAP and audited by MaloneBailey, LLP, which issued an unqualified opinion. MMTEC is a British Virgin Islands holding company with operations primarily in China, Hong Kong, and the United States, providing financial-technology, securities, fund-management, placement-agent, and brokerage services.
Business context and reporting period
- Core offerings include securities trading and clearing technology, private-fund management systems, market-data services, fund administration, investment banking and placement-agent services.
- Revenue was generated primarily in China and the United States. The company reported 57 employees at December 31, 2022 and announced that operations would be relocated from Beijing to Hong Kong beginning March 6, 2023.
- As of April 13, 2023, 85,145,041 common shares were outstanding, following the February 2023 issuance of 80 million shares upon conversion of a senior convertible note.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $1.099 million | $0.653 million | +68.3% |
| Gross profit | $0.868 million | $0.512 million | +69.6% |
| Gross margin | 79.0% | 78.4% | +0.6 percentage points |
| Operating loss | $5.893 million | $6.483 million | Improved by $0.591 million |
| Net loss | $5.645 million | $7.051 million | Improved by $1.405 million |
| Comprehensive loss | $5.830 million | $7.006 million | Improved by $1.175 million |
| Basic and diluted loss per share | $1.61 loss | $2.88 loss | Improved |
| Cash used in operating activities | $5.591 million | $4.097 million | Use increased by $1.494 million |
| Cash used in investing activities | $3.544 million | $2.593 million | Use increased by $0.951 million |
| Cash provided by financing activities | $1.750 million | $16.472 million | Declined by $14.721 million |
| Cash and cash equivalents | $3.825 million | $11.206 million | Down $7.381 million |
- Revenue mix shifted materially: software sales and maintenance contributed $676,049 and placement-agent services contributed $372,677 in 2022; 2021 had no revenue from either category. Commissions declined from $390,569 in 2021 to zero in 2022.
- Operating expenses were $6.761 million, including $1.008 million of selling and marketing expense, $2.610 million of payroll and benefits, $1.212 million of professional fees, and $1.931 million of other general and administrative expense.
- Research and development expense increased to $828,869 from $744,422.
- Other income was $247,239, compared with other expense of $567,571 in 2021, primarily because 2021 included a $585,333 impairment loss on long-term investments and 2022 benefited from foreign-currency transaction gains and higher interest income.
- Working capital was $7.861 million at year-end, down from $12.720 million. Current assets were $9.035 million and current liabilities were $1.174 million.
- Total assets were $11.416 million, total liabilities were $2.031 million, and shareholders’ equity was $9.384 million. The company reported no short-term or long-term borrowings at December 31, 2022. Lease liabilities totaled approximately $1.054 million.
- Loan receivables, net, were $4.621 million, including approximately $3.650 million of loans to Cacti Fintec Limited. A $100,000 third-party loan was fully reserved during 2022.
Material changes versus the prior comparable period
- Revenue increased 68.3%, driven by newly launched software and placement-agent activities, while the prior-period commission business declined to zero.
- Gross margin improved modestly because the new revenue categories carried higher margins.
- Selling and marketing expense increased 232.5% to $1.008 million, primarily due to increased sales staffing. Payroll expense increased 6.7% as the company expanded investment-banking and support teams.
- Professional fees declined 41.8%, reflecting lower legal, consulting, advisory, and other expenses compared with 2021 public-offering and licensing activities.
- Regulatory expense increased by $516,234, primarily due to the FINRA settlement described below.
- Cash declined sharply because operating and investing cash usage exceeded equity-financing proceeds. Investing outflows included $2.615 million of third-party loans and a refundable $1.000 million deposit for a potential acquisition.
- The company completed a 1-for-10 reverse stock split in July 2022, increased authorized shares to 5 billion in October 2022, and issued approximately 1.95 million shares during 2022 for approximately $1.75 million of financing proceeds, including shares issued under its equity purchase arrangements.
Guidance, outlook, risks, contingencies, and unusual items
- The filing provides no quantitative revenue, earnings, margin, or cash-flow guidance. Management expects future cash needs to include salaries, professional fees, accrued-liability reductions, business development, additional personnel, and public-company costs.
- Management stated that available cash and expected cash inflows were expected to meet anticipated requirements for the next twelve months, but recurring losses and negative operating cash flow create ongoing liquidity risk.
- On February 22, 2023, the company issued a $40 million senior convertible note for $32 million cash proceeds after a 20% original-issue discount. The note was converted in full on February 24, 2023 into 80 million shares at $0.50 per share, eliminating the note and materially diluting existing shareholders.
- On March 31, 2023, the company entered into an agreement allowing issuance of up to $70 million aggregate principal amount of additional senior convertible notes, with up to $56 million of purchase proceeds if fully issued. The agreement had no minimum investor commitment and included an 8% interest rate and conversion provisions.
- MM Global Securities settled FINRA Case No. 2019062623 without admitting or denying the findings. The settlement included a $450,000 fine, a $38,250 installment-plan fee, a two-year prohibition on providing market access to customers, and enhanced anti-money-laundering and supervisory requirements. The unpaid balance was $334,800 at year-end.
- The company disclosed a Nasdaq minimum-bid-price deficiency and the risk of delisting if the deficiency is not cured. A reverse stock split was identified as a possible remediation measure.
- Major risks include sustained losses, negative operating cash flow, dependence on additional capital, customer and revenue concentration, foreign-exchange restrictions, RMB currency exposure, PRC regulatory and cybersecurity uncertainty, limits on fund transfers from PRC subsidiaries, technology and data-security failures, financial-services regulation, and potential difficulty enforcing U.S. judgments in China or the BVI.
- Three customers accounted for 36.5%, 25.0%, and 24.1% of 2022 revenue, respectively, indicating significant customer concentration.
- The PCAOB vacated its 2021 determinations regarding inspection limitations in mainland China and Hong Kong after inspections in 2022, but the filing states that future access could again be restricted.
- The company reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2022; however, the auditor was not engaged to provide an opinion on internal-control effectiveness because the company is an emerging growth company.
Most important facts for investors to verify
- Whether the company can reduce recurring losses and achieve positive operating cash flow without continued equity or convertible-debt financing.
- Current cash balances, unrestricted cash held in China, and the ability to transfer funds from PRC subsidiaries to the offshore parent.
- The final status, terms, dilution, and proceeds of the March 2023 convertible-note facility and the impact of the February 2023 80-million-share conversion.
- Progress toward curing Nasdaq’s bid-price deficiency and maintaining the MTC listing.
- Collection risk and counterparties associated with the $4.621 million of loan receivables, including Cacti Fintec Limited and FLJ Group Limited.
- Compliance with the FINRA settlement, including the market-access prohibition and required AML and supervisory enhancements.
- Sustainability of the new software and placement-agent revenue streams, given the sharp decline in commissions and high customer concentration.
- Whether PRC authorities require additional approvals or filings for offshore offerings, data handling, cybersecurity, foreign exchange, or fund transfers.