MMTEC, Inc. 2021 Form 20-F Summary
Business Context and Reporting Period
MMTEC, Inc. is a British Virgin Islands holding company whose primary operations are conducted through subsidiaries in China, Hong Kong, the Cayman Islands and the United States. The company provides financial technology, market-data, fund-management, securities brokerage and related services to Chinese-speaking financial institutions and investors accessing global securities markets.
This annual report covers the fiscal year ended December 31, 2021 and was filed on April 22, 2022. The consolidated financial statements were prepared under U.S. GAAP and audited by MaloneBailey, LLP. The company’s common shares trade on Nasdaq under the symbol MTC. Shares outstanding as of April 22, 2022 were 31,370,000.
Financial Performance and Position
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $653,036 | $742,125 | Down 12.0% |
| Gross profit | $511,734 | $734,720 | Down 30.4% |
| Gross margin | 78.4% | 99.0% | Down 20.6 percentage points |
| Loss from operations | $6,483,184 | $3,184,151 | Loss increased 103.6% |
| Net loss | $7,050,755 | $3,181,596 | Loss increased 121.6% |
| Basic and diluted loss per share | $0.29 loss | $0.16 loss | Worsened |
| Net cash used in operating activities | $4,096,506 | $1,982,847 | Cash use increased |
| Net cash used in investing activities | $2,593,181 | $331,944 | Cash use increased |
| Net cash provided by financing activities | $16,471,560 | $37,250 | Primarily equity financing |
| Cash and cash equivalents | $11,206,220 | $1,425,926 | Up 685.8% |
| Working capital | $12,720,191 | $1,595,112 | Up 697.4% |
Revenue consisted primarily of commissions of $390,569, fund-management services of $153,494 and market-data services of $107,184. Commissions declined from $643,145 in 2020, while fund-management revenue was new in 2021. Investor-relations management revenue fell to zero from $21,113.
Operating expenses increased to $6,994,918 from $3,918,871. Payroll and benefits rose 138.7% to $2,446,019, selling and marketing expense increased 24.1% to $303,079, professional fees rose to $2,083,019, and other general and administrative expenses increased to $2,162,801. The company also recorded $550,000 of bad-debt expense and a $585,333 impairment loss on long-term investments.
Total assets were $14,587,501 at December 31, 2021, including $2,100,000 of net loan receivables and $11,206,220 of cash. Total liabilities were $1,235,777, consisting primarily of current operating liabilities and lease liabilities. The company reported no short-term or long-term borrowings at year-end; the $41,250 Paycheck Protection Program loan was fully forgiven in January 2021. Operating lease liabilities totaled $463,819.
Material Changes Versus the Prior Comparable Period
- Revenue declined 12.0%, primarily because of lower brokerage commissions and the elimination of investor-relations management revenue.
- Fund-management services generated $153,494 in new revenue, partially offsetting the decline in commissions.
- Gross margin fell to 78.4% from 99.0% because of higher labor costs and the change in revenue mix.
- Payroll, professional fees and other general and administrative expenses increased substantially as the company expanded its investment-banking, fund-management and market-data businesses.
- Headcount increased to 65 employees at year-end 2021 from 31 at year-end 2020; the filing also reports 59 full-time employees as of April 22, 2022.
- Operating cash burn more than doubled, while investing cash use increased primarily because of a $2.3 million loan to third parties and investment-related transactions.
- Cash increased substantially because of $16.637 million of equity issuance proceeds, including a $14.637 million net registered direct offering and a $2.0 million private placement.
- Shares outstanding increased from 20,820,000 at December 31, 2020 to 31,370,000 at December 31, 2021, reflecting equity offerings and share-based compensation.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide quantitative revenue, earnings or cash-flow guidance. Management expects near-term capital requirements to include salaries, professional fees, accrued liabilities and investment in business opportunities, and states that available cash is expected to meet anticipated requirements for the next twelve months. Continued operating losses and negative operating cash flow could nevertheless reduce liquidity.
- MMTEC has incurred substantial losses, including a $7.1 million net loss in 2021, and may not achieve profitability.
- MM Global, the company’s FINRA-registered broker-dealer, remains subject to an open FINRA inquiry. Management considers a loss probable but cannot reasonably estimate the amount; no accrual was recorded.
- On January 26, 2022, Nasdaq notified the company that its bid price had remained below $1.00 for 30 consecutive business days. The initial compliance period ran through July 25, 2022, with a possible additional period subject to Nasdaq requirements and potentially a reverse stock split.
- Cash held in PRC financial institutions included $1,252,998 that was uninsured as of December 31, 2021. PRC currency-conversion and remittance restrictions may limit the transfer of funds to the parent company.
- The company is exposed to PRC regulatory, political, legal, tax, foreign-exchange and data-security risks, as well as risks associated with evolving financial-services regulation.
- The company relies on technology platforms and third-party infrastructure and faces cybersecurity, service interruption, software, intellectual-property and data-protection risks.
- The company recorded a $550,000 full allowance against loans to HuaMei Trading and a $585,333 impairment of long-term investments. A $2.1 million loan to Cacti Fintec carried a 3.78% interest rate and matured on December 24, 2022; management expected full collection as of year-end.
- Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2021. The auditor was not engaged to provide an attestation opinion because of the company’s emerging-growth-company status.
- No dividends have been declared, and the company does not anticipate paying dividends in the foreseeable future.
Most Important Facts for Investors to Verify
- Verify the audited financial statements, including the causes of the sharply higher operating loss and the sustainability of the $11.2 million cash balance.
- Assess whether new fund-management and market-data revenue can offset declining brokerage commissions.
- Review the terms, collectability and counterparties of the $2.1 million third-party loan and the fully reserved HuaMei Trading receivables.
- Monitor the open FINRA matter, potential sanctions and any future accrual or disclosure.
- Confirm Nasdaq bid-price compliance and any reverse-stock-split or delisting consequences.
- Evaluate dilution from the 2021 equity financings, share-based compensation and the 2021 and 2022 incentive plans.
- Review restrictions on moving PRC cash offshore, uninsured PRC bank balances and the ability of subsidiaries to distribute funds.
- Assess the effect of PRC regulatory changes, HFCA/PCAOB inspection developments, cybersecurity incidents and foreign-exchange movements on operations and the listing.