AGM Group Holdings, Inc. — FY2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019; filed May 15, 2020. This is an annual report, not a standalone Q4 report, and the filing does not provide separate Q4 results. Amounts below are U.S. dollars.
Business context
AGM describes its businesses as accounting and ERP software, fintech software, and trading-education software and website services. It acquired Anyi Network, a PRC accounting and ERP software provider, in 2019. The company had previously exited its forex brokerage business after a PRC policy change; related online trading services had represented a substantial share of earlier revenue.
Key financial metrics
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $709,630 | $5,112,520 |
| Gross profit / margin | $466,686 / 66% | $3,459,492 / 68% |
| Operating expenses | $1,692,879 | $5,828,338 |
| Operating loss | $1,226,193 | $2,368,845 |
| Net loss | $1,562,855 | $8,412,731 |
| Basic and diluted loss per share | $0.07 | $0.40 |
| Cash and cash equivalents at year-end | $2,076,569 | $7,865,345 |
| Operating cash flow | $(196,393) | $(2,833,234), including discontinued operations |
| Investing cash flow | $(5,010,387) | $(435,458) |
| Financing cash flow | $(526,329) | $6,063,054 |
At December 31, 2019, current assets were $7,305,317 and current liabilities were $2,662,888, producing working capital of $4,642,429. Total assets were $14,514,013, including $7,121,712 of goodwill; total liabilities were $2,662,888 and equity was $11,851,125. Amounts due to related parties were $724,885; these balances are interest-free, unsecured, and repayable on demand. The filing reports no material defaults on debt payments.
Material changes versus the prior period
- Revenue fell 86% year over year, principally following the discontinuation of forex-related business; the company said newly developed products had not yet contributed to revenue. The 2019 results include Anyi only from its acquisition date.
- Net loss narrowed from $8.4 million to $1.6 million, in part because FY2018 included a $6.6 million loss from discontinued operations. Continuing-operations losses were $1.6 million in 2019 and $1.8 million in 2018.
- Cash declined by $5.8 million. Investing outflows included a $4,937,664 advance deposit related to the proposed Yushu Kingo acquisition.
- Gross margin declined two percentage points to 66%. Operating expenses fell, including R&D expense, while the company shifted its business mix and acquired Anyi.
Outlook, risks, contingencies, and unusual items
- Going concern: The independent auditor highlighted substantial doubt about AGM’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 said outcomes and financing availability are uncertain. Separately, management stated it believed cash and expected operating cash flows would cover working-capital needs for at least 12 months.
- Yushu Kingo transaction: The January 2020 agreement proposed acquiring a real-estate company for $20 million cash and 2 million Class A shares. The company had advanced $4,937,664. Remaining cash payment depends on post-closing sales or revenue thresholds; if the condition is not met, the target is to return the advances. Closing remained subject to conditions, and COVID-19 could delay or prevent it.
- Anyi acquisition: The company acquired Anyi for stated total consideration of $8 million, including $400,000 cash and 475,000 Class A shares. It recorded $7,121,712 of goodwill and reported no goodwill impairment for 2019. Anyi contributed $379,631 of revenue and a $24,827 net loss from acquisition through year-end.
- COVID-19: China restrictions led AGM to suspend operations and have employees work remotely during February and March 2020; operations gradually resumed from April. The company reported delays to its audit and annual-report preparation, and a two-month delay to a planned education website launch. The ultimate business, liquidity, and financial impact was not reasonably estimable.
- Concentration and regulation: Two customers represented approximately 33% of 2019 revenue; the largest was 20%. AGM identified substantial PRC legal, licensing, foreign-exchange, and tax uncertainties, including uncertainty over whether offshore entities could be treated as PRC tax residents. It recorded $1,606,746 of ending unrecognized tax benefits related to uncertain tax positions.
- Legacy forex exposure: The filing describes customer funds held in third-party forex platform accounts that became inaccessible after the PRC policy change. A related-party buyer assumed 90% of AGM Belize’s assets and liabilities and responsibility for retrieving funds; the company disclosed potential reputational and legal risks from possible claims or investigations.
- Listing status and control: Nasdaq notified AGM that it did not meet the 300-public-holder requirement and granted an extension through July 29, 2020. AGM intended to pursue financing to regain compliance; delisting remained a risk. Class B shares carry five votes each, concentrating voting control.
Important facts for investors to verify
- Whether AGM secured sufficient funding and addressed the auditor’s going-concern concern, given declining cash and recurring operating losses.
- The status, recoverability, and terms of the $4.94 million Yushu advance, and whether the proposed acquisition closed or required further cash, shares, or financing.
- Anyi’s subsequent revenue, profitability, and goodwill recoverability relative to its acquisition price.
- Whether AGM regained Nasdaq’s public-holder compliance and what financing, if any, caused dilution.
- Resolution of the uncertain PRC tax position and any claims or obligations associated with inaccessible forex customer funds.