Baosheng Media Group Holdings Ltd. — FY2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020; filed April 30, 2021. This is an annual report, not a quarterly filing. The filing does not provide standalone fourth-quarter results. Financial statements are prepared under U.S. GAAP.
Business context
Baosheng is a China-based online marketing services provider. It helps advertisers plan, optimize and place search, in-feed, mobile-app and social-media advertising, and also acts as an authorized agency for media. Revenue is reported net, principally as media rebates and incentives and fees earned from advertisers. Gross billing was $134.9 million in 2020, versus $202.7 million in 2019.
Key financial metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $11.91 million | $17.85 million |
| Gross profit | $10.65 million | $15.99 million |
| Gross margin | 89.5% | 89.6% |
| Operating income / margin | $5.64 million / 47.4% | $10.45 million / 58.6% |
| Net income / margin | $6.94 million / 58.3% | $11.17 million / 62.6% |
| Basic and diluted EPS | $0.34 | $0.55 |
| Operating cash flow | $(3.39) million | $9.36 million |
| Cash and cash equivalents | $6.58 million | $8.12 million |
| Restricted cash | $3.70 million | $2.90 million |
| Current assets / current liabilities | $92.07 million / $51.68 million | $82.41 million / $49.43 million |
| Working capital | $40.39 million | Not stated here as a comparable measure |
| Bank borrowing at year-end | $1.53 million | None reported |
Gross accounts receivable was $69.86 million, less a $4.70 million allowance, leaving net receivables of $65.15 million. About $26.7 million, or 38.2% of gross receivables, was over six months old. The company reported 167 receivable turnover days. The year-end bank borrowing was repaid in March 2021. The filing reports no dividends distributed per share in 2020; $3.37 million of previously declared dividends remained payable at year-end.
Material changes versus prior year
- Revenue fell 33.3% and gross billing fell 33.5%; management attributed much of the reduction to COVID-19-related advertiser demand declines.
- Non-SEM revenue declined 60.2% to $3.75 million, while SEM revenue decreased 3.2% to $8.17 million. Net fees from advertisers rose 31.0% to $2.48 million, partly as the company shifted mobile-app contracts toward fee-based arrangements.
- Net income declined 37.9% to $6.94 million. Operating income fell 46.0%; selling and marketing expense more than doubled, while lower G&A partly offset the decline in gross profit.
- Operating cash flow swung from a $9.36 million inflow to a $3.39 million outflow, primarily because receivables increased by $12.46 million as customer payments slowed.
- Customer concentration increased: the five largest customers accounted for 89.9% of revenue, compared with 79.2% in 2019. Sogou alone represented 68.9%, up from 45.6%.
Outlook, risks and unusual items
- Management expects gross billing and net revenue to increase over the long term as work resumed in China, but supplied no quantitative guidance and emphasized that the pandemic’s effects remain uncertain.
- Liquidity and working-capital risk are significant: the business pays media costs and collects advertiser billings on different schedules. Management cited approximately $20.2 million of additional capital needed to support a 60-day receivables/payables timing gap at 2020 media-cost levels.
- Cash restrictions arise from a court freezing order connected with a dispute over an alleged 5% equity interest in Beijing Baosheng. The order froze equity in Horgos Baosheng and Kashi Baosheng and bank cash; year-end restricted cash was $3.70 million. The filing describes potential exposure of up to about $6.9 million in one section, while a financial-statement note cites counsel’s estimated exposure of about $1.53 million for the contractual claim. The case remained pending at filing.
- Two material weaknesses in financial reporting controls were identified: insufficient U.S. GAAP/SEC reporting expertise and no comprehensive U.S. GAAP accounting policies and procedures manual. Management said controls were ineffective at December 31, 2020 and planned remediation; no auditor attestation on internal controls was included.
- Horgos and Kashi subsidiaries benefited from 0% income-tax treatment; Horgos Baosheng’s stated five-year exemption ended December 31, 2020. Management warned that loss of preferential treatment could materially reduce profits. The filing estimates 2020 net income would have been $4.4 million at a 25% tax rate, versus reported $6.94 million.
- Other income included a $0.64 million gain from selling copyrights; subsidy income was $0.96 million. These items helped offset lower operating income.
- Post-year-end financing and spending warrant attention: the February 2021 IPO generated approximately $31.2 million net proceeds, of which about $14 million had been used by the report date. A March private placement raised $10 million, with proceeds intended for blockchain-based marketing and cryptocurrency-related business; in April, the company agreed to buy cryptocurrency miners for approximately $0.72 million.
Most important facts for investors to verify
- Whether the large, aging receivables are collected and whether the allowance for doubtful accounts adequately reflects credit risk.
- Whether the company’s dependence on Sogou and its top five customers changes, and whether media agency agreements and rebate terms are renewed on favorable terms.
- The status and financial impact of the pending ownership dispute, court freezes, and the enforceability of the CEO’s personal guarantee.
- Actual operating cash flow, use of IPO and private-placement proceeds, new borrowings, and the economics and risks of the announced cryptocurrency-related plans.
- Whether internal-control weaknesses are remediated and how results change as tax holidays expire or tax treatment changes.