UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number: 001-38309
AGM Group Holdings Inc.
(Exact name of Registrant as specified in its charter)
British Virgin Islands
(Jurisdiction of incorporation or organization)
c/o Creative Consultants (Hong Kong) Limited
Room 1502-3 15/F., Connaught Commercial Building, 185 Wanchai Road
Wanchai, Hong Kong
(Address of principal executive offices)
Wenjie Tang, ChiefExecutiveOfficer
+86-010-65020507
wj.tang@agmprime.com
c/o Creative Consultants (Hong Kong) Limited
Room 1502-3 15/F., Connaught Commercial Building, 185 Wanchai Road
Wanchai, Hong Kong
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact
Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Class A ordinary shares, par
value $0.001 per share
Trading Symbol(s)
AGMH
Name of each exchange on which registered
The Nasdaq Stock Market LLC (Nasdaq
Capital Market)
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or
common stock as of the close of the period covered by the annual report: 24,254,842
shares of Class A ordinary shares and 2,100,000 shares of Class B ordinary shares
issued and outstanding as of December 31, 2021.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
☐ Yes ☒ No
If this report is an annual or transition report, indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
Indicate by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
☐ Yes ☒ No
12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or an emerging growth company. See definition of “large
accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☒
Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance
with U.S. GAAP,
indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised financial accounting
standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued
Other ☐
by the International Accounting Standards Board ☐
If “Other” has been checked in response to the previous question, indicate by check
mark which financial statement item the registrant has elected to follow.
If this is an annual report,
indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
☐ Item 17 ☐ Item 18
☐ Yes ☒ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
☐ Yes ☐ No
Table of Contents
PART I
Unresolved Staff Comments
ITEM 1. Identity of Directors, Senior Management and Advisers
ITEM 2. Offer Statistics and Expected Timetable
ITEM 3. Key Information
ITEM 4. Information on the Company
ITEM
4A.
ITEM 5. Operating and Financial Review and Prospects
ITEM 6. Directors, Senior Management and Employees
ITEM 7. Major Shareholders and Related Party Transactions
ITEM 8. Financial Information
ITEM 9. The Offer and Listing
Additional Information
ITEM
10.
ITEM
11.
ITEM
12.
Description of Securities Other than Equity Securities
Quantitative and Qualitative Disclosures About Market Risk
PART II
ITEM
13.
ITEM
14.
ITEM
15.
ITEM
15T.
ITEM
16.
ITEM
16A.
ITEM
16B.
Defaults, Dividend Arrearages and Delinquencies
Material Modifications to the Rights of Security Holders and Use of Proceeds
Controls and Procedures
Controls and Procedures
[Reserved]
Audit Committee Financial Expert
Code of Ethics
Page
1
1
1
29
42
42
55
65
67
68
68
79
79
80
80
80
82
82
82
82
Principal Accountant Fees and Services
Exemptions from the Listing Standards for Audit Committees
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Change in Registrant’s Certifying Accountant
Corporate Governance
Mine Safety Disclosure
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
ITEM
16C.
ITEM
16D.
ITEM
16E.
ITEM
16F.
ITEM
16G.
ITEM
16H.
ITEM
16I.
PART III
ITEM
17.
ITEM
18.
ITEM
19.
Financial Statements
Financial Statements
Exhibits
i
82
83
83
83
83
83
83
84
84
84
Conventions Used in this Annual Report
Except where the context otherwise requires and for purposes of this annual report on
Form 20-F only, “we,” “us,” “our company,” “Company,” “our” and “AGM Holdings”
refer to:
● AGM Group Holdings Inc., a British Virgin Islands company limited by shares (“AGM
Holdings” when individually referenced);
● AGM Defi Tech Limited., a Hong Kong SAR limited company (“AGM Defi Tech” when
individually referenced) and a wholly-owned subsidiary of AGM Holdings;;
● AGM Defi Lab Pte Limited, a Singapore company (“AGM Defi Lab” when individually
referenced) and a wholly-owned subsidiary of AGM Holdings;
● AGM Technology Limited, a Hong Kong SAR limited company (“AGM HK” when
individually referenced) and a wholly-owned subsidiary of AGM Holdings;
● AGM Software Service LTD, a British Virgin Islands company limited by shares (“AGM
Software” when individually referenced) and a wholly-owned subsidiary of AGM
Holdings;
● Beijing Keen Sense Technology Service Co., Ltd., a company formed under the law of
People’s Republic of China and a wholly-owned subsidiary of AGM Defi Tech;
● AGM Tianjin Construction Development Co., Ltd. (“AGM Tianjin”) (also referred to as
天 津 安 高 盟 建 设 发 展 有 限 公 司 in China), formerly known as AGM Tianjin
Construction Development Co., Ltd. (or 深圳安高盟金融科技服务有限公司 in China),
a wholly foreign-owned enterprise (“WFOE”) formed under the laws of the People’s
Republic of China (the “PRC”) and a wholly-owned subsidiary of AGM HK;
● Beijing AnGaoMeng Technology Service Co., Ltd. (“AGM Beijing”) (also referred to as
北 京 安 高 盟 科 技 服 务 有 限 公 司 in China), a PRC company and a wholly-owned
subsidiary of AGM Tianjin;
● Nanjing Lucun Semiconductor Co., Ltd. (“Nanjing Lucun”), a PRC company and a
wholly-owned subsidiary of AGM HK.
This annual report contains translations of certain RMB amounts into U.S. dollar
amounts at a specified rate solely for the convenience of the reader. The Consolidated
Balance Sheets balances, with the exception of equity at December 31, 2021 and 2020,
were translated at RMB6.3757 and RMB6.5378 to $1.00,
respectively. The equity
accounts were stated at their historical rate. The average translation rates applied to the
Consolidated Statements of Operations and Comprehensive
Income and the
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020
and 2019 were RMB6.4515, RMB6.9003, and RMB6.9074 to $1.00, respectively.
We obtained the industry and market data used in this annual report or any document
incorporated by reference from industry publications, research, surveys and studies
conducted by third parties and our own internal estimates based on our management’s
knowledge and experience in the markets in which we operate. We did not, directly or
indirectly, sponsor or participate in the publication of such materials, and these
materials are not incorporated in this annual report other than to the extent specifically
cited in this annual report. We have sought to provide current information in this annual
report and believe that the statistics provided in this annual report remain up-to-date
and reliable, and these materials are not incorporated in this annual report other than to
the extent specifically cited in this annual report.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report may constitute forward-looking statements for
purposes of the Securities Act of 1933, as amended (the “Securities Act”), and the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), and involve known
and unknown risks, uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different
from the future results,
performance or achievements expressed or implied by such forward-looking statements.
The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” and
similar expressions are intended to identify such forward-looking statements. Our actual
results may differ materially from the results anticipated in these forward-looking
statements due to a variety of factors,
including, without limitation, those discussed
under “Item 3. Key Information—Risk Factors,” “Item 4. Information on the Company,”
“Item 5. Operating and Financial Review and Prospects,” and elsewhere in this report,
as well as factors which may be identified from time to time in our other filings with the
Securities and Exchange Commission (the “SEC”) or in the documents where such
forward-looking statements appear. All written or oral forward-looking statements
attributable to us are expressly qualified in their entirety by these cautionary statements.
The forward-looking statements contained in this report
reflect our views and
assumptions only as of the date this report is signed. Except as required by law, we
assume no responsibility for updating any forward-looking statements.
ii
EXPLANATORY NOTE
Investing in our securities involves a high degree of risk. Please carefully consider the
risks discussed under “Item 3. Key Information – D. Risk Factors” in this annual report
beginning on page 2. We provide the following disclosure to help investors better
understand our operations in China and the associated risks.
AGM Group Holdings Inc., or AGM,
is a holding company incorporated in the British
Virgin Islands, or the BVI. As a holding company with no material operations, AGM
conducts a substantial majority of its operations through its subsidiaries established in
the People’s Republic of China, or the PRC or China. However, neither the holding
company nor any of the Company’s Chinese subsidiaries conduct any operations
through contractual arrangements with a variable interest entity based in China.
Investors in our Class A ordinary shares should be aware that they may never directly
hold equity interests in the PRC operating entities, but rather purchasing equity solely in
AGM Group Holdings Inc., our BVI holding company. Furthermore, shareholders may face
difficulties enforcing their legal rights under United States securities laws against our
directors and officers who are located outside of the United States. See “RiskFactors–
RisksRelatedtoDoingBusinessinChina–UncertaintieswithrespecttothePRClegal
systemcouldadverselyaffectus” on page 17 of this annual report.
Our equity structure is a direct holding structure. Within our direct holding structure, the
cross-border transfer of funds within our corporate entities is legal and compliant with
the laws and regulations of the PRC. After the foreign investors’ funds enter AGM, the
funds can be directly transferred to the PRC operating companies through its
subsidiaries. Specifically, AGM is permitted under the BVI laws to provide funding to our
subsidiaries in the PRC, Hong Kong and Singapore through loans or capital contributions
without restrictions on the amount of the funds, subject to satisfaction of applicable
government registration, approval and filing requirements. Each of our subsidiaries in the
Hong Kong and Singapore is also permitted under the laws of Hong Kong and Singapore
to provide funding to AGM through dividend distribution without restrictions on the
amount of the funds. Current PRC regulations permit our PRC subsidiaries to pay
dividends to the Company only out of their accumulated profits, if any, determined in
accordance with Chinese accounting standards and regulations. As of the date hereof,
there have not been any transfers, dividends or distributions made between the holding
company, its subsidiaries, and to investors. Furthermore, as of the date hereof, no cash
generated from one subsidiary is used to fund another subsidiary’s operations and we
do not anticipate any difficulties or limitations on our ability to transfer cash between
subsidiaries. We have also not installed any cash management policies that dictate the
amount of such funds and how such funds are transferred. For the foreseeable future,
we intend to use the earnings for our business operations and as a result, we do not
intend to distribute earnings or pay any cash dividends. See “Transfers of Cash to and
from Our Subsidiaries” on page vi of this annual report.
Because our operations are primarily located in the PRC and Hong Kong through our
subsidiaries, we are subject to certain legal and operational risks associated with our
operations in China, including changes in the legal, political and economic policies of the
Chinese government, the relations between China and the United States, or Chinese or
United States regulations may materially and adversely affect our business, financial
condition and results of operations. PRC laws and regulations governing our current
business operations are sometimes vague and uncertain, and therefore, these risks may
result in a material change in our operations and the value of our Class A ordinary
shares, or could significantly limit or completely hinder our ability to offer or continue to
offer our securities to investors and cause the value of such securities to significantly
decline or be worthless. Recently, the PRC government initiated a series of regulatory
actions and statements to regulate business operations in China with little advance
notice, including cracking down on illegal activities in the securities market, enhancing
supervision over China-based companies listed overseas using a variable interest entity
structure, adopting new measures to extend the scope of cybersecurity reviews, and
expanding the efforts in anti-monopoly enforcement. We do not believe that our
subsidiaries are directly subject to these regulatory actions or statements, as we have
not implemented any monopolistic behavior and our business does not involve the
collection of user data or implicate cybersecurity. As of the date hereof, no relevant laws
or regulations in the PRC explicitly require us to seek approval from the China Securities
Regulatory Commission, or the CSRC, or any other PRC governmental authorities for
future offerings, nor has our BVI holding company or any of our subsidiaries received
any inquiry, notice, warning or sanctions regarding previous offerings from the CSRC or
any other PRC governmental authorities. However, since these statements and
regulatory actions by the PRC government are newly published and official guidance and
related implementation rules have not been issued,
it is highly uncertain how soon
legislative or administrative regulation making bodies will respond and what existing or
new laws or regulations or detailed implementations and interpretations will be modified
or promulgated,
if any, and the potential
impact such modified or new laws and
regulations will have on our daily business operation, the ability to accept foreign
investments and list on an U.S. or other foreign exchange. The Standing Committee of
the National People’s Congress, or the SCNPC, or other PRC regulatory authorities may
in the future promulgate laws, regulations or implementing rules that requires our
company or any of our subsidiaries to obtain regulatory approval
from Chinese
authorities before future offerings in the U.S. In other words, although the Company is
currently not required to obtain permission from any of the PRC federal or local
government to obtain such permission and has not received any denial to list on the U.S.
exchange, our operations could be adversely affected, directly or indirectly; our ability to
offer, or continue to offer, securities to investors would be potentially hindered and the
value of our securities might significantly decline or be worthless, by existing or future
laws and regulations relating to its business or industry or by intervene or interruption by
PRC governmental authorities, if we or our subsidiaries (i) do not receive or maintain
such permissions or approvals, (ii) inadvertently conclude that such permissions or
approvals are not required, (iii) applicable laws, regulations, or interpretations change
and we are required to obtain such permissions or approvals in the future, or (iv) any
intervention or interruption by PRC governmental with little advance notice.
Summary of Risk Factors
Investing in our Class A ordinary shares involves significant risks. Below please find a
summary of the principal risks we face, organized under relevant headings. These risks
are discussed more fully under “Item3.KeyInformation—D.RiskFactors” beginning on
page 2 of this annual report.
iii
RisksRelatedtoOurBusinessandIndustry
● Our business could be materially harmed by the ongoing coronavirus (COVID-19)
pandemic (see “Risk Factors – Risks Related to Our Business and Industry – The COVID-
19 pandemic has adversely impacted, and poses risks to, our business, the nature and
extent of which are highly uncertain and unpredictable” on page 7 of this annual report);
● We might require additional capital to support business growth (see “Risk Factors – Risks
Related to Our Business and Industry – We might require additional capital to support
business growth, and this capital might not be available on acceptable terms, if at all” on
page 7 of this annual report);
● Unauthorized disclosure of sensitive or confidential customer information or our failure
or the perception by our customers that we failed to comply with privacy laws or properly
address privacy concerns could harm our business and standing with our customers (see
“Risk Factors – Risks Related to Our Business and Industry – Unauthorized disclosure of
sensitive or confidential customer information or our failure or the perception by our
customers that we failed to comply with privacy laws or properly address privacy
concerns could harm our business and standing with our customers” on page 9 of this
annual report);
● Our bitcoin mining machine business faces a number of uncertainties in technology,
regulations and operations (see “Risk Factors – Risks Related to Our Business and
Industry – Significant contributors to the bitcoin network could propose amendments to
its protocols and software which, if accepted and authorized, could negatively impact our
business and operations” on page 2 of this annual report).
Risks Related to Doing Business in China (for a more detailed discussion, see “Item 3.
Key Information—D. Risk Factors—Risks Related to Doing Business in China” on page
13 of this annual report)
● We may rely on dividends paid by our subsidiaries for our cash needs. Any limitation
on the ability of our subsidiaries to make dividend payments to us, or any tax
implications of making dividend payments to us, could limit our ability to pay our
parent company expenses or pay dividends to holders of our Class A ordinary shares
(see “Risk Factors – We are a holding company, and will rely on dividends paid by
our subsidiaries for our cash needs. Any limitation on the ability of our subsidiaries
to make dividend payments to us, or any tax implications of making dividend
payments to us, could limit our ability to pay our parent company expenses or pay
dividends to holders of our Class A ordinary shares” on page 13 of this annual
report);
●
The Chinese government exerts substantial influence over the manner in which we
must conduct our business activities and may intervene or influence our operations at
any time with little advance notice, which could result in a material change in our
operations and the value of our Class A Ordinary Shares (see “Risk Factors –The
Chinese government exerts substantial influence over the manner in which we must
conduct our business activities and may intervene or influence our operations at any
time with little advance notice, which could result in a material change in our
operations and the value of our Class A Ordinary Shares” on page 14 of this annual
report);
●
The M&A Rules and certain other PRC regulations establish complex procedures for
some acquisitions of Chinese companies by foreign investors, which could make it
more difficult for us to pursue growth through acquisitions in China (see “Risk
Factors – The M&A Rules and certain other PRC regulations establish complex
procedures for some acquisitions of Chinese companies by foreign investors, which
could make it more difficult for us to pursue growth through acquisitions in China”
on page 16 of this annual report);
● China’s legal system is evolving and has inherent uncertainties that could limit the legal
protection available to you (see “Risk Factors – Risks Related to Doing Business in China
– Uncertainties with respect to the PRC legal system could adversely affect us” on page
17 of this annual report);
● We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese
anti-corruption law (see “Risk Factors – Risks Related to Doing Business in China – We
may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-
corruption law” on page 20 of this annual report);
● The regulation of Internet website operators in China is subject to interpretation, and our
operation of online trading platform and education programs could be harmed if we are
deemed to have violated applicable laws and regulations (see “Risk Factors – Risks
Related to Doing Business in China – The regulation of Internet website operators in
China is subject to interpretation, and our operation of online trading platform and
education programs could be harmed if we are deemed to have violated applicable laws
and regulations” on page 21 of this annual report);
iv
● The recent joint statement by the SEC and the Public Company Accounting Oversight
Board (United States), or the “PCAOB,” proposed rule changes submitted by Nasdaq and
the Holding Foreign Companies Accountable Act all call for additional and more
stringent criteria to be applied to emerging market companies upon assessing the
qualification of their auditors, especially the non-U.S. auditors who are not inspected by
the PCAOB. These developments could add uncertainties to the trading of our Class A
ordinary shares (see “Risk Factors – Risks Related to Doing Business in China – The
recent joint statement by the SEC and PCAOB, proposed rule changes submitted by
Nasdaq, and the Holding Foreign Companies Accountable Act all call for additional and
more stringent criteria to be applied to emerging market companies upon assessing the
qualification of their auditors, especially the non-U.S. auditors who are not inspected by
the PCAOB. These developments could add uncertainties to the trading of our Class A
ordinary shares” on page 24 of this annual report);
● The approval of the China Securities Regulatory Commission may be required in
connection with future offerings, and, if required, we cannot predict whether we will be
able to obtain such approval (see “Risk Factors – Risks Related to Doing Business in
China – The approval of the China Securities Regulatory Commission may be required in
connection with future offerings, and, if required, we cannot predict whether we will be
able to obtain such approval” on page 16 of this annual report);
Risks Related to Our Capital Structure and Class A Ordinary Shares China (for a more
detailed discussion, see “Item 3. Key Information—D. Risk Factors—Risks Related to
DoingBusinessinChina” on page 13 of this annual report)
●
●
●
●
The dual-class structure of our ordinary shares has the effect of concentrating voting
control with certain shareholders, including our executive officers, employees and
directors and their affiliates, which will limit your ability to influence the outcome of
important transactions, including a change in control (see “Risk Factors – Risks
Related to Our Capital Structure and Class A Ordinary Shares – The dual-class
structure of our ordinary shares has the effect of concentrating voting control with
certain shareholders, including our executive officers, employees and directors and
their affiliates, which will limit your ability to influence the outcome of important
transactions, including a change in control” on page 25 of this annual report);
The laws of the British Virgin Islands provide little protection for minority
shareholders, so minority shareholders will have little or no recourse if they are
dissatisfied with the conduct of our affairs (see “Risk Factors – Risks Related to Our
Capital Structure and Class A Ordinary Shares – The laws of the British Virgin
Islands provide little protection for minority shareholders, so minority shareholders
will have little or no recourse if they are dissatisfied with the conduct of our affairs”
on page 25 of this annual report);
The market price of our Class A ordinary shares may be volatile or may decline
regardless of our operating performance (see “Risk Factors – Risks Related to Our
Capital Structure and Class A Ordinary Shares – The trading price of our Class A
Ordinary Shares has been, and is likely to continue to be, volatile; you might not be
able to sell your shares at or above the price that you paid for them and we may not
be able to stop the decline of our stock price” on page 26 of this annual report);
The exercise of the warrants issued on December 14, 2021 may further dilute the
Class A ordinary shares and adversely impact the price of our Class A ordinary
shares (see “Risk Factors – Risks Related to Our Capital Structure and Class A
Ordinary Shares – The exercise of the warrants issued on December 14, 2021 may
further dilute the ordinary shares and adversely impact the price of our Class A
ordinary shares” on page 28 of this annual report).
v
Legal and Operational Risks of Operating in the PRC
Because our operations are primarily located in the PRC and Hong Kong through our
subsidiaries, we are subject to certain legal and operational risks associated with our
operations in China, including changes in the legal, political and economic policies of the
Chinese government, the relations between China and the United States, or Chinese or
United States regulations may materially and adversely affect our business, financial
condition and results of operations. PRC laws and regulations governing our current
business operations are sometimes vague and uncertain, and therefore, these risks may
result in a material change in our operations and the value of our Class A ordinary
shares, or could significantly limit or completely hinder our ability to offer or continue to
offer our securities to investors and cause the value of such securities to significantly
decline or be worthless. Recently, the PRC government initiated a series of regulatory
actions and statements to regulate business operations in China with little advance
notice, including cracking down on illegal activities in the securities market, enhancing
supervision over China-based companies listed overseas using a variable interest entity
structure, adopting new measures to extend the scope of cybersecurity reviews, and
expanding the efforts in anti-monopoly enforcement. We do not believe that our
subsidiaries are directly subject to these regulatory actions or statements, as we have
not implemented any monopolistic behavior and our business does not involve the
collection of user data or implicate cybersecurity. As of the date of this annual report,
no relevant laws or regulations in the PRC explicitly require us to seek approval from the
China Securities Regulatory Commission, or the CSRC, or any other PRC governmental
authorities for future offerings, nor has our BVI holding company or any of our
subsidiaries received any inquiry, notice, warning or sanctions regarding previous
offerings from the CSRC or any other PRC governmental authorities. However, since
these statements and regulatory actions by the PRC government are newly published
and official guidance and related implementation rules have not been issued, it is highly
uncertain how soon legislative or administrative regulation making bodies will respond
and what existing or new laws or
regulations or detailed implementations and
interpretations will be modified or promulgated, if any, and the potential
impact such
modified or new laws and regulations will have on our daily business operation, the
ability to accept foreign investments and list on an U.S. or other foreign exchange. The
Standing Committee of the National People’s Congress, or the SCNPC, or other PRC
regulatory authorities may in the future promulgate laws, regulations or implementing
rules that requires our company or any of our subsidiaries to obtain regulatory approval
from Chinese authorities before future offerings in the U.S.
For a more detailed discussion, see “RiskFactors–RisksRelatedtoDoingBusinessin
China” beginning on page 13 of this annual report.
Transfers of Cash to and from Our Subsidiaries
AGM Group Holdings Inc.
is a holding company with no operations of its own. We
conduct our operations in China and Hong Kong primarily through our subsidiaries in
China, Hong Kong SAR and Singapore. We may rely on dividends to be paid by our
subsidiaries in Singapore, China and Hong Kong SAR to fund our cash and financing
requirements,
including the funds necessary to pay dividends and other cash
distributions to our shareholders, to service any debt we may incur and to pay our
operating expenses. If our subsidiaries incur debt on their own behalf in the future, the
instruments governing the debt may restrict its ability to pay dividends or make other
distributions to us.
Our equity structure is a direct holding structure. Within our direct holding structure, the
cross-border transfer of funds within our corporate entities is legal and compliant with
the laws and regulations of the PRC. After the foreign investors’ funds enter AGM, the
funds can be directly transferred to the PRC operating companies through its
subsidiaries. Specifically, AGM Group Holdings Inc. is permitted under the BVI
laws to
provide funding to our subsidiaries in Singapore, China and Hong Kong SAR through
loans or capital contributions without restrictions on the amount of the funds, subject to
satisfaction of applicable government registration, approval and filing requirements.
AGM Defi Tech Limited and AGM Technology Limited are also permitted under the laws
of Hong Kong to provide funding to AGM Group Holdings Inc.
through dividend
distribution without restrictions on the amount of the funds. As of the date hereof, there
have not been any transfers, dividends or distributions made between the holding
company, its subsidiaries, and to investors.
We currently intend to retain all available funds and future earnings,
if any, for the
operation and expansion of our business and do not anticipate declaring or paying any
dividends in the foreseeable future. Any future determination related to our dividend
policy will be made at the discretion of our Board of Directors after considering our
financial condition, results of operations, capital requirements, contractual requirements,
business prospects and other factors the Board of Directors deems relevant, and subject
to the restrictions contained in any future financing instruments.
vi
Subject to the BVI Business Companies Act and our bylaws, our Board of Directors may
authorize and declare a dividend to shareholders at such time and of such an amount as
they think fit if they are satisfied, on reasonable grounds, that immediately following the
dividend the value of our assets will exceed our liabilities and we will be able to pay our
debts as they become due.
Under the current practice of the Inland Revenue Department of Hong Kong, no tax is
payable in Hong Kong in respect of dividends paid by us. The laws and regulations of
the PRC do not currently have any material impact on transfer of cash from AGM Group
Holdings Inc. to AGM Defi Tech Limited and AGM Technology Limited, or from AGM Defi
Tech Limited and AGM Technology Limited to AGM Group Holdings Inc. There are no
restrictions or limitation under the laws of Hong Kong imposed on the conversion of HK
dollar into foreign currencies and the remittance of currencies out of Hong Kong or
across borders and to U.S investors.
Current PRC regulations permit our PRC subsidiaries to pay dividends to AGM Defi Tech
Limited and AGM Technology Limited only out of their accumulated profits,
if any,
determined in accordance with Chinese accounting standards and regulations.
In
addition, each of our subsidiaries in China is required to set aside at least 10% of its
after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches
50% of its registered capital. Each of such entity in China is also required to further set
aside a portion of its after-tax profits to fund the employee welfare fund, although the
amount to be set aside, if any, is determined at the discretion of its board of directors.
Although the statutory reserves can be used, among other ways, to increase the
registered capital and eliminate future losses in excess of retained earnings of the
respective companies, the reserve funds are not distributable as cash dividends except
in the event of liquidation.
To address persistent capital outflows and the RMB’s depreciation against the U.S.
dollar
in the fourth quarter of 2016,
the People’s Bank of China and the State
Administration of Foreign Exchange, or SAFE, have implemented a series of capital
control measures in the subsequent months,
including stricter vetting procedures for
China-based companies to remit foreign currency for overseas acquisitions, dividend
payments and shareholder loan repayments. The PRC government may continue to
strengthen its capital controls and our PRC subsidiaries’ dividends and other
distributions may be subject to tightened scrutiny in the future. The PRC government
also imposes controls on the conversion of RMB into foreign currencies and the
remittance of currencies out of the PRC. Therefore, we may experience difficulties in
completing the administrative procedures necessary to obtain and remit foreign currency
for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries in
the PRC incur debt on their own in the future, the instruments governing the debt may
restrict their ability to pay dividends or make other payments. If we or our subsidiaries
are unable to receive all of the revenues from our operations, we may be unable to pay
dividends on our Class A ordinary shares.
Cash dividends, if any, on our Class A ordinary shares will be paid in U.S. dollars. If we
are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to
our overseas shareholders may be regarded as China-sourced income and as a result
may be subject to PRC withholding tax at a rate of up to 10.0%.
In order for us to pay dividends to our shareholders, we will rely on payments made from
our PRC subsidiaries, i.e., Beijing Keen Sense Technology Service Co., Ltd. to AGM Defi
Tech Limited, AGM Tianjing Construction Development Co., Ltd. and Nanjing Lucun
Semiconductor Co., Ltd. to AGM Technology Limited, and from AGM Defi Tech Limited
and AGM Technology Limited to AGM Group Holdings Inc. Certain payments from our
PRC subsidiaries in Hong Kong are subject to PRC taxes, including business taxes and
VAT. As of the date hereof, our PRC subsidiaries have not made any transfers or
distributions. As of the date hereof, no cash or asset transfers have occurred among the
Company and its subsidiaries. We do not expect to pay any cash dividends in the
foreseeable future. Furthermore, as of the date hereof, no cash generated from one
subsidiary is used to fund another subsidiary’s operations and we do not anticipate any
difficulties or limitations on our ability to transfer cash between subsidiaries. We have
also not installed any cash management policies that dictate the amount of such funds
and how such funds are transferred.
vii
Implications of Holding Foreign Company Accountable Act
On March 24, 2021, the SEC adopted interim final rules relating to the implementation of
certain disclosure and documentation requirements of the HFCAA. An identified issuer
will be required to comply with these rules if the SEC identifies it as having a “non-
inspection” year under a process to be subsequently established by the SEC. In June
2021, the Senate passed the Accelerating Holding Foreign Companies Accountable Act,
which,
if signed into law, would reduce the time period for the delisting of foreign
companies under the HFCAA to two consecutive years instead of three years.
If our
auditor cannot be inspected by the Public Company Accounting Oversight Board, or the
Public Company Accounting Oversight Board (“PCAOB”), for two consecutive years, the
trading of our securities on any U.S. national securities exchanges, as well as any over-
the-counter trading in the U.S., will be prohibited. On September 22, 2021, the PCAOB
adopted a final rule implementing the HFCAA, which provides a framework for the
PCAOB to use when determining, as contemplated under the HFCAA, whether the
PCAOB is unable to inspect or investigate completely registered public accounting firms
located in a foreign jurisdiction because of a position taken by one or more authorities
in that jurisdiction. On December 2, 2021, the SEC issued amendments to finalize rules
implementing the submission and disclosure requirements in the HFCA Act. The rules
apply to registrants that the SEC identifies as having filed an annual report with an audit
report issued by a registered public accounting firm that
is located in a foreign
jurisdiction and that PCAOB is unable to inspect or investigate completely because of a
position taken by an authority in foreign jurisdictions. On December 16, 2021, the
PCAOB issued a report on its determinations that it is unable to inspect or investigate
completely PCAOB-registered public accounting firms headquartered in mainland China
and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions.
Each of JLKZ CPA LLP, the independent registered public accounting firm that issues
the audit report for the fiscal years ended December 31, 2020 and 2019 included
elsewhere in this annual report, and TPS Thayer LLC, the independent registered public
account firm that issued the audit report for the fiscal year ended December 31, 2021
included elsewhere in this annual report, as an auditor of companies that are traded
publicly in the United States and a firm registered with the PCAOB, is subject to laws in
the United States pursuant to which the PCAOB conducts regular inspections to assess
such auditor’s compliance with the applicable professional standards. JLKZ CPA LLP is
headquartered in Flushing, New York, and is subject to inspection by the PCAOB on a
regular basis. TPS Thayer LLC is headquartered in Sugar Land, Texas, and is subject to
inspection by the PCAOB on a regular basis. Therefore, we believe JLKZ CPA LLP and
TPS Thayer LLC are not subject to the determinations as to the inability to inspect or
investigate registered firms completely announced by the PCAOB on December 16, 2021.
However, as more stringent criteria have been imposed by the SEC and the PCAOB,
recently, which would add uncertainties to future offerings, and we cannot assure you
whether Nasdaq or regulatory authorities would apply additional and more stringent
criteria to us after considering the effectiveness of our auditor’s audit procedures and
quality control procedures, adequacy of personnel and training, or sufficiency of
resources, geographic reach or experience as it relates to the audit of our financial
statements. See “The recent joint statement by the SEC and PCAOB, proposed rule
changessubmitted byNasdaq,and theHolding ForeignCompaniesAccountable Act all
call for additional and more stringent criteria to be applied to emerging market
companies upon assessing the qualification of their auditors, especially the non-U.S.
auditors who are not inspected by the PCAOB. These developments could add
uncertainties to the trading of our Class A ordinary shares” on page 22 of this annual
report.
PRC Regulatory Permissions
We and our operating subsidiaries currently have received all material permissions and
approvals required for our operations in compliance with the relevant PRC laws and
regulations in the PRC, including the business licenses of our operating subsidiaries.
viii
The business license is a permit issued by Administration for Market Regulation that
allows the company to conduct specific business within the government’s geographical
jurisdiction. Each of our PRC subsidiaries has received its business license. As of the
date hereof, except for the business licenses mentioned here, AGM Group Holdings Inc.
and our PRC subsidiaries are not required to obtain any other permissions or approvals
from any Chinese authorities to operate the business. However, applicable laws and
regulations may be tightened, and new laws or regulations may be introduced to impose
additional government approval,
license, and permit
requirements.
If we or our
subsidiaries fail to obtain and maintain such approvals, licenses, or permits required for
our business, inadvertently conclude that such approval is not required, or respond to
changes in the regulatory environment, we or our subsidiaries could be subject to
liabilities, penalties, and operational disruption, which may materially and adversely
affect our business, operating results, financial condition and the value of our Class A
ordinary shares, significantly limit or completely hinder our ability to offer or continue to
offer securities to investors, or cause such securities to significantly decline in value or
become worthless.
On August 8, 2006, six PRC regulatory agencies jointly adopted the Regulations on
Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A
Rules, which came into effect on September 8, 2006 and were amended on June 22,
2009. The M&A Rules requires that an offshore special purpose vehicle formed for
overseas listing purposes and controlled directly or indirectly by PRC Citizens shall
obtain the approval of the China Securities Regulatory Commission prior to overseas
listing and trading of such special purpose vehicle’s securities on an overseas stock
exchange. Based on our understanding of the Chinese laws and regulations in effect at
the time of this annual report, we will not be required to submit an application to the
CSRC for its approval of future offerings and the trading of Class A ordinary shares on
the Nasdaq under the M&A Rules. However, there remains some uncertainty as to how
the M&A Rules will be interpreted or implemented, and the requirement standard may
change when new laws,
rules and regulations or detailed implementations and
interpretations in any form relating to the M&A Rules are installed. We cannot assure
you that relevant Chinese government agencies, including the CSRC, would reach the
same conclusion.
Recently, the General Office of the Central Committee of the Communist Party of China
and the General Office of the State Council
jointly issued the Opinions on Strictly
Cracking Down on Illegal Securities Activities, which were made available to the public
on July 6, 2021. The Opinions on Strictly Cracking Down on Illegal Securities Activities
emphasized the need to strengthen the administration over illegal securities activities,
and the need to strengthen the supervision over overseas listings by Chinese companies.
Pursuant to the Opinions, Chinese regulators are required to accelerate rulemaking
related to the overseas issuance and listing of securities, and update the existing laws
and regulations related to data security, cross-border data flow, and management of
confidential
information. Numerous regulations, guidelines and other measures are
expected to be adopted under the umbrella of or in addition to the Cybersecurity Law
and Data Security Law. As of
the date hereof, no official guidance or
related
implementation rules have been issued. As a result, the Opinions on Strictly Cracking
Down on Illegal Securities Activities remain unclear on how they will be interpreted,
amended and implemented by the relevant PRC governmental authorities.
On December 24, 2021, the CSRC, together with other relevant government authorities
in China issued the Provisions of the State Council on the Administration of Overseas
Securities Offering and Listing by Domestic Companies (Draft for Comments), and the
Measures for
the Filing of Overseas Securities Offering and Listing by Domestic
Companies (Draft for Comments) (“Draft Overseas Listing Regulations”). The Draft
Overseas Listing Regulations requires that a PRC domestic enterprise seeking to issue
and list its shares overseas (“Overseas Issuance and Listing”) shall complete the filing
procedures of and submit the relevant information to CSRC. The Overseas Issuance and
Listing includes direct and indirect issuance and listing. Where an enterprise whose
principal business activities are conducted in PRC seeks to issue and list its shares in
the name of an overseas enterprise (“Overseas Issuer”) on the basis of the equity,
assets,
income or other similar rights and interests of the relevant PRC domestic
enterprise, such activities shall be deemed an indirect overseas issuance and listing
(“ Indirect Overseas Issuance and Listing”) under the Draft Overseas Listing Regulations.
Therefore, future offerings could be deemed an Indirect Overseas Issuance and Listing
under the Draft Overseas Listing Regulations. As such, the Company would be required
to complete the filing procedures of and submit the relevant information to CSRC after
the Draft Overseas Listing Regulations become effective.
On December 28, 2021, the CAC and other relevant PRC governmental authorities jointly
promulgated the Cybersecurity Review Measures (the “new Cybersecurity Review
Measures”) which took effect on February 15, 2022 and replaced the original
Cybersecurity Review Measures. Pursuant to the new Cybersecurity Review Measures, if
critical information infrastructure operators purchase network products and services, or
network platform operators conduct data processing activities that affect or may affect
national security, they will be subject to cybersecurity review. A network platform
operator holding more than one million users/users’ individual information also shall be
subject to cybersecurity review before listing abroad. The cybersecurity review will
evaluate, among others,
the risk of critical
information infrastructure, core data,
important data, or a large amount of personal information being influenced, controlled or
maliciously used by foreign governments and risk of network data security after going
public overseas.
ix
We believe that neither we nor our subsidiaries are currently required to obtain
permission from any of the PRC authorities to operate and issue our Class A ordinary
shares to foreign investors, or required to obtain permission or approval from the CSRC,
Cyberspace Administration of China (“CAC”) or any other governmental agency.
Recently, however, the General Office of the Central Committee of the Communist Party
of China and the General Office of the State Council jointly issued the “Opinions on
Severely Cracking Down on Illegal Securities Activities According to Law,” or the
“Opinions,” which were made available to the public on July 6, 2021. The Opinions
emphasized the need to strengthen the administration over illegal securities activities
and the need to strengthen the supervision over overseas listings by Chinese companies.
Effective measures, such as promoting the construction of relevant regulatory systems,
will be taken to deal with the risks and incidents of China-concept overseas listed
companies, cybersecurity, data privacy protection requirements, and similar matters. The
Opinions and any related implementing rules to be enacted may subject us to
compliance requirements in the future. Given the current regulatory environment in the
PRC, we are still subject to the uncertainty of different interpretation and enforcement
of the rules and regulations in the PRC adverse to us, which may take place quickly with
little advance notice. See “The Opinions recently issued by the General Office of the
CentralCommitteeoftheCommunistPartyofChinaandtheGeneralOfficeoftheState
Councilmaysubjectustoadditionalcompliancerequirementinthefuture” on page 24
of this annual report.
We believe that we will not be subject to the Cybersecurity Review Measures that
became effective on February 15, 2022 under the CAC, because we currently do not
have over one million users’ personal information and do not anticipate that we will be
collecting over one million users’ personal information in the foreseeable future, which
we understand might otherwise subject us to the Cybersecurity Review Measures. We
are also not subject to network data security review by the CAC if the Draft Regulations
on the Network Data Security Administration are enacted as proposed, since we
currently do not have over one million users’ personal
information and do not collect
data that affects or may affect national security and we do not anticipate that we will be
collecting over one million users’ personal information or data that affects or may affect
national security in the foreseeable future, which we understand might otherwise subject
us to the Security Administration Draft.
Moreover, we believe that no relevant laws or regulations in the PRC explicitly requires
us to seek approval from the China Securities Regulatory Commission for our overseas
listing plan. As of the date of this annual report, we and our PRC subsidiaries have not
received any inquiry, notice, warning, or sanctions regarding our planned overseas listing
from the China Securities Regulatory Commission or any other PRC governmental
authorities. However, since these statements and regulatory actions by the PRC
government are newly published and official guidance and related implementation rules
have not been issued,
it is highly uncertain how soon legislative or administrative
regulation making bodies will respond and what existing or new laws or regulations or
detailed implementations and interpretations will be modified or promulgated, if any, and
the potential impact such modified or new laws and regulations will have on our daily
business operation, the ability to accept foreign investments and list on an U.S. or other
foreign exchange. The Standing Committee of the National People’s Congress, or the
SCNPC, or other PRC regulatory authorities may in the future promulgate laws,
regulations or implementing rules that requires our company or any of our subsidiaries
to obtain regulatory approval from Chinese authorities before future offerings in the U.S.
In other words, although the Company is currently not required to obtain permission
from any of the PRC federal or local government to obtain such permission and has not
received any denial to list on the U.S. exchange, our operations could be adversely
affected, directly or indirectly; our ability to offer, or continue to offer, securities to
investors would be potentially hindered and the value of our securities might significantly
decline or be worthless, by existing or future laws and regulations relating to its
business or industry or by intervene or interruption by PRC governmental authorities, if
we or our subsidiaries (i) do not receive or maintain such permissions or approvals, (ii)
inadvertently conclude that such permissions or approvals are not
required,
(iii)
applicable laws, regulations, or interpretations change and we are required to obtain
such permissions or approvals in the future, or (iv) any intervention or interruption by
PRC governmental with little advance notice. For more details, see “Risk Factors –
RisksRelatedtoDoingBusinessinChina–TheChinesegovernmentexertssubstantial
influence over the manner in which we must conduct our business activities. We are
currently not required to obtain approval from Chinese authorities to list on U.S
exchanges,however,ifoursubsidiariesortheholdingcompanywererequiredtoobtain
approval in the future and were denied permission from Chinese authorities to list on
U.S. exchanges, we will not be able to continue listing on U.S. exchange, which would
materiallyaffecttheinterestoftheinvestors” on page 14 of this annual report.
As of the date hereof, we and our PRC subsidiaries have received from PRC authorities
all requisite licenses, permissions or approvals needed to engage in the businesses
currently conducted in China, and no permission or approval has been denied. The
following table provides details on the licenses and permissions held by our PRC
subsidiaries.
Approval
Business License
Business License
Business License
Business License
Recipient
Beijing Keen Sense
Technology Service
Co., Ltd.
AGM Tianjing
Construction
Development Co.,
Ltd.
Nanjing Lucun
Semiconductor Co.,
Ltd.
Beijing AnGaoMeng
Technology Service
Co., Ltd.
Issuing body
Validity
Beijing Municipal
Administration for Market
Regulation
Tianjing Municipal
Administration for Market
Regulation
Nanjing Municipal
Administration for Market
Regulation
Beijing Municipal
Administration for Market
Regulation
October 20, 2051
October 12, 2065
Indefinite
November 12, 2035
x
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable for annual reports on Form 20-F.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable for annual reports on Form 20-F.
ITEM 3. KEY INFORMATION
A. Selected Financial Data
The following table presents the selected consolidated financial
information for our
company. The selected consolidated statements of operations and comprehensive
income (loss) data for the three years ended December 31, 2021, 2020 and 2019, and
the selected consolidated balance sheets data as of December 31, 2021 and 2020 have
been derived from our audited consolidated financial statements, which are included in
this annual report beginning on page F-1. Our historical results do not necessarily
indicate results expected for any future periods. The selected consolidated financial
data should be read in conjunction with, and are qualified in their entirety by reference
to, our audited consolidated financial statements and related notes and “Item 5.
Operating and Financial Review and Prospects” below. Our audited consolidated
financial statements are prepared and presented in accordance with US GAAP.
(All amounts in U.S. dollars, except Dividend per share in Renminbi and Shares
outstanding)
For the Years Ended December 31,
2021
2020
2019
53,305 $
14,771 $
Statement of operation data:
Revenues, net
330,000
$36,709,931 $
Gross profit
$ 6,597,568 $
286,944
Operating expenses
$ 1,643,710 $ 1,027,920 $ 1,496,818
Income (loss) from operations
$ 4,953,858 $ (1,013,149) $ (1,209,874)
Other non-operating income/(expense), net
(7,656) $ (211,422)
$
3,996 $
Provision for income taxes expenses
$ (1,406,159) $
(64,615)
Net income/(loss) from continued operations
$ 3,551,695 $ (1,097,148) $ (1,485,911)
Net gain (loss) from discontinued operations
(76,944)
$
Continued income/(loss) per share, basic
(0.07)
$
Continued income/(loss) per share, diluted
(0.07)
Discontinued income/(loss) per share, basic
(0.00)
(0.00)
Discontinued income/(loss) per share, diluted
Weighted average Class A ordinary shares outstanding, basic $21,491,291 $21,787,892 $21,298,540
Weighted average Class A ordinary shares outstanding,
diluted
25,500 $
(0.05) $
(0.05)
0.00 $
0.00
- $
0.17 $
0.17
21,298,540
21,511,469
21,787,892
(76,343) $
- $
-
$
Balance sheet data:
Current assets
Total assets
Current liabilities
Total liabilities
Total equity
$87,319,271 $ 6,202,131 $ 7,305,317
$88,020,889 $ 6,231,564 $14,514,013
$62,819,301 $ 2,538,955 $ 2,662,888
$62,967,113 $ 2,538,955 $ 2,662,888
$25,053,776 $ 3,692,610 $11,851,125
B. Capitalization and Indebtedness
Not applicable for annual reports on Form 20-F.
C. Reasons for the Offer and Use of Proceeds
Not applicable for annual reports on Form 20-F.
1
D. Risk Factors
Risks Related to Our Business and Industry
We have a limited operating history in a new and evolving market, which makes it
difficulttoevaluateourfutureprospects.
The software industry is developing rapidly. The regulatory framework for this market is
also evolving and may remain uncertain for the foreseeable future. Potential users may
have difficulty distinguishing our services from those of our competitors. Convincing
potential new users of the value of our services is critical to the success of our business.
Our company was incorporated on April 27, 2015 and have a limited operating history.
As our business develops or in response to competition, we may continue to introduce
new features or make adjustments to our existing services and our business model. Any
significant change to our business model may not achieve expected results and may
have a material and adverse impact on our financial conditions and results of operations.
It is therefore difficult to effectively assess our future prospects. You should consider
our business and prospects in light of the risks and challenges we encounter or may
encounter in this developing and rapidly evolving market. These risks and challenges
include our ability to, among other things:
● navigate an evolving regulatory environment;
● expand the user base;
● broaden our services;
● increase awareness of our brand and continue to develop customer loyalty;
● enhance our risk management capabilities;
● raise sufficient capital to sustain and expand our business;
● attract, retain and motivate qualified personnel;
● upgrade our technology to support additional research and development of new services;
● improve our operational efficiency;
● cultivate a vibrant online social trading system;
● maintain the security of our platform and the confidentiality of the information provided
and utilized across our platform;
● attract, retain and motivate talented employees; and
● defend ourselves against litigation, regulatory, intellectual property, privacy or other
claims.
If we fail to educate potential users about the value of our software, if the software
market does not develop as we expect, or if we fail to address the needs of our target
market, or other risks and challenges, our business and results of operations will be
harmed.
Significant contributors to the bitcoin network could propose amendments to its
protocols and software which, if accepted and authorized, could negatively impact our
businessandoperations.
A small group of individuals contribute to the Bitcoin Core Project on GitHub.com, which
is a leading source of quasi-governance that works to ensure that the bitcoin blockchain
remains decentralized and governed by consensus. According to its website, “Bitcoin
Core is an open source project which maintains and releases Bitcoin client software
called ‘Bitcoin Core.’ It is a direct descendant of the original Bitcoin software client
released by Satoshi Nakamoto after he published the famous Bitcoin whitepaper.”
Bitcoin Core is powered by an open-source development community, but
it
is
maintained by a small group of maintainers and leading contributors.
This group of contributors is currently headed by Wladimir J. van der Laan, the current
lead maintainer. These individuals can propose refinements or improvements to the
bitcoin network’s source code through one or more software upgrades that alter the
protocols and software that govern the bitcoin network and the properties of bitcoin,
including the irreversibility of transactions and limitations on the mining of new bitcoin.
Proposals for upgrades and discussions relating thereto take place on online forums. For
example, there is an ongoing debate regarding altering the blockchain by increasing the
size of blocks to accommodate a larger volume of transactions.
2
The open-source structure of the bitcoin network protocol may result in inconsistent
and perhaps even ineffective changes to the bitcoin protocol. Failed upgrades or
maintenance to the protocol could damage the bitcoin network, which could adversely
affectourbusinessandtheresultsofouroperations.
The bitcoin network operates based on an open-source protocol maintained by
contributors, largely on the Bitcoin Core project on GitHub. As an open source project,
bitcoin is not represented by an official organization or authority. As the bitcoin network
protocol
is not sold and its use does not generate revenues for contributors,
contributors are generally not compensated for maintaining and updating the bitcoin
network protocol. Although the MIT Media Lab’s Digital Currency Initiative funds the
current maintainer Wladimir J. van der Laan, among others, this type of financial
incentive is not typical. The lack of guaranteed financial
incentive for contributors to
maintain or develop the bitcoin network and the lack of guaranteed resources to
adequately address emerging issues with the bitcoin network may reduce incentives to
address the issues adequately or in a timely manner. Changes to a digital asset network
which we sell mining machine on may adversely affect an investment in us.
Ifdemandforbitcoindeclines,orifanothercryptocurrencyreplacesbitcoinasthemost
prominent cryptocurrency, our business and the results of our operations could suffer
materially.
Although bitcoin is presently the most prominent cryptocurrency,
it is possible that
another cryptocurrency could supplant it as the most prominent cryptocurrency, which
could have a materially negative effect of the demand for bitcoin and, therefore, on its
conversion spot price. Alternatively, the demand for bitcoin may fall for other reasons
unknown to the Company.
Ourabilitytoadopttechnologyinresponsetochangingsecurityneedsortrendsposes
achallengetothesafekeepingofourdigitalassets.
The history of digital asset exchanges has shown that exchanges and large holders of
digital assets must adapt to technological change in order to secure and safeguard their
digital assets. We rely on third party storage solutions and “cold storage” of our digital
wallets to safeguard our digital assets from theft,
loss, destruction or other issues
relating to hackers and technological attack; however, malicious actors may be able to
intercept our digital assets in the process of selling them. Further, we may move our
digital assets to various exchanges to exchange them for fiat currency, which will
require us to rely on the security protocols of these exchanges to safeguard our digital
assets. While these exchanges purport to be secure, and while we believe them to be so,
no security system is perfect and malicious actors may be able to intercept our digital
assets while we are in the process of selling them via such exchanges. Given the growth
in their size and their relatively unregulated nature, we believe these exchanges will
become a more appealing target for malicious actors. To the extent we are unable to
identify and mitigate or stop new security threats, our machines may be subject to theft,
loss, destruction or other attack, which could adversely affect an investment in us.
Wehaveanevolvingbusinessmodelwhichissubjecttovariousuncertainties.
As bitcoin assets may become more widely available, we expect the services and
products associated with them to evolve. In order to stay current with the industry, our
business model may need to evolve as well. From time to time, we may modify aspects
of our business model relating to our strategy. We cannot offer any assurance that
these or any other modifications will be successful or will not result in harm to our
business. We may not be able to manage growth effectively, which could damage our
reputation,
limit our growth and negatively affect our operating results. Further, we
cannot provide any assurance that we will successfully identify all emerging trends and
growth opportunities in this business sector, and we may lose out on those opportunities.
Such circumstances could have a material adverse effect on our business, prospects or
operations.
Thedevelopmentandacceptanceofcryptographicandalgorithmicprotocolsgoverning
the issuance of and transactions in cryptocurrencies is subject to a variety of factors
thataredifficulttoevaluate.
The use of cryptocurrencies to, among other things, buy and sell goods and services and
complete transactions,
is part of a new and rapidly evolving industry that employs
bitcoin assets based upon a computer-generated mathematical and/or cryptographic
protocol. Large-scale acceptance of cryptocurrencies as a means of payment has not,
and may never, occur. The growth of this industry in general, and the use of bitcoin, in
particular, is subject to a high degree of uncertainty, and the slowing or stopping of the
development or acceptance of developing protocols may occur unpredictably. The
factors include, but are not limited to:
● continued worldwide growth in the adoption and use of cryptocurrencies as a medium to
exchange;
● governmental and quasi-governmental regulation of cryptocurrencies and their use, or
restrictions on or regulation of access to and operation of the network or similar bitcoin
systems;
● changes in consumer demographics and public tastes and preferences;
3
● the maintenance and development of the open-source software protocol of the network;
● the increased consolidation of contributors to the bitcoin blockchain through mining
pools;
● the availability and popularity of other forms or methods of buying and selling goods and
services, including new means of using fiat currencies;
● the use of the networks supporting cryptocurrencies for developing smart contracts and
distributed applications;
● general economic conditions and the regulatory environment relating to cryptocurrencies;
and
● negative consumer sentiment and perception of bitcoin specifically and cryptocurrencies
generally.
The outcome of these factors could have negative effects on our ability to continue as a
going concern or to pursue our business strategy at all, which could have a material
adverse effect on our business, prospects or operations as well as potentially negative
effect on the value of any bitcoin or other cryptocurrencies we mine or otherwise
acquire or hold for our own account, which would harm investors in our securities.
Banks and financial institutions may not provide banking services, or may cut off
services, to businesses that engage in bitcoin-related activities or that accept
cryptocurrencies as payment, including financial institutions of investors in our
securities.
A number of companies that engage in bitcoin and/or other bitcoin-related activities
have been unable to find banks or financial institutions that are willing to provide them
with bank accounts and other services. Similarly, a number of companies and individuals
or businesses associated with cryptocurrencies may have had and may continue to have
their existing bank accounts closed or services discontinued with financial institutions in
response to government action, particularly in China, where regulatory response to
cryptocurrencies has been to exclude their use for ordinary consumer transactions
within its jurisdiction.
Subject to such restrictions, we also may be unable to obtain or maintain these services
for our business. The difficulty that many businesses that provide bitcoin and/or
derivatives on other bitcoin-related activities have and may continue to have in finding
banks and financial institutions willing to provide them services may be decreasing the
usefulness of cryptocurrencies as a payment system and harming public perception of
cryptocurrencies and could decrease their usefulness and harm their public perception in
the future.
If any person, institution or a pool of them acting in concert obtains control of more
than 50% of the processing power active on the Bitcoin network, such person,
institutionorapoolofthemcouldpreventnewtransactionsfromgainingconfirmations,
halt payments between users, and reverse previously completed transactions, which
woulderodeuserconfidenceinBitcoin.
If
the award of Bitcoins for solving blocks and transaction fees for
recording
transactions are not sufficiently high to incentivize miners, miners may cease expending
processing power to solve blocks. Miners ceasing operations would reduce the collective
processing power on the Bitcoin network, which would adversely affect the confirmation
process for transactions and make the Bitcoin network more vulnerable to any person,
institution or a pool of them which has obtained over 50% control over the computing
power on the Bitcoin network. In such event, such person, institution or a pool of them
could prevent new transactions from gaining confirmation, halt payments between users,
and reverse previously completed transactions. Such changes or any reduction in
confidence in the confirmation process or processing power of the Bitcoin network may
erode user confidence in Bitcoin, which would decrease the demand for our mining
machines.
TheadministratorsoftheBitcoinnetwork’ssourcecodecouldproposeamendmentsto
the Bitcoin network’s protocols and software that, if accepted and authorized by the
Bitcoinnetwork’scommunity,couldadverselyaffectourbusiness,resultsofoperations
andfinancialcondition.
The Bitcoin network is based on a cryptographic, algorithmic protocol that governs the
end-user-to-end-user
interactions between computers connected to the Bitcoin
network. A loosely organized group can propose amendments to the Bitcoin network’s
source code through one or more software upgrades that alter the protocols and
software that govern the Bitcoin network and the properties of Bitcoins, including the
irreversibility of transactions and limitations on the mining of new Bitcoins. To the extent
that a significant majority of the users and miners on the Bitcoin network install such
software upgrade(s),
the Bitcoin network would be subject
to new protocols and
software that may render our products less desirable, which in turn may adversely affect
our business, results of operations and financial condition.
If less than a significant
majority of the users and miners on the Bitcoin network install such software upgrade(s),
the Bitcoin network could “fork.”
4
The acceptance of Bitcoin network software patches or upgrades by a significant, but
not overwhelming, percentage of the users and miners in the Bitcoin network could
resultina“fork”intheblockchain,resultingintheoperationoftwoseparatenetworks
that cannot be merged. The existence of forked blockchains could erode user
confidenceinBitcoinandcouldadverselyimpactourbusiness,resultsofoperationsand
financialcondition.
Bitcoin is based on open-source software and has no official developer or group of
developers that formally controls the Bitcoin network. Any individual can download the
Bitcoin network software and make any desired modifications, which are proposed to
users and miners on the Bitcoin network through software downloads and upgrades.
However, miners and users must consent
to those software modifications by
downloading the altered software or upgrade implementing the changes; otherwise, the
changes do not become part of the Bitcoin network. Since the Bitcoin network’s
inception, changes to the Bitcoin network have been accepted by the vast majority of
users and miners, ensuring that the Bitcoin network remains a coherent economic
system. However, a developer or group of developers could potentially propose a
modification to the Bitcoin network that is not accepted by a vast majority of miners
and users, but that is nonetheless accepted by a substantial population of participants in
the Bitcoin network. In such a case, a fork in the blockchain could develop and two
separate Bitcoin networks could result, one running the pre-modification software
program and the other running the modified version. An example is the introduction of a
cryptocurrency known as “Bitcoin cash” in mid-2017. This kind of split in the Bitcoin
network could erode user confidence in the stability of the Bitcoin network, which could
negatively affect the demand for our products. Our marketing efforts to help grow our
business may not be effective.
If our marketing efforts are not successful in promoting awareness of our clients, or if
we are not able to cost-effectively manage our marketing expenses, our results of
operations could be adversely affected.
If our marketing efforts are successful
in
increasing awareness of our business, this could also lead to increased public scrutiny
of our business and increase the likelihood of third parties bringing legal proceedings
against us. Any of the foregoing risks could harm our business, financial condition and
results of operations.
Acceptanceand/orwidespreaduseofbitcoinisuncertain.
Currently, there is a relatively limited use of any bitcoin in the retail and commercial
marketplace,
thus contributing to price volatility that could adversely affect an
investment in our securities. Banks and other established financial
institutions may
refuse to process funds for bitcoin transactions, process wire transfers to or from
bitcoin exchanges, bitcoin-related companies or service providers, or maintain accounts
for persons or entities transacting in bitcoin. Conversely, a significant portion of bitcoin
demand is generated by investors seeking a long-term store of value or speculators
seeking to profit from the short- or long-term holding of the asset. Price volatility
undermines any bitcoin’s role as a medium of exchange, as retailers are much less likely
to accept it as a form of payment. Market capitalization for a bitcoin as a medium of
exchange and payment method may always be low.
The relative lack of acceptance of bitcoins in the retail and commercial marketplace, or
a reduction of such use, limits the ability of end users to use them to pay for goods and
services. Such lack of acceptance or decline in acceptances could have a material
adverse effect on our ability to continue as a going concern or to pursue our business
strategy at all, which could have a material adverse effect on our business, prospects or
operations.
The development and acceptance of competing blockchain platforms or technologies
maycauseconsumerstousealternativedistributedledgersorotheralternatives.
The development and acceptance of competing blockchain platforms or technologies
may cause consumers to use alternative distributed ledgers or an alternative to
distributed ledgers altogether. Our business utilizes presently existent digital ledgers and
blockchains and we could face difficulty adapting to emergent digital
ledgers,
blockchains, or alternatives thereto. This may adversely affect us and our exposure to
various blockchain technologies and prevent us from realizing the anticipated profits
from our investments. Such circumstances could have a material adverse effect on our
ability to continue as a going concern or to pursue our business strategy at all, which
could have a material adverse effect on our business, prospects or operations.
5
Wemaynot adequatelyrespond to price fluctuations and rapidly changing technology,
whichmaynegativelyaffectourbusiness.
Competitive conditions within the bitcoin industry require that we use sophisticated
technology in the operation of our business. The industry for blockchain technology is
characterized by rapid technological changes, new product introductions, enhancements
and evolving industry standards. New technologies,
techniques or products could
emerge that might offer better performance than the software and other technologies
we currently utilize, and we may have to manage transitions to these new technologies
to remain competitive. We may not be successful, generally or
relative to our
competitors in the bitcoin industry,
in timely implementing new technology into our
systems, or doing so in a cost-effective manner. During the course of implementing any
such new technology into our operations, we may experience system interruptions and
failures during such implementation. Furthermore, there can be no assurances that we
will recognize, in a timely manner or at all, the benefits that we may expect as a result of
our implementing new technology into our operations. As a result, our business and
operations may suffer, and there may be adverse effects on the price of our common
stock.
Wearedependentonourmajorcustomersforthemajorityofourrevenues.Thelossof
one or more significant customers could adversely affect our financial condition,
prospectsandresultsofoperations.
For the year ended December 31, 2021, we had seven major customers, which accounted
for an aggregate of 88.98% of total revenue. For the year ended December 31, 2020, we
had one major customer that accounted for all of the total revenues. If we were to lose
any key alliances over a relatively short period of time or if one of our largest customers
fails to pay or delays in paying a significant amount of our outstanding receivables, we
could experience an adverse impact on our business, financial condition, results of
operations, cash flows and prospects. Additionally, changes in ownership of our
customers may result in the loss of, or reduction in, business from those customers,
which could materially and adversely affect our business, financial condition, results of
operations and prospects.
We are dependent on a limited number of suppliers, and delays in deliveries or increases
in the cost could harm our business, results of operations and financial condition.
Our ability to meet our customers’ demand for our service depends upon obtaining
adequate supplies on a timely basis. We have established relationships with a limited
number of suppliers. For the year ended December 31, 2021, we had three major
suppliers, which accounted for an aggregate of 98.49% of total cost of revenue. For the
year ended December 31, 2020, we only had one supplier, which accounted for all of our
cost of revenue. Should any of our current suppliers be unable to deliver their service or
otherwise fail to deliver in a timely manner and at acceptable prices and quality, we
would have to identify and quality replacements from alternative sources of supply.
However, the process of qualifying new suppliers for complex components is also
lengthy and could have a material adverse effect on our business, financial condition
and results of operations. Additionally, increase in costs may adversely impact demand
for our services or the results of our business operations.
Anyfailure tooffer high-qualityproductsupportmayadverselyaffect our relationships
withourcustomersandourfinancialresults.
In deploying and using our solutions, our customers depend on our support services
team to resolve complex technical and operational issues. We may be unable to respond
quickly enough to accommodate short-term increases in customer demand for product
support. We also may be unable to modify the nature, scope and delivery of our product
support
to compete with changes in product support services provided by our
competitors.
Increased customer demand for product support, without corresponding
revenue, could increase costs and adversely affect our operating results. Our sales are
highly dependent on our business reputation and on positive recommendations from our
existing customers. Any failure to maintain high-quality product support, or a market
perception that we do not maintain high-quality product support, could adversely affect
our reputation, our ability to sell our solutions to existing and prospective customers, our
business, operating results, and financial position.
6
We might require additional capital to support business growth, and this capital might
notbeavailableonacceptableterms,ifatall.
We intend to continue to make investments to support our business growth and may
require additional funds to respond to business challenges,
including the need to
develop new features or enhance our existing solutions,
improve our operating
infrastructure or acquire complementary businesses and technologies. Accordingly, we
may need to engage in equity or debt financings to secure additional funds. If we raise
additional funds through further issuances of equity or convertible debt securities, our
existing stockholders could suffer significant dilution, and any new equity securities we
issue could have rights, preferences and privileges superior to those of holders of our
Class A ordinary shares. Any debt financing secured by us in the future could involve
restrictive covenants relating to our capital raising activities and other financial and
operational matters, which may make it more difficult for us to obtain additional capital
and to pursue business opportunities,
including potential acquisitions.
In addition, we
may not be able to obtain additional financing on terms favorable to us, or at all. If we
are unable to obtain adequate financing or financing on terms satisfactory to us, when
we require it, our ability to continue to support our business growth and to respond to
business challenges could be significantly impaired.
Our financial and operating performance may be adversely affected by epidemics,
naturaldisastersandothercatastrophes.
Our business could be materially and adversely affected by the outbreak of epidemics
including but not limited to the novel coronavirus (COVID-19), swine influenza, avian
influenza, middle east respiratory syndrome (MERS-CoV) and severe acute respiratory
syndrome (SARS-CoV). Our financial and operating performance may be adversely
affected by epidemics such as the on-going COVID-19, natural disasters and other
catastrophes. Our business could be materially and adversely affected in the event that
the slowdown or suspension carries for a long period of time. The restrictive measures
against the on-going COVID-19 outbreak adversely affected and slowed down the
national economic development. Any prolonged restrictive measures in order to control
the contagious disease or other adverse public health developments in China or our
targeted markets may have a material and adverse effect on our business operations.
Similarly, natural disasters, wars (including the potential of war),
terrorist activity
(including threats of terrorist activity), social unrest and heightened travel security
measures instituted in response, and travel-related accidents, as well as geopolitical
uncertainty and international conflict, will affect travel volume and may in turn have a
material adverse effect on our business and results of operations. In addition, we may
not be adequately prepared in contingency planning or recovery capability in relation to
a major incident or crisis, and as a result, our operational continuity may be adversely
and materially affected, which in turn may harm our reputation.
TheCOVID-19 pandemichasadverselyimpacted, andposesrisksto,our business,the
natureandextentofwhicharehighlyuncertainandunpredictable.
In recent months, the continued, global spread of COVID-19 has led to disruption and
volatility in the global capital markets, which has increased the cost of, and adversely
impacted access to, capital (including the commercial paper markets) and increased
economic uncertainty. It is likely that the pandemic will cause an economic slowdown of
potentially extended duration, and it is possible that it could cause a global recession.
COVID-19 is adversely affecting, and is expected to continue to adversely affect, certain
elements of our business, including as a result of impacts associated with preventive
and precautionary measures that we, other businesses, our communities and
governments are taking. Due to these impacts and measures, we have experienced and
expect to continue to experience delays in our internal product development and
unpredictable reductions in demand for certain of our products and services. Our
employees have been required to work from home or not go into their offices. Such
restrictions are slowly being lifted. If the pandemic continues and conditions worsen, we
expect to experience additional adverse impacts on our operational and commercial
activities and customer orders, which adverse impacts may be material, and it remains
uncertain what impact these adverse impacts would have on future sales and customer
orders even if conditions begin to improve.
In addition to existing travel restrictions,
jurisdictions may continue to close borders, impose prolonged quarantines and further
restrict travel and business activity, which could significantly impact our ability to
support our operations and customers. Further, such travel restrictions and slowed-
down business activities may affect
the operation of our customer and result
in
decrease of our products and services, which could adversely affect our financial results.
Due to the speed with which the COVID-19 situation is developing, the global breadth of
its spread and the range of governmental and community reactions thereto, there is
uncertainty around its duration and ultimate impact; therefore, any negative impact on
our overall financial and operating results (including without limitation our liquidity)
cannot be reasonably estimated at this time, but the pandemic could lead to extended
disruption of economic activity and the impact on our financial and operating results
could be material.
7
If we are not able to continue to innovate or if we fail to adapt to changes in our
industry,ourbusiness,financialconditionandresultsof operationswouldbematerially
andadverselyaffected.
The software industry is characterized by rapidly changing technology, evolving industry
standards, new service introductions and changing customer demands. Furthermore, our
competitors are constantly developing innovations in online marketing, communications,
social networking and other services to enhance users’ online experience. We continue
to invest significant resources in our infrastructure, research and development and other
areas in order to introduce more content and enhance our existing services that will
attract more users to our software. The changes and developments taking place in our
industry may also require us to re-evaluate our business model and adopt significant
changes to our long-term strategies and business plan. Our failure to innovate and
adapt to these changes would have a material adverse effect on our business, financial
condition and results of operations.
Ifweareunabletomaintainexistingclients,attractnewclientsorbroadenourmarket,
ourbusinessandresultsofoperationswillbeadverselyaffected.
We intend to continue to dedicate significant resources to our user acquisition efforts,
including establishing new acquisition channels, particularly as we continue to grow and
introduce new services. The overall number of users may be affected by several factors,
including our brand recognition and reputation, the effectiveness of our risk control, the
efficiency of our platform, the macroeconomic environment and other factors. Currently,
we promote our brand through direct communications with schools and learning centers.
However, we do we have sufficient human resource to market our services, which will
result in an increase in operation cost. If we are unable to broaden our market or attract
new users, or if the existing users do not continue to use our software, we might be
unable to increase our revenues as we expect, and our business and results of
operations may be adversely affected.
Ifwedonotcompeteeffectively,ourresultsofoperationscouldbeharmed.
The market of software is in rapid growth due to rapid growth of actual and predicted
demand. The market, thus, has become more competitive. For our commodity trading
platform, we compete with traditional financial
institutions and other online trading
platforms. For our education software, we compete with schools and learning centers
and online education programs. Our competitors operate with different business models,
have different cost structures or participate selectively in different market segments.
They may ultimately prove more successful or more adaptable to new regulatory,
technological and other developments. Some of our current and potential competitors
have significantly more financial, technical, marketing and other resources than we do
and may be able to devote greater resources to the development, promotion, sale and
support of their platforms. Our competitors may also have longer operating histories,
more extensive customer bases, greater brand recognition and brand loyalty and broader
partner relationships than us. Additionally, a current or potential competitor may acquire
one or more of our existing competitors or form a strategic alliance with one or more of
our competitors. Our competitors may be better at developing new services, offering
more attractive investment returns or lower fees, responding faster to new technologies
and undertaking more extensive and effective marketing campaigns.
In response to
competition and in order to grow or maintain the client base, we may have to offer more
content and features in the software or charge lower fees, which could materially and
adversely affect our business and results of operations.
If we are unable to compete
with such companies and meet the need for innovation in our industry, the demand for
our service could stagnate or substantially decline, we could experience reduced
revenues or our services could fail to achieve or maintain more widespread market
acceptance, any of which could harm our business and results of operations.
Ifwefailtopromoteandmaintainourbrandinaneffectiveandcost-efficientway,our
businessandresultsofoperationsmaybeharmed.
We believe that developing and maintaining awareness of our brand effectively is critical
to attracting new and retaining existing clients. Successful promotion of our brand and
our ability to attract clients depend largely on the effectiveness of our marketing efforts
and the success of the channels we use to promote our services. It is likely that our
future marketing efforts will require us to incur significant additional expenses. These
efforts may not result in increased revenues in the immediate future or at all and, even if
they do, any increases in revenues may not offset the expenses incurred. If we fail to
successfully promote and maintain our brand while incurring substantial expenses, our
results of operations and financial condition would be adversely affected, which may
impair our ability to grow our business.
8
Unauthorized disclosure of sensitive or confidentialcustomer information or our failure
or the perception by our customers that we failed to comply with privacy laws or
properly address privacy concerns could harm our business and standing with our
customers.
We collect, store, process, and use certain personal information and other user data in
our business. A significant risk associated with our business is the secure transmission
of confidential
information over public networks. The perception of privacy concerns,
whether or not valid, may adversely affect our business and results of operations. We
must ensure that any processing, collection, use, storage, dissemination, transfer and
disposal of data for which we are responsible complies with relevant data protection and
privacy laws. The protection of our customer, employee and company data is critical to
us. We rely on commercially available systems, software, tools and monitoring to provide
secure processing,
transmission and storage of confidential customer information.
Despite the security measures we have in place, our facilities and systems, and those of
our third-party service providers, may be vulnerable to security breaches, acts of
vandalism, computer viruses, misplaced or lost data, programming or human errors, or
other similar events. Any security breach, or any perceived failure involving the
misappropriation, loss or other unauthorized disclosure of confidential
information, as
well as any failure or perceived failure to comply with laws, policies, legal obligations or
industry standards regarding data privacy and protection, whether by us or our vendors,
could damage our reputation, expose us to litigation risk and liability, subject us to
negative publicity, disrupt our operations and harm our business. We cannot assure you
that our security measures will prevent security breaches or that failure to prevent them
will not have a material adverse effect on our business. Further, we do not carry
cybersecurity insurance to compensate for any losses that may result from any breach
of security. Therefore, our results of operations or financial condition may be materially
adversely affected if our existing general liability policies did not cover a security breach.
Newlinesofbusinessornewservicesmaysubjectustoadditionalrisks.
From time to time, we may implement new lines of business or offer new services within
existing lines of business. There are substantial risks and uncertainties associated with
these efforts, particularly in instances where the markets are not fully developed.
In
developing and marketing new lines of business and/or new services, we may invest
significant time and resources. Initial timetables for the introduction and development of
new lines of business and/or new services may not be achieved and price and
profitability targets may not prove feasible. External factors, such as compliance with
regulations, competitive alternatives and shifting market preferences, may also impact
the successful implementation of a new line of business or a new service. Furthermore,
any new line of business and/or new service could have a significant impact on the
effectiveness of our system of internal controls. Failure to successfully manage these
risks in the development and implementation of new lines of business or new services
could have a material adverse effect on our business, results of operations and financial
condition.
Wemaynotbeabletopreventothersfromunauthorizeduseofourintellectualproperty,
whichcouldharmourbusinessandcompetitiveposition.
We regard our
trademarks, copyrights, domain names, know-how, proprietary
technologies and similar intellectual property as critical to our success, and we rely on a
combination of
intellectual property laws and contractual arrangements,
including
confidentiality, invention assignment and non-compete agreements with our employees
and others to protect our proprietary rights. We have purchased and registered with the
National Copyright Administration of PRC certain copyrights. See “Item 4. Information
on the Company – Intellectual Property.” Despite these measures, any of our intellectual
property rights could be challenged,
invalidated, circumvented or misappropriated, or
such intellectual property may not be sufficient
to provide us with competitive
advantages.
In addition, because of the rapid pace of technological change in our
industry, parts of our business rely on technologies developed or licensed by third
parties, and we may not be able to obtain or continue to obtain licenses and
technologies from these third parties on reasonable terms, or at all.
9
It is often difficult to register, maintain and enforce intellectual property rights in China.
Statutory laws and regulations are subject to judicial interpretation and enforcement and
may not be applied consistently due to the lack of clear guidance on statutory
interpretation. Confidentiality, invention assignment and non-compete agreements may
be breached by counterparties, and there may not be adequate remedies available to us
for any such breach. Accordingly, we may not be able to effectively protect our
intellectual property rights or to enforce our contractual rights in China. Preventing any
unauthorized use of our intellectual property is difficult and costly and the steps we take
may be inadequate to prevent the misappropriation of our intellectual property. In the
event that we resort to litigation to enforce our intellectual property rights, such
litigation could result in substantial costs and a diversion of our managerial and financial
resources. We can provide no assurance that we will prevail in such litigation. In addition,
our trade secrets may be leaked or otherwise become available to, or be independently
discovered by, our competitors. To the extent that our employees or consultants use
intellectual property owned by others in their work for us, disputes may arise as to the
rights in related know-how and inventions. Any failure in protecting or enforcing our
intellectual property rights could have a material adverse effect on our business,
financial condition and results of operations.
Wemaybesubjecttointellectualpropertyinfringementclaims,whichmaybeexpensive
todefendandmaydisruptourbusinessandoperations.
We cannot be certain that our operations or any aspects of our business do not or will
not infringe upon or otherwise violate trademarks, patents, copyrights, know-how or
other intellectual property rights held by third parties. We may be from time to time in
the future subject to legal proceedings and claims relating to the intellectual property
rights of others. In addition, there may be third-party trademarks, patents, copyrights,
know-how or other intellectual property rights that are infringed by our services or other
aspects of our business without our awareness. Holders of such intellectual property
rights may seek to enforce such intellectual property rights against us in China, the
United States or other jurisdictions. If any third-party infringement claims are brought
against us, we may be forced to divert management’s time and other resources from our
business and operations to defend against these claims, regardless of their merits.
Additionally, the application and interpretation of China’s intellectual property right laws
and the procedures and standards for granting trademarks, patents, copyrights, know-
how or other intellectual property rights in China are still evolving and are uncertain, and
we cannot assure you that PRC courts or regulatory authorities would agree with our
analysis. If we were found to have violated the intellectual property rights of others, we
may be subject to liability for our infringement activities or may be prohibited from using
such intellectual property, and we may incur licensing fees or be forced to develop
alternatives of our own. As a result, our business and results of operations may be
materially and adversely affected.
Fromtime to time,we mayevaluate andpotentially consummate strategic investments
or acquisitions, which could require significant management attention, disrupt our
businessandadverselyaffectourfinancialresults.
We may evaluate and consider strategic investments, combinations, acquisitions or
alliances to further increase the value of our services and better serve our clients. These
transactions could be material to our financial condition and results of operations if
consummated. If we are able to identify an appropriate business opportunity, we may
not be able to successfully consummate the transaction and, even if we do consummate
such a transaction, we may be unable to obtain the benefits or avoid the difficulties and
risks of such transaction.
Strategic investments or acquisitions will
involve risks commonly encountered in
business relationships, including:
● difficulties in assimilating and integrating the operations, personnel, systems, data,
technologies, products and services of the acquired business;
● inability of the acquired technologies, products or businesses to achieve expected levels
of revenue, profitability, productivity or other benefits;
● difficulties in retaining, training, motivating and integrating key personnel;
● diversion of management’s time and resources from our normal daily operations;
● difficulties in successfully incorporating licensed or acquired technology and rights into
our services;
10
● difficulties in maintaining uniform standards, controls, procedures and policies within the
combined organizations;
● difficulties in retaining relationships with clients, employees and suppliers of the acquired
business;
● risks of entering markets in which we have limited or no prior experience;
● regulatory risks, including remaining in good standing with existing regulatory bodies or
receiving any necessary pre-closing or post-closing approvals, as well as being subject to
new regulators with oversight over an acquired business;
● assumption of contractual obligations that contain terms that are not beneficial to us,
require us to license or waive intellectual property rights or increase our risk for liability;
● failure to successfully further develop the acquired technology;
● liability for activities of
including
intellectual property infringement claims, violations of laws, commercial disputes, tax
liabilities and other known and unknown liabilities;
the acquired business before the acquisition,
● potential disruptions to our ongoing businesses; and
● unexpected costs and unknown risks and liabilities associated with strategic investments
or acquisitions.
We may not make any investments or acquisitions, or any future investments or
acquisitions may not be successful, may not benefit our business strategy, may not
generate sufficient revenues to offset the associated acquisition costs or may not
otherwise result in the intended benefits.
In addition, we cannot assure you that any
future investment in or acquisition of new businesses or technology will
lead to the
successful development of new or enhanced services or that any new or enhanced
services, if developed, will achieve market acceptance or prove to be profitable.
Our business depends on the continued efforts of our senior management. If one or
more of our key executives were unable or unwilling to continue in their present
positions,ourbusinessmaybeseverelydisrupted.
Our business operations depend on the continued services of our senior management,
particularly the executive officers named in this annual report. While we have provided
different incentives to our management, we cannot assure you that we can continue to
retain their services. If one or more of our key executives were unable or unwilling to
continue in their present positions, we may not be able to replace them easily or at all,
our future growth may be constrained, our business may be severely disrupted and our
financial condition and results of operations may be materially and adversely affected,
and we may incur additional expenses to recruit, train and retain qualified personnel. In
addition, although we have entered into confidentiality and non-competition agreements
with our management, there is no assurance that any member of our management team
will not join our competitors or form a competing business.
If any dispute arises
between our current or former officers and us, we may have to incur substantial costs
and expenses in order to enforce such agreements in China or we may be unable to
enforce them at all.
Competitionforemployeesisintense,andwemaynotbeabletoattractandretainthe
qualifiedandskilledemployeesneededtosupportourbusiness.
We believe our success depends on the efforts and talent of our employees, including
software engineering, financial and marketing personnel. Our future success depends on
our continued ability to attract, develop, motivate and retain qualified and skilled
employees. Competition for highly skilled technical, and financial personnel is extremely
intense. We may not be able to hire and retain these personnel at compensation levels
consistent with our existing compensation and salary structure. Some of the companies
with which we compete for experienced employees have greater resources than we have
and may be able to offer more attractive terms of employment.
11
Alackofinsurancecouldexposeustosignificantcostsandbusinessdisruption.
We have not yet purchased insurance to cover our assets and property of our business,
which could leave our business inadequately protected from loss. If we were to incur
substantial losses or liabilities due to fire, explosions, floods, other natural disasters or
accidents or business interruption, our results of operations could be materially and
adversely affected. Furthermore, Insurance companies in China currently do not offer as
extensive an array of insurance products as insurance companies in more developed
economies. Currently, we do not have any business liability or disruption insurance to
cover our operations. We have determined that the costs of insuring for these risks and
the difficulties associated with acquiring such insurance on commercially reasonable
terms make it impractical for us to have such insurance. Any uninsured business
disruptions may result in our incurring substantial costs.
Wehaveidentifiedmaterialweaknessesinourinternalcontroloverfinancialreporting.If
we fail to implement and maintain an effective system of internal control, we may be
unable to accurately report our operating results, meet our reporting obligations or
preventfraud.
As required by Form 20-F, our management is required to assess the effectiveness of
our internal control over financial reporting and include a report in our annual report on
Form 20-F.
In preparing our consolidated financial statements for the years ended
December 31, 2021 and 2020, our management identified material weaknesses in our
internal control over financial reporting, as defined in the standards established by the
Public Company Accounting Oversight Board of the United States, and other significant
deficiencies. A “material weakness” is a deficiency, or a combination of deficiencies, in
internal control over financial reporting such that there is a reasonable possibility that a
material misstatement of the Company’s annual or interim financial statements will not
be prevented or detected on a timely basis. The material weaknesses identified are as
follows: (i) no sufficient personnel with appropriate levels of accounting knowledge and
experience to address complex U.S. GAAP accounting issues and to prepare and review
financial statements and related disclosures under U.S. GAAP; (ii) ineffective oversight
of our financial reporting and internal control by those charged with governance; and (iii)
inadequate design of internal control over the preparation of the financial statements
being audited. These material weaknesses remained as of December 31, 2021. As a
result of inherent limitations, our internal control over financial reporting may not prevent
or detect misstatements, errors or omissions.
In addition, once we cease to be an “emerging growth company” as such term is
defined under the Jumpstart Our Business Startups Act, or JOBS Act, Section 404 of the
Sarbanes-Oxley Act of 2002 and related rules promulgated by the SEC, we will be
subject to Section 404 of the Sarbanes-Oxley Act of 2002, pursuant to which our
independent
registered public accounting firm must attest
to and report on the
effectiveness of our internal control over financial reporting. Our management may
conclude that our internal control over financial reporting is not effective. Moreover,
even if our management concludes that our internal control over financial reporting is
effective, our independent registered public accounting firm, after conducting its own
independent testing, may issue a report that is qualified if it is not satisfied with our
internal controls or the level at which our controls are documented, designed, operated
or reviewed, or if it interprets the relevant requirements differently from us. In addition,
our reporting obligations may place a significant strain on our management, operational
and financial resources and systems for the foreseeable future. We may be unable to
timely complete our evaluation testing and any required remediation.
During the course of documenting and testing our internal control procedures, in order
to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we may
identify other weaknesses and deficiencies in our internal control over financial reporting.
In addition,
if we fail to maintain the adequacy of our internal control over financial
reporting, as these standards are modified, supplemented or amended from time to time,
we may not be able to conclude on an ongoing basis that we have effective internal
control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley
Act of 2002. Generally, if we fail to achieve and maintain an effective internal control
environment, we could suffer material misstatements, errors or omissions in our financial
statements and fail to meet our reporting obligations, which would likely cause investors
to lose confidence in our reported financial
information. This could in turn limit our
access to capital markets, and harm our results of operations. Additionally, ineffective
internal control over financial reporting could expose us to increased risk of fraud or
misuse of corporate assets and subject us to potential delisting from the stock
exchange on which we list, regulatory investigations and civil or criminal sanctions.
12
Risks Related to Doing Business in China
We are a holding company, and will rely on dividends paid by our subsidiaries for our
cashneeds.Anylimitationontheabilityofoursubsidiariestomakedividendpayments
tous,oranytaximplicationsofmakingdividendpaymentstous,couldlimitourability
topayourparentcompanyexpensesorpaydividendstoholdersofourClassAordinary
shares.
We are a BVI holding company and conduct substantially all of our business through our
subsidiaries in China. Although neither the holding company nor any of the Company’s
Chinese subsidiaries conduct any operations through contractual arrangements with a
variable interest entity based in China, we may rely on dividends to be paid by our PRC
subsidiaries to fund our cash and financing requirements, including the funds necessary
to pay dividends and other cash distributions to our shareholders, to service any debt we
may incur and to pay our operating expenses. If our PRC subsidiaries incur debt on their
own behalf in the future, the instruments governing the debt may restrict our PRC
subsidiaries’ ability to pay dividends or make other distributions to us.
Under PRC laws and regulations, our PRC subsidiaries may pay dividends only out of
their accumulated profits as determined in accordance with PRC accounting standards
and regulations. In addition, wholly foreign-owned enterprises are required to set aside
at least 10% of their accumulated after-tax profits each year, if any, to fund a certain
statutory reserve fund, until the aggregate amount of such fund reaches 50% of its
registered capital.
Our PRC subsidiaries generate primarily all of their revenue in Renminbi, which is not
freely convertible into other currencies. As a result, any restriction on currency exchange
may limit the ability of any one of our PRC subsidiaries to use its Renminbi revenues to
pay dividends to us. The PRC government may continue to strengthen its capital
controls, and more restrictions and substantial vetting process may be put forward by
SAFE for cross-border transactions falling under both the current account and the
capital account. Any limitation on the ability of our PRC subsidiary to pay dividends or
make other kinds of payments to us could materially and adversely limit our ability to
grow, make investments or acquisitions that could be beneficial to our business, pay
dividends, or otherwise fund and conduct our business.
In addition, the Enterprise Income Tax Law, or EIT, and its implementation rules provide
that a withholding tax rate of up to 10% will be applicable to dividends payable by
Chinese companies to non-PRC-resident enterprises unless otherwise exempted or
reduced according to treaties or arrangements between the PRC central government
and governments of other countries or regions where the non-PRC resident enterprises
are incorporated. Any limitation on the ability of our PRC subsidiary to pay dividends or
make other distributions to us could materially and adversely limit our ability to grow,
make investments or acquisitions that could be beneficial to our business, pay dividends,
or otherwise fund and conduct our business.
Pursuant to the Arrangement between Mainland China and the Hong Kong Special
Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income,
or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered
to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC entity.
However,
the 5% withholding tax rate does not automatically apply and certain
requirements must be satisfied,
including, without limitation, that (a) the Hong Kong
entity must be the beneficial owner of the relevant dividends; and (b) the Hong Kong
entity must directly hold no less than 25% share ownership in the PRC entity during the
12 consecutive months preceding its receipt of the dividends. In current practice, a Hong
Kong entity must obtain a tax resident certificate from the Hong Kong tax authority to
apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will
issue such a tax resident certificate on a case-by-case basis, we cannot assure you
that we will be able to obtain the tax resident certificate from the relevant Hong Kong
tax authority and enjoy the preferential withholding tax rate of 5% under the Double
Taxation Arrangement with respect to dividends to be paid by our PRC subsidiaries to
their immediate holding companies, AGM Defi Tech Limited and AGM Technology
Limited. As of the date hereof, Beijing Keen Sense Technology Service Co., Ltd., AGM
Tianjing Construction Development Co., Ltd. and Nanjing Lucun Semiconductor Co. Ltd.
currently do not have plans to declare and pay dividends to AGM Defi Tech Limited and
AGM Technology Limited and we have not applied for the tax resident certificate from
the relevant Hong Kong tax authority. AGM Defi Tech Limited and AGM Technology
Limited intend to apply for the tax resident certificate when Beijing Keen Sense
Technology Service Co., Ltd., AGM Tianjing Construction Development Co., Ltd. and
Nanjing Lucun Semiconductor Co. Ltd. plan to declare and pay dividends to them. When
Beijing Keen Sense Technology Service Co., Ltd., AGM Tianjing Construction
Development Co., Ltd. and Nanjing Lucun Semiconductor Co. Ltd. plan to declare and
pay dividends to AGM Defi Tech Limited and AGM Technology Limited and when we
intend to apply for the tax resident certificate from the relevant Hong Kong tax authority,
we plan to inform the investors through SEC filings, such as a current report on Form 6-
K, prior to such actions.
13
TheChinesegovernmentexertssubstantialinfluenceoverthemannerinwhichwemust
conduct our business activities. We are currently not required to obtain approval from
Chinese authorities to list on U.S exchanges, however, if our holding company or
subsidiarieswererequired toobtainapprovalinthe future andwere denied permission
fromChineseauthoritiestolistonU.S.exchanges,wewillnotbeabletocontinuelisting
onU.S.exchange,whichwouldmateriallyaffecttheinterestoftheinvestors.
The Chinese government has exercised and can continue to exercise substantial control
to intervene on virtually every sector of the Chinese economy through regulation and
state ownership, and as a result, it can influence the manner in which we must conduct
our business activities and effect material changes in our operations or the value of the
Class A ordinary shares we are registering in this resale. Under the current government
leadership, the government of the PRC has been pursuing reform policies which have
adversely affected China-based operating companies whose securities are listed in the
United States, with significant policies changes being made from time to time without
notice. There are substantial uncertainties regarding the interpretation and application of
PRC laws and regulations,
including, but not
limited to, the laws and regulations
governing our business, or
the enforcement and performance of our contractual
arrangements with borrowers in the event of the imposition of statutory liens, death,
bankruptcy or criminal proceedings. Our ability to operate in China may be harmed by
changes in its laws and regulations, including those relating to taxation, environmental
regulations,
land use rights, property and other matters. The central or
local
governments of
these jurisdictions may
impose new,
stricter
regulations or
interpretations of existing regulations that would require additional expenditures and
efforts on our part to ensure our compliance with such regulations or interpretations.
Accordingly, government actions in the future, including any decision not to continue to
support recent economic reforms and to return to a more centrally planned economy or
regional or local variations in the implementation of economic policies, could have a
significant effect on economic conditions in China or particular regions thereof, and
could require us to divest ourselves of any interest we then hold in Chinese properties.
Given recent statements by the Chinese government indicating an intent to exert more
oversight and control over offerings that are conducted overseas and/or
foreign
investment
in China-based issuers, any such action could significantly limit or
completely hinder our ability to offer or continue to offer securities to investors and
cause the value of such securities to significantly decline or become worthless.
Recently, the General Office of the Central Committee of the Communist Party of China
and the General Office of the State Council
jointly issued the Opinions on Severely
Cracking Down on Illegal Securities Activities According to Law, or the Opinions, which
was made available to the public on July 6, 2021. The Opinions emphasized the need to
strengthen the administration over illegal securities activities, and the need to strengthen
the supervision over overseas listings by Chinese companies. Effective measures, such
as promoting the construction of relevant regulatory systems, will be taken to deal with
the risks and incidents of China-concept overseas listed companies. As of the date
hereof, we have not received any inquiry, notice, warning, or sanctions from PRC
government authorities in connection with the Opinions.
On June 10, 2021, the Standing Committee of the National People’s Congress of China,
or the SCNPC, promulgated the PRC Data Security Law, which took effect in September
2021. The PRC Data Security Law imposes data security and privacy obligations on
entities and individuals carrying out data activities, and introduces a data classification
and hierarchical protection system based on the importance of data in economic and
social development, and the degree of harm it will cause to national security, public
interests, or legitimate rights and interests of individuals or organizations when such
data is tampered with, destroyed,
leaked,
illegally acquired or used. The PRC Data
Security Law also provides for a national security review procedure for data activities
that may affect national security and imposes export restrictions on certain data an
information.
In early July 2021, regulatory authorities in China launched cybersecurity investigations
with regard to several China-based companies that are listed in the United States. The
Chinese cybersecurity regulator announced on July 2 that it had begun an investigation
of Didi Global Inc. (NYSE: DIDI) and two days later ordered that the company’s app be
removed from smartphone app stores. On July 5, 2021, the Chinese cybersecurity
regulator launched the same investigation on two other Internet platforms, China’s Full
Truck Alliance of Full Truck Alliance Co. Ltd. (NYSE: YMM) and Boss of KANZHUN
LIMITED (Nasdaq: BZ). On July 24, 2021, the General Office of the Communist Party of
China Central Committee and the General Office of the State Council jointly released
the Guidelines for Further Easing the Burden of Excessive Homework and Off-campus
Tutoring for Students at the Stage of Compulsory Education, pursuant to which foreign
investment in such firms via mergers and acquisitions, franchise development, and
variable interest entities are banned from this sector.
14
On August 17, 2021, the State Council promulgated the Regulations on the Protection of
the Security of Critical Information Infrastructure, or the Regulations, which took effect
on September 1, 2021. The Regulations supplement and specify the provisions on the
security of critical
information infrastructure as stated in the Cybersecurity Review
Measures. The Regulations provide, among others, that protection department of certain
industry or sector shall notify the operator of the critical information infrastructure in
time after the identification of certain critical information infrastructure.
On August 20, 2021, the SCNPC promulgated the Personal Information Protection Law
of the PRC, or the Personal Information Protection Law, which took effect in November
2021. As the first systematic and comprehensive law specifically for the protection of
personal
information in the PRC, the Personal
Information Protection Law provides,
among others, that (i) an individual’s consent shall be obtained to use sensitive personal
information, such as biometric characteristics and individual
location tracking,
(ii)
personal
information operators using sensitive personal
information shall notify
individuals of the necessity of such use and impact on the individual’s rights, and (iii)
where personal information operators reject an individual’s request to exercise his or her
rights, the individual may file a lawsuit with a People’s Court.
As such, the Company’s business segments may be subject to various government and
regulatory interference in the provinces in which they operate. The Company could be
subject to regulation by various political and regulatory entities, including various local
and municipal agencies and government sub-divisions. The Company may incur
increased costs necessary to comply with existing and newly adopted laws and
regulations or penalties for any failure to comply. Additionally, the governmental and
regulatory interference could significantly limit or completely hinder our ability to offer or
continue to offer securities to investors and cause the value of such securities to
significantly decline or be worthless.
Furthermore, it is uncertain when and whether the Company will be required to obtain
permission from the PRC government to list on U.S. exchanges in the future, and even
when such permission is obtained, whether it will be denied or rescinded. Although the
Company is currently not required to obtain permission from any of the PRC federal or
local government to obtain such permission and has not received any denial to list on
the U.S. exchange, our operations could be adversely affected, directly or indirectly, by
existing or future laws and regulations relating to its business or industry.
On December 24, 2021, the CSRC, together with other relevant government authorities
in China issued the Provisions of the State Council on the Administration of Overseas
Securities Offering and Listing by Domestic Companies (Draft for Comments), and the
Measures for
the Filing of Overseas Securities Offering and Listing by Domestic
Companies (Draft for Comments) (“Draft Overseas Listing Regulations”). The Draft
Overseas Listing Regulations requires that a PRC domestic enterprise seeking to issue
and list its shares overseas (“Overseas Issuance and Listing”) shall complete the filing
procedures of and submit the relevant information to CSRC. The Overseas Issuance and
Listing includes direct and indirect issuance and listing. Where an enterprise whose
principal business activities are conducted in PRC seeks to issue and list its shares in
the name of an overseas enterprise (“Overseas Issuer”) on the basis of the equity,
assets,
income or other similar rights and interests of the relevant PRC domestic
enterprise, such activities shall be deemed an indirect overseas issuance and listing
(“Indirect Overseas Issuance and Listing”) under the Draft Overseas Listing Regulations.
Therefore, the proposed listing would be deemed an Indirect Overseas Issuance and
Listing under the Draft Overseas Listing Regulations. As such, the Company would be
required to complete the filing procedures of and submit the relevant information to
CSRC after the Draft Overseas Listing Regulations become effective.
In addition, on December 28, 2021, the CAC, the National Development and Reform
Commission (“NDRC”), and several other administrations jointly issued the revised
Measures for Cybersecurity Review, or the Revised Review Measures, which became
effective and has replaced the existing Measures for Cybersecurity Review on February
15, 2022. According to the Revised Review Measures, if an “online platform operator”
that is in possession of personal data of more than one million users intends to list in a
foreign country,
it must apply for a cybersecurity review. Based on a set of Q&A
published on the official website of the State Cipher Code Administration in connection
with the issuance of the Revised Review Measures, an official of the said administration
indicated that an online platform operator should apply for a cybersecurity review prior
to the submission of its listing application with non-PRC securities regulators. Given the
recency of
the issuance of
the Revised Review Measures and their pending
effectiveness, there is a general lack of guidance and substantial uncertainties exist with
respect to their interpretation and implementation. For example, it is unclear whether the
requirement of cybersecurity review applies to follow-on offerings by an “online
platform operator” that is in possession of personal data of more than one million users
where the offshore holding company of such operator is already listed overseas.
Furthermore, the CAC released the draft of the Regulations on Network Data Security
Management in November 2021 for public consultation, which among other things,
stipulates that a data processor listed overseas must conduct an annual data security
review by itself or by engaging a data security service provider and submit the annual
data security review report for a given year to the municipal cybersecurity department
before January 31 of the following year.
If the draft Regulations on Network Data
Security Management are enacted in the current form, we, as an overseas listed
company, will be required to carry out an annual data security review and comply with
the relevant reporting obligations.
We have been closely monitoring the development in the regulatory landscape in China,
particularly regarding the requirement of approvals, including on a retrospective basis,
from the CSRC, the CAC or other PRC authorities with respect to future offerings, as
well as regarding any annual data security review or other procedures that may be
imposed on us. If any approval, review or other procedure is in fact required, we are not
able to guarantee that we will obtain such approval or complete such review or other
procedure timely or at all. For any approval that we may be able to obtain,
it could
nevertheless be revoked and the terms of its issuance may impose restrictions on our
operations and future offerings relating to our securities.
15
The M&A Rules and certain other PRC regulations establish complex procedures for
someacquisitionsofChinesecompaniesbyforeigninvestors,whichcouldmakeitmore
difficultforustopursuegrowththroughacquisitionsinChina.
The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign
Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and
amended in 2009, and some other regulations and rules concerning mergers and
acquisitions established additional procedures and requirements that could make merger
and acquisition activities by foreign investors more time-consuming and complex,
including requirements in some instances that the anti-monopoly law enforcement
agency be notified in advance of any change-of-control transaction in which a foreign
investor takes control of a PRC domestic enterprise.
For example, the M&A Rules require that MOFCOM be notified in advance of any
change-of-control transaction in which a foreign investor takes control of a PRC
domestic enterprise,
if (i) any important industry is concerned, (ii) such transaction
involves factors that impact or may impact national economic security, or (iii) such
transaction will
lead to a change in control of a domestic enterprise which holds a
famous trademark or PRC time-honored brand. Moreover, the PRC Anti-Monopoly Law
promulgated by the Standing Committee of the National People’s Congress effective
2008 requires that transactions which are deemed concentrations and involve parties
with specified turnover thresholds (i.e., during the previous fiscal year, (i) the total global
turnover of all operators participating in the transaction exceeds RMB10 billion and at
least two of these operators each had a turnover of more than RMB400 million within
China, or (ii) the total turnover within China of all the operators participating in the
concentration exceeded RMB2 billion, and at least two of these operators each had a
turnover of more than RMB400 million within China) must be cleared by the anti-
monopoly enforcement authority before they can be completed. In addition, in 2011, the
General Office of the State Council promulgated a Notice on Establishing the Security
Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign
Investors, also known as Circular 6, which officially established a security review system
for mergers and acquisitions of domestic enterprises by foreign investors. Further,
MOFCOM promulgated the Regulations on Implementation of Security Review System
for the Merger and Acquisition of Domestic Enterprises by Foreign Investors, effective
2011, to implement Circular 6. Under Circular 6, a security review is required for mergers
and acquisitions by foreign investors having “national defense and security” concerns
and mergers and acquisitions by which foreign investors may acquire the “de facto
control” of domestic enterprises with “national security” concerns. Under the foregoing
MOFCOM regulations, MOFCOM will focus on the substance and actual impact of the
transaction when deciding whether a specific merger or acquisition is subject to security
review. If MOFCOM decides that a specific merger or acquisition is subject to a security
review,
it will submit it to the Inter-Ministerial Panel, an authority established under
Circular 6 led by the National Development and Reform Commission, and MOFCOM
under the leadership of the State Council, to carry out security review. The regulations
prohibit foreign investors from bypassing the security review by structuring transactions
through trusts,
indirect
investments,
leases,
loans, control
through contractual
arrangements or offshore transactions. There is no explicit provision or official
interpretation stating that the merging or acquisition of a company engaged in the
internet content business requires security review, and there is no requirement that
acquisitions completed prior to the promulgation of the Security Review Circular are
subject to MOFCOM review.
In the future, we may grow our business by acquiring complementary businesses.
Complying with the requirements of the above-mentioned regulations and other relevant
rules to complete such transactions could be time consuming, and any required approval
processes,
including obtaining approval from MOFCOM or its local counterparts may
delay or inhibit our ability to complete such transactions. We believe that it is unlikely
that our business would be deemed to be in an industry that raises “national defense
and security” or “national security” concerns. However, MOFCOM or other government
agencies may publish explanations in the future determining that our business is in an
industry subject to the security review, in which case our future acquisitions in China,
including those by way of entering into contractual control arrangements with target
entities, may be closely scrutinized or prohibited.
Youmayhavedifficultyenforcingjudgmentsobtainedagainstus.
We are an exempted company incorporated under the laws of the British Virgin Islands,
and substantially all of our assets are located outside of the United States. Virtually all
of our assets and a substantial portion of our current business operations are conducted
in the PRC.
In addition, almost all of our directors and officers are nationals and
residents of countries other than the United States. A substantial portion of the assets
of these persons is located outside the United States. As a result, it may be difficult for
you to bring an action against these individuals within the United States. It may also be
difficult for you to enforce the U.S. courts judgments obtained in U.S. courts, including
judgments based on the civil
liability provisions of the U.S. federal securities laws
against us and our officers and directors, many of whom are not residents in the United
States, and whose significant part of assets are located outside of the United States.
In addition, there is uncertainty as to whether the courts of the British Virgin Islands or
the PRC, respectively, would recognize or enforce judgments of U.S. courts against us
or such persons predicated upon the civil liability provisions of the securities laws of the
United States or any state. In addition, it is uncertain whether such British Virgin Islands
or PRC courts would entertain original actions brought in the courts of the British Virgin
Islands or the PRC against us or such persons predicated upon the securities laws of the
United States or any state.
The recognition and enforcement of foreign judgments are provided for under the
Chinese Civil Procedure Law. Chinese courts may recognize and enforce foreign
judgments in accordance with the requirements of the Chinese Civil Procedure Law
based either on treaties between China and the country where the judgment is made or
in reciprocity between jurisdictions. China does not have any treaties or other
agreements with the British Virgin Islands or the United States that provide for the
reciprocal recognition and enforcement of foreign judgments. As a result, it is uncertain
whether a Chinese court would enforce a judgment rendered by a court in either of
these two jurisdictions.
The United States and the British Virgin Islands do not have a treaty providing for
reciprocal recognition and enforcement of judgments of courts of the United States in
civil and commercial matters and that a final
judgment for the payment of money
rendered by any general or state court in the United States based on civil
liability,
whether or not predicated solely upon the U.S. federal securities laws, may not be
enforceable in the British Virgin Islands. A final and conclusive judgment obtained in U.S.
federal or state courts under which a sum of money is payable as compensatory
damages (i.e., not being a sum claimed by a revenue authority for taxes or other charges
of a similar nature by a governmental authority, or in respect of a fine or penalty or
multiple or punitive damages) may be the subject of an action on a debt in the court of
the British Virgin Islands.
16
The approval of the China Securities Regulatory Commission may be required in
connectionwithfutureofferings,and,ifrequired,wecannotpredictwhetherwewillbe
abletoobtainsuchapproval.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign
Investors, or the M&A Rules, adopted by six PRC regulatory agencies requires an
overseas special purpose vehicle formed for listing purposes through acquisitions of
PRC domestic companies and controlled by PRC companies or individuals to obtain the
approval of the China Securities Regulatory Commission, or the CSRC, prior to the
listing and trading of such special purpose vehicle’s securities on an overseas stock
exchange.
We believe that the CSRC’s approval
is not required for the trading of our Class A
ordinary shares on Nasdaq in the context of future offerings, given that: (i) our PRC
subsidiary was incorporated as a wholly foreign-owned enterprise by means of direct
investment rather than by merger or acquisition of equity interest or assets of a PRC
domestic company owned by PRC companies or individuals as defined under the M&A
Rules that are our beneficial owners; (ii) the CSRC currently has not issued any definitive
rule or interpretation concerning whether offerings like ours under our past offerings are
subject to the M&A Rules; and (iii) no provision in the M&A Rules clearly classifies
contractual arrangements as a type of transaction subject to the M&A Rules.
However, there remain some uncertainties as to how the M&A Rules will be interpreted
or implemented in the context of an overseas offering and its opinions summarized
above are subject to any new laws, rules and regulations or detailed implementations
and interpretations in any form relating to the M&A Rules. We cannot assure you that
relevant PRC government agencies,
including the CSRC, would reach the same
conclusion as we do.
If it is determined that CSRC approval
is required for future
offerings, we may face sanctions by the CSRC or other PRC regulatory agencies for
failure to seek CSRC approval for future offerings. These sanctions may include fines
and penalties on our operations in the PRC, limitations on our operating privileges in the
PRC, delays in or restrictions on the repatriation of the proceeds from future offerings
into the PRC, restrictions on or prohibition of the payments or remittance of dividends
by our PRC subsidiary, or other actions that could have a material and adverse effect on
our business, financial condition, results of operations, reputation and prospects, as well
as the trading price of our Class A ordinary shares. Furthermore, the CSRC or other PRC
regulatory agencies may also take actions requiring us, or making it advisable for us, to
halt future offerings before the settlement and delivery of the Class A ordinary shares
that we may offer in the future.
The PRC laws and regulations governing the Company’s business operations are
sometimesvagueanduncertain.AnychangesinsuchPRClawsandregulationsaswell
as in the PRC economic, political, and social conditions may have a material and
adverseeffectonthePRCeconomy,andinturntheCompany’sbusiness.
There are substantial uncertainties regarding the interpretation and application of the
PRC laws and regulations,
including but not
limited to the laws and regulations
governing the Company’s business, or
the enforcement and performance of
the
Company’s arrangements with customers in the event of the imposition of statutory
liens, death, bankruptcy, and criminal proceedings. The Company and any future
subsidiaries are considered foreign persons or foreign funded enterprises under the PRC
laws, and as a result, the Company is required to comply with the PRC laws and
regulations. These laws and regulations are sometimes vague and may be subject to
future changes, and their official interpretation and enforcement may involve substantial
uncertainty.
UncertaintieswithrespecttothePRClegalsystemcouldadverselyaffectus.
The PRC legal system is a civil
law system based on written statutes. Unlike the
common law system, prior court decisions under the civil law system may be cited for
reference but have limited precedential value.
In 1979, the PRC government began to promulgate a comprehensive system of laws and
regulations governing economic matters in general. The overall effect of legislation over
the past three decades has significantly enhanced the protections afforded to various
forms of foreign investments in China. However, China has not developed a fully
integrated legal system, and recently enacted laws and regulations may not sufficiently
cover all aspects of economic activities in China. In particular, the PRC legal system is
based on written statutes and prior court decisions have limited value as precedents.
Since these laws and regulations are relatively new and the PRC legal system continues
to rapidly evolve, the interpretations of many laws, regulations and rules may not be
uniform and enforcement of these laws, regulations and rules involves uncertainties.
These uncertainties may affect our judgment on the relevance of legal requirements and
our ability to enforce our contractual rights or tort claims. In addition, the regulatory
uncertainties may be exploited through unmerited or frivolous legal actions or threats in
attempts to extract payments or benefits from us. Furthermore, the PRC legal system is
based in part on government policies and internal rules, some of which are not published
on a timely basis or at all and may have a retroactive effect. As a result, we may not be
aware of our violation of any of these policies and rules until sometime after the
violation.
In addition, any administrative and court proceedings in China may be
protracted, resulting in substantial costs and diversion of resources and management
attention.
In particular, PRC laws and regulations concerning the businesses that we are involved
in are developing and evolving. Although we have taken measures to comply with the
laws and regulations that are applicable to our business operations and avoid
conducting any non-compliant activities under the applicable laws and regulations, the
PRC governmental authorities may promulgate new laws and regulations regulating the
industry in the future. We cannot assure you that our practice would not be deemed to
violate any new PRC laws or
regulations relating to the industry. Moreover,
developments in the industry may lead to changes in PRC laws, regulations and policies
or in the interpretation and application of existing laws, regulations and policies that
may limit or restrict online reading marketplaces like us, which could materially and
adversely affect our business and operations.
17
AdversechangesinpoliticalandeconomicpoliciesofthePRCgovernmentcouldhavea
material adverse effect on the overall economic growth of China, which could reduce
thedemandforourservicesandmateriallyandadverselyaffectourcompetitiveposition.
Substantially all of our business operations and R&D are conducted in China.
Accordingly, our business, results of operations, financial condition and prospects are
subject to economic, political and legal developments in China. Although the Chinese
economy is no longer a planned economy, the PRC government continues to exercise
significant control over China’s economic growth through direct allocation of resources,
monetary and tax policies, and a host of other government policies such as those that
encourage or restrict investment in certain industries by foreign investors, control the
exchange between RMB and foreign currencies, and regulate the growth of the general
or specific market. These government involvements have been instrumental in China’s
significant growth in the past 30 years. In response to the recent global and Chinese
economic downturn,
the PRC government has adopted policy measures aimed at
stimulating the economic growth in China. We voluntarily ceased our forex trading
brokerage business and suspended all activities on AGMTrade, a trading network
platform, to ensure compliance with PRC laws, regulations and policies. While we do not
foresee our business will be further restricted or affected by the PRC laws and
regulations, we may need to further revise our business model to remain compliant. If
any aspect of the PRC government’s policies limits the growth of our industry or
otherwise negatively affects our business, our growth rate or strategy, our results of
operations could be adversely affected as a result.
AsevereorprolongeddownturnintheChineseorglobaleconomycouldmateriallyand
adverselyaffectourbusinessandfinancialcondition.
Any prolonged slowdown in the Chinese or global economy may have a negative impact
on our business, results of operations and financial condition.
In particular, general
economic factors and conditions in China or worldwide, including the general interest
rate environment and unemployment rates, may affect our customer’s participation in
forex trading. Economic conditions in China are sensitive to global economic conditions.
There is considerable uncertainty over the long-term effects of the monetary and fiscal
policies adopted by the central banks and financial authorities of some of the world’s
leading economies, including the United States and China. If present Chinese and global
economic uncertainties persist, many of our customers may reduce the service they
require from us. Adverse economic conditions could also reduce the number of
customers seeking our service, as well as their ability to make payments. Should any of
these situations occur, our net revenues will decline, and our business and financial
conditions will be negatively impacted. Additionally, continued turbulence in the
international markets may adversely affect our ability to access the capital markets to
meet liquidity needs.
The recent outbreak of war in Ukraine has already affected global economic markets,
and the uncertain resolution of this conflict could result in protracted and/or severe
damage to the global economy. Russia’s recent military interventions in Ukraine have led
to, and may lead to, additional sanctions being levied by the United States, European
Union and other countries against Russia. Russia’s military incursion and the resulting
sanctions could adversely affect global energy and financial markets and thus could
affect our customers’ business and our business, even though we do not have any direct
exposure to Russia or the adjoining geographic regions. The extent and duration of the
military action, sanctions, and resulting market disruptions are impossible to predict, but
could be substantial. Any such disruptions caused by Russian military action or resulting
sanctions may magnify the impact of other risks described in this section. We cannot
predict the progress or outcome of the situation in Ukraine, as the conflict and
governmental reactions are rapidly developing and beyond their control. Prolonged
unrest, intensified military activities, or more extensive sanctions impacting the region
could have a material adverse effect on the global economy, and such effect could in
turn have a material adverse effect on the operations, results of operations, financial
condition, liquidity and business outlook of our business.
In addition, continued turbulence in the international markets may adversely affect our
ability to access capital markets to meet liquidity needs.
LaborlawsinthePRCmayadverselyaffectourbusinessandresultsofoperations.
On June 29, 2007, the PRC government promulgated a new labor law, namely, the Labor
Contract Law of the PRC, which became effective on January 1, 2008, which was further
amended on December 28, 2012 (effective July 1, 2013). The Labor Contract Law
imposes greater
liabilities on employers and significantly affects the cost of an
employer’s decision to reduce its workforce. Further, it requires certain terminations be
based upon seniority and not merit. In the event we decide to significantly change or
decrease our workforce, the Labor Contract Law could adversely affect our ability to
enact such changes in a manner that is most advantageous to our business or in a
timely and cost-effective manner, thus materially and adversely affecting our financial
condition and results of operations. The Labor Contract Law also mandates that
employers provide social welfare packages to all employees, increasing our labor costs.
To the extent competitors from outside China are not affected by such requirements, we
could be at a comparative disadvantage.
18
UndertheEnterpriseIncomeTaxLaw,wemaybeclassifiedasa“ResidentEnterprise”
ofChina.Suchclassificationwilllikelyresultinunfavorabletaxconsequencestousand
ournon-PRCstockholders.
China passed an Enterprise Income Tax Law (the “EIT Law”) and implementing rules,
both of which became effective on January 1, 2008. Under the EIT Law, an enterprise
established outside of China with “de facto management bodies” within China is
considered a “resident enterprise,” meaning that it can be treated in a manner similar to
a Chinese enterprise for enterprise income tax purposes. The implementing rules of the
EIT Law define de facto management as “substantial and overall management and
control over the production and operations, personnel, accounting, and properties” of
the enterprise.
On April 22, 2009, the State Administration of Taxation of China issued the Notice
Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled
Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de
facto Management Bodies, or the Notice, further interpreting the application of the EIT
Law and its implementation to offshore entities controlled by a Chinese enterprise or
group. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and
controlled by a Chinese enterprise or group will be classified as a “non-domestically
incorporated resident enterprise” if
(i)
its senior management
in charge of daily
operations reside or perform their duties mainly in China; (ii) its financial or personnel
decisions are made or approved by bodies or persons in China; (iii) its substantial assets
and properties, accounting books, corporate stamps, board and stockholder minutes are
kept in China; and (iv) at
least half of its directors with voting rights or senior
management are often resident in China. A resident enterprise would be subject to an
enterprise income tax rate of 25% on its worldwide income and must pay a withholding
tax at a rate of 10% when paying dividends to its non-PRC stockholders. However, it
remains unclear as to how tax authorities will determine tax residency based on the
facts of each case.
If the PRC tax authorities determine that we are a “resident enterprise” for PRC
enterprise income tax purposes, a number of unfavorable PRC tax consequences could
follow. First, we may be subject to the enterprise income tax at a rate of 25% on our
worldwide taxable income as well as PRC enterprise income tax reporting obligations. In
our case, this would mean that income such as non-China source income would be
subject to PRC enterprise income tax at a rate of 25%. Currently, approximately 82% of
our revenue is non-China source income, so could be adversely affected. Second, under
the EIT Law and its implementing rules, dividends paid to us from our PRC subsidiaries
would qualify as “tax-exempt income.” Finally, it is possible that future guidance issued
with respect to the new “resident enterprise” classification could result in a situation in
which a 10% withholding tax is imposed on dividends we pay to our non-PRC
stockholders and with respect to gains derived by our non-PRC stockholders from
transferring our shares.
PRC regulations relating to investments in offshore companies by PRC residents may
subject our PRC-resident beneficial owners or our PRC subsidiaries to liability or
penalties, limit our ability to inject capital into our PRC subsidiaries or limit our PRC
subsidiaries’abilitytoincreasetheirregisteredcapitalordistributeprofits.
The State Administration of Foreign Exchange, or SAFE, promulgated the Circular on
Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore
Investment and Financing and Roundtrip Investment through Special Purpose Vehicles,
or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly
known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular
37 requires PRC residents to register with local branches of SAFE in connection with
their direct establishment or indirect control of an offshore entity, for the purpose of
overseas investment and financing. Moreover, failure to comply with the various SAFE
registration requirement could result in liability under PRC law for evasion of foreign
exchange controls. According to the Notice on Further Simplifying and Improving
Policies for
the Foreign Exchange Administration of Direct
Investment
(the “2015
Notice”) released on February 13, 2015 by SAFE, local banks will examine and handle
foreign exchange registration for overseas direct investment, including the initial foreign
exchange registration and amendment registration, under SAFE Circular 37 from June 1,
2015.
19
We have not filed SAFE Circular 37 reports on behalf of our shareholders who are PRC
residents before. The failure of our beneficial owners who are PRC residents to register
or amend their SAFE registrations in a timely manner pursuant to SAFE Circular 37 and
subsequent implementation rules, or the failure of future beneficial owners of our
company who are PRC residents to comply with the registration procedures set forth in
SAFE Circular 37 and subsequent implementation rules, may subject such beneficial
owners or our PRC subsidiaries to fines and legal sanctions. Furthermore, it is unclear
how SAFE Circular 37 and the 2015 Notice, and any future regulation concerning
offshore or cross-border transactions, will be interpreted, amended and implemented by
the relevant PRC government authorities, we cannot predict how these regulations will
affect our business operations or future strategy. Failure to register or comply with
relevant requirements may also limit our ability to contribute additional capital to our
PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to our
company. These risks may have a material adverse effect on our business, financial
condition and results of operations.
A change in trading rules of the trading exchanges could adversely affect our revenue
andprofitability.
We are under the supervision of various trading exchanges such as the China Financial
Futures Exchange, which provide trading platforms and set trading model and rules for
all participants on the exchanges. Those exchanges formulate their
trading rules
covering various aspects of trading, including but not limited to, commission and fee
rates,
leverage ratio,
trade settlement procedures, membership qualifications,
risk
control mechanism, as well as information management. Those trading exchanges
usually adjust their trading rules in response to changing market conditions and changes
to these rules may adversely affect our revenue or business.
In addition, futures
companies have discretion to set the fee rates and the adjustments of the fee rates will
have an impact on our income and profitability.
Wemaybe exposed to liabilities under the ForeignCorrupt Practices Act and Chinese
anti-corruptionlaw.
We are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, and other laws that
prohibit improper payments or offers of payments to foreign governments and their
officials and political parties by U.S. persons and issuers as defined by the statute for
the purpose of obtaining or retaining business. We are also subject to Chinese anti-
corruption laws, which strictly prohibit the payment of bribes to government officials. We
have operations, agreements with third parties, and make sales in China, which may
experience corruption. Our activities in China create the risk of unauthorized payments
or offers of payments by one of the employees, consultants or distributors of our
company, because these parties are not always subject to our control. We are in process
of implementing an anticorruption program, which prohibits the offering or giving of
anything of value to foreign officials, directly or indirectly, for the purpose of obtaining
or retaining business. The anticorruption program also requires that clauses mandating
compliance with our policy be included in all contracts with foreign sales agents, sales
consultants and distributors and that they certify their compliance with our policy
annually. It further requires that all hospitality involving promotion of sales to foreign
governments and government-owned or controlled entities be in accordance with
specified guidelines.
In the meantime, we believe to date we have complied in all
material respects with the provisions of the FCPA and Chinese anti-corruption law.
However, our existing safeguards and any future improvements may prove to be less
than effective, and the employees, consultants or distributors of our Company may
engage in conduct for which we might be held responsible. Violations of the FCPA or
Chinese anti-corruption law may result in severe criminal or civil sanctions, and we may
be subject to other liabilities, which could negatively affect our business, operating
results and financial condition.
In addition, the government may seek to hold our
Company liable for successor liability FCPA violations committed by companies in which
we invest or that we acquire.
Since our operations and assets are located in the PRC, shareholders may find it
difficult to enforce a U.S. judgment against the assets of our company, our directors
andexecutiveofficers.
Our operations and assets are located in the PRC. In addition, most of our executive
officers and directors are non-residents of the U.S., and substantially all the assets of
such persons are located outside the U.S. As a result, it could be difficult for investors
to effect service of process in the U.S., or to enforce a judgment obtained in the U.S.
against us or any of these persons.
20
Regulatory bodies of the United States may be limited in their ability to conduct
investigationsorinspectionsofouroperationsinChina.
From time to time, we may receive requests from certain U.S. agencies to investigate or
inspect our operations, or to otherwise provide information. While we will be compliant
with these requests from these regulators, there is no guarantee that such requests will
be honored by those entities who provide services to us or with whom we associate,
especially as those entities are located in China. Furthermore, an on-site inspection of
our facilities by any of these regulators may be limited or entirely prohibited. Such
inspections, though permitted by us and our affiliates, are subject to the capricious
nature of Chinese enforcers, and may therefore be impossible to facilitate.
The regulation of Internet website operators in China is subject to interpretation, and
ouroperationofonlinetradingplatformandeducationprogramscouldbeharmedifwe
aredeemedtohaveviolatedapplicablelawsandregulations.
The interpretation and application of existing Chinese laws and regulations, the stated
positions of the main governing authority, the MIIT, and the possibility of adopting new
laws or regulations have created significant uncertainties regarding the legality of the
businesses and activities of Chinese companies with Internet operations. In particular,
according to the Internet Information Services Administrative Measures promulgated by
the State Council on September 25, 2000, the activities of Internet content providers are
regulated by various Chinese governmental authorities,
including, the MOE, the State
Administration of Radio, Film and Television, the General Administration of Press and
Publication, or GAPP, and the Ministry of Culture, or MOC, depending on the specific
activities conducted by the Internet content provider.
In addition, MIIT promulgated a
notice titled “Notice on Strengthening Management of Foreign Investment in Operating
Value-Added Telecom Services” on July 13, 2006, which prohibits PRC Internet content
providers from leasing, transferring or selling their ICP licenses or providing facilities or
other resources to foreign investors. The notice states that PRC Internet content
providers (or their shareholders) should directly own the trademarks and domain names
for websites operated by them, as well as servers and other infrastructure used to
support these websites and a PRC Internet content provider’s failure to comply with the
notice by November 1, 2006 may result in revocation of its ICP license.
Except for our corporate website (www.agmprime.com), we only have contractual
control over our websites, as the domains are held by our subsidiaries. Among the
subsidiaries which holds domain names, AGM Beijing is subject to the PRC laws and
regulations. AGM Beijing has submitted ICP filings with the MIIT for all the domain
names it holds. However, AGM Beijing may be deemed to be providing commercial
internet information services, which would require AGM Beijing to obtain an ICP License.
An ICP License is a value-added telecommunications business operating license
required for provision of commercial internet information services. Furthermore, as we
are providing service through mobile applications to mobile device users, it is uncertain
if AGM Beijing will be required to obtain a separate operating license in addition to the
ICP License. Although we believe that not obtaining an ICP License or such separate
license is in line with the current market practice, there can be no assurance that we will
not be required to apply for an operating license for our mobile applications in the future.
DividendspayabletoourforeigninvestorsandgainsonthesaleofourClassAordinary
sharesbyourforeigninvestorsmaybecomesubjecttoPRCtaxlaw.
Under the Enterprise Income Tax Law and its implementation regulations issued by the
State Council, a 10% PRC withholding tax is applicable to dividends payable to investors
that are non-resident enterprises, which do not have an establishment or place of
business in the PRC or which have such establishment or place of business but the
dividends are not effectively connected with such establishment or place of business, to
the extent such dividends are derived from sources within the PRC. Similarly, any gain
realized on the transfer of our Class A ordinary shares by such investors is also subject
to PRC tax at a current rate of 10%, subject to any reduction or exemption set forth in
relevant tax treaties, if such gain is regarded as income derived from sources within the
PRC.
If we are deemed a PRC resident enterprise, dividends paid on our Class A
ordinary shares, and any gain realized from the transfer of our Class A ordinary shares,
would be treated as income derived from sources within the PRC and would as a result
be subject to PRC taxation. See “Item 4. Information on the Company – Regulation —
Regulations on Tax.” Furthermore,
if we are deemed a PRC resident enterprise,
dividends payable to individual
investors who are non-PRC residents and any gain
realized on the transfer of our Class A ordinary shares by such investors may be subject
to PRC tax at a current rate of 20%, subject to any reduction or exemption set forth in
applicable tax treaties. It is unclear whether if we or any of our subsidiaries established
outside China are considered a PRC resident enterprise, holders of our Class A ordinary
shares would be able to claim the benefit of income tax treaties or agreements entered
into between China and other countries or areas. If dividends payable to our non-PRC
investors, or gains from the transfer of our Class A ordinary shares by such investors are
subject to PRC tax, the value of your investment in our Class A ordinary shares may
decline significantly.
21
RestrictionsoncurrencyexchangemaylimitPRCinvestors’abilitytomakeinvestment.
In response to the persistent capital outflow in China and RMB’s depreciation against
U.S. dollar in the fourth quarter of 2016, the PBOC and the State Administration of
Foreign Exchange, or SAFE, have implemented a series of capital control measures over
recent months,
including stricter vetting procedures for Chinese citizens to transfer
foreign currency overseas and for China-based companies to remit foreign currency for
overseas acquisitions, dividend payments and shareholder loan repayments. For instance,
on January 26, 2017, SAFE issued the Notice of State Administration of Foreign
Exchange on Improving the Check of Authenticity and Compliance to Further Promote
Foreign Exchange Control, or the SAFE Circular 3, which stipulates several capital
control measures with respect to the outbound remittance of profit from domestic
entities to offshore entities,
including (i) under the principle of genuine transaction,
banks shall check board resolutions regarding profit distribution, the original version of
tax filing records and audited financial statements; and (ii) domestic entities shall hold
income to account for previous years’ losses before remitting the profits. The PRC
government may continue to strengthen its capital controls, and more restrictions and
substantial vetting process may be put in place by SAFE for cross-border transactions
falling under both the current account and the capital account. Any limitation on the
ability of our PRC investors to make capital contribution or make other kinds of
payments to us could materially and adversely limit our ability to grow.
TherecentjointstatementbytheSECandPCAOB,proposedrulechangessubmittedby
Nasdaq,andtheHoldingForeignCompaniesAccountableActallcallforadditionaland
morestringentcriteriatobeappliedtoemergingmarketcompaniesuponassessingthe
qualificationoftheirauditors,especiallythenon-U.S.auditorswhoarenotinspectedby
the PCAOB. These developments could add uncertaintiesto the trading of our Class A
ordinaryshares.
On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke
III, along with other senior SEC staff, released a joint statement highlighting the risks
associated with investing in companies based in or have substantial operations in
emerging markets including China. The joint statement emphasized the risks associated
with lack of access for the PCAOB to inspect auditors and audit work papers in China
and higher risks of fraud in emerging markets.
On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply minimum
offering size requirement for companies primarily operating in “Restrictive Market”, (ii)
adopt a new requirement relating to the qualification of management or board of
director for Restrictive Market companies, and (iii) apply additional and more stringent
criteria to an applicant or listed company based on the qualifications of the company’s
auditors.
On May 20, 2020, the U.S. Senate passed the Holding Foreign Companies Accountable
Act requiring a foreign company to certify it is not owned or controlled by a foreign
government if the PCAOB is unable to audit specified reports because the company
uses a foreign auditor not subject to PCAOB inspection.
If the PCAOB is unable to
inspect the Company’s auditors for three consecutive years, the issuer’s securities are
prohibited to trade on a U.S. stock exchange. On December 2, 2020, the U.S. House of
Representatives approved the Holding Foreign Companies Accountable Act. On
December 18, 2020, the Holding Foreign Companies Accountable Act was signed into
law.
On March 24, 2021, the SEC announced that it had adopted interim final amendments to
implement congressionally mandated submission and disclosure requirements of the Act.
The interim final amendments will apply to registrants that the SEC identifies as having
filed an annual report on Forms 10-K, 20-F, 40-F or N-CSR with an audit report issued
by a registered public accounting firm that is located in a foreign jurisdiction and that
the PCAOB has determined it is unable to inspect or investigate completely because of
a position taken by an authority in that jurisdiction. The SEC will implement a process
for identifying such a registrant and any such identified registrant will be required to
submit documentation to the SEC establishing that it is not owned or controlled by a
governmental entity in that foreign jurisdiction, and will also require disclosure in the
registrant’s annual
report
regarding the audit arrangements of, and governmental
influence on, such a registrant.
22
On June 22, 2021, the U.S. Senate passed a bill which, if passed by the U.S. House of
Representatives and signed into law, would reduce the number of consecutive non-
inspection years required for triggering the prohibitions under the Holding Foreign
Companies Accountable Act from three years to two.
On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA,
which provides a framework for the PCAOB to use when determining, as contemplated
under the HFCAA, whether the PCAOB is unable to inspect or investigate completely
registered public accounting firms located in a foreign jurisdiction because of a position
taken by one or more authorities in that jurisdiction.
On December 2, 2021, the SEC issued amendments to finalize rules implementing the
submission and disclosure requirements in the HFCA Act. The rules apply to registrants
that the SEC identifies as having filed an annual report with an audit report issued by a
registered public accounting firm that is located in a foreign jurisdiction and that PCAOB
is unable to inspect or investigate completely because of a position taken by an
authority in foreign jurisdictions.
On December 16, 2021, the PCAOB issued a Determination Report which found that the
PCAOB is unable to inspect or investigate completely registered public accounting firms
headquartered in: (1) mainland China of the People’s Republic of China, because of a
position taken by one or more authorities in mainland China; and (2) Hong Kong, a
Special Administrative Region and dependency of the PRC, because of a position taken
by one or more authorities in Hong Kong.
The lack of access to the PCAOB inspection in China prevents the PCAOB from fully
evaluating audits and quality control procedures of the auditors based in China. As a
result, the investors may be deprived of the benefits of such PCAOB inspections. The
inability of the PCAOB to conduct inspections of auditors in China makes it more
difficult to evaluate the effectiveness of these accounting firms’ audit procedures or
quality control procedures as compared to auditors outside of China that are subject to
the PCAOB inspections, which could cause existing and potential investors in our stock
to lose confidence in our audit procedures and reported financial information and the
quality of our financial statements.
Each of JLKZ CPA LLP, the independent registered public accounting firm that issues
the audit report for the fiscal years ended December 31, 2020 and 2019 included
elsewhere in this annual report, and TPS Thayer LLC, the independent registered public
account firm that issued the audit report for the fiscal year ended December 31, 2021
included elsewhere in this annual report. as an auditor of companies that are traded
publicly in the United States and a firm registered with the PCAOB, is subject to laws in
the United States pursuant to which the PCAOB conducts regular inspections to assess
such auditor’s compliance with the applicable professional standards. JLKZ CPA LLP is
headquartered in Flushing, New York, and is subject to inspection by the PCAOB on a
regular basis. TPS Thayer LLC is headquartered in Sugar Land, Texas, and is subject to
inspection by the PCAOB on a regular basis. Therefore, we believe JLKZ CPA LLP and
TPS Thayer LLC are not subject to the determinations as to the inability to inspect or
investigate registered firms completely announced by the PCAOB on December 16, 2021
However, recent developments with respect to audits of China-based companies create
uncertainty about the ability of each of JLKZ CPA LLP and TPS Thayer LLC to fully
cooperate with the PCAOB’s request for audit workpapers without the approval of the
Chinese authorities. We cannot assure you whether Nasdaq or regulatory authorities
would apply additional and more stringent criteria to us after considering the
effectiveness of our auditor’s audit procedures and quality control procedures, adequacy
of personnel and training, or sufficiency of resources, geographic reach or experience as
it relates to the audit of our financial statements. In the event it is later determined that
the PCAOB is unable to inspect or investigate completely the Company’s auditor
because of a position taken by an authority in a foreign jurisdiction, then such lack of
inspection could cause trading in the Company’s securities to be prohibited under the
HFCAA ultimately result in a determination by a securities exchange to delist the
Company’s securities. It remains unclear what the SEC’s implementation process related
to the above rules will entail or what further actions the SEC, the PCAOB or Nasdaq will
take to address these issues and what impact those actions will have on U.S. companies
that have significant operations in the PRC and have securities listed on a U.S. stock
exchange. In addition, the above amendments and any additional actions, proceedings,
or new rules resulting from these efforts to increase U.S. regulatory access to audit
information could create some uncertainty for investors, the market price of our Class A
ordinary shares could be adversely affected, and we could be delisted if we and our
auditor are unable to meet the PCAOB inspection requirement or being required to
engage a new audit firm, which would require significant expense and management time.
23
Uncertainties in the interpretation and enforcement of Chinese laws and regulations
couldlimitthelegalprotectionsavailabletous.
The PRC legal system is based on written statutes and prior court decisions have limited
value as precedents. Since these laws and regulations are relatively new and the PRC
legal system continues to rapidly evolve, the legal system in China, including risks and
uncertainties regarding the enforcement of laws and that rules and regulations in China
can change quickly with little advance notice, and the interpretations of many laws,
regulations and rules are not always uniform and enforcement of these laws, regulations
and rules involves uncertainties.
Therefore, these risks may result in a material change in business operations, significant
depreciation of the value of our Class A ordinary shares, or a complete hinderance of
our ability to offer or continue to offer our securities to investors. Recently, the Chinese
government initiated a series of regulatory actions and statements to regulate business
operations in China with little advance notice,
including cracking down on illegal
activities in the securities market, enhancing supervision over China-based companies
listed overseas using a VIE structure, adopting new measures to extend the scope of
cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. Since
these statements and regulatory actions are new,
it is highly uncertain how soon
legislative or administrative regulation making bodies will respond and what existing or
new laws or regulations or detailed implementations and interpretations will be modified
or promulgated,
if any, and the potential
impact such modified or new laws and
regulations will have on our daily business operation, the ability to accept foreign
investments and list on an U.S. or other foreign exchange.
Although we have taken measures to comply with the laws and regulations that are
applicable to our business operations, including the regulatory principles raised by the
CBRC, and avoiding conducting any activities that may be deemed as illegal fund-
raising, forming capital pool or providing guarantee to investors under the current
applicable laws and regulations, the PRC government authority may promulgate new
laws and regulations regulating the direct lending service industry in the future. We
cannot assure you that our practices would not be deemed to violate any PRC laws or
regulations relating to illegal fund-raising, forming capital pools or the provision of
credit enhancement services. Moreover, we cannot rule out the possibility that the PRC
government will institute a license requirement covering our industry at some point in
the future. If such a licensing regime were introduced, we cannot assure you that we
would be able to obtain any newly required license in a timely manner, or at all, which
could materially and adversely affect our business and impede our ability to continue our
operations.
From time to time, we may have to resort to administrative and court proceedings to
enforce our legal rights. However, since PRC administrative and court authorities have
significant discretion in interpreting and implementing statutory and contractual terms, it
may be more difficult to evaluate the outcome of administrative and court proceedings
and the level of legal protection we enjoy, than in more developed legal systems.
Furthermore, the PRC legal system is based in part on government policies and internal
rules (some of which are not published in a timely manner or at all) that may have a
retroactive effect. As a result, we may not be aware of our violation of these policies
and rules until sometime after the violation. Such uncertainties,
including uncertainty
over the scope and effect of our contractual, property (including intellectual property)
and procedural rights, could materially and adversely affect our business and impede our
ability to continue our operations.
The Opinions recently issued by the General Office of the Central Committee of the
Communist Partyof China andtheGeneralOffice of the StateCouncilmaysubject us
toadditionalcompliancerequirementinthefuture.
Recently, the General Office of the Central Committee of the Communist Party of China
and the General Office of the State Council
jointly issued the Opinions, which were
made available to the public on July 6, 2021. The Opinions emphasized the need to
strengthen the administration over illegal securities activities and the supervision on
overseas listings by China-based companies. These opinions proposed to take effective
measures, such as promoting the construction of relevant regulatory systems, to deal
with the risks and incidents facing China-based overseas-listed companies and the
demand for cybersecurity and data privacy protection. The aforementioned policies and
any related implementation rules to be enacted may subject us to additional compliance
requirement in the future. As the Opinions were recently issued, official guidance and
interpretation of the Opinions remain unclear in several respects at this time. Therefore,
we cannot assure you that we will remain fully compliant with all new regulatory
requirements of the Opinions or any future implementation rules on a timely basis, or at
all.
24
Risks Related to Our Capital Structure and Class A Ordinary Shares
The dual-class structure of our ordinary shares has the effect of concentrating voting
control with certain shareholders, including our executive officers, employees and
directors and their affiliates, which will limit your ability to influence the outcome of
importanttransactions,includingachangeincontrol.
Under our memorandum and articles of association, we are authorized to issue
200,000,000 Class A ordinary shares of $0.001 par value per share and 200,000,000
Class B ordinary shares of $0.001 par value per share. As of the date of this report,
there are 24,254,842 Class A ordinary shares and 2,100,000 Class B ordinary shares
issued and outstanding. Each of our Class B ordinary shares has five (5) votes per share,
and each of our Class A ordinary shares has one (1) vote per share. Because of the five-
to-one voting ratio between our Class B ordinary shares and Class A ordinary shares,
the holders of our Class B ordinary shares collectively control a majority of the
combined voting power of our ordinary shares and therefore are able to control all
matters submitted to our shareholders for approval even when the shares of Class B
ordinary shares represent a minority of all outstanding shares of our Class A ordinary
shares and Class B ordinary shares. These holders of our Class B ordinary shares may
also have interests that differ from yours and may vote in a way with which you disagree
and which may be adverse to your interests. The directors and executive officers
beneficially own a majority of the outstanding Class A ordinary shares and all of the
outstanding Class B ordinary shares as of the date hereof. As of the date hereof, our
directors and executive officers directly and indirectly hold an aggregate of
approximately 74.93% of the combined voting power of Class A and Class B ordinary
shares. Our directors and executive officers have voting and dispositive power of all the
outstanding Class B ordinary shares. Mr. Wenjie Tang, our CEO, holds approximately
68.59% of the combined voting power of Class A and Class B ordinary shares. This
concentrated control may have the effect of delaying, preventing or deterring a change
in control of our company, could deprive our shareholders of an opportunity to receive a
premium for their ordinary shares as part of a sales of our company and might ultimately
affect the market price of our Class A Ordinary Shares.
British Virgin Islands companies may not be able to initiate shareholder derivative
actions,therebydeprivingshareholdersoftheabilitytoprotecttheirinterests.
British Virgin Islands companies may not have standing to initiate a shareholder
derivative action in a federal court of the United States. The circumstances in which any
such action may be brought, and the procedures and defenses that may be available in
respect to any such action, may result in the rights of shareholders of a British Virgin
Islands company being more limited than those of shareholders of a company organized
in the United States. Accordingly, shareholders may have fewer alternatives available to
them if they believe that corporate wrongdoing has occurred. The British Virgin Islands
courts are also unlikely to recognize or enforce against us judgments of courts in the
United States based on certain liability provisions of U.S. securities law; and to impose
liabilities against us, in original actions brought in the British Virgin Islands, based on
certain liability provisions of U.S. securities laws that are penal in nature. There is no
statutory recognition in the British Virgin Islands of judgments obtained in the United
States, although the courts of the British Virgin Islands will generally recognize and
enforce the non-penal judgment of a foreign court of competent jurisdiction without
retrial on the merits. This means that even if shareholders were to sue us successfully,
they may not be able to recover anything to make up for the losses suffered.
The laws of the British VirginIslandsprovide little protection forminorityshareholders,
so minority shareholders will have little or no recourse if they are dissatisfied with the
conductofouraffairs.
Under the law of the British Virgin Islands, there is little statutory law for the protection
of minority shareholders other than the provisions of the BVI Business Companies Act
(the “BVI Act”) dealing with shareholder remedies. The principal protection under
statutory law is that shareholders may bring an action to enforce the company’s
memorandum and articles of association. Shareholders are entitled to have the affairs of
the company conducted in accordance with the general
law and the company’s
memorandum and articles of association.
25
There are common law rights for the protection of shareholders that may be invoked,
largely dependent on English company law, since the common law of the British Virgin
Islands for business companies is limited. Under the general rule pursuant to English
company law known as the rule in Foss v. Harbottle, a court will generally refuse to
interfere with the management of a company at the insistence of a minority of its
shareholders who express dissatisfaction with the conduct of the company’s affairs by
the majority or the board of directors. However, every shareholder is entitled to have the
affairs of the company conducted properly according to law and the constituent
documents of the corporation. As such,
if those who control
the company have
persistently disregarded the requirements of company law or the provisions of the
company’s memorandum and articles of association, then the courts will grant relief.
Generally, the areas in which the courts will
intervene are the following: (1) an act
complained of which is outside the scope of the authorized business or is illegal or not
capable of ratification by the majority; (2) acts that constitute fraud on the minority
where the wrongdoers control the company; (3) acts that infringe on the personal rights
of the shareholders, such as the right to vote; and (4) where the company has not
complied with provisions requiring approval of a special or extraordinary majority of
shareholders, which are more limited than the rights afforded minority shareholders
under the laws of many states in the United States.
The tradingpriceofour ClassAOrdinaryShareshasbeen, andislikelytocontinue to
be,volatile;youmightnotbeabletosellyoursharesatorabovethepricethatyoupaid
forthemandwemaynotbeabletostopthedeclineofourstockprice.
The trading price of our Class A ordinary shares has been, and is likely to continue to be,
volatile, and may be influenced by numerous factors, some of which are beyond our
control; you might not be able to sell your shares at or above the price that you paid for
them. Factors that could cause volatility in the market price of our common stock
include, but are not limited to:
● actual or anticipated fluctuations in our revenue and other operating results;
● the financial projections we may provide to the public, any changes in these projections or
our failure to meet these projections;
● actions of securities analysts who initiate or maintain coverage of us, changes in financial
estimates by any securities analysts who follow our company, or our failure to meet these
estimates or the expectations of investors;
● announcements by us or our competitors of significant services or features, technical
innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;
● price and volume fluctuations in the overall stock market, including as a result of trends
in the economy as a whole;
● other events or factors, including those resulting from war or incidents of terrorism, or
responses to these events
In addition, the stock markets have experienced extreme price and volume fluctuations
that have affected and continue to affect the market prices of equity securities of many
companies. Stock prices of many companies have fluctuated in a manner unrelated or
disproportionate to the operating performance of
those companies.
In the past,
stockholders have filed securities class action litigation following periods of market
volatility. If we were to become involved in securities litigation, it could subject us to
substantial costs, divert resources and the attention of management from our business,
and adversely affect our business.
We are a “foreign private issuer,” and our disclosure obligations differ from those of
U.S. domestic reporting companies. As a result, we may not provide you the same
information as U.S. domestic reporting companies or we may provide information at
differenttimes,whichmaymakeitmoredifficultforyoutoevaluateourperformance.
We are a foreign private issuer and, as a result, we are not subject to the same
requirements as U.S. domestic issuers. Under the Exchange Act, we will be subject to
reporting obligations that, to some extent, are more lenient and less frequent than those
of U.S. domestic reporting companies. For example, we will not be required to issue
quarterly reports or proxy statements. We will not be required to disclose detailed
individual executive compensation information. Furthermore, our directors and executive
officers will not be required to report equity holdings under Section 16 of the Exchange
Act and will not be subject to the insider short-swing profit disclosure and recovery
regime.
26
As a foreign private issuer, we will also be exempt from the requirements of Regulation
FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors
are not privy to specific information about an issuer before other investors. However, we
will still be subject to the anti-fraud and anti-manipulation rules of the SEC, such as
Rule 10b-5 under the Exchange Act. Since many of the disclosure obligations imposed
on us as a foreign private issuer differ from those imposed on U.S. domestic reporting
companies, you should not expect to receive the same information about us and at the
same time as the information provided by U.S. domestic reporting companies.
Additionally, as a company listed on the Nasdaq Capital Market, we are subject to the
Nasdaq corporate governance listing standards. However, Nasdaq rules permit a foreign
private issuer like us to follow the corporate governance practices of its home country.
Certain corporate governance practices in the British Virgin Islands, which is our home
country, may differ significantly from the Nasdaq corporate governance listing standards.
We have followed and intend to follow British Virgin Islands corporate governance
practices in lieu of the corporate governance requirements of the Nasdaq Capital Market
that listed companies must obtain its shareholders’ approval of certain transactions
other than public offerings (Nasdaq rule 5635(d)). As a result of our reliance on the
“foreign private issuer” exemptions, our shareholders may be afforded less protection
than they otherwise would enjoy under
the Nasdaq corporate governance listing
standards applicable to U.S. domestic issuers.
We are an “emerging growth company,” and we cannot be certain if the reduced
reportingrequirementsapplicabletoemerginggrowthcompanieswillmakeourClassA
OrdinaryShareslessattractivetoinvestors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business
Startups Act, or the JOBS Act. For as long as we continue to be an emerging growth
company, we may take advantage of exemptions from various reporting requirements
that are applicable to other public companies that are not emerging growth companies,
including not being required to comply with the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act,
reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements and exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation
and shareholder approval of any golden parachute payments not previously approved.
We could be an emerging growth company for up to five years, although we could lose
that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in
non-convertible debt in a three-year period, or if the market value of our Class A
ordinary shares held by non-affiliates exceeds $700 million as of any June 30 before
that time, in which case we would no longer be an emerging growth company as of the
following December 31. We cannot predict if investors will find our Class A ordinary
shares less attractive because we may rely on these exemptions. If some investors find
our Class A ordinary shares less attractive as a result, there may be a less active trading
market for our Class A ordinary shares and our stock price may be more volatile.
Under the JOBS Act, emerging growth companies can also delay adopting new or
revised accounting standards until such time as those standards apply to private
companies. We have irrevocably elected not to avail our company of this exemption from
new or revised accounting standards and, therefore, will be subject to the same new or
revised accounting standards as other public companies that are not emerging growth
companies.
Wedonotintendtopaydividendsfortheforeseeablefuture.
We currently intend to retain any future earnings to finance the operation and expansion
of our business, and we do not expect to declare or pay any dividends in the foreseeable
future. As a result, you may only receive a return on your investment in our Class A
ordinary shares if the market price of our Class A ordinary shares increases.
The requirements of being a public company may strain our resources and divert
management’sattention.
As a public company, we are subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the
Dodd-Frank Act, the listing requirements of the securities exchange on which we list,
and other applicable securities rules and regulations. Despite recent reforms made
possible by the JOBS Act, compliance with these rules and regulations will nonetheless
increase our legal and financial compliance costs, make some activities more difficult,
time-consuming or costly and increase demand on our systems and resources,
particularly after we are no longer an “emerging growth company.” The Exchange Act
requires, among other things, that we file annual, quarterly, and current reports with
respect to our business and operating results.
27
As a result of disclosure of information in this annual report and in filings required of a
public company, our business and financial condition will become more visible, which we
believe may result in threatened or actual litigation, including by competitors and other
third parties. If such claims are successful, our business and operating results could be
harmed, and even if the claims do not result in litigation or are resolved in our favor,
these claims, and the time and resources necessary to resolve them, could divert the
resources of our management and adversely affect our business, brand and reputation
and results of operations.
We also expect that being a public company and these new rules and regulations will
make it more expensive for us to obtain director and officer liability insurance, and we
may be required to accept reduced coverage or incur substantially higher costs to obtain
coverage. These factors could also make it more difficult for us to attract and retain
qualified members of our Board of Directors, particularly to serve on our audit
committee and compensation committee, and qualified executive officers.
The obligation to disclose information publicly may put us at a disadvantage to
competitorsthatareprivatecompanies.
As a publicly listed company, we are required to file periodic reports with the SEC upon
the occurrence of matters that are material to our company and shareholders. In some
cases, we will need to disclose material agreements or results of financial operations
that we would not be required to disclose if we were a private company. Our
competitors may have access to this information, which would otherwise be confidential.
This may give them advantages in competing with our company. Similarly, as a U.S.-
listed public company, we will be governed by U.S. laws that our competitors, which are
mostly private Chinese companies, are not required to follow. To the extent compliance
with U.S. laws increases our expenses or decreases our competitiveness against such
companies, our public listing could affect our results of operations.
TheexerciseoftheWarrantsissuedonDecember14,2021mayfurtherdilutetheClass
AordinarysharesandadverselyimpactthepriceofourClassAordinaryshares.
As of the date of this annual report, we had 24,254,842 Class A ordinary shares
outstanding. Up to an additional 1,652,175 Class A ordinary shares (approximately 6.81%
of our issued and outstanding shares) may be issued pursuant to the exercise of the
warrants issued on December 14, 2021. Such issuance will cause a reduction in the
proportionate ownership and voting power of all other shareholders. Additionally, we
cannot assure you that the holders of such warrants will be able to sell the Class A
ordinary shares at a price per shares that is equal to or greater than the exercise price
paid by such holders.
Securities analysts may not cover our Class A ordinary shares and this may have a
negativeimpactonthemarketpriceofourClassAordinaryshares.
The trading market for our Class A ordinary shares will depend, in part, on the research
and reports that securities or industry analysts publish about us or our business. We do
not have any control over independent analysts (provided that we have engaged various
non-independent analysts). We do not currently have and may never obtain research
coverage by independent securities and industry analysts. If no independent securities or
industry analysts commence coverage of us, the trading price for our Class A ordinary
shares would be negatively impacted.
If we obtain independent securities or industry
analyst coverage and if one or more of the analysts who covers us downgrades our
Class A ordinary shares, changes their opinion of our Class A ordinary shares or
publishes inaccurate or unfavorable research about our business, our share price would
likely decline. If one or more of these analysts ceases coverage of us or fails to publish
reports on us regularly, demand for our Class A ordinary shares could decrease and we
could lose visibility in the financial markets, which could cause the price and trading
volume of our Class A ordinary shares to decline.
28
ITEM 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
AGM Group Holdings Inc. (“AGM Holdings”) was incorporated on April 27, 2015 under
the laws of the British Virgin Islands (“BVI”).
AGM Technology Limited (“AGM HK”) was incorporated on May 21, 2015 under the law
of Hong Kong. AGM HK is a wholly-owned subsidiary of AGM Holdings and its principal
activity is providing our core service to customers.
AGM Tianjin Construction Development Co., Ltd. (“AGM Tianjin”) was incorporated on
October 13, 2015 in Shenzhen under the laws of the People’s Republic of China. AGM
Tianjing a wholly-owned subsidiary of AGM HK. AGM Tianjin was incorporated for the
purpose of being a holding company for the equity interests in PRC. AGM Tianjin did not
conduct any operations or own any material assets or liabilities except for cash,
insignificant expense and the 100% of the equity interests in AGM Beijing.
Beijing AnGaoMeng Technology Service Co., Ltd. (“AGM Beijing”) was incorporated on
November 13, 2015 in Beijing under the laws of the People’s Republic of China. AGM
Beijing is a wholly-owned subsidiary of AGM Tianjin and its principal activities include
software design, technology transfer, technology consulting, technology promotion and
data processing AGM Beijing holds an ICP filing for our online trading platform and
education programs. AGM Beijing was incorporated in Beijing because almost all of our
employees were and still are located in Beijing. In order to comply with the PRC law
regarding employee’s social benefits, which are regulated separately in each city or
province, it is more practical for us to locate our office in Beijing so that we can pay for
the employees’ social benefits with the local government agency.
AGM Software Service LTD (“AGM Software”) was incorporated on June 14, 2017 under
the laws of BVI. AGM Software is a wholly-owned subsidiary of AGM Holdings and its
principal activity will be assisting AGM HK in providing our core technology services to
customers.
On July 26, 2019, AGM Holdings acquired 100% of the equity interest in Anyi Network,
Inc. (“Anyi Network”), and in consideration therefor, AGM Holdings paid $400,000 in
cash and issued an aggregate of 475,000 Class A ordinary shares of AGM Holdings to
the shareholders of Anyi Network.
On April 16, 2019, AGMTrade UK LTD (“AGM UK”), a wholly owned subsidiary
incorporated on July 18, 2017, was dissolved under the law of England and Wales. On
November 20, 2019, AGM Trade Global PTY LTD (“AGM Australia”), a wholly owned
subsidiary incorporated on July 25, 2017, was dissolved under the law of Australia. On
October 8, 2019, AGM Holdings transferred its 100% ownership of AGMClub Service
Limited (“AGMClub”), a Hong Kong company incorporated on August 14, 2017. On
August 15, 2019, AGM Global Asset Management Limited (“AGM Global”), a wholly
owned subsidiary acquired on May 24, 2018, was dissolved under the law of Cayman
Islands. AGM UK, AGM Australia, AGMClub and AGM Global were for business
development purposes. They are holding companies and have not engaged any
substantial businesses. As the business strategies developed, AGM Holdings wound up
AGM UK, AGM Australia, AGMClub and AGM Global.
On May 19, 2020, Nanjing XinGaoMeng Software Technology Co., Ltd. (“AGM Nanjing”),
an indirectly wholly owned subsidiary incorporated on September 28, 2016, was
dissolved under the law of PRC. AGM Nanjing was a holding company and did not have
any substantial assets or liabilities
On December 14, 2020, AGM Holdings sold all the equity interest of Anyi Network by
entering into a share purchase agreement with certain buyers, pursuant to which the
Company sold to the buyers 100% equity interest in Anyi Network in exchange for a total
consideration of $8,000,000, payable in the form of canceling 475,000 Class A ordinary
shares of AGM Holdings held by the buyers, valued at $16.00 per share, and payment of
$400,000 in cash. The disposition of Anyi Network includes the disposition of the
subsidiaries of Anyi Network.
On October 19, 2020, AGM Tianjin International Financial Leasing Co. Ltd.
(“AGM
Leasing”) was incorporated in the People’s Republic of China under the laws of the
People’s Republic of China. AGM Leasing is a wholly-owned subsidiary of AGM HK and
a wholly foreign-owned entity under the PRC laws. AGM Leasing was incorporated for
the purpose of conducting financial leasing services for the Company. AGM Leasing did
not conduct any operations or own any material assets or liabilities. AGM Leasing was
dissolved in July 2021.
29
On August 8, 2021, AGM Defi Lab Pte Limited (“AGM Defi Lab”) was incorporated under
the law of Singapore. AGM Defi Lab is a wholly-owned subsidiary of AGM Holdings and
its principal activity is to provide software development and consulting services in Asian
areas.
On July 30, 2021, AGM Defi Tech Limited (“AGM Defi Tech”) was incorporated under
the law of Hong Kong. AGM Defi Tech is a wholly-owned subsidiary of AGM Holdings
and its principal activity is to provide software development and consulting services in
Asian areas.
On October 21, 2021, Beijing Keen Sense Technology Service Co., Ltd. (“Beijing Keen
Sense”) was incorporated in the People’s Republic of China under the laws of the
People’s Republic of China. Beijing Keen Sense is a wholly-owned subsidiary of AGM
Defi Tech and a wholly foreign-owned entity under the PRC laws. Beijing Keen Sense
was incorporated for
the purpose of hiring personnel and talents in fintech and
blockchain areas and provide related development and research services.
On June 17, 2021, Nanjing Lucun Semiconductor Co., Ltd.
(“Nanjing Lucun”) was
incorporated in the People’s Republic of China under the laws of the People’s Republic
of China. Nanjing Lucun is a wholly-owned subsidiary of AGM HK and a wholly foreign-
owned entity under the PRC laws. Nanjing Lucun was incorporated for the purpose of
producing high-performance hardware and computing equipment.
B. Business Overview
We are a technology company. Our products and services include: 1) a futures trading
solution catering to clients using MetaTrader 5; 2) FXSC, a retail-orientated online
trading education website; 3) a foreign exchange (“Forex”) trading system that provides
services to financial institutions outside of China; and 4) technology hardware research
and development, manufacture, and sales. Our mission is to become one of the key
participants and contributors in the global technology hardware supply chain and fintech
blockchain ecosystem.
Futurestradingsystem
In September 2019, we completed our development of a futures trading software which
integrates future trading API with MetaTrader 5, a well-known and advanced trading
software. However, during the third quarter of 2020, most futures brokers started to
accept a new third-party software API connection method in order to comply with newly
enacted futures regulations and policies in China about the trading terminal API pass-
through regulation, which requires “pass through monitoring”. Brokers will need to know
exactly who to use API from what third-party software since, traditionally, brokers did
not need to collect such information. All other software products on the market are
required to comply with the new rule. Accordingly, we were obligated to upgrade and
transform the system to enable this new API connection method. We completed the
upgrading and transformation of the system at the end of first quarter of 2021. We plan
to conduct new trials and improve the solutions based on feedbacks. This service is
currently managed through AGM Defi Tech.
FXSC,aretail-orientatedonlinetradingeducationwebsite
In July 2020, we launched FXSC a subscription-based online trading education and
social trading network platform for Forex traders. FXSC provides trading education to
users through interactive trading simulation and trading contests, which enable users to
choose and participate in available contests and compete for prizes in a real-time
streamed, interactive demo trading environment. FXSC also provides demo trading, also
referred to as virtual trading, paper trading, or trading simulation, which is designed to
give users, especially the ones with limited knowledge and skills, a risk-free trading
environment to get familiar with the markets and trading tools. We plan to charge
subscription fees directly to end-users for using the social and educational features of
the platform. In addition, through partnership with brokers that integrate its accounts
management system with FXSC, we plan to charge brokers a per client monthly service
fee for their clients using FXSC. The launch of FXSC is expected to build our brand. This
service is currently managed through AGM Defi Tech.
30
Forextradingsystem
Prior to September 2018, we provided Forex trading services,
including computer
program technical support and solution services and trading platform application
services, through a combination of in-house developed systems and applications, and
the licensed trading platform MetaTrader. In addition, we were engaged in Forex trading
brokerage business and generated revenue from gains and losses from trades and Forex
brokerage fees and commissions. At the time, our clients were retail clients and
brokerage firms located in China. We voluntarily discontinued the Forex trading system
due to a policy position by the PRC government that would no longer support the Forex
trading related business and would restrain certain accounts holding the deposits
payable. In December 2021, we commenced the sale of our trading system software to
our brokerage clients and partners that are not located in P.RC region. This service is
currently managed through AGM Defi Tech.
Technologyhardwareresearchanddevelopment,manufacture,andsales
In third quarter of 2021, we formed the company’s new growth strategy and the decision
to enter into the ASIC chip research and development to be conducted through AGM HK.
In August 2021, we announced the launch of our first ASIC crypto Miner - KOI MINER
C16 (“C16”). C16 is equipped with the C3012 chip made by Semiconductor
Manufacturing International Corp.’s N+1 process. C16 has a hash rate up to 113 TH/s
and a power efficiency ratio of 30 J/T, supporting the mining of Bitcoin, Bitcoin Cash
(BCH) and other cryptocurrencies.
The competition of cryptocurrencies mining equipment has grown intense in recent
years. Our main competitors are Bitmain, a multinational semiconductor company,
Canaan, a supercomputing solutions provider, and MicroBT, a technology company
based on block chain and artificial intelligence, all of which are located in China and
have both ASIC research and development capacities and deep supply chain
connections in China.
C16’s parameters have surpassed our competitors’ models, including: Antminer S19 pro
of Bitmain, which has a power consumption of 3250W and hash rate of 104TH/S, and
AvalonMiner1246 of Canaan, which has an A1246 hash rate of 90TH/S, power
consumption of 3420W and power efficiency of 38J/T, and Whatminer M30S ++ of
MicroBT, which has a hash rate of 112TH/S, power consumption of 3472 W and power
efficiency of 31 J/T. Since the launch of C16, we have received orders from buyers in
the United States, Canada and Europe.
Recent Development
TerminationofEquityTransferAgreementwithYushuKingoCityRealEstate
DevelopmentCo.,Ltd.
On January 16, 2020, AGM Tianjin entered into an equity transfer agreement (the
“Equity Transfer Agreement”) with all the shareholders of Yushu Kingo City Real Estate
Development Co., Ltd. (“Yushu Kingo”), who collectively owns 100% of the equity
interest in Yushu Kingo, pursuant to which agreement,
in exchange for 100% of the
equity interest in Yushu Kingo, AGM Tianjin agreed to pay $20,000,000 in cash and
cause AGM Holdings to issue 2,000,000 Class A ordinary shares, valued at $15 per
share, subject to the terms and conditions of the Agreement. AGM Tianjin made
advance payments in the amount of $4,937,663.72 (the “Advance Payment”).
On April 6, 2021, AGM Tianjin, Yushu Kingo and its shareholders entered into a
supplement agreement (“Supplement Agreement”) to the Equity Transfer Agreement.
Pursuant to the Supplement Agreement, if AGM Tianjin decided not to proceed with the
acquisition contemplated by the Equity Transfer Agreement and terminate such
agreement on or before October 31, 2021, Yushu Kingo’s shareholders shall return the
Advance Payment and pay an additional 10% interest to AGM Tianjin. If Yushu Kingo’s
shareholders are unable to make such payment, Yushu Kingo’s shareholders agreed to
transfer the titles of real properties of Yushu Kingo to AGM Tianjin, valued with a 20%
discount to market price. The parties further agreed to conduct a new evaluation of
Yushu Kingo’s assets and to enter into supplement agreement based on such evaluation.
Because of the COVID-19 pandemic, the quarantine and travel restrictions in China, and
the massive economic disruption as a result, Yushu Kingo was not able to complete its
construction projects and the audit and due diligence of Yushu Kingo was not
completed on time. On October 4, 2021, AGM Tianjin terminated the Equity Transfer
Agreement and Supplement Agreement with the Yushu Kingo and its shareholders. On
October 20, 2021, AGM Tianjin entered into an agreement on transfer of creditor rights
with a non-affiliated third party (the “Buyer”). Pursuant to the Transfer Agreement, AGM
Tianjin agrees to sell to the Buyer all of its rights and obligations under the Equity
Transfer Agreement and the Supplement Agreement, namely, the right to receive the
Advance Payment plus interest, for a total purchase price of $5,000,000 (the “Purchase
Price”), $2,500,000 of which will be payable on or before December 31, 2021 and the
remaining $2,500,000 will be payable on or before June 30, 2022. The Buyer agrees, in
the event it fails to pay the Purchase Price on time, to pay as damages for breach of
contract an amount equal to four times China’s loan prime rate (LPR) of the Purchase
Price due.
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MemorandumofUnderstandingwithGMTKGlobalPtyLtd.
On July 15, 2020, AGM HK entered into a Memorandum of Understanding with GMTK
Global Pty Ltd., an Australia-based brokerage firm, to jointly promote the Company’s
newly launched online trading education and social trading network platform FXSC in the
Australia market.
By the end of March 2021, the Company has completed three rounds of tests with
GMTK Global Pty Ltd. The purpose of test was to confirm the integration of GMTK
Global Pty Ltd’s account management system with our FXSC user center and live
contest data synchronization. The final partnership contract was delayed due to two
reasons: (1) more tests will need to be conducted; and (2) GMTK needs additional time
to update its account management system per Australian newly imposed CFD trading
rules; the upgrade was near completion and we expect the execute the final partnership
contract in 2022.
LetterofIntentwiththeshareholdersofSafeGoldFinancialHoldingsLimited
On August 7, 2020, AGM HK entered into a letter of intent with the shareholders of Safe
Gold Financial Holdings Limited ("Safe Gold") to acquire 100 percent equity interest in
Safe Gold and its wholly owned subsidiary Safe Gold Securities and Futures Limited
("Safe Gold SF"), for a proposed total consideration of all-cash transaction that equals
the combined net asset value for Safe Gold and Safe Gold SF as of June 30, 2020, plus
a premium of HK$8.5 million, deducting a due from shareholders of HK$14 million,
subject to certain adjustments and definitive agreements at the closing.
Safe Gold is a Hong Kong-based financial services company which, through its wholly-
owned subsidiary Safe Gold SF, holds Hong Kong Financial Services Licenses Type 1
(Dealing of Securities), Type 2 (Dealing in Futures Contracts), Type 4 (Advertising on
Securities), Type 5 (Advertising on Futures Contracts), and Type 9 (Asset Management).
Safe Gold is also a participant and trading right holder of both HKEX and HKFE.
PrivatePlacement
In July 2020, we consummated a private placement offering whereby the Company
entered into private placement subscription agreements with certain investors. Pursuant
to the Subscription Agreements, in which we issued an aggregate of 40,235 Class A
ordinary shares to the investors, at a purchase price of $16.6 per share, for an
aggregate amount of $667,901. All of the Shares were issued to non U.S. persons (as
that term is defined in Regulation S of the Securities Act of 1933, as amended) in an
offshore transaction relying on Regulation S and/or Section 4(a)(2) of the Securities Act
of 1933, as amended.
DispositionofAnyiNetwork,Inc.
On December 14, 2020, we disposed of Anyi Network by entering into a share purchase
agreement with Haiyan Huang, Feng Zhi and Yinglu Gao (the “Buyers”), pursuant to
which the Company agreed to sell to the Buyers 100% equity interest in Anyi Network,
including its subsidiaries, in exchange for a total consideration of $8,000,000, payable in
the form of canceling 475,000 Class A ordinary shares of AGM Holdings held by the
Buyers, valued at $16.00 per share, and payment of $400,000 in cash.
StrategicPartnershipwithHighSharp(ShenzhenGaorui)ElectronicTechnologyCo.,Ltd
As part of our plan to expand into the hardware production business, in September 2021,
we entered into a strategic partnership agreement with HighSharp (Shenzhen Gaorui)
Electronic Technology Co., Ltd (“HighSharp”), a fabless integrated circuit designer that
provides advanced semiconductor solutions for supercomputing hardware, pursuant to
which, for a six-month period until March 25, 2022, HighSharp will provide the latest
ASIC chip technology and manufacturing services to us and we will be responsible for
client development on a global basis, with a target to generate orders of at least US$100
million during the six-month term until March 25, 2022. If we and HighSharp achieve the
respective targets, we and HighSharp plan to form a joint venture, joined by HighSharp’s
key R&D team members, with the goal to integrate next generation product research
and development
into fabless integrated circuit design capabilities that provide
advanced semiconductor solutions for supercomputing hardware. AGM Group Holdings,
Inc. will own 60% of the equity and HighSharp will own 40% of the equity in the joint
venture.
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ChangeofBoardofDirectors
On April 30, 2021, Tingfu Xie tendered his resignation as director, the chairman of the
Nominating Committee, and a member of the Audit Committee and the Compensation
Committee of the Company, effective April 30, 2021. On the same day, at the
recommendation of the Nominating Committee and the Compensation Committee, the
Board of Directors approved and confirmed the appointment of Jing Shi as the
succeeding director, the chairwoman of the Nominating Committee and a member of the
Audit Committee and the Compensation Committee of the Company, effective April 30,
2021.
On May 7, 2021, the Board of Directors appointed Dr. Bo Zhu as the Chief Strategy
Officer.
On July 12, 2021, the Board of Directors and the Compensation Committee of approved
and confirmed the appointment of Chenjun Li as the Co-Chief Executive Officer,
effective July 12, 2021. On September 15, 2021, the Board of Directors also approved the
appointment of Chenjun Li as the director and the Chairman of the Board to replace Bin
Cao, whose employment agreement with the Company expired on May 19, 2021.
On September 23, 2021, Zhihe Yang tendered his resignation as the Chief Financial
Officer of
the Company, effective September 23, 2021. On September 24, 2021, the
Board of Directors appointed Mr. Steven Yuan Ning Sim as the succeeding Chief
Financial Officer of the Company, effective September 24, 2021.
RegisteredDirectOfferingandConcurrentPrivatePlacement
On December 14, 2021, pursuant to a securities purchase agreement (the “Purchase
Agreement”) with certain institutional investors (the “Purchasers”) dated December 10,
2021, the Company closed (a) a registered direct offering for the sale of 2,898,552 of its
Class A ordinary shares, par value US$0.001 per share, and (b) a concurrent private
placement, for the sale of unregistered warrants to purchase up to 1,449,276 Class A
ordinary shares (the “Investor Warrants”), for gross proceeds of approximately US$20
million. The purchase price for each Share and the corresponding half of one Investor
Warrant is US$6.90. The Investor Warrants will be exercisable immediately from the date
of issuance and have an exercise price of US$8.30 per share. The Investor Warrants will
expire 3.5 years from the date of issuance. Each Investor Warrant contains anti-dilution
provisions to reflect share dividends and splits or other similar
transactions, as
described in the Investor Warrants.
Pursuant to the Purchase Agreement, the Class A ordinary shares were issued to the
Purchasers in a registered direct offering and registered under the Securities Act of
1933, as amended (the “Securities Act”), pursuant to a prospectus supplement to the
Company’s currently effective registration statement on Form F-3 (File No. 333-
236897), which was initially filed with the SEC on March 5, 2020 and declared effective
by the SEC on May 28, 2020. The Company filed the prospectus supplement for the
Registered Direct Offering on December 13, 2021.
The Company issued the Investor Warrants to the Purchasers in a concurrent private
placement pursuant to an exemption from the registration requirements of the Securities
Act contained in Section 4(a)(2) thereof and/or Regulation D thereunder (the “Private
Placement,” and together with the Registered Direct Offering, the “Offering”).
FT Global Capital, Inc. (the “Placement Agent”) acted as the exclusive placement agent
in connection with the Offering under the terms of the Placement Agency Agreement,
dated December 10, 2021 between it and the Company (the “Placement Agency
Agreement”) and, at closing of the Offering, received a cash fee equal to 7.5% of the
aggregate gross proceeds raised in the Offering as well as reimbursement of certain
costs and expenses of up to US$80,000. Additionally, the Company issued to the
Placement Agent or its designees warrants (the “Placement Agent Warrants,” and
together with the Investor Warrants, the “Warrants”) for the purchase of 202,899 Class
A ordinary shares with an exercise price of US$8.30 per share, and with a term expiring
3.5 years from the date of issuance. The Placement Agent Warrants shall have the same
registration rights as the Investor Warrants issued to the Purchasers in the Offering. The
Placement Agent is also entitled to additional tail compensation for any financings
consummated by the Company within the 12-month period following the termination of
the Placement Agency Agreement, to the extent such financing is provided to the
Company by investors that the Placement Agent had “wall-crossed” on behalf of the
Company in connection with the Offering.
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The Company has agreed to file and maintain with the SEC a registration statement (the
“Registration Statement”) to register the Warrants and the Class A ordinary shares
underlying the Warrants (the “Warrant Shares”) within 30 calendar days from the closing
of the Offering and to use its best efforts to cause such registration statement to
become effective within 60 calendar days following the closing of the Offering (or, in the
event of a review by the SEC, within 120 calendar days).
The Company agreed in the Purchase Agreement that it would not issue any Class A
ordinary shares or Class A ordinary share equivalents for sixty (60) days following the
closing of the Offering subject to certain exceptions. The Company agreed in the
Placement Agency Agreement that it would not issue any Class A ordinary shares or
Class A ordinary share equivalents for one hundred twenty (120) days following the
closing of the Offering without the consent of the Placement Agent, subject to certain
exceptions.
The Company agreed in the Purchase Agreement that it will not issue any Class A
ordinary shares or Class A ordinary share equivalents involve in a Variable Rate
Transaction (as defined in the Purchase Agreement) until the earlier of (x) the date the
initial Registration Statement is declared effective by the SEC and (y) the date as of
which all of the holders of Investor Warrants may sell all of the Investor Warrant Shares
without restriction pursuant to Rule 144 (including, without limitation, volume restrictions)
and without the need for current public information required by Rule 144(c)(1) (or Rule
144(i)(2), if applicable). The Company further agreed that until the first anniversary of
the earlier of (x) or (y) above, it would not issue or enter into any agreement to issue any
Class A ordinary shares or Class A ordinary share equivalents unless the Purchasers are
offered a participation right, subject to certain terms and conditions as set forth in the
Purchase Agreement, to subscribe, on a pro rata basis, for up to 50% of the securities
offered in such offering.
Concurrently with the execution of the Purchase Agreement, the officers and directors
of
the Company and shareholders of
the Company holding 5% or more of
the
Company’s Class A ordinary shares entered into lock-up agreements (the “Lock-Up
Agreements”) pursuant to which they have agreed, among other things, not to sell or
dispose of any Class A ordinary shares which are or will be beneficially owned by them
for one hundred twenty (120) days following the closing of the Offering, as well as
similar lock-up agreements pursuant to the Placement Agency Agreement restricting
sales of Class A ordinary shares for ninety (90) days after the closing of the Offering.
ChangeofIndependentRegisteredPublicAccountingFirm
On April 5, 2022, the Company notified its independent registered public accounting
firm, JLKZ CPA LLP its decision to dismiss JLKZ CPA LLP as the Company’s auditor.
The Audit Committee and the Board of Directors of
the Company ratified the
appointment of TPS Thayer LLC as its new independent registered public accounting
firm to audit the Company’s financial statements.
TheCOVID-19Pandemic
We are monitoring the global outbreak and spread of the novel strain of coronavirus
(COVID-19) and taking steps in an effort to identify and mitigate the adverse impacts on,
and risks to, our business (including but not limited to our employees, customers, other
business partners, our manufacturing capabilities and capacity and our distribution
channels) posed by its spread and the governmental and community reactions thereto.
We continue to assess and update our business continuity plans in the context of this
pandemic, including taking steps in an effort to help keep our workforces healthy and
safe. The spread of COVID-19 has caused us to modify our business practices (including
employee travel, employee work locations in certain cases, and cancellation of physical
participation in certain meetings, events and conferences), and we expect to take
further actions as may be required or recommended by government authorities or as we
determine are in the best interests of our employees, customers and other business
partners. We are also working with our suppliers to understand the existing and future
negative impacts to our supply chain and take actions in an effort to mitigate such
impacts. Due to the speed with which the COVID-19 situation is developing, the global
breadth of its spread and the range of governmental and community reactions thereto,
there is uncertainty around its duration and ultimate impact; therefore, any negative
impact on our overall financial and operating results (including without limitation our
liquidity) cannot be reasonably estimated at this time, but the pandemic could lead to
extended disruption of economic activity and the impact on our financial and operating
results could be material. See “Risk Factors—Risks Related to our Business—The
COVID-19 pandemic has adversely impacted, and poses risks to, our business, the
nature and extent of which are highly uncertain and unpredictable.”
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Sales Channels and Long-Term Opportunities
Due to our limited operating history, we have not developed a comprehensive marketing
strategy. For fintech software, currently we are marketing our services through direct
communication with potential broker or
institutional clients. As for
retail
trading
education, retail trading software and website service, we plan to acquire seed clients
from partnership with brokers that integrating accounts system with FXSC. Furthermore,
we plan to use search engine marketing, search engine optimization,
inherent virus
marketing features developed within our products and social network marketing to
targeted users. We believe the brand value will develop rapidly as our product inherently
bring more educational value to retail clients as comparing to competitors’ product.
Customers and Suppliers
Customers
Our main clients are institutional clients. We consider our major customers to be those
customers that accounted for more than 10% of sales revenue. We had seven major
customers during the fiscal year ended December 31, 2021, which accounted for an
aggregate of 88.98% of our sales revenue. We only had one customer during the fiscal
year ended December 31, 2020, which accounted for all of our sales revenue.
Suppliers
We consider our major supplier to be those suppliers that accounted for more than 10%
of our cost of revenue. We had three major suppliers during the fiscal year ended
December 31, 2021, which accounted for an aggregate of 98.49% of our cost of revenue.
We only had one supplier during the fiscal year ended December 31, 2020, which
accounted for all of our cost of revenue.
Employees
As of December 31, 2021, we have a total of 22 full-time employees. Our employees are
not represented by a labor organization or covered by a collective bargaining agreement.
We believe that we maintain a good working relationship with our employees, and we
have not experienced any significant labor disputes. We are required under PRC law to
make contributions to employee benefit plans at specified percentages of the salaries,
bonuses and certain allowances of our employees, up to a maximum amount specified
by the local government from time to time. As required by regulations in China, we
participate in various employee social security plans that are organized by local
governments.
Legal Proceedings
As of the date hereof, there is no legal proceeding pending or threatened against to
which we are a party of. However, from time to time, we may become involved in various
lawsuits and legal proceedings which arise in the ordinary course of business. Litigation
is subject to inherent uncertainties, and an adverse result in these or other matters may
arise.
Regulations
RegulationofInternetInformationServices
Internet information services are regulated by the Administrative Measures on Internet
Information Services, or the ICP Measures, promulgated on September 25, 2000 by the
State Council and amended on January 8, 2011. “Internet information services” are
defined as services that provide information to online users through the internet. Internet
information services providers, also called Internet content providers, or ICPs, that
provide commercial services are required to obtain an operating license from the MIIT or
its provincial counterpart.
35
To the extent the internet information services provided relate to certain matters,
including news, publication, education or medical and health care (including
pharmaceutical products and medical equipment), approvals must also be obtained from
the relevant industry regulators in accordance with the laws, rules and regulations
governing those industries.
RegulationofInternetContent
The PRC government has promulgated measures relating to Internet content through
various ministries and agencies, including the MIIT, the News Office of the State Council,
the Ministry of Culture and the General Administration of Press and Publication.
In
addition to various approval and license requirements,
these measures specifically
prohibit internet activities that result in the dissemination of any content which is found
to contain pornography, promote gambling or violence,
instigate crimes, undermine
public morality or the cultural traditions of the PRC or compromise State security or
secrets. ICPs must monitor and control the information posted on their websites. If any
prohibited content is found, they must remove such content immediately, keep a record
of it and report to the relevant authorities. If an ICP violates these measures, the PRC
government may impose fines and revoke any relevant business operation licenses.
RegulationofInternetSecurity
The Decision in Relation to Protection of the Internet Security enacted by the SCNPC on
December 28, 2000 provides that the following activities conducted through the Internet
are subject to criminal punishment:
● gaining improper entry into a computer or system of strategic importance;
● disseminating politically disruptive information or obscenities;
● leaking State secrets;
● spreading false commercial information; or
● infringing intellectual property rights.
The Administrative Measures on the Security Protection of Computer
Information
Network with International Connections,
issued by the Ministry of Public Security on
December 16, 1997 and amended on January 8, 2011, prohibit the use of the Internet in a
manner that would result in the leakage of State secrets or the spread of socially
destabilizing content. If an ICP violates these measures, the Ministry of Public Security
and the local security bureaus may revoke its operating license and shut down its
websites.
RegulationRelatingtoPrivacyProtection
Under the ICP Measures,
ICPs are prohibited from producing, copying, publishing or
distributing information that is humiliating or defamatory to others or that infringes upon
the lawful rights and interests of others. Depending on the nature of the violation, ICPs
may face criminal charges or sanctions by PRC security authorities for such acts, and
may be ordered to suspend temporarily their services or have their licenses revoked.
Under the Several Provisions on Regulating the Market Order of Internet Information
Services,
issued by the MIIT on December 29, 2011,
ICPs are also prohibited from
collecting any user personal
information or providing any such information to third
parties without the consent of a user.
ICPs must expressly inform the users of the
method, content and purpose of the collection and processing of such user personal
information and may only collect such information necessary for its services. ICPs are
also required to properly maintain the user personal information, and in case of any leak
or likely leak of the user personal
information,
ICPs must take remedial measures
immediately and report any material leak to the telecommunications regulatory authority.
In addition, the Decision on Strengthening Network Information Protection promulgated
by the Standing Committee of the National People’s Congress on December 28, 2012
emphasizes the need to protect electronic information that contains individual
identification information and other private data. The decision requires ICPs to establish
and publish policies regarding the collection and use of personal electronic information
and to take necessary measures to ensure the security of the information and to prevent
leakage, damage or
loss. Furthermore, MIIT’s Rules on Protection of Personal
Information of Telecommunications and Internet Users promulgated on July 16, 2013
contain detailed requirements on the use and collection of personal information as well
as the security measures to be taken by ICPs.
36
The PRC government retains the power and authority to order ICPs to provide an
Internet user’s personal
information if such user posts any prohibited content or
engages in any illegal activities through the Internet.
RegulationsonIntellectualPropertyRights
Patent. Patents in the PRC are principally protected under the Patent Law of the PRC.
The duration of a patent right is either 10 years or 20 years from the date of application,
depending on the type of patent right.
Copyright. Copyright in the PRC, including copyrighted software, is principally protected
under the Copyright Law of the PRC and related rules and regulations. Under the
Copyright Law, the term of protection for copyrighted software is 50 years.
Trademark. Registered trademarks are protected under the Trademark Law of the PRC
and related rules and regulations. Trademarks are registered with the Trademark Office
of the SAIC. Where registration is sought for a trademark that is identical or similar to
another trademark which has already been registered or given preliminary examination
and approval for use in the same or similar category of commodities or services, the
application for registration of such trademark may be rejected. Trademark registrations
are effective for a renewable ten-year period, unless otherwise revoked. We are in the
process of having our trademark registered in PRC, and we have registered some
trademarks in Hong Kong.
Domain Names. Domain name registrations are handled through domain name service
agencies established under the relevant regulations, and applicants become domain
name holders upon successful registration.
RegulationsonDividendDistributions
One of our PRC subsidiaries, AGM Tianjin, is a wholly foreign-owned enterprise under
the PRC law. The principal regulations governing the distribution of dividends paid by
wholly foreign-owned enterprises include:
● Corporate Law (1993) as amended in 2005 and 2013;
● The Wholly Foreign-Owned Enterprise Law (1986), as amended in 2000;
● The Wholly Foreign-Owned Enterprise Law Implementation Regulations (1990), as
amended in 2001; and
● The Enterprise Income Tax Law (2007) and its Implementation Regulations (2007).
Under these regulations, wholly foreign-owned enterprises in China may pay dividends
only out of their accumulated profits,
if any, as determined in accordance with PRC
accounting standards and regulations. In addition, an enterprise in China is required to
set aside at least 10% of its after-tax profit based on PRC accounting standards each
year to its general reserves until its cumulative total reserve funds reaches 50% of its
registered capital. Our Company’s reserve fund has not yet reached this level. The board
of directors of a wholly foreign-owned enterprise has the discretion to allocate a portion
of its after-tax profits to its employee welfare and bonus funds. These reserve funds,
however, may not be distributed as cash dividends.
On March 16, 2007, the National People’s Congress enacted the Enterprise Income Tax
Law, and on December 6, 2007,
the State Council
issued the Implementation
Regulations on the Enterprise Income Tax Law, both of which became effective on
January 1, 2008. Under this law and its implementation regulations, dividends payable by
a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident
enterprise will be subject to a 10% withholding tax, unless any such foreign investor’s
jurisdiction of incorporation has a tax treaty with the PRC that provides for a lower
withholding tax rate.
37
Nevertheless, AGM Tianjin currently do not have assets or operation of business, and we
have no present plans to declare dividends and plan to retain our earnings to continue to
grow our business.
RegulationsonTax
PRCEnterpriseIncomeTax
The PRC enterprise income tax, or EIT,
is calculated based on the taxable income
determined under the applicable EIT Law and its implementation rules, which became
effective on January 1, 2008. The EIT Law imposes a uniform enterprise income tax rate
of 25% on all resident enterprises in China, including foreign-invested enterprises.
Uncertainties exist with respect to how the EIT Law applies to our tax residence status
and our offshore subsidiaries. Under the EIT Law, an enterprise established outside of
China with a “de facto management body” within China is considered a “resident
enterprise,” which means that it is treated in a manner similar to a Chinese enterprise
for enterprise income tax purposes. Although the implementation rules of the EIT Law
define “de facto management body” as a managing body that exercises substantive and
overall management and control over
the production and business, personnel,
accounting books and assets of an enterprise, the only official guidance for this
definition currently available is set forth in Circular 82 issued by the State Administration
of Taxation, which provides guidance on the determination of the tax residence status of
a Chinese-controlled offshore incorporated enterprise, defined as an enterprise that is
incorporated under the laws of a foreign country or territory and that has a PRC
enterprise or enterprise group as its primary controlling shareholder.
According to Circular 82, a Chinese-controlled offshore incorporated enterprise will be
regarded as a PRC tax resident by virtue of having a “de facto management body” in
China and will be subject to PRC enterprise income tax on its worldwide income only if
all of the following criteria are met:
● the primary location of the day-to-day operational management is in the PRC;
● decisions relating to the enterprise’s financial and human resource matters are made or are
subject to approval by organizations or personnel in the PRC;
● the enterprise’s primary assets, accounting books and records, company seals, and board
and shareholders meeting minutes are located or maintained in the PRC; and
● 50% or more of voting board members or senior executives habitually reside in the PRC.
We believe that we meet the conditions outlined in the immediately preceding paragraph
and should be treated as a “resident enterprise” for PRC tax purposes if the criteria for
“de facto management body” as set forth in Circular 82 were deemed applicable to us.
However, as the tax residency status of an enterprise is subject to determination by the
PRC tax authorities and uncertainties remain with respect to the interpretation of the
term “de facto management body” as applicable to our offshore entities, we will
continue to monitor our tax status. See “Risk Factors — Risks Related to Doing
Business in China — Under the Enterprise Income Tax Law, we may be classified as a
“Resident Enterprise” of China. Such classification will likely result in unfavorable tax
consequencestousandournon-PRCstockholders.”
In the event that we or any of our offshore subsidiaries is considered to be a PRC
resident enterprise: (1) we or our offshore subsidiaries, as the case may be, may be
subject to the PRC enterprise income tax at the rate of 25% on our worldwide taxable
income; (2) dividend income that we or our offshore subsidiaries, as the case may be,
receive from our PRC subsidiaries may be exempt from the PRC withholding tax; and (3)
dividends paid to our overseas shareholders who are non-PRC resident enterprises as
well as gains realized by such shareholders from the transfer of our shares may be
regarded as PRC-sourced income and as a result be subject to PRC withholding tax at a
rate of up to 10%, and similarly, dividends paid to our overseas shareholders who are
non-PRC resident individuals, as well as gains realized by such shareholders from the
transfer of our shares, may be regarded as PRC-sourced income and as a result be
subject to PRC withholding tax at a rate of 20%, subject to the provision of any
applicable agreement for the avoidance of double taxation.
38
Under SAT Circular 698 and Bulletin 7,
if a non-resident enterprise transfers “PRC
taxable assets” of a PRC resident enterprise indirectly by disposition of the equity
interests of an overseas non-public holding company without reasonable commercial
purpose, the parties involved in the indirect transfer of the PRC taxable assets and the
PRC resident enterprise whose equity is transferred indirectly, may report such equity
transfer matter to the PRC competent tax authority of the PRC resident enterprise. The
PRC tax authority may disregard the existence of the overseas holding company if it
lacks a reasonable commercial purpose and was established for the purpose of reducing,
avoiding, or deferring PRC tax. As a result, gains derived from such disposition may be
subject to a PRC withholding tax rate of up to 10%. Circular 698 also provides that,
where a non-PRC resident enterprise transfers its equity interests in a PRC resident
enterprise to its related parties at a price which is not on an arm’s length basis and
results in reducing the taxable income, the relevant tax authority has the power to make
a reasonable adjustment as to the taxable income of the transaction. Circular 698 was
retroactively effective on January 1, 2008. On February 3, 2015, the State Administration
of Taxation released SAT Bulletin 7 to amend and clarify several
issues related to
Circular 698. According to SAT Bulletin 7, the term “PRC taxable assets” includes
assets attributed to an establishment in China, immoveable properties located in China,
and equity investments in PRC resident enterprises; and when determining whether there
is a “reasonable commercial purpose” of the transaction arrangement, factors to be
taken into consideration include: whether the main value of the equity interest of the
relevant offshore enterprise derives from PRC taxable assets; whether the assets of the
relevant offshore enterprise mainly consists of direct or indirect investment in China or if
its income mainly derives from China; whether
the offshore enterprise and its
subsidiaries directly or indirectly holding PRC taxable assets have real commercial
nature which is evidenced by their actual function and risk exposure; the duration of
existence of the business model and organizational structure; the replicability of the
transaction by direct transfer of PRC taxable assets; and the tax situation of such
indirect transfer and applicable tax treaties or similar arrangements. If Circular 698 and
Bulletin 7 were determined by the tax authorities to be applicable to us, our offshore
subsidiaries and our non-resident enterprise investors, we, our offshore subsidiaries and
our non-resident enterprise investors might be required to expend valuable resources to
comply with this circular, which may materially and adversely affect us or our non-
resident enterprise investors. See “Risk Factors — Risks Related to Doing Business in
China — We and our shareholders face uncertainties with respect to indirect transfers
of equity interests in PRC resident enterprises or other assets attributed to a PRC
establishment of a non-PRC company, or other assets attributable to a PRC
establishmentofanon-PRCcompany.”
Under applicable PRC laws, payers of PRC-sourced income to non-PRC residents are
generally obligated to withhold PRC income taxes from the payment. In the event of a
failure to withhold, the non-PRC residents are required to pay such taxes on their own.
Failure to comply with the tax payment obligations by the non-PRC residents will result
in penalties, including full payment of taxes owed, fines and default interest on those
taxes.
PRCValue-addedTax
Pursuant to the Pilot Measure for Imposition of Value-Added Tax to Replace Business
Tax for Transport and Shipping Industry and Some of the Modern Service Industries,
promulgated by the Ministry of Finance and the State Administration of Taxation on
November 16, 2011 (the “PilotMeasure”),any entity or individual conducting business in
some modern service industry, such as the service we are engaging in,
is generally
required to pay a value-added tax, or VAT, at the rate of 6% on the revenues generated
from providing such services. A taxpayer is allowed to offset the qualified input VAT
paid on taxable purchases against the output VAT chargeable on the modern services
provided.
On March 30, 2016, the Ministry of Finance and the State Administration of Taxation
promulgated the Notice of the Ministry of Finance and the State Administration of
Taxation on Overall Implementation of the Pilot Program of Replacing Business Tax with
Value-added Tax. Pursuant to this notice, from May 1, 2016, a value-added tax will
generally be imposed to replace the business tax in the construction industry, real estate
industry,
finance industry, consumer service industry and other
industries on a
nationwide basis.
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SAFECircular37
SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control
on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment
through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced
the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on
October 21, 2005. SAFE Circular 37 requires PRC residents to register with local
branches of SAFE in connection with their direct establishment or indirect control of an
offshore entity, for the purpose of overseas investment and financing, with such PRC
residents’ legally owned assets or equity interests in domestic enterprises or offshore
assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE
Circular 37 further requires amendment to the registration in the event of any significant
changes with respect to the special purpose vehicle, such as increase or decrease of
capital contributed by PRC individuals, share transfer or exchange, merger, division or
other material event. In the event that a PRC shareholder holding interests in a special
purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of
that special purpose vehicle may be prohibited from making profit distributions to the
offshore parent and from carrying out subsequent cross-border foreign exchange
activities, and the special purpose vehicle may be restricted in its ability to contribute
additional capital into its PRC subsidiary. Furthermore, failure to comply with the various
SAFE registration requirements described above could result in liability under PRC law
for evasion of foreign exchange controls.
ShareOptionRules
Under the Administration Measures on Individual Foreign Exchange Control issued by the
PBOC on December 25, 2006, all foreign exchange matters involved in employee share
ownership plans and share option plans in which PRC citizens participate require
approval from SAFE or its authorized branch. Pursuant to SAFE Circular 37, PRC
residents who participate in share incentive plans in overseas non-publicly-listed
companies may submit applications to SAFE or its local branches for the foreign
exchange registration with respect to offshore special purpose companies. In addition,
under
the Notices on Issues concerning the Foreign Exchange Administration for
Domestic Individuals Participating in Share Incentive Plans of Overseas Publicly-Listed
Companies, or the Share Option Rules,
issued by SAFE on February 15, 2012, PRC
residents who are granted shares or share options by companies listed on overseas
stock exchanges under share incentive plans are required to (i) register with SAFE or its
local branches, (ii) retain a qualified PRC agent, which may be a PRC subsidiary of the
overseas listed company or another qualified institution selected by the PRC subsidiary,
to conduct the SAFE registration and other procedures with respect to the share
incentive plans on behalf of the participants, and (iii) retain an overseas institution to
handle matters in connection with their exercise of share options, purchase and sale of
shares or interests and funds transfers.
EmploymentLaws
In accordance with the PRC National Labor Law, which became effective in January
1995, and the PRC Labor Contract Law, which became effective in January 2008, as
amended subsequently in 2012, employers must execute written labor contracts with
full-time employees in order to establish an employment relationship. All employers must
compensate their employees equal to at least the local minimum wage standards. All
employers are required to establish a system for labor safety and sanitation, strictly
abide by state rules and standards and provide employees with appropriate workplace
safety training. In addition, employers in China are obliged to pay contributions to the
social insurance plan and the housing fund plan for employees. We have contributed to
the basic and minimum social insurance plan. Due to a high employee turnover rate in
our industry, it is difficult for us to comply fully with the law. While we believe that we
have made adequate provision of such outstanding amounts of contributions to such
plans in our financial statements, any failure to make sufficient payments to such plans
would be in violation of applicable PRC laws and regulations and, if we are found to be
in violation of such laws and regulations, we could be required to make up the
contributions for such plans as well as to pay late fees and fines.
40
C. Organizational structure.
Below is a chart illustrating our corporate structure:
D. Property, Plant and Equipment
Intellectual Property
We regard our intellectual property rights as critical to our operations. We rely on a
combination of patents, copyrights, trademarks and trade secret laws to protect our
intellectual property. As of December 31, 2021, we had two registered trademarks in
China and owned ten domain names.
Property and Equipment
As of December 31, 2021 and 2020, property and equipment, net consisted of the
following:
Electronic equipment
Office equipment
Leasehold improvement
Total property and equipment
Less: accumulated depreciation
Total property and equipment, net
December
31,
2021
168,308 $
14,391
339,657
522,356
(199,959)
322,397 $
December
31,
2020
163,891
14,034
-
177,925
(158,605)
19,320
$
$
Depreciation expenses for the fiscal years ended December 31, 2021, 2020 and 2019
were $36,883, $31,957 and $48,793, respectively. There was no impairment recorded for
these property and equipment for the years ended December 31, 2021, 2020 and 2019.
41
Lease commitments
We lease offices and residential properties for employee’s dormitories Rent expenses
for the years ended December 31, 2021, 2020 and 2019 were $51,239, $91,043 and
$173,259, respectively. The Company has future minimum lease obligations as of
December 31, 2021 as follows:
Year of 2022
Year of 2023
Year of 2024
Year of 2025
Thereafter
Less: lease commitments on terminations
Total
ITEM 4A.
UNRESOLVED STAFF COMMENTS
None.
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Commitment
Amount
$
$
52,700
-
-
-
-
-
52,700
You should read the following discussion and analysis of our financial condition and
results of operations in conjunction with our audited consolidated financial statements
andtherelatednotesincludedelsewhereinthisannualreport.Thisdiscussioncontains
forward-looking statements that involve risks and uncertainties. Our actual results and
the timing of selected events could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including those set forth
under“RiskFactors”andelsewhereinthisannualreport.
A. OperatingResults.
Revenue
We derive revenue from the sales of the following three items: (1) cryptocurrency mining
machine and standardized computing equipment,
(2)
technical support plans,
(3)
software customization services, and bundle of products or services that may include a
combination of these items. We enter into contracts with customers that
include
promises to transfer various products and services, which are generally capable of being
distinct and accounted for as separate performance obligations. Revenue is recognized
when the promised goods or services are transferred to customers, in an amount that
reflects the consideration allocated to the respective performance obligation. We record
and recognize revenues from both products and services in one account, which is
presented as revenues and revenues from related parties in the accompanying
consolidated statements of operations and comprehensive income. During 2021, 2020
and 2019, we derive revenue from the sale of the following three items:
(1) Sales of Cryptocurrency Mining Machine and Standardized Computing Equipment
We recognize product revenues on a gross basis as we are responsible to fulfill the
promise to provide specified goods. Revenue is recognized at a point in time upon the
transfer of control of products to customers.
(2) Technical Support Plans
We sell technical support plans either as a package with the sale of software products
or separately on its own. Each technical support plan has a contractual period of one
year. Revenue is recognized over a period of time throughout the contract period for the
technical support plan, generally is recognized over twelve months period. However, we
did not record this revenue stream on total revenue for December 31, 2021 since we
discontinued business related to these services in 2020.
(3) Software Customization Services
We deliver our software customization services by developing customized features on
software products to suit customers’ special needs. Upon receiving the purchase
request from the customers, we design, develop, test, and implement the specified
features to our software products. We also include a one-year technical support plan
specifically for the developed feature(s).
Customers are able to request and purchase the service together with a purchase of our
software product, or separately if the customer has our software products in-use.
Revenue is recognized at a point in time upon customers’ acceptance of the feature(s),
and revenue for the technical support plan is recognized over its service term, which
generally is for twelve months period.
42
CostsandExpenses
We primarily incur the following costs and expenses:
Costs of revenues. Cost of revenues primarily consist of: (1) cost of product revenue,
which includes direct costs of cryptocurrency mining machine, standardized computing
equipment and software products;
labor costs and employee benefits for software
development, data testing, bug fixes and hacker prevention; research and development
expenses; (2) cost of services and other revenue, which reflects direct costs associated
with providing services,
including data center and support costs related to delivering
online services.
Selling, general and administrative expenses. Selling, general and administrative
expenses consist primarily of compensation expense for our corporate staff and
personnel supporting our corporate staff, marketing costs, office supplies, welfare
expenses, training expenses, professional fees (including consulting, audit and legal
fees),
travel and business hospitality expenses. Selling, general and administrative
expenses also include depreciation and amortization expenses. We record property and
equipment at cost and calculate depreciation using the straight-line method over the
estimated useful lives of our assets, which generally range from three to five years.
Researchanddevelopmentexpenses. Research and development costs are expensed as
incurred. The costs primarily consist of the wage expenses incurred to continuously
improve and upgrade our services.
Bad debt expenses. Based on our periodic review of accounts receivable balances, we
adjusted the allowance for doubtful accounts after considering management’s
evaluation of the collectability of individual receivable balances, including the analysis of
subsequent collections, the customers’ collection history, the write-off of uncollectible
receivables against the existing reserve, and recent economic events.
Results of Operations
Revenues
Cost of Revenues
Gross profit
Operating expenses
Selling, general & administrative expenses
Research and development expenses
Total operating expenses
Income/(Loss) from operations
Other income/(expenses)
Other income
Other expenses
Gain on equity method investment
Total other income/(expense)
Income/(Loss) from continuing operations before
provision of income taxes
Provision for income taxes expenses
Net income/(loss) from continuing operations
Discontinued operations
Loss from discontinued operations, net of income tax
Gain from disposal
Income/(loss) from discontinued operations, net of income
tax
For The Years Ended
December 31,
2021
2020
2019
36,709,931
(30,112,363)
6,597,568
-
-
1,607,393
36,317
53,305
(38,534)
14,771
-
-
964,470
63,450
330,000
(43,056)
286,944
-
-
1,369,701
127,117
1,643,710
1,027,920
1,496,818
-
4,953,858
-
-
47,167
(43,171)
-
-
(1,013,149)
-
-
1,687
(9,343)
-
-
(1,209,874)
-
-
118,709
(363,815)
33,684
3,996
(7,656)
(211,422)
-
-
-
4,957,854
(1,406,159)
(1,020,805)
(76,343)
(1,421,296)
(64,615)
-
3,551,695
-
-
-
-
-
(1,097,148)
-
-
(322,490)
347,990
-
(1,485,911)
-
-
(76,944)
-
-
25,500
(76,944)
Net income/(loss)
$ 3,551,695 $(1,071,648) $(1,562,855)
43
Revenues
Our total revenues increased by $36,656,626 or 68,768%, from $53,305 in fiscal 2020
to $36,709,931 in fiscal 2021. All of our total revenues for both fiscal 2021 and fiscal
2020 generated from third parties and no revenues incurred from related party. The
increase was primarily due to the surging sales revenues from cryptocurrency mining
machine and standardized computing equipment sales since 2021.
Our total revenues decreased by $276,695 or 84%, from $330,000 in fiscal 2019 to
$53,305 in fiscal 2020. All of our total revenues for both fiscal 2020 and fiscal 2019
generated from third parties and no revenues incurred from related party. The decrease
in revenues was primarily due to the continued business. During 2020 and 2019, we
developed new products and services using technology derived from the discontinued
business. These newly developed products and services have not started to contribute to
our revenue stream.
CostofRevenuesandGrossMargin
Cost of revenues increased by $30,073,829 or 78,045%, from $38,534 in fiscal 2020 to
$30,112,363 for the fiscal 2021. The increase was primarily due to the increase in
procurement costs of cryptocurrency mining machines and standardized computing
equipment for fiscal 2021. Gross margin for fiscal 2021 was 18%, as compared to 28%
for
fiscal 2020. The gross margin of sales cryptocurrency mining machine and
standardized computing equipment was a little bit lower than the business in 2020.
Cost of revenues decreased by $4,522 or 11%, from $43,056 in fiscal 2019 to $38,534
for the fiscal 2020. The decrease of cost of revenue was primarily attributable to in line
with decrease of revenues. Gross margin for fiscal 2020 was 28%, as compared to 87%
for fiscal 2019. The decreased in gross margin of continuing operations was primarily
due to higher cost in the wage, payroll taxes and higher overhead costs.
Selling,GeneralandAdministrativeexpenses
Selling, general and administrative expenses consist primarily of sales and administrative
employee-related expenses, professional fees, travel costs, research and development
costs, and other corporate expenses. Selling, general and administrative expenses were
$1,607,393 for the year of 2021, an increase of $642,923, or 67% from December 31,
2020 to December 31, 2021. The increase was primarily due to expenses related to an
establishment of a new wholly foreign-owned enterprise in fiscal 2021.
Selling, general and administrative expenses consist primarily of sales and administrative
employee-related expenses, professional fees, travel costs, research and development
costs, and other corporate expenses. Selling, general and administrative expenses were
$964,470 for the year of 2020, a decrease of $405,231, or 30% from December 31,
2019 to December 31, 2020. The decrease in selling, general and administrative
expenses was primarily due to decrease in payroll expense, depreciation and
amortization expenses, and advertising and marketing expenses, reflecting the down
sized of our business in fiscal 2020.
ResearchandDevelopmentExpenses
We incurred $36,317 and $63,450 in research and development in fiscal 2021 and 2020,
respectively. Research and development expenses decreased by $27,133, or 43%, for
fiscal 2021 compared to fiscal 2020. The decrease was primarily due to the decrease in
FinTech R&D. We have not invested in cryptocurrency mining machine R&D. Research
and development expenses decreased by $63,667, or 50%, for fiscal 2020 compared to
fiscal 2019.
44
Baddebtexpense
We did not have bad debt expense in fiscal 2021, 2020 and 2019. We collected all the
accounts receivables as of December 31, 2020, due to our sales arrangement usually
requires advanced payment. We did not make bad debt provision for accounts
receivables as of December 31, 2021 since the customers were with good credit and the
accounts receivable were within the term of credit.
Lossfromoperations
As a result of the factors described above, operating income was $4,953,858 for fiscal
2021, compared to operation loss was $1,013,149 for fiscal 2020, an increase in
operation income of $5,967,007, or 589%. Our operation loss in fiscal 2020 was
$1,013,149, compared to operating loss was $1,209,874 for fiscal 2019, a decrease in
operation loss of $196,725, or 16%.
Otherexpenses
For fiscal 2021, other income, net of other expense, were $3,996, compared to other
expenses, net of other income, were $7,656 for fiscal 2020, a change of $11,652. The
decrease of other expenses was primarily attributable to foreign exchange income.
For fiscal 2020, other expense, net of other income, were $7,656, compared to 211,422
for fiscal 2019, a change of $203,766. The decrease of other expense was primarily
attributable to a decrease of gain on foreign currency transactions and other non-
operating income. We also incurred a non-operating expense on impairment of disposal
of $1,517.
Lossfromcontinuingoperations
As a result of the foregoing, our income from continuing operations was $3,551,695, or
$0.17 per share (basic and diluted), for the year ended December 31, 2021, as compared
with loss from continuing operations of $1,097,148, or $(0.05) per share (basic and
diluted), for the year ended December 31, 2020. Our loss from continuing operating was
$1,485,911 for fiscal 2019, or $(0.07) per share (basic and diluted), for the year ended
December 31, 2019.
IncomeTax
For fiscal 2021, we had provision for income tax of $1,406,159, an increase of $1,329,816,
or 1,742%, as compared to expense for income tax of $76,343 for fiscal 2020. The
increase is primarily due to increase income before provision of income taxes.
45
For fiscal 2020, we had provision for income tax of $76,343, an increase of $11,728, or
18%, as compared to expense for income tax of $64,615 for fiscal 2019. The increase is
primarily due to recording of tax liability of $76,343 and tax liability of $64,615 in
relation to uncertain tax positions for the uncertainty surrounding the PRC residency of
our non-PRC entities for the years ended December 31, 2020 and 2019.
Gain(loss)fromdiscontinuedoperation,netofincometaxes
Our gain from discontinued operations was nil, or $0.00 per share (basic and diluted),
for the year ended December 31, 2021, as compared with a income from discontinued
operations of $25,500, or $(0.00) for the year ended December 31, 2020. Our loss from
discontinued operations was $76,944, or $(0.00) per share (basic and diluted), for the
year ended December 31, 2019.
The summarized operating result of discontinued operation included our consolidated
statements of operation is as follows:
Revenues
Cost of revenues
Gross profit
Operating expenses
Other income, net
Loss before income taxes
Income tax expense
Loss from discontinued operations
Gain from disposal, net of taxes
For The Years Ended December
31,
2021
2020
2019
$
- $ 237,431 $ 379,630
199,888
-
160,810
-
-
-
-
-
-
-
76,621
353,219
(45,125)
(321,723)
767
179,742
196,060
(2,240)
(18,558)
58,386
(322,490)
(76,944)
347,990
-
Total income/(loss) from discontinued operations
$
- $ 25,500 $ (76,944)
We realized a gain of $347,990 from the disposal of 100% equity of Anyi Network
including its subsidiaries and offset by a loss of $322,490 from discontinued operation
of the year ended December 31, 2020. As the result, total gain amounted $25,500 from
discontinued operation for the year ended December 31, 2020.
We reclassified Anyi Network and its subsidiaries as discontinued operation and
recorded a loss of $76,944 from discontinued operation in the year ended December 31,
2019.
Netloss
As a result of the factors described above, our net income for fiscal 2021 was
$3,551,695, compared to net loss of $1,071,648 for fiscal 2020, a decrease in net loss of
$4,623,343, or 431%. Our net loss for fiscal 2019 was $1,562,855, a decrease in net loss
of $491,207, or 31%.
46
Foreigncurrencytranslation
The accompanying consolidated financial statements are presented in United States
dollar (“$”), which is the reporting currency of us. The functional currency of AGM
Group Holdings, Inc., AGM Technology Limited, AGM Defi Tech Ltd., our subsidiaries
established pursuant to the laws of Hong Kong, AGM DEFI LAB PTE. Ltd., our subsidiary
established pursuant to the laws of Singapore, and AGM Software Services Ltd, our
subsidiary established pursuant to the laws of the British Virgin Islands are United States
dollar. The functional currency of AGM Tianjin Construction Development Co, Ltd.,
Beijing AnGaoMeng Technology Service Co., Ltd., Nanjing Lucun Semiconductor Co. Ltd.,
our indirect subsidiaries established pursuant
to the laws of China, are Renminbi
(“RMB”). For
the subsidiaries whose functional currencies are RMB,
results of
operations and cash flows are translated at average exchange rates during the period,
assets and liabilities are translated at the exchange rate at the end of the period, and
equity is translated at historical exchange rates.
The Consolidated Balance Sheets balances, with the exception of equity at December 31,
2021 and 2020, were translated at RMB6.3757 and RMB6.5378 to $1.00, respectively.
The equity accounts were stated at their historical rate. The average translation rates
applied to the Consolidated Statements of Operations and Comprehensive Income and
the Consolidated Statements of Cash Flows for the years ended December 31, 2021,
2020 and 2019 were RMB6.4514, RMB6.9003 and RMB6.9074 to $1.00, respectively.
Net gains and losses resulting from foreign exchange translations are included in the
Comprehensive income on the consolidated statements of operations. As a result of
foreign currency translations, which are a non-cash adjustment, we reported a foreign
currency translation gain/(loss) of $169,472, $(154,768) and $95,060 for the. This non-
cash loss had the effect of increasing our reported comprehensive income or loss.
B. LiquidityandCapitalResources.
Liquidity
FortheyearsendedDecember31,2021and2020
Liquidity is the ability of a company to generate funds to support our current and future
operations, satisfy our obligations and otherwise operate on an ongoing basis. As of
December 31, 2021 and December 31, 2020, we had working capital of $24.5 million and
$3.7 million,
including cash and cash equivalents of $18.4 million and $0.7 million,
respectively. As a result, we believe that our current cash and cash to be generated from
our operations will be sufficient to meet our working capital needs for at least the next
twelve months. We are not dependent upon the access to borrow loans from our related
parties. We plan to expand our business to implement our growth strategies to broaden
our service and strengthen our position in the marketplace.
The following table sets forth a summary of changes in our working capital from
December 31, 2020 to December 31, 2021:
Working capital:
Total current assets
Total current liabilities
Working capital
December
31,
2021
December
31,
2020
Change
Percentage
Change
$87,319,271 $6,202,131 $81,117,140
1,308%
62,819,301
2,538,955
60,280,346
$24,499,970 $3,663,176 $20,836,794
2,374%
569%
Because the exchange rate conversion is different for the consolidated balance sheets
and the consolidated statements of cash flows, the changes in assets and liabilities
reflected on the consolidated statements of cash flows are not necessarily identical with
the comparable changes reflected on the consolidated balance sheets.
47
CashFlowSummary
The following table sets forth certain items in our consolidated statements of cash flows
for 2021, 2020 and 2019.
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
Less cash and cash equivalents of discontinued operations–
end of year
Cash and cash equivalents of continuing operations–end of
year
For The Years Ended December 31,
2021
2020
2019
(1,854,458)
(339,657)
19,558,681
397,451
17,762,017
664,605
(1,652,022)
(1,195)
111,878
129,375
(1,411,964)
2,076,569
(196,393)
(5,010,387)
(526,329)
(55,667)
(5,788,776)
7,865,345
18,426,622
664,605
2,076,569
-
-
613,979
$18,426,622 $
664,605 $ 1,462,590
We have cash and cash equivalents held in financial
institutions in the following
countries (regions):
Country (Region)
China (Mainland)
China (Hong Kong)
Singapore
Total cash and cash equivalents
OperatingActivities:
December
31,
2021
December
31,
2020
$16,566,953 $ 148,747
271,212
244,646
1,599,983
259,686
$18,426,622 $ 664,605
Net cash used in operating activities of continuing operations was $1,854,458 for fiscal
2021, primarily due to a net income of $3,551,695. The adjustments for changes in
assets and liabilities primarily included (i) an increase of advances to suppliers of
$40,485,521, (ii) an increase of inventories of $22,433,140, offset by (iii) a decrease of
advances from customers of $42,231,914 and (iv) a decrease of accounts payable of
$14,111,595.
Net cash used in operating activities of continuing operations was $1,355,330 (total of
$1,652,022 including discontinued operations of $296,692), for fiscal 2020, primarily
due to a net loss of $1,071,648 adjusted by a gain on discontinued operations of
$25,500, adjusted by non-cash gain from disposal of subsidiary of $347,990 and
working capital primarily included depreciation and amortization expenses of $33,437.
The adjustments for changes in assets and liabilities primarily included (i) prepaid
expenses and other current assets of $103,145, (ii) accounts payable of $1,763, and (iii)
accrued expenses and other current liabilities of $48,537.
Net cash used in operating activities of continuing operations was $160,926 (total of
$196,393 including discontinued operations of $35,467), for fiscal 2019, primarily due to
a net loss from continuing operations of $1,485,911 and adjusted by non-cash working
capital primarily included depreciation and amortization expenses of $50,273 and a gain
on equity method investment of $33,684. The adjustments for changes in assets and
liabilities primarily included (i) prepaid expenses and other current assets of $347,763, (ii)
accounts payable of $76,441, and (iv) accrued expenses and other current liabilities of
$1,042,072.
Net cash used in operating activities of discontinued operations was nil, $296,692 and
$35,467 in fiscal 2021, 2020 and 2019, respectively.
48
InvestingActivities:
Net cash used in investing activities of continuing operations was $339,657 for the
leasehold improvement in fiscal 2021.
Net cash used in investing activities of continuing operations was $810 for the purchase
of office equipment in fiscal 2020.
Net cash used in investing activities of continuing operations was $4,976,431 for fiscal
2019. It was attributable to the purchase of office equipment for $700, an acquisition of
subsidiaries in cash of $400,000, an advance deposit
for
intent acquisition of
$4,937,664 and offset by the proceeds from sales of equity investment of $361,933.
Net cash used in investing activities from discontinued operations was $385 and
$33,956 for fiscal 2020 and 2019, respectively. There was no net cash provided or used
by investing activities of discontinued operations for fiscal 2021.
FinancingActivities:
Net cash provided by financing activities was of continuing operations $19,558,681 for
fiscal 2021. It was mainly attributable to proceeds from issuance of Class A ordinary
shares of $17,639,999 and proceeds from short-term borrowings of $1,568,455.
Net cash provided by financing activities was of continuing operations $198,226 for
fiscal 2020. It was attributable to proceeds from issuance of Class A ordinary shares of
$667,901 and borrowings from related parties of $125,212, offset by repayment of
related party loans and advances of $594,887.
Net cash used in financing activities was of continuing operations $580,297 for fiscal
2019. It was attributable to repayment of related party loans and advances of $587,120
and offset by borrowings from related parties of $6,823.
Net cash used by financing activities of discontinued operations was $86,348 for fiscal
2020. Net cash provided by financing activities of discontinued operations of $53,968
for fiscal 2019. There was no net cash provided by or used in financing activities of
discontinued operations for fiscal 2021.
We expect to incur additional costs associated with becoming a public company in the
United States, primarily due to increased expenses related to accounting and tax
services,
legal expenses and investor and stockholder-related expenses. These
additional long-term expenses may require us to seek other sources of financing, such
as additional borrowings or public or private equity or debt capital. The availability of
these other sources of financing will depend upon our financial condition and results of
operations as well as prevailing market conditions and may not be available on terms
reasonably acceptable to us or at all.
RegulatoryRestrictionsonCapitalInjections
If we conduct offerings in the future, we plan to use proceeds from such offerings to
fund our business from time to time. In order to do so, we will be required to comply
with the following Chinese regulations regarding capital injections to foreign-invested
enterprises.
Chinese regulations relating to investments in offshore companies by Chinese residents.
SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control
on Domestic Residents’ Financing and Round trip Investment through Offshore Special
Purpose Vehicles, or SAFE Circular 37, on July 4, 2014. SAFE Circular 37 requires
Chinese residents to register and update certain investments in companies incorporated
outside of China with their local SAFE branch. SAFE also subsequently issued various
guidance and rules regarding the implementation of SAFE Circular 37, which imposed
obligations on Chinese subsidiaries of offshore companies to coordinate with and
supervise any Chinese-resident beneficial owners of offshore entities in relation to the
SAFE registration process.
We may not be aware of the identities of all of our beneficial owners who are Chinese
residents. We do not have control over our beneficial owners and cannot assure you that
all of our Chinese -resident beneficial owners will comply with SAFE Circular 37 and
subsequent implementation rules. The failure of our beneficial owners who are Chinese
residents to register or amend their SAFE registrations in a timely manner pursuant to
SAFE Circular 37 and subsequent implementation rules, or the failure of future beneficial
owners of our Company who are Chinese residents to comply with the registration
procedures set forth in SAFE Circular 37 and subsequent implementation rules, may
subject such beneficial owners or our Chinese subsidiaries to fines and legal sanctions,
which may be substantial. Failure to register may also limit our ability to contribute
additional capital to our Chinese subsidiaries and limit our Chinese subsidiaries’ ability
to distribute dividends to our Company. These risks may have a material adverse effect
on our business, financial condition and results of operations.
49
China regulates loans to and direct investment in Chinese entities by offshore holding
companies and there is governmental control of currency conversion. We are an
offshore holding company conducting our operations in China through our wholly owned
subsidiaries. As an offshore holding company, we may make loans and additional
contributions to subsidiaries subject to certain government authorities’ registration
and/or approvals, including MOFCOM, SAIC and SAFE, or their local counterparts.
Any loan to subsidiaries, which is treated as a foreign-invested enterprise under Chinese
law,
is subject to Chinese regulations and foreign exchange loan registrations.
In
January 2003, the China State Development and Reform Commission, SAFE and Ministry
of Finance jointly promulgated the Circular on The Interim Provisions on the
Management of Foreign Debts, or the Circular 28, limiting the total amount of foreign
debt a foreign-invested enterprise may incur to the difference between the amount of
total investment approved by the Ministry of Commerce or its local counterpart for such
enterprise and the amount of registered capital of such enterprise, and requiring
registration of any such loans with SAFE. On January 11, 2017, the People’s Bank of
China (the “PBOC”), promulgated the Circular on Matters concerning the Macro-
Prudential Management of Full-Covered Cross-Border Financing, or the PBOC Circular
9. Pursuant to PBOC Circular 9, the foreign debt upper limit for both foreign-invested
companies and domestic-invested companies is calculated as twice the net asset of
such companies. As to net assets, the companies shall take the net assets value stated
in their latest audited financial statement. The PBOC Circular 9 does not supersede the
Circular 28.
It provides a one-year transitional period from its promulgation date for
foreign-invested companies, during which foreign-invested companies, such as our
WFOE, could choose their calculation method of foreign debt upper limit based on either
the Foreign Debts Provisions or the PBOC Circular 9. The transitional period ended on
January 11, 2018. Upon its expiry, pursuant to the PBOC Circular 9, the PBOC and SAFE
will determine the cross-border financing administration mechanism for the foreign-
invested enterprises after evaluating the overall implementation of the PBOC Circular 9.
As of the date hereof, neither PBOC nor SAFE has promulgated and made public any
further rules, regulations, notices or circulars in this regard.
It is uncertain which
mechanism will be adopted by PBOC and SAFE in the future and what statutory limits
will be imposed on us when providing loans to our PRC subsidiaries.
We may choose to finance subsidiaries by means of capital contributions. These capital
contributions must be registered with the Ministry of Commerce or its local counterpart.
In March 2015, SAFE issued the Circular Concerning the Reform of the Administration of
the Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE
Circular No.19, which became effective in June 2015. SAFE Circular No.19 regulates the
conversion by a foreign-invested enterprise of foreign currency registered capital into
RMB by restricting how the converted RMB may be used. Furthermore, SAFE
promulgated a circular in June 2016, SAFE Circular No.16, which further revises some
clauses in the SAFE Circular No.19. SAFE Circular No. 19 and No.16 provide that the
capital-account foreign exchange incomes of a domestic enterprise shall not be used
for expenditures that are forbidden by relevant laws and regulations, for purposes that
are not included in the business scope approved by the applicable government authority,
shall not be used for direct or indirect equity investments within China or for any other
kind of investment except principal-guaranteed wealth-management products, unless
otherwise prescribed by other laws and regulations, shall not be used for issuing RMB
entrusted loans (except included in the business scope approved by the applicable
government authority or issuing RMB entrusted loans to affiliated enterprises), repaying
inter-enterprise loans, repaying bank loans which has been refinanced to third parties,
issuing RMB loans to non-affiliated enterprises unless expressly permitted in the
business scope and shall not be used to purchase real estate that is not for personal
use except if we are a real estate enterprise. In addition, SAFE supervises the flow and
use of the RMB capital converted from foreign currency registered capital of a foreign-
invested company by further focusing on ex post facto supervision and violations.
Previously, for FIEs the increase of capital contribution shall be approved by MOFCOM.
In 2016, the approval was changed to registration. Currently, China is holding more open
and tolerate attitude toward FIEs. Even with more and more open policy toward FDI and
FIEs, Circulars mentioned above may still have some limit on our ability to use the net
proceeds from future offerings to invest in or acquire any other Chinese companies in
China, which may adversely affect our liquidity and our ability to fund and expand our
business in China.
50
On January 30, 2020, the World Health Organization declared the coronavirus outbreak
a “Public Health Emergency of International Concern” and on March 10, 2020, declared
it to be a pandemic. Actions taken around the world to help mitigate the spread of the
coronavirus include restrictions on travel, and quarantines in certain areas, and forced
closures for certain types of public places and businesses. The coronavirus and actions
taken to mitigate it have had and are expected to continue to have an adverse impact
on the economies and financial markets of many countries, including the geographical
area in which we operate. While it is unknown how long these conditions will last and
what the complete financial effect will be to us, to date, we are not expecting to
experience any adverse effects other than:
1. Difficulty in communicating with potential acquisition targets.
2. Fund-raising events may be limited.
Additionally, it is possible that estimates made in the financial statements have been, or
will be, materially and adversely impacted in the near term as a result of these
conditions, including the ability to raise additional funding.
CapitalResources
As of December 31, 2021 and 2020
The following table provides certain selected balance sheets comparisons as of
December 31, 2021 and December 31, 2020:
December
31,
2021
December
31,
2020
Increase
(Decrease) %
Cash and cash equivalents
Accounts receivable
Inventories
Advances to suppliers
Prepayment and other current assets
Due from related parties
Total current assets
Property and equipment, net
Intangible assets, net
Operating lease right-of-use assets
Deferred tax asset
Total non-current assets
$18,426,622 $ 664,605 $17,762,017
2,608,325
22,433,140
40,485,521
(2,094,491)
2,608,325
22,433,140
40,485,521
3,326,425
39,238
>100%
>100%
>100%
>100%
(39)%
(77,372) >100%
-
-
-
5,420,916
116,610
87,319,271
6,202,131
81,194,512
>100%
322,397
8,633
241,554
129,034
701,618
19,320
10,113
-
-
29,433
303,077
(1,480)
241,554
129,034
>100%
(15)%
>100%
>100%
672,185
>100%
Total assets
$88,020,889 $6,231,564 $81,789,325
>100%
Short-term borrowings
Accounts payable
Accrued expenses and other payables
Advance from customers
Due to related parties
Deferred revenue - current
Operating lease liabilities, current
Total current liabilities
Operating lease liabilities, non-current
Total liabilities
$ 1,568,455 $
14,116,569
3,597,440
42,231,914
1,215,573
38,111
51,239
4,974
1,819,545
-
714,436
-
-
- $ 1,568,455
14,111,595
1,777,895
42,231,914
501,137
-
51,239
62,819,301
147,812
2,538,955
-
60,280,346
147,812
>100%
>100%
98%
>100%
70%
>100%
>100%
>100%
>100%
$62,967,113 $2,538,955 $60,428,158
>100%
51
Cash
As of December 31, 2021, we have a total of $18,426,622 in cash and cash equivalents,
among which $16,566,953 was held inside China (Mainland), and $1,859,669 was held
outside of China (Mainland). As of December 31, 2020, we have a total of $664,605 in
cash and cash equivalents, among which $148,747 was held inside China (Mainland), and
$515,858 was held outside of China (Mainland). We have not transferred and do not plan
to transfer our cash in RMB outside of China (Mainland) in order to avoid unnecessary
currency exchange cost. Our subsidiaries in China (Mainland) incur expenses from time
to time, and we have spent and plan to spend our cash in RMB to cover those expenses.
Prepaidexpensesandothercurrentassets,net
As of December 31, 2021, balances of prepayment and other current assets were
$3,326,425, a decrease of $2,094,491, compared to $5,420,916 as of December 31,
2020. The decrease was primarily due to fund returned from intent acquisition, partially
offset by increase of prepaid input VAT of 2,848,547, as shown in the following table.
Prepaid expenses
Note receivable
Advance deposit for intent acquisition
Short-term borrowing
Prepaid input VAT
Deposits and others
Total prepayment and other current assets
Currentassets
December
31,
2021
December
31,
2020
$
51,301 $
-
-
400,000
2,848,547
26,577
54,466
400,000
4,937,664
-
-
28,786
$3,326,425 $5,420,916
Current assets as of December 31, 2021 totaled $87,319,271, an increase of $81,194,512
from our December 31, 2020 balance. The increase was primarily resulted from a
$40,485,521 increase in advance to suppliers, a $22,433,140 increase in inventories and
a $17,762,017 increase in cash and cash equivalents.
Accruedliabilitiesandotherpayables
Accrued liabilities and other payables mainly included wages payable, VAT payable,
income tax payable, deposit payables and other payables. Accrued liabilities and other
payables as of December 31, 2021 were $3,597,440, an increase of $1,777,895,
compared to $1,819,545 as of December 31, 2020.
CreditFacility
We mainly finance our operations through proceeds borrowed from related parties. As of
December 31, 2021, due to related parties were $1,215,573, an increase of $501,137,
compared to $714,436 as of December 31, 2020. Due to related parties as of December
31, 2020 and 2019 include:
Zhentao Jiang
Yufeng Mi
Yang Cao
Total due to related parties
52
Wenjie Tang
Total due from related parties
December
31,
2021
December
31,
2020
$1,119,465 $ 712,485
1,951
-
2,000
94,108
$1,215,573 $ 714,436
December
31,
2021
December
31,
2020
39,238
116,610
$
39,238 $ 116,610
The balance of due to related parties represents expenses incurred by related parties in
the ordinary course of business and expenses related parties paid on behalf of us. These
loans are interest free, unsecured and repayable on demand.
From time to time, we borrowed $907,135 from related parties and repaid $517,670 to
related parties in the year ended December 31, 2021. We borrowed $241,822 from
related parties and repaid $594,887 to related parties in the year ended December 31,
2020. We borrowed $6,823 from related parties and repaid $587,120 to related parties
in the year ended December 31, 2019.
CriticalAccountingPolicies
The discussion and analysis of our financial condition and results of operations are
based upon our audited consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States. The
preparation of these audited consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses. We evaluate our estimates on an ongoing basis, including those related to
revenue recognition and income taxes. We base our estimates on our historical
experience and on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making the judgments we make
about the carrying values of our assets and liabilities that are not readily apparent from
other sources. Because these estimates can vary depending on the situation, actual
results may differ from the estimates.
The critical accounting policies summarized in this section are discussed in further detail
in the notes to the audited consolidated financial statements appearing elsewhere in this
annual
report. Management believes that
the application of
these policies on a
consistent basis enables us to provide useful and reliable financial information about our
operating results and financial condition.
RevenueRecognition
We adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from
Contracts with Customers (“ASC 606”) for all years presented. The core principle of this
new revenue standard is that a company should recognize revenue when control of the
promised goods or services is transferred to the customers, in an amount that reflects
the consideration to which We expect to be entitled in exchange for those goods or
services. The following five steps are applied to achieve that core principle by us in
determination of revenue recognition:
●
●
●
●
●
Step 1: Identify the contract(s) with the customer;
Step 2: Identify the performance obligations in the contract;
Step 3: Determine the transaction price;
Step 4: Allocate the transaction price to the performance obligations in the contract;
and
Step 5: Recognize revenue when or as we satisfie a performance obligation.
We are a blockchain hardware machine and software developer, engaging in research,
development and sales of cryptocurrency mining machine and standardized computing
equipment.
The transaction price is allocated to each performance obligation on a relative
standalone selling price basis. The transaction price allocated to each performance
obligation is recognized when that performance obligation is satisfied, at a point in time
or over time as appropriate.
53
We derive revenue from the sale of cryptocurrency mining machine and standardized
computing equipment, technical support plans and software customization services for
the years ended December 31, 2021, 2020 and 2019. We began the business
transformation to became a blockchain hardware machine and software developer in
2021. We enter into contracts with customers that include promises to transfer various
products and services, which are generally capable of being distinct and accounted for
as separate performance obligations. Revenue is recognized when the promised goods
or services are transferred to customers, in an amount that reflects the consideration
allocated to the respective performance obligation. We recorded and recognized
revenues from both products and services in one account, which we present as revenues
and revenues from related parties in the accompanying consolidated statements of
operations and comprehensive income.
Estimates
The preparation of
financial statements in conformity with U.S. GAAP requires
management to make estimates and judgments that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities on the date of the
financial statements and the reported amounts of revenues and expenses during the
reporting period. We base our estimates and judgments on historical experience and on
various other assumptions and information that are believed to be reasonable under the
circumstances. Estimates and assumptions of future events and their effects cannot be
perceived with certainty and, accordingly, these estimates may change as new events
occur, as more experience is acquired, as additional information is obtained and as our
operating environment changes. Significant estimates and assumptions by management
include, among others, useful
lives and impairment of long-lived assets, allowance for
doubtful accounts,
income taxes including the valuation allowance for deferred tax
assets. While we believe that the estimates and assumptions used in the preparation of
the financial statements are appropriate, actual results could differ from those estimates.
Estimates and assumptions are periodically reviewed and the effects of revisions are
reflected in the financial statements in the period they are determined to be necessary.
FairValueofFinancialInstruments
We follow the provisions of Accounting Standards Codification (“ASC”) 820, Fair Value
Measurements and Disclosures (“ASC 820”).
It clarifies the definition of fair value,
prescribes methods for measuring fair value, and establishes a fair value hierarchy to
classify the inputs used in measuring fair value as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active
markets, quoted prices for identical or similar assets and liabilities in markets that are
not active, inputs other than quoted prices that are observable, and inputs derived from
or corroborated by observable market data.
Level 3-Inputs are unobservable inputs which reflect
the reporting entity’s own
assumptions on what assumptions the market participants would use in pricing the asset
or liability based on the best available information.
The carrying amounts reported in the accompanying consolidated balance sheets for
cash and cash equivalents, accounts receivable, advance to suppliers, prepayment and
other current assets, short-term borrowings, accounts payable, accrued expenses and
other payables and due to related parties approximate their fair value based on the
short-term maturity of these instruments.
54
RecentAccountingPronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial
Instruments – Credit
Losses”, which will require the measurement of all expected credit losses for financial
assets held at the reporting date based on historical experience, current conditions, and
reasonable and supportable forecasts. Subsequently, the FASB issued ASU No. 2018-19,
Codification Improvements to Topic 326,
to clarify that
receivables arising from
operating leases are within the scope of lease accounting standards. Further, the FASB
issued ASU No. 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11 and ASU 2020-02
to provide additional guidance on the credit losses standard. The ASU is effective for
public company for fiscal years, and interim periods within those fiscal years beginning
after December 15, 2019. For all other entities including emerging growth companies, the
ASU is effective for fiscal years beginning after December 15, 2020, and interim periods
within fiscal years beginning after December 15, 2021. Early application is permitted for
fiscal years, and interim periods within those fiscal years, beginning after December 15,
2018. We have adopted ASU 2016-13 since January 1, 2021, the impact of which on our
consolidated financial statements was immaterial.
Recently issued ASUs by the FASB, except for the ones mentioned above, are not
expected to have a significant impact on our consolidated results of operations or
financial position. Other accounting standards that have been issued or proposed by
FASB that do not require adoption until a future date are not expected to have a
material
impact on the consolidated financial statements upon adoption. We do not
discuss recent pronouncements that are not anticipated to have an impact on or are
unrelated to our consolidated financial condition, results of operations, cash flows, or
disclosures.
C.ResearchandDevelopment,PatentandLicenses,etc.
Please refer
to “Item 4.
Information on the Company – D. Property, Plant and
Equipment – Intellectual Property.”
D.TrendInformation.
Other than as disclosed elsewhere in this annual report, we are not aware of any trends,
uncertainties, demands, commitments or events that are reasonably likely to have a
material effect on our net revenues,
income from continuing operations, profitability,
liquidity or capital resources, or that would cause reported financial
information not
necessarily to be indicative of future operating results or financial condition or results of
operations.
E.Off-BalanceSheetArrangements.
There were no off-balance sheet arrangements for the fiscal years ended December 31,
2021, 2020 and 2019, or that in the opinion of management are likely to have, a current
or future material effect on our financial condition or results of operations.
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Management
The following table provides information regarding our executive officers and directors
as of the date hereof:
Name
Chenjun Li
Wenjie Tang
Steven Sim
Yufeng Mi
Bo Zhu
Jialin Liu
Jing Shi
Fangjie Wang
Yafang Wang
Age
39
40
44
45
35
63
37
32
44
Position(s)
Co-Chief Executive Officer and Chairman of the Board
Co-Chief Executive Officer and Director
Chief Financial Officer
Chief Technology Officer
Chief Strategy Officer
Independent Director
Committee.
Independent Director
Committee
Independent Director and the Chairwoman of the Audit
Committee
Secretary of the Board
and Chairman of Compensation
of Nominating
and Chairman
The business address of each of the officers and directors is c/o Creative Consultants
(Hong Kong) Limited Room 1502-3 15/F., Connaught Commercial Building, Wanchai,
Hong Kong.
55
Chenjun Li. Mr. Li is an expert in the sector of fintech and blockchain-oriented ASIC
(Application Specific Integrated Circuit), possessing over 10 years of experience in credit
card and credit card related systems and 8 years of experience in blockchain-oriented
ASIC and other blockchain applications. He is proficient in software development, and
has expertise using open-source technology system and operating system principles. Mr.
Li started his career at Shanghai Huateng Software System Co., Ltd. and Tonglian
Payment Network Service Co., where he served for 7 years and took the responsibilities
of module development, joint debugging and testing, identifying problems, and bug fixes,
designing, developing the integrated management platform of the Agricultural Bank of
China’s Credit Card Center in addition to its core system, designing and developing of
the second-generation system of China UnionPay II and overseeing system architecture,
system analysis, quality control, and follow-up planning, among others. From 2013 to
2021, Mr. Li served as the Chief Technology Officer at Shenzhen HighSharp Electronics
Ltd., where he was responsible for not only constructing and designing R&D of SMIC's
55nm ASIC, TSMC's 16nm ASIC chip, Samsung's 10nm ASIC chip, and SMIC's N+1 ASIC
chip, but also the algorithm design, system design, algorithm verification and system
verification of high-performance ASIC and the entire solution. Mr. Li obtained his
bachelor’s degree in computer science and technology from Tongji University in 2005.
Wenjie Tang. Mr. Tang is the co-founder of our Company and has served as Chief
Executive Officer since the beginning and serve as director of
the Company
commencing February 9, 2018. Before co-founding our subsidiary AGM Beijing, he co-
founded and held the Chief Executive Officer position in Beijing Miteke Technology Co.
Ltd. from 2011 to 2015, and was Chief Representative and Chief Business Officer in
MeiZhi Huangqiu Beijing Technology Co. Ltd. from 2009 to 2011. Mr. Tang earned his
master’s degree in Economics from Tufts University in Boston, and his bachelor’s
degree in Economics from Shanghai Fudan University. He is a Certified Financial Analyst
(level 3 candidate), and has passed series 3 of the National Commodities Futures
Examination in the United States. Mr. Tang has 16 years of experience in forex and
futures trading, more than 19 years of experience in stock and futures investment. He
also has a profound understanding of the operation principles, market microstructure,
macro trading, trading system and risk control.
Steven Yuan Ning Sim. Mr. Sim has over 15 years of audit and financial management
experience. Mr. Sim has served as the Chief Financial Officer of Pintec Technology
Holdings Limited (Nasdaq: PT), an independent financial solutions provider in China,
since October 2016. Mr. Sim has also served as an independent director of Skillful
Craftsman Education Technology Limited (Nasdaq: EDTK), a provider of online
education and technology services in China, since March 2021. Previously, Mr. Sim
served as vice president of finance at Sohu.com Inc. from 2014 to 2016. From 2011 to
2014, he served as chief financial officer at Leyou Inc., a leading multi-channel baby and
maternity platform in China. Mr. Sim served in various capacities at leading public
accounting firms including Deloitte & Touche in Beijing, KPMG Europe LLP in London,
and Ernst & Young and BDO Raffles in Singapore between 2001 and 2010. Mr. Sim
obtained his bachelor’s degree in applied accounting from Oxford Brooks University in
2002 and his MBA degree from European Institute of Business Administration (INSEAD)
in 2010. Mr. Sim is a member of the Association of Chartered Certified Accountants
(ACCA).
Yufeng Mi. Mr. Mi has served as Chief Technology Officer since the beginning. Before
co-founding our subsidiary AGM Beijing, he co-founded Beijing Miteke Technology Co.
Ltd. with Wenjie Tang and was the IT department manager in MeiZhi Huangqiu Beijing
Technology Co. Ltd. from 2011 to 2015. Mr. Mi earned his master’s degree in Computer
Science from Université Pierre et Marie Currie, his master’s degree in finance from
Université Dauphine, and his bachelor’s degree in communication technology from
Shanghai Jiaotong University. He is a Certified Financial Analyst (level 1) in the United
States and a Financial Risk Manager. Mr. Mi is experienced in B2C e-commerce, forex
and futures trading system, and trading system design.
Bo Zhu. Mr. Zhu possesses an in-depth understanding of the blockchain technology
application, as well as a well-known reputation and extensive network within the
industry due to the extended time spent in high-performance computing research in the
past years.
Jialin Liu. Mr. Liu has served as our
Independent Director and Chairman of
Compensation Committee since March 2017. He has been the Chairman of the Board of
Profit Well Gold Investment (Beijing) Co., Ltd. since 2006. He earned his bachelor’s
degree from Central University of Finance and Economics. He is very experienced with
administrative management and finance.
56
Jing Shi. Ms. Shi has been the Assistant to CEO at Dingyi Group since August 2019. Ms.
Shi has had extensive experience at various investment companies with regard to
financial management and account operations. From July 2018 to June 2019, Ms. Shi
was in charge of all the financial operations at Baowan Capital. Ms. Shi started her
career as a member of its Capital Settlement Office in 2011, at the prestigious China
General Nuclear Power Corporation, where she would eventually advance to senior
management within 5 years. From July 2012 to June 2015, she was an accountant at the
New Project Department. From July 2015 to July 2018, Ms. Shi served as a Senior
Manager at the Investment and Development Center, where she managed all aspects of
financial operations of
the company. Ms. Shi acquired her Bachelor’s Degree in
Investment Management from the Central University of Finance and Economics in 2009,
and her Master’s Degree from the Chinese Academy of Fiscal Sciences in 2011.
Fangjie Wang. Ms. Wang has been working as an Audit Manager at Beijing Hua Long
Ding Jia Certified Public Accountants Co., Ltd since March 2018. Prior to that, she
worked at Zhongxinghua Certified Public Accountants LLP as an Audit Assistant from
August 2017 to February 2018. She worked as the Lecturer of International Economics
and Trade at Hubei Vocational Technical
Institute from June 2016 to July 2017. She
interned as a teacher of Ecological Tourism at Adult Education Academy of Guangxi
Normal University. She interned as an assistant at Tian Jia Bing Academy of Guangxi
Normal University from June 2014 to March 2016. From August 2013 to May 2014, she
worked as an Internal Assistant to Duty Manager at Xiaogan Branch of Agricultural Bank
of China. Ms. Wang graduated from Guangxi Normal University in 2016 and received a
master’s degree in Management. Before that, she received a bachelor’s degree in
International Economics and Trade from Hubei University. Ms. Fangjie Wang is an
accounting expert and is experienced with establishing effective internal control system.
There are no family relationships between Fangjie Wang and any other employees or
members of the Board of Directors of the Company.
Yafang Wang. Ms. Wang has been the Assistant to the Chairman of the Board at Beijing
AnGaoMeng Technology Service Co., Ltd. since May 2015, where she translates financial
and legal documents, updates statistical data, and provides administrative support to the
Chairman. From April 2012 to May 2015, Ms. Wang worked as a researcher at Beijing
Tongzhou New City Investment & Operation Co., Ltd. where her job responsibilities were
mainly consisted of searching and collecting urban construction data and real estate
trend, preparing Real Estate Weekly for the company, and translating and updating the
company’s English website. Prior to that, Ms. Wang was a translator at HVS from June
2011 to December 2011 and an editor at Commercial Express of Embassies and
Overseas Agencies form June 2007 to December 2010, where she edited and translated
reports and publications. Ms. Wang obtained her bachelor’s degree from Beijing Foreign
Studies University in English major in 2005, and an associate degree in public relations
from Jilin University in 1997. Ms. Huang has extensive experience in business
administration and is proficient in English. There are no family relationships between
Yafang Wang and any other employee or member of the board of directors of the
Company.
Election of Officers
Our executive officers are appointed by, and serve at the discretion of, our Board of
Directors. There is no family relationship among any of our directors or executive
officers.
Board of Directors and Board Committees
Our Board of Directors currently consists of five directors, a majority of whom are
independent as such term is defined by the Nasdaq Capital Market.
The directors are re-elected at our general meeting of shareholders every year.
A director may vote in respect of any contract or transaction in which he is interested,
provided, however that the nature of the interest of any director in any such contract or
transaction shall be disclosed by him at or prior to its consideration and any vote on that
matter. A general notice or disclosure to the directors or otherwise contained in the
minutes of a meeting or a written resolution of the directors or any committee thereof of
the nature of a director’s interest shall be sufficient disclosure and after such general
notice it shall not be necessary to give special notice relating to any particular
transaction. A director may be counted for a quorum upon a motion in respect of any
contract or arrangement which he shall make with our company, or in which he is so
interested and may vote on such motion.
We do not have a lead independent director because of the foregoing reason and also
because we believe our independent directors are encouraged to freely voice their
opinions on a relatively small company board. We believe this leadership structure is
appropriate because we are a relatively small company in the process of listing on a
public exchange; as such we deem it appropriate to be able to benefit from the
guidance of Mr. Jiang as our Chair of the Board and Mr. Tang as our principal executive
officer and director. Our Board of Directors plays a key role in our risk oversight. The
Board of Directors makes all relevant Company decisions. As a smaller company with a
small board of directors, we believe it is appropriate to have the involvement and input
of all of our directors in risk oversight matters.
57
Board Committees
The business and affairs of the company are managed under the direction of our Board
of Directors. We have conducted Board meetings regularly since inception. Each of our
directors has attended all meetings either in person, via telephone conference, or
through written consent for special meetings. In addition to the contact information in
this annual report, the Board of Directors has adopted procedures for communication
with the officers and directors on September 15, 2017. Stockholders will be given
specific information on how he/she can direct communications to the officers and
directors of the Company at our annual stockholders’ meetings. All communications
from stockholders are relayed to the members of the Board of Directors.
Board Committees
We have established and adopted charters for three standing committees under the
Board of Directors: the Audit Committee, the Compensation Committee, the Nominating
Committee. Each Committee consists of only independent directors of the Company.
●
●
●
Audit Committee: Fangjie Wang (Chair), Jing Shi, Jialin Liu
Compensation Committee: Jialin Liu (Chair), Jing Shi, Fangjie Wang
Nominating Committee: Jing Shi (Chair), Fangjie Wang, Jialin Liu
The Board of Directors also adopted an insider trading policy that allows insiders to sell
securities of the Company pursuant to pre-arranged trading plans.
Effective October 23, 2000, the SEC adopted rules related to insider trading. One of
these rules, Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, provides
an exemption to the insider trading rules in the form of an affirmative defense. Rule
10b5-1 recognizes the creation of formal programs under which executives and other
insiders may sell the securities of publicly traded companies on a regular basis pursuant
to written plans that are entered into at a time when the plan participants are not aware
of material non-public information and that otherwise comply with the requirements of
Rule 10b5-1.
Audit Committee
Our Audit Committee consisted of Ms. Fangjie Wang, Mr. Jialin Liu and Ms. Jing Shi. Ms.
Fangjie Wang is the chairman of our audit committee. We have determined that Ms.
Fangjie Wang, Mr. Jialin Liu and Ms. Jing Shi satisfy the “independence” requirements
of Nasdaq Rule 5605 and Rule 10A-3 under the Securities Exchange Act of 1934. Our
Board of Directors has determined that Ms. Wang qualifies as an audit committee
financial expert and has the accounting or financial management expertise as required
under Item 407(d)(5)(ii) and (iii) of Regulation S-K. The audit committee will oversee our
accounting and financial reporting processes and the audits of the financial statements
of our company. The audit committee will be responsible for, among other things:
●
●
●
●
●
●
appointing the independent auditors and pre-approving all auditing and non-auditing
services permitted to be performed by the independent auditors;
reviewing with the independent auditors any audit problems or difficulties and
management’s response;
discussing the annual audited financial statements with management and the
independent auditors;
reviewing the adequacy and effectiveness of our accounting and internal control
policies and procedures and any steps taken to monitor and control major financial
risk exposures;
reviewing and approving all proposed related party transactions;
meeting separately and periodically with management and the independent auditors;
and
●
monitoring compliance with our code of business conduct and ethics, including
reviewing the adequacy and effectiveness of our procedures to ensure proper
compliance.
58
Compensation Committee
Our compensation committee consists of Mr. Jialin Liu, Ms. Fangjie Wang and Ms. Jing
Shi. Mr. Jialin Liu is the chairman of our compensation committee. We have determined
that Mr. Jialin Liu, Ms. Fangjie Wang and Ms. Jing Shi satisfy the “independence”
requirements under Nasdaq Rule 5605. The compensation committee will assist the
Board of Directors in reviewing and approving the compensation structure, including all
forms of compensation, relating to our directors and executive officers. Our chief
executive officer may not be present at any committee meeting during which his
compensation is deliberated. The compensation committee will be responsible for,
among other things:
●
●
●
●
reviewing and approving, or recommending to the Board of Directors for its
the compensation for our chief executive officer and other executive
approval,
officers;
reviewing and recommending to the Board of Directors for determination with
respect to the compensation of our non-employee directors;
reviewing periodically and approving any incentive compensation or equity plans,
programs or similar arrangements; and
selecting compensation consultant, legal counsel or other adviser only after taking
into consideration all
independence from
management.
to that person’s
relevant
factors
Nominating Committee
Our nominating committee consists of Ms. Jing Shi, Ms. Fangjie Wang and Mr. Jialin Liu.
Ms. Jing Shi is the chairperson of our nominating committee. We have determined that
Ms. Jing Shi, Ms. Fangjie Wang and Mr. Jialin Liu satisfy the “independence”
requirements under Nasdaq Rule 5605. The nominating committee will assist the Board
of Directors in selecting individuals qualified to become our directors and in determining
the composition of the board and its committees. The nominating committee will be
responsible for, among other things:
●
selecting and recommending to the board nominees for election by the shareholders
or appointment by the Board of Directors;
●
●
●
reviewing annually with the Board of Directors the current composition of the Board
of Directors with regards to characteristics such as independence, knowledge, skills,
experience and diversity;
making recommendations on the frequency and structure of board meetings and
monitoring the functioning of the committees of the Board of Directors; and
advising the Board of Directors periodically with regards to significant developments
in the law and practice of corporate governance as well as our compliance with
applicable laws and regulations, and making recommendations to the Board of
Directors on all matters of corporate governance and on any remedial action to be
taken.
Copy of our committee charters are also available on our website at www.agmprime.com.
Duties of Directors
Under British Virgin Islands law, our directors have a duty to act honestly, in good faith
and with a view to our best interests. Our directors also have a duty to exercise the care,
diligence and skills that a reasonably prudent person would exercise in comparable
circumstances. In fulfilling their duty of care to us, our directors must ensure compliance
with our memorandum and articles of association. We have the right to seek damages if
a duty owed by our directors is breached.
59
The functions and powers of our Board of Directors include, among others:
●
●
●
●
●
appointing officers and determining the term of office of the officers;
authorizing the payment of donations to religious, charitable, public or other bodies,
clubs, funds or associations as deemed advisable;
exercising the borrowing powers of the company and mortgaging the property of the
company;
executing checks, promissory notes and other negotiable instruments on behalf of the
company; and
maintaining or registering a register of mortgages, charges or other encumbrances of
the company.
Interested Transactions
A director may vote, attend a board meeting or sign a document on our behalf with
respect to any contract or transaction in which he or she is interested. A director must
promptly disclose the interest to all other directors after becoming aware of the fact
that he or she is interested in a transaction we have entered into or are to enter into. A
general notice or disclosure to the Board of Directors or otherwise contained in the
minutes of a meeting or a written resolution of the Board of Directors or any committee
of the Board of Directors that a director is a shareholder, director, officer or trustee of
any specified firm or company and is to be regarded as interested in any transaction
with such firm or company will be sufficient disclosure, and, after such general notice, it
will not be necessary to give special notice relating to any particular transaction.
Remuneration and Borrowing
The directors may receive such remuneration as our Board of Directors may determine
from time to time. Each director is entitled to be repaid or prepaid all traveling, hotel
and incidental expenses reasonably incurred or expected to be incurred in attending
meetings of our Board of Directors or committees of our Board of Directors or
shareholder meetings or otherwise in connection with the discharge of his or her duties
as a director. The compensation committee will assist the directors in reviewing and
approving the compensation structure for the directors. Our Board of Directors may
exercise all the powers of the company to borrow money and to mortgage or charge our
undertakings and property or any part thereof, to issue debentures, debenture stock and
other securities whenever money is borrowed or as security for any debt,
liability or
obligation of the company or of any third party.
Qualification
There are no membership qualifications for directors. Further, there are no share
ownership qualifications for directors unless so fixed by us in a general meeting. There
are no other arrangements or understandings pursuant to which our directors are
selected or nominated.
Limitation of Director and Officer Liability
Under British Virgin Islands law, each of our directors and officers, in performing his or
her functions,
is required to act honestly and in good faith with a view to our best
interests and exercise the care, diligence and skill that a reasonably prudent person
would exercise in comparable circumstances. British Virgin Islands law does not limit the
extent to which a company’s memorandum and articles of association may provide for
indemnification of officers and directors, except to the extent any indemnification may
be held by the British Virgin Islands courts to be contrary to public policy (for example, a
provision for indemnification against civil fraud or the consequences of committing a
crime).
60
Under our memorandum and articles of association, we may indemnify our directors,
officers and liquidators against all expenses,
including legal fees, and against all
judgments, fines and amounts paid in settlement and reasonably incurred in connection
with civil, criminal, administrative or investigative proceedings to which they are party or
are threatened to be made a party by reason of their acting as our director, officer or
liquidator. To be entitled to indemnification, these persons must have acted honestly and
in good faith with a view to the best interest of the company and, in the case of criminal
proceedings, they must have had no reasonable cause to believe their conduct was
unlawful. The decision of our Board of Directors as to whether such a person acted
honestly and in good faith with a view to the best interests of the company and as to
whether the person had no reasonable to cause to believe that his or her conduct was
unlawful is, in the absence of fraud, sufficient for the purposes of the indemnification,
unless a question of law is involved. The termination of any proceedings by any
judgment, order, settlement, conviction or the entry of a nolle prosequi does not, by
itself, create a presumption that a director did not act honestly and in good faith and
with a view to our best interests or that the director had reasonable cause to believe
that his or her conduct was unlawful. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission. These provisions
will not limit the liability of directors under United States federal securities laws.
We may indemnify anyone serving at our request as a director of another entity against
all expenses, including legal fees, and against all judgments, fines and amounts paid in
settlement and reasonably incurred in connection with legal, administrative or
investigative proceedings. To be entitled to indemnification, such a person must have
acted honestly and in good faith with the view to our best interests and, in the case of
criminal proceedings, must have had no reasonable cause to believe that his or her
conduct was unlawful. The decision of our Board of Directors as to whether the person
acted honestly and in good faith with a view to our best interests and as to whether the
director had no reasonable cause to believe that his or her conduct was unlawful, is in
the absence of fraud sufficient for the purposes of indemnification, unless a question of
law is involved. The termination of any proceedings by any judgment, order, settlement,
conviction or the entry of no plea does not, by itself, create a presumption that the
person did not act honestly and in good faith and with a view to our best interests or
that the person had reasonable cause to believe that his or her conduct was unlawful.
We may purchase and maintain insurance in relation to any of our directors or officers
against any liability asserted against the directors or officers and incurred by the
directors or officers in that capacity, whether or not we have or would have had the
power to indemnify the directors or officers against the liability as provided in our
memorandum and articles of association.
Insofar as indemnification for
liabilities arising under
the Securities Act may be
permitted for our directors, officers or persons controlling our company under the
foregoing provisions, we have been informed that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act and is
therefore unenforceable.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or officers has been convicted in a
criminal proceeding, excluding traffic violations or similar misdemeanors, nor has any
been a party to any judicial or administrative proceeding during the past five years that
resulted in a judgment, decree or final order enjoining the person from future violations
of, or prohibiting activities subject to, federal or state securities laws, or a finding of any
violation of federal or state securities laws, except for matters that were dismissed
without sanction or settlement. Except as set forth in our discussion below in “Related
Party Transactions,” our directors and officers have not been involved in any
transactions with us or any of our affiliates or associates which are required to be
disclosed pursuant to the rules and regulations of the SEC.
Insider Trading Policy
The Board of Directors also adopted an insider trading policy that allows insiders to sell
securities of the Company pursuant to pre-arranged trading plans.
This insider trading policy was put into place because effective October 23, 2000, the
SEC adopted rules related to insider trading. One of these rules, Rule 10b5-1 of the
Securities Exchange Act of 1934, as amended, provides an exemption to the insider
trading rules in the form of an affirmative defense. Rule 10b5-1 recognizes the creation
of formal programs under which executives and other insiders may sell the securities of
publicly traded companies on a regular basis pursuant to written plans that are entered
into at a time when the plan participants are not aware of material non-public
information and that otherwise comply with the requirements of Rule 10b5-1.
61
Code of Business Conduct and Ethics and other Corporate Governance Policies
We have adopted a code of business conduct and ethics that applies to our directors,
officers and employees. Our standards are in writing and have been posted on our
website at www.agmprime.com. The following is a summation of the key points of the
Code of Ethics we adopted:
●
●
●
●
●
Honest and ethical conduct, including ethical handling of actual or apparent conflicts
of interest between personal and professional relationships;
Full, fair, accurate, timely, and understandable disclosure reports and documents that
a small business issuer files with, or submits to, the SEC and in other public
communications made by our Company;
Full compliance with applicable government laws, rules and regulations;
The prompt internal reporting of violations of the code to an appropriate person or
persons identified in the code; and
Accountability for adherence to the code.
B. Compensation
Executive Compensation
The Compensation Committee of the Board of Directors determined the compensation
to be paid to our executive officers based on our financial and operating performance
and prospects, and contributions made by the officers to our success. And our
compensation committee approved our salary and benefit plans. Each of the named
officers will be measured by a series of performance criteria by the Board of Directors,
or the compensation committee on a yearly basis. Such criteria will be set forth based
on certain objective parameters such as job characteristics, required professionalism,
management skills,
interpersonal skills, related experience, personal performance and
overall corporate performance.
Our employment agreements with our officers generally provide for employment for a
specific term and pay annual salary, health insurance, pension insurance, and paid
vacation and family leave time. The agreement may be terminated by either party as
permitted by law.
In the event of a breach or termination of the agreement by our
company, we may be obligated to pay the employee twice the ordinary statutory rate. In
the event of a breach or termination causing loss to our company by the employee, the
employee may be required to indemnify us against loss. We have executed employment
agreements with Mr. Chenjun Li, Mr. Wenjie Tang, Mr. Yufeng Mi, Mr. Steven Sim, Mr.
Bo Zhu, and Ms. Yafang Wang.
62
The following table presents summary information regarding the total compensation
awarded to, earned by, or paid to each of the named executive officers for services
rendered to us for the years ended December 31, 2021 and 2020.
Name and Principal
Position
Wenjie Tang
Co-Chief Executive
Officer
Chenjun Li
Co-Chief Executive
Officer(1)
Guofu Zhang
Former Chief Financial
Officer(2)
Fiscal
Year
or
Period
2021
Salary
($)
42,000
2020
40,200
2021
2020
2021
-
-
-
2020
54,448
Zhihe Yang
2021
-
Former Chief Financial
Officer(3)
2020
15,861
Steven Sim
Chief Financial Officer(4)
Xiaoding Wu
Former Chief Operating
Officer(5)
2021
2020
2021
9,411
-
-
2020
29,820
Yufeng Mi
Chief Technology Officer
2021
2020
30,000
11,225
Bo Zhu
2021
80,000
Bonus
($)
Stock
Awards
($)
All Other
Compensation
($)
0
0
-
-
-
0
-
0
0
-
-
0
0
0
0
0
0
-
-
-
0
-
0
0
-
-
0
0
0
0
0
0
-
-
-
0
-
0
0
-
-
0
0
0
0
Total
($)
42,000
40,200
-
-
-
54,448
-
15,861
9,411
-
-
29,820
30,000
11,225
80,000
Chief Strategy Officer
Yafang Wang
Secretary of the Board
2020
2021
2020
-
20,706
20,916
-
0
0
-
0
0
-
0
0
-
20,706
20,916
(1) Chenjun Li was appointed as Co-Chief Executive officer, effective July 12, 2021.
(2) Guofu Zhang resigned as Chief Financial Officer in October 2020, effective October 14, 2020.
(3)
(4)
Zhihe Yang resigned as Chief Financial Officer on September 23, 2021, effective September 23,
2021.
Steven Sim was appointed by the Board of Directors as the Chief Financial Officer, effective
September 24, 2021.
(5) Xiaoding Wu resigned as Chief Operating Officer in December 2020, effective December 31,
2020.
Director Compensation
All directors hold office until the next annual meeting of shareholders at which they are
re-elected and until their successors have been duly elected and qualified. Officers are
elected by and serve at the discretion of the Board of Directors. Employee directors are
entitled receive compensation for their services. Non-employee directors are entitled to
receive a set amount of cash fee for serving as directors. In addition, non-employee
directors are entitled to receive compensation for their actual travel expenses for each
Board of Directors meeting attended, and any out-of-pocket expenses incurred by them
in connection with their services provided in such capacity. We have entered into
agreements with our directors Chenjun Li, Fangjie Wang, Jialin Liu and Jing Shi.
In
addition, our director Wenjie Tang receives compensation for his service as an officer of
the Company. He has not received and will not receive compensation as a director of
the Company.
63
The table below indicates the compensations we paid to our Board of Directors in their
capacity as directors for fiscal years 2021 and 2020:
Name
Chenjun Li
Chairman of the
Board(1)
Fiscal
Year or
Period
2021
2020
Salary
($)
Bonus
($)
Stock
Awards
($)
All Other
Compensation
($)
Total
($)
0
-
0
-
0
-
0
-
0
-
Bin Cao
Former Chairman of the
Board(1)
Wenjie Tang
Director(2)
Fangjie Wang
Independent Director
and Chairman of
Audit Committee
Jialin Liu
Independent Director
and Chairman of
Compensation
Committee
Jing Shi
Independent Director
and Chairman of
Nominating
Committee(3)
Tingfu Xie(3)
Former Independent
Director and
Chairman of
Nominating
Committee
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
40,500
52,800
0
0
11,763
10,616
10,201
8,847
20,000
-
5,882
2020
10,616
-
0
0
0
0
0
0
0
0
-
0
0
-
0
0
0
0
0
0
0
0
-
0
0
-
0
0
0
0
0
0
0
0
-
0
40,500
52,800
0
0
11,763
10,616
10,201
8,847
20,000
-
5,882
0
10,616
(1)
The employment agreement between the Company and Mr. Bin Cao, expired on May 19, 2021.
Mr. Cao continued to serve on an at-will basis after expiration through September 10, 2021,
when the Board of Directors determined not to extend Mr. Cao’s employment and to remove Mr.
Cao from all position of the Company. On September 15, 2021, the Board of Directors approved
the appointment of Chenjun Li as the director and the Chairman of the Board to replace Bin Cao.
(2) Wenjie Tang is a director and the co-Chief Executive Officer. Mr. Tang receives an annual salary
for his service as the co-CEO. He does not receive any compensation as a director.
(3) On April 30, 2021, Tingfu Xie tendered his resignation as director,
the chairman of the
Nominating Committee, and a member of
the Audit Committee and the Compensation
Committee of the Company, effective April 30, 2021. Ms. Jing Shi was appointed as the
succeeding director, the chairwoman of the Nominating Committee and a member of the Audit
Committee and the Compensation Committee of the Company, effective April 30, 2021.
64
ITEM 7.
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Major Shareholders
The following table sets forth information with respect to beneficial ownership of our
Class A ordinary shares and Class B ordinary shares as of the date of this report by:
●
●
●
Each person who is known by us to beneficially own more than 5% of our
outstanding Class A ordinary shares and Class B ordinary shares;
Each of our director, director nominees and named executive officers; and
All directors and named executive officers as a group.
Our company is authorized to issue 200,000,000 Class A ordinary shares of $0.001 par
value per share and 200,000,000 Class B ordinary shares of $0.001 par value per share.
The number and percentage of ordinary shares beneficially owned are based on
24,254,842 Class A ordinary shares of $0.001 par value per share and 2,100,000 Class B
ordinary shares of $0.001 par value per share issued and outstanding as of the date of
this report. Information with respect to beneficial ownership has been furnished by each
director, officer or beneficial owner of more than 5% of our Class A ordinary shares
and/or Class B ordinary shares. Beneficial ownership is determined in accordance with
the rules of the SEC and generally requires that such person have voting or investment
power with respect to securities. In computing the number of Class A ordinary shares
and/or Class B ordinary shares beneficially owned by a person listed below and the
percentage ownership of such person, Class A ordinary shares underlying options,
warrants or convertible securities held by each such person that are exercisable or
convertible within 60 days of April 6, 2021 are deemed outstanding, but are not deemed
outstanding for computing the percentage ownership of any other person. Except as
otherwise indicated in the footnotes to this table, or as required by applicable
community property laws, all persons listed have sole voting and investment power for
all Class A ordinary shares and Class B ordinary shares shown as beneficially owned by
them. Unless otherwise indicated in the footnotes, the address for each principal
shareholder is in the care of our Company c/o Creative Consultants (Hong Kong)
Limited, Room 1502-3 15/F., Connaught Commercial Building, 185 Wanchai Road,
Wanchai, Hong Kong. As of the date hereof, we have 195 registered shareholders of
record of Class A ordinary shares and 2 registered shareholders of record of Class B
ordinary shares.
Named Executive
Officers and
Directors
Amount of
Beneficial
Ownership
(Class A)
Percentage
Ownership
(Class A)
Amount of
Beneficial
Ownership
(Class B)
Percentage
Ownership
(Class B)
Combined
Voting
Power of
Class A
and
Class B
Ordinary
Shares as a
Percentage(3)
Combined
Voting
Power
of Class A
and
Class B
Directors
Named
Executive
Officers:
Chenjun
Chairman
the Board
and
Li,
of
-
0%
-
0%
-
0%
Tang,
Wenije
Chief
Executive
Officer
Director(1)
and
6,500,000
26.80% 1,500,000
71.42% 14,000,000
40.28%
Steven
Sim,
Chief
Financial
Officer
Mi,
Yufeng
Chief
Technology
Officer(2)
Bo Zhu, Chief
Strategy
Officer
Yafang Wang,
of
Secretary
the Board
Jing
Shi,
and
Independent
Director
Chairwoman
of
Nominating
Committee
Fangjie Wang,
Independent
Director
Chairman
Audit
Committee
and
of
Jialin
Liu,
Independent
Director
and
of
Chairman
Compensation
Committee
All
directors
and
executive
officers as a
group
(9
persons)
5% Beneficial
Owners:
None
-
0%
-
0%
-
0%
600,000
2.47%
600,000
28.57% 3,600,000
10.36%
%
0%
0%
0%
0%
-
-
-
-
%
0%
0%
0%
0%
-
-
-
-
-
-
-
-
%
0%
0%
0%
0%
7,100,000
29.27% 2,100,000
100% 17,600,000
50.64%
(1) Wenjie Tang holds and 1,500,000 Class B ordinary shares. Defi Tech Holdings Ltd., a company
formed under the laws of Hong Kong SAR, holds 1,500,000 Class A ordinary shares. Wenjie
Tang is the sole shareholder and director of Defi Tech Holdings Ltd. and therefore is deemed the
beneficial owner of the 1,500,000 Class A ordinary shares held by Defi Tech Holdings Ltd. In
addition, Firebull Tech Limited, a company formed under the laws of Hong Kong SAR, holds
5,000,000 Class A ordinary shares. Wenjie Tang has the voting and dispositive power of and
therefore is deemed the beneficial owner of the 5,000,000 Class A ordinary shares held by
Firebull Tech Limited.
65
(2) Yufeng Mi holds 600,000 Class B ordinary shares. GMT Tech Holdings Limited, a company
formed under the laws of Hong Kong SAR, holds 600,000 Class A ordinary shares. Yufeng Mi is
the sole shareholder and director of GMT Tech Holdings Limited and therefore is deemed the
beneficial owner of the 600,000 Class A ordinary shares held by GMT Tech Holdings Limited.
(3)
Each Class B ordinary share in the Company confers upon the shareholder the right to five (5)
votes at a meeting of the shareholders of the Company or on any resolution of shareholders.
Holders of our Class B ordinary share will vote together with holders of our Class A ordinary
share as a single class on all matters presented to our shareholders for their vote approval.
RelatedPartyTransactions
As of December 31, 2021, related parties of the Company consist of the following:
Name of Related Party
Zhentao Jiang
Wenjie Tang
Yufeng Mi
Yang Cao
Nature of Relationship
Former Director and principal shareholder
Chief Executive Officer (“CEO”), Director, and shareholder
Chief Technical Officer (“CTO”) and shareholder
Director of Nanjing Lucun
Duetorelatedparties
The Company mainly finance its operations through proceeds borrowed from related
parties. As of December 31, 2021 and December 31, 2020, due to related parties
consisted the following:
Zhentao Jiang
Yufeng Mi
Yang Cao
Total due to related parties
December
31,
2021
December
31,
2020
$1,119,465 $ 712,485
1,951
-
2,000
94,108
$1,215,573 $ 714,436
The balance of due to related parties represents expenses incurred by related parties in
the ordinary course of business. These amounts are interest free, unsecured and could
be settled on demand.
From time to time, the Company borrowed $907,135 from related parties and repaid
$517,670 to related parties in the year ended December 31, 2021. The Company
borrowed $241,822 from related parties and repaid $594,887 to related parties in the
year ended December 31, 2020.
Duefromrelatedparties
As of December 31, 2021 and December 31, 2020, due from related parties consisted the
following:
Wenjie Tang
Total due from related parties
December
31,
2021
December
31,
2020
39,238
116,610
$
39,238 $ 116,610
Amounts due from related parties are interest free, unsecured and could be settled on
demand. For the years ended December 31, 2020 and 2021, related parties totally
borrowed 116,610 and $39,238 from the Company, respectively.
66
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
Please refer to Item 18.
Legal and Administrative Proceedings
To the best of our knowledge, none of our directors or officers has been convicted in a
criminal proceeding, excluding traffic violations or similar misdemeanors, nor has any
been a party to any judicial or administrative proceeding during the past five years that
resulted in a judgment, decree or final order enjoining the person from future violations
of, or prohibiting activities subject to, federal or state securities laws, or a finding of any
violation of federal or state securities laws, except for matters that were dismissed
without sanction or settlement. Except as set forth in our discussion below in “Related
Party Transactions,” our directors and officers have not been involved in any
transactions with us or any of our affiliates or associates which are required to be
disclosed pursuant to the rules and regulations of the SEC.
Dividend Policy
We have never declared or paid any cash dividends on our Class A ordinary shares. We
anticipate that we will retain any earnings to support operations and to finance the
growth and development of our business. Therefore, we do not expect to pay cash
dividends in the foreseeable future. Any future determination relating to our dividend
policy will be made at the discretion of our Board of Directors and will depend on a
number of factors, including future earnings, capital requirements, financial conditions
and future prospects and other factors the Board of Directors may deem relevant.
Under British Virgin Islands law and our memorandum and articles of association, the
Board of Directors may only authorize the payment of a dividend or another distribution
if the directors are satisfied on reasonable grounds that, immediately after the dividend
or other distribution is paid, the value of the company’s assets will exceed its liabilities
and the company will be able to pay its debts as they fall due. The resolution of
directors authorizing the payment of the dividend or other distribution must contain a
statement that,
in the directors’ opinion, the company will satisfy these two tests
immediately after the payment of the dividend or other distribution.
If we determine to pay dividends on any of our Class A ordinary shares in the future, as
a holding company, we will be dependent on receipt of funds from our operating
subsidiaries. Current Hong Kong regulations permit our HK subsidiary, AGM HK to pay
dividends to AGM Holdings only out of profits available for distribution. Withholding tax
regarding dividends is exempted in Hong Kong.
Current PRC regulations permit our PRC subsidiaries to pay dividends to AGM HK only
out of
their accumulated profits,
if any, determined in accordance with Chinese
accounting standards and regulations. In addition, each of our subsidiaries in China is
required to set aside at least 10% of its after-tax profits each year, if any, to fund a
statutory reserve until such reserve reaches 50% of its registered capital. Each of our
subsidiaries in China is also required to further set aside a portion of its after-tax
profits to fund the employee welfare fund, although the amount to be set aside, if any, is
determined at the discretion of its board of directors. Although the statutory reserves
can be used, among other ways, to increase the registered capital and eliminate future
losses in excess of retained earnings of the respective companies, the reserve funds are
not distributable as cash dividends except in the event of liquidation.
In addition, pursuant to the EIT Law and its implementation rules, dividends generated
after January 1, 2008 and distributed to us by our PRC subsidiaries are subject to
withholding tax at a rate of 10% unless otherwise exempted or reduced according to
treaties or arrangements between the PRC central government and governments of
other countries or regions where the non-PRC-resident enterprises are incorporated.
67
Under existing PRC foreign exchange regulations, payments of current account items,
including profit distributions,
interest payments and trade and service-related foreign
exchange transactions, can be made in foreign currencies without prior approval of the
State Administration of Foreign Exchange, or SAFE, by complying with certain
procedural requirements. Specifically, under the existing exchange restrictions, without
prior approval of SAFE, cash generated from the operations in China may be used to
pay dividends to our company.
B. Significant Changes
We have not experienced any significant changes since the date of our audited
consolidated financial statements included in this annual report.
ITEM 9. THE OFFER AND LISTING
A. Offer and listing details
Not applicable for annual reports on Form 20-F.
B. Plan of distribution
Not applicable for annual reports on Form 20-F.
C. Markets
Our Class A ordinary shares are listed on the Nasdaq Capital Market under the symbol
“AGMH.”
On January 31, 2020, we received a written notice from the Listing Qualifications
Department of The Nasdaq Stock Market (“Nasdaq”) indicating that we were not in
compliance with Nasdaq Listing Rule 5550(a)(3), which requires the Company to have at
least 300 public holders for continued listing by Nasdaq. The notification has no
immediate effect on the Company’s Nasdaq listing.
Subsequently, we submitted to Nasdaq a plan to regain compliance. On March 26, 2020,
we received an extension until July 29, 2020 to regain compliance with Listing Rules
5550(a)(3). During the compliance period, the Company’s shares of common stock
continued to be listed and traded on The Nasdaq Capital Market. To regain compliance,
the Company must have at least 300 public holders during this 180-day grace period.
On July 23, 2020,
the Company received a letter from the Listing Qualifications
Department of The Nasdaq, confirming that the Company has regained compliance with
Listing Rule 5550(a)(3) and the matter was closed.
D. Selling shareholders
Not applicable for annual reports on Form 20-F.
E. Dilution
Not applicable for annual reports on Form 20-F.
F. Expenses of the issue
Not applicable for annual reports on Form 20-F.
ITEM 10. ADDITIONAL INFORMATION
A. Share capital
Not applicable for annual reports on Form 20-F.
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B. Memorandum and articles of association
AGM Holdings was incorporated on April 27, 2015 under the BVI Companies Act, 2004
as a company limited by shares. As of the date of hereof, the Company is authorized to
issue 200,000,000 Class A ordinary shares of $0.001 par value per share and
200,000,000 Class B ordinary shares of $0.001 par value per share. As of the date of
this report, there are 24,254,842 Class A ordinary shares and 2,100,000 Class B ordinary
shares issued and outstanding.
Our memorandum and articles of association do not permit a director to decide what
compensation he or she will receive. All decisions about the compensation of directors
will be recommended by the compensation committee, upon its formation, and approved
by the Board of Directors as a whole, both acting only when a quorum of members is
present.
The following are summaries of the material provisions of our memorandum and articles
of association and the BVI Act, insofar as they relate to the material terms of our Class
A ordinary shares. As a convenience to potential
investors, we provide the below
description of BVI law and our memorandum and articles of association together with a
comparison to similar features under Delaware law.
Class A Ordinary Shares
General
Each Class A ordinary share in the Company confers upon the shareholder the right to
one vote per share at a meeting of the shareholders of the Company or on any
resolution of shareholders. Holders of our Class A Ordinary Share will vote together with
holders of our Class B ordinary shares as a single class on all matters presented to our
shareholders for their vote approval.
Each Class A ordinary share in the Company confers upon the shareholder the right to
an equal share in any dividend paid by the Company.
Each Class A ordinary share in the Company confers upon the shareholder the right to
an equal share in the distribution of the surplus assets of the Company on its liquidation.
All of our issued Class A ordinary shares are fully paid and non-assessable. Certificates
representing the Class A ordinary shares are issued in registered form. Our shareholders
who are non-residents of the British Virgin Islands may freely hold and vote their Class
A ordinary shares.
General
Class B Ordinary Shares
Each Class B ordinary share in the Company confers upon the shareholder the right to
five votes at a meeting of the shareholders of the Company or on any resolution of
shareholders. Holders of our Class B ordinary share will vote together with holders of
our Class A ordinary share as a single class on all matters presented to our shareholders
for their vote approval.
No Class B ordinary share may be sold, assigned, transferred, alienated, commuted,
anticipated, or otherwise disposed of (including by will or the laws of descent and
distribution), or pledged or hypothecated as collateral for a loan or as security for the
performance of any obligation, or be otherwise encumbered, and are not subject to
attachment, garnishment, execution or other legal or equitable process, and any attempt
to do so shall be null and void.
Each Class B ordinary share shall only be issued to the Company’s or its subsidiaries’
employees or those entities of which its principal shareholder is an employee of the
Company or
its subsidiaries. Shareholder’s termination of employment with the
Company or its subsidiaries shall immediately result in the cancellation of any and all
issued and outstanding shares of Class B ordinary shares held by such shareholder on
the date of termination.
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Sale, assignment, transfer, alienation, or otherwise disposition of any Class A ordinary
share by common shareholder of Class B ordinary shares shall immediately result in the
cancellation of equal number of shares of Class B ordinary share on the date of such
disposition.
Shareholder(s) of Class B ordinary share in the Company shall not:
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●
receive the right to any dividend paid by the Company;
receive the right to any distribution of the surplus assets of the Company on its
liquidation.
Transfer Agent and Registrar
The transfer agent and registrar for the Class A ordinary shares and Class B ordinary
shares is VStock Transfer, LLC, 18 Lafayette Pace, Woodmere, NY 11598.
Distributions
The holders of our Class A ordinary shares are entitled to such dividends or other
distributions as may be authorized by our Board of Directors, subject to the BVI Act and
our memorandum and articles of association.
Shareholders’ voting rights
Any action required or permitted to be taken by the shareholders must be taken at a
duly called meeting of the shareholders entitled to vote on such action. At each meeting
of shareholders, each shareholder who is present in person or by proxy (or, in the case
of a shareholder being a corporation, by its duly authorized representative) will have one
vote for each Class A ordinary share or five votes for each Class B ordinary share.
Holders of our Class A ordinary shares will vote together with holders of our Class B
ordinary shares as a single class on all matters presented to our shareholders for their
vote approval. An action that may be taken by the shareholders at a meeting may also
be taken by a resolution of shareholders consented to in writing.
Election of directors
Delaware law permits cumulative voting for the election of directors only if expressly
authorized in the certificate of incorporation. The laws of the British Virgin Islands do
not specifically prohibit or restrict the creation of cumulative voting rights for the
election of our directors. Cumulative voting is not a concept that is accepted as a
common practice in the British Virgin Islands, and we have made no provisions in our
memorandum and articles of association to allow cumulative voting for elections of
directors.
Meetings of shareholders
Any of our directors may convene a meeting of shareholders at any time and in any
manner and place the director considers necessary or desirable. The director convening
a meeting must not give less than seven days’ notice of the meeting to those
shareholders whose names appear as shareholders in the register of shareholders on the
date of the notice and are entitled to vote at the meeting, and the other directors. Our
Board of Directors must convene a meeting of shareholders upon the written request of
shareholders entitled to exercise 30% or more of the voting rights in respect of the
matter for which the meeting is requested within 28 days of receiving the written
request. A meeting of shareholders held in contravention of the requirement to give
notice is valid if shareholders holding at least 90% of the total voting rights on all the
matters to be considered at the meeting have waived notice of the meeting and, for this
purpose, the presence of a shareholder at the meeting shall constitute waiver in relation
to all the shares which that shareholder holds.
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The quorum for a meeting of shareholders is duly constituted if, at the beginning of the
meeting, there are present in person or by proxy not less than 50% of the votes of the
shares (or class or series of shares) entitled to vote on the resolutions to be considered
at the meeting. A quorum may comprise a single shareholder or proxy.
If within two
hours from the time appointed for the meeting a quorum is not present, the meeting, if
convened upon the requisition of the shareholders, will be dissolved. In any other case, it
will stand adjourned to the next business day in the jurisdiction in which the meeting
was to have been held at the same time and place or to such other time and place as
the directors may determine, and if at the adjourned meeting there are present within
one hour from the time appointed for the meeting in person or by proxy not less than
one third of the votes of the shares or each class or series of shares entitle to vote on
the matter to be considered by the meeting, those present will constitute a quorum but
otherwise the meeting will be dissolved.
Meetings of directors
Our business and affairs are managed by our Board of Directors, who will make
decisions by voting on resolutions of directors. Our directors are free to meet at such
times and in such manner and places within or outside the BVI as the directors
determine to be necessary or desirable A director must be given not less than 3 days’
notice of a meeting of directors. At any meeting of directors, a quorum will be present if
not less than one half of the total number of directors is present, unless there are only 2
directors in which case the quorum is 2. An action that may be taken by the directors at
a meeting may also be taken by a resolution of directors consented to in writing by a
majority of the directors. A person other than an individual which is a shareholder may
by a resolution of its directors or other governing body authorize any individual it thinks
fit to act as its representative at any meeting of shareholders. The duly authorized
representative shall be entitled to exercise the same powers on behalf of the person
which he represents as that person could exercise if it were an individual.
Protection of minority shareholders
We would normally expect British Virgin Islands courts to follow English case law
precedents, which would permit a minority shareholder to commence a representative
action, or derivative actions in our name, to challenge (1) an act which is ultra vires or
illegal, (2) an act which constitutes a fraud against the minority by parties in control of
us, (3) an infringement of individual rights of the minority shareholder (such as the right
to vote and pre-emptive rights), and (4) an irregularity in the passing of a resolution
which requires a special or extraordinary majority of the shareholders.
Pre-emptive rights
There are no pre-emptive rights applicable to the issue by us of new Class A ordinary
shares under either British Virgin Islands law or our memorandum and articles of
association.
Transfer of Class A Ordinary Shares
Subject to the restrictions in our memorandum and articles of association and applicable
securities laws, any of our shareholders may transfer all or any of his or her Class A
ordinary shares by written instrument of transfer signed by the transferor and containing
the name and address of the transferee. Our Board of Directors may not resolve to
refuse or delay the transfer of any Class A ordinary shares or Class B ordinary shares
unless the shareholder has failed to pay an amount due in respect of it.
Liquidation
If we are wound up and the assets available for distribution among our shareholders are
more than sufficient to repay all amounts paid to us on account of the issue of shares
immediately prior to the winding up, the excess shall be distributable pari passu among
those shareholders in proportion to the amount paid up immediately prior to the winding
up on the shares held by them, respectively. If we are wound up and the assets available
for distribution among the shareholders as such are insufficient to repay the whole of
the amounts paid to us on account of the issue of shares, those assets shall be
distributed so that, to the greatest extent possible, the losses shall be borne by the
shareholders in proportion to the amounts paid up immediately prior to the winding up
on the shares held by them, respectively. If we are wound up, the liquidator appointed by
us may, in accordance with the BVI Act, divide among our shareholders in specie or kind
the whole or any part of our assets (whether they shall consist of property of the same
kind or not) and may, for such purpose, set such value as the liquidator deems fair upon
any property to be divided and may determine how such division shall be carried out as
between the shareholders or different classes of shareholders.
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Calls on Class A Ordinary Shares and forfeiture of Class A Ordinary Shares
Our Board of Directors may from time to time make calls upon shareholders for any
amounts unpaid on their Class A ordinary shares in a notice served to such shareholders
at least 14 days prior to the specified date of payment. Where such a notice has been
issued its requirements have not been complied with, the directors may, at any time
before the tender of payment, forfeit and cancel the Class A ordinary shares to which
the notice relates.
Issuance of Class A Ordinary Shares
Subject to the provisions of the BVI Act, our Board of Directors may authorize the
issuance of shares at such times, to such persons, for such consideration and on such
terms as they may determine by a resolution of directors, subject to the BVI Act, our
memorandum and articles of association and any applicable requirements imposed from
time to time by the SEC, The Nasdaq Capital Market or any recognized stock exchange
on which our securities are listed.
Variation of rights
All or any of the rights attached to any class of shares may, subject to the provisions of
the BVI Act, be varied only with the consent in writing of, or pursuant to a resolution
passed at a meeting by the holders of more than 50% of the issued shares of that class.
Changes in the number of shares we are authorized to issue and those in issue
We may from time to time by resolution of our Board of Directors:
●
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●
amend our memorandum of association to increase or decrease the maximum number
of shares we are authorized to issue;
subject to our memorandum of association, divide our authorized and issued shares
into a larger number of shares; and
subject to our memorandum of association, combine our authorized and issued shares
into a smaller number of shares.
Inspection of books and records
Under the BVI Act, holders of our Class A ordinary shares are entitled, upon giving
written notice to us, to inspect (i) our memorandum and articles of association, (ii) our
register of shareholders, (iii) our register of directors and (iv) minutes of meetings and
resolutions of our shareholders, and to make copies and take extracts from these
documents and records. However, our directors can refuse access if they are satisfied
that to allow such access would be contrary to our interests.
Rights of non-resident or foreign shareholders
There are no limitations imposed by our memorandum and articles of association on the
rights of non-resident or foreign shareholders to hold or exercise voting rights on our
shares.
In addition,
there are no provisions in our memorandum and articles of
association governing the ownership threshold above which shareholder ownership must
be disclosed.
C. Material contracts
Other than those described in this annual report, we have not entered into any material
agreements other than in the ordinary course of business.
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D. Exchange controls
RegulationsonForeignCurrencyExchange
The principal regulations governing foreign currency exchange in China are the Foreign
Exchange Administration Regulations, most recently amended in August 2008. Under the
PRC foreign exchange regulations, payments of current account items, such as profit
distributions,
interest payments and trade and service-related foreign exchange
transactions, can be made in foreign currencies without prior approval from SAFE by
complying with certain procedural
requirements. By contrast, approval
from or
registration with appropriate government authorities is required where RMB is to be
converted into foreign currency and remitted out of China to pay capital account items,
such as direct
investments,
repayment of
foreign currency-denominated loans,
repatriation of investments and investments in securities outside of China.
In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting
Foreign Exchange Administration Policies on Foreign Direct
Investment, which
substantially amends and simplifies the current foreign exchange procedure. Pursuant to
this circular, the opening of various special purpose foreign exchange accounts, such as
pre-establishment expenses accounts, foreign exchange capital accounts and guarantee
accounts, the reinvestment of RMB proceeds derived by foreign investors in the PRC,
and remittance of
foreign exchange profits and dividends by a foreign-invested
enterprise to its foreign shareholders no longer require the approval or verification of
SAFE, and multiple capital accounts for the same entity may be opened in different
provinces, which was not possible previously.
In addition, SAFE promulgated another
circular in May 2013, which specifies that the administration by SAFE or its local
branches over direct investment by foreign investors in the PRC must be conducted by
way of registration and banks must process foreign exchange business relating to the
direct investment in the PRC based on the registration information provided by SAFE
and its branches. On February 28, 2015, SAFE promulgated the Notice on Further
Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct
Investment, or SAFE Notice 13. After SAFE Notice 13 became effective on June 1, 2015,
instead of applying for approvals regarding foreign exchange registrations of foreign
direct investment and overseas direct investment from SAFE, entities and individuals
may apply for such foreign exchange registrations from qualified banks. The qualified
banks, under the supervision of SAFE, may directly review the applications and conduct
the registration.
On March 30, 2015, SAFE promulgated Circular 19, which expands a pilot reform of the
administration of the settlement of the foreign exchange capitals of foreign-invested
enterprises nationwide. Circular 19 came into force and replaced both previous Circular
142 and Circular 36 on June 1, 2015. On June 9, 2016, SAFE promulgated Circular 16 to
further expand and strengthen such reform. Under Circular 19 and Circular 16, foreign-
invested enterprises in the PRC are allowed to use their foreign exchange funds under
capital accounts and RMB funds from exchange settlement for expenditure under
current accounts within its business scope or expenditure under capital accounts
permitted by laws and regulations, except that such funds shall not be used for (i)
expenditure beyond the enterprise’s business scope or expenditure prohibited by laws
and regulations; (ii) investments in securities or other investments than banks’ principal-
secured products; (iii) granting of loans to non-affiliated enterprises, except where it is
expressly permitted in the business license; and (iv) construction or purchase of real
estate for purposes other than self-use (except for real estate enterprises).
In January 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign
Exchange Administration and Optimizing Genuineness and Compliance Verification, or
SAFE Circular 3, which stipulates several capital control measures with respect to the
outbound remittance of profit from domestic entities to offshore entities, including (i)
under the principle of genuine transaction, banks shall check board resolutions regarding
profit distribution,
the original version of
tax filing records and audited financial
statements; and (ii) domestic entities shall hold income to account for previous years’
losses before remitting the profits. Further, according to SAFE Circular 3, domestic
entities shall make detailed explanations of the sources of capital and utilization
arrangements, and provide board resolutions, contracts and other proof when
completing the registration procedures in connection with an outbound investment.
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Regulations on Foreign Exchange Registration of Overseas Investment by PRC
Residents
SAFE issued SAFE Circular on Relevant
Issues Relating to Domestic Resident’s
Investment and Financing and Roundtrip Investment through Special Purpose Vehicles,
or SAFE Circular 37, that became effective in July 2014, replacing the previous SAFE
Circular 75. SAFE Circular 37 regulates foreign exchange matters in relation to the use
of special purpose vehicles, or SPVs, by PRC residents or entities to seek offshore
investment and financing or conduct round trip investment in China. Under SAFE
Circular 37, a SPV refers to an offshore entity established or controlled, directly or
indirectly, by PRC residents or entities for the purpose of seeking offshore financing or
making offshore investment, using legitimate onshore or offshore assets or interests,
while “round trip investment” refers to direct investment in China by PRC residents or
entities through SPVs, namely, establishing foreign-invested enterprises to obtain the
ownership, control rights and management rights. SAFE Circular 37 provides that, before
making contribution into an SPV, PRC residents or entities are required to complete
foreign exchange registration with SAFE or its local branch. SAFE promulgated the
Notice on Further Simplifying and Improving the Administration of the Foreign Exchange
Concerning Direct Investment in February 2015, which took effect on June 1, 2015. This
notice has amended SAFE Circular 37 requiring PRC residents or entities to register with
qualified banks rather
than SAFE or
its local branch in connection with their
establishment or control of an offshore entity established for the purpose of overseas
investment or financing.
PRC residents or entities who had contributed legitimate onshore or offshore interests
or assets to SPVs but had not obtained registration as required before the
implementation of the SAFE Circular 37 must register their ownership interests or
control in the SPVs with qualified banks. An amendment to the registration is required if
there is a material change with respect to the SPV registered, such as any change of
basic information (including change of the PRC residents, name and operation term),
increases or decreases in investment amount, transfers or exchanges of shares, and
mergers or divisions. Failure to comply with the registration procedures set forth in
SAFE Circular 37 and the subsequent notice, or making misrepresentation on or failure
to disclose controllers of the foreign-invested enterprise that is established through
round-trip investment, may result in restrictions being imposed on the foreign exchange
activities of the relevant foreign-invested enterprise, including payment of dividends and
other distributions, such as proceeds from any reduction in capital, share transfer or
liquidation, to its offshore parent or affiliate, and the capital inflow from the offshore
parent, and may also subject relevant PRC residents or entities to penalties under PRC
foreign exchange administration regulations.
We are aware that our PRC resident beneficial owners subject to these registration
requirements have registered with the Beijing SAFE branch and/or qualified banks to
reflect the recent changes to our corporate structure.
E. Taxation
The following brief description of Chinese enterprise laws is designed to highlight the
enterprise-level taxation on our earnings, which will affect the amount of dividends, if
any, we are ultimately able to pay to our shareholders.
PRC enterprise income tax is calculated based on taxable income determined under PRC
accounting principles. The Enterprise Income Tax Law (the “EIT Law”), effective as of
January 1, 2008, enterprises pay a unified income tax rate of 25% and unified tax
deduction standards are applied equally to both domestic-invested enterprises and
foreign-invested enterprises. Under the EIT Law, an enterprise established outside of
the PRC with “de facto management bodies” within the PRC is considered a resident
enterprise and will normally be subject to the enterprise income tax at the rate of 25%
on its global
income.
If the PRC tax authorities subsequently determine that AGM
Holding and its subsidiaries in PRC or any future non-PRC subsidiary should be
classified as a PRC resident enterprise, then such entity’s global income will be subject
to PRC income tax at a tax rate of 25%. In addition, under the EIT Law, payments from
the subsidiaries in PRC to us may be subject to a withholding tax. The EIT Law currently
provides for a withholding tax rate of 20%. If AGM Holdings or any of its subsidiaries in
PRC is deemed to be a non-resident enterprise, then it will be subject to a withholding
tax at the rate of 20% on any dividends paid by its Chinese subsidiaries to such entity.
In practice, the tax authorities typically impose the withholding tax rate of 10% rate, as
prescribed in the implementation regulations; however, there can be no guarantee that
this practice will continue as more guidance is provided by relevant government
authorities. We are actively monitoring the proposed withholding tax and are evaluating
appropriate organizational changes to minimize the corresponding tax impact.
According to the Sino-U.S. Tax Treaty which was effective on January 1, 1987 and
aimed to avoid double taxation disadvantage,
income that is incurred in one nation
should be taxed by that nation and exempted from the other nation, but for the dividend
that is generated in China and distributed to foreigner in other nations, a rate 10% tax
will be charged.
Our company will have to withhold that tax when we are distributing dividends to our
foreign investors. If we do not fulfill this duty, we will receive a fine up to five times of
the amount we are supposed to pay as tax or other administrative penalties from
government. The worst case could be criminal charge of tax evasion to responsible
persons. The criminal penalty for this offense depends on the tax amount the offender
evaded, and the maximum penalty will be 3-7 years imprisonment plus fine.
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PRC Value Added Tax
Pursuant
to the Provisional Regulation of China on Value Added Tax and its
implementing rules,
issued in December 1993, all entities and individuals that are
engaged in the businesses of sales of goods, provision of repair and placement services
and importation of goods into China are generally subject to a VAT at a rate of 17%
(with the exception of certain goods which are subject to a rate of 13%) of the gross
sales proceeds received,
less any VAT already paid or borne by the taxpayer on the
goods or services purchased by it and utilized in the production of goods or provisions
of services that have generated the gross sales proceeds.
PRC Business Tax
Companies in China are generally subject to business tax and related surcharges by
various local tax authorities at rates ranging from 3% to 20% on revenue generated
from providing services and revenue generated from the transfer of intangibles. However,
since May 1st of 2016, the Business Tax has been incorporated into Value Added Tax in
China, which means there will be no more Business Tax and accordingly some business
operations previously taxed in the name of Business Tax will be taxed in the manner of
VAT thereafter. In general, this newly implemented policy is intended to relieve many
companies from heavy taxes under currently slowing down economy. In the case of AGM
Holdings’ Chinese subsidiaries, even though the VAT rate is 17%, with the deductibles
the company may get in the business process, it will bear less burden than previous
Business Tax.
British Virgin Islands Taxation
Under the BVI Act as currently in effect, a holder of ordinary shares who is not a
resident of the British Virgin Islands is exempt from British Virgin Islands income tax on
dividends paid with respect to the Class A ordinary shares and Class B ordinary shares
and a holder of Class A ordinary shares and/or Class B ordinary shares is not required
to pay any income tax in the British Virgin Islands on gains realized during that year on
sale or disposal of such shares. The laws of the British Virgin Islands do not impose a
withholding tax on dividends paid by a company incorporated or re-registered under the
BVI Act.
There are no capital gains, gift or inheritance taxes levied by the British Virgin Islands
government on companies incorporated or re-registered under the BVI Act. In addition,
shares of companies incorporated or re-registered under the BVI Act are not subject to
transfer taxes, stamp duties or similar charges.
There is no income tax treaty or convention currently in effect between the United
States and the British Virgin Islands or between China and the British Virgin Islands.
United States Federal Income Taxation
The following does not address the tax consequences to any particular investor or to
persons in special tax situations such as:
●
●
banks;
financial institutions;
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●
●
●
●
●
●
●
●
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insurance companies;
regulated investment companies;
real estate investment trusts;
broker-dealers;
traders that elect to mark-to-market;
U.S. expatriates;
tax-exempt entities;
persons liable for alternative minimum tax;
persons holding our Class A ordinary shares as part of a straddle, hedging,
conversion or integrated transaction;
75
persons that actually or constructively own 10% or more of our voting shares;
persons who acquired our Class A ordinary shares pursuant to the exercise of any
employee share option or otherwise as consideration; or
persons holding our Class A ordinary shares through partnerships or other pass-
through entities.
Prospective purchasers are urged to consult their own tax advisors about the application
of the U.S. Federal tax rules to their particular circumstances as well as the state, local,
foreign and other tax consequences to them of the purchase, ownership and disposition
of our Class A ordinary shares.
Tax Treaties
As above mentioned, according to the Sino-U.S. Tax Treaty which was effective on
January 1st, 1987 and aimed to avoid double taxation disadvantage,
income that is
incurred in one nation should be taxed by that nation and exempted from the other
nation, but for the dividend that is generated in China and distributed to foreigners in
other nations, a rate 10% tax will be charged.
Taxation of Dividends and Other Distributions on our Class A ordinary shares
Subject to the passive foreign investment company rules discussed below, the gross
amount of distributions made by us to you with respect to the Class A ordinary shares
(including the amount of any taxes withheld therefrom) will generally be includable in
your gross income as dividend income on the date of receipt by you, but only to the
extent that the distribution is paid out of our current or accumulated earnings and
profits (as determined under U.S. federal income tax principles). The dividends will not
be eligible for the dividends-received deduction allowed to corporations in respect of
dividends received from other U.S. corporations.
With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends
will be taxed at the lower capital gains rate applicable to qualified dividend income,
provided that (1) the Class A ordinary shares are readily tradable on an established
securities market in the United States, or we are eligible for the benefits of an approved
qualifying income tax treaty with the United States that includes an exchange of
information program,
(2) we are not a passive foreign investment company (as
discussed below) for either our taxable year in which the dividend is paid or the
preceding taxable year, and (3) certain holding period requirements are met. Under U.S.
Internal Revenue Service authority, the Class A ordinary shares are considered for
purpose of clause (1) above to be readily tradable on an established securities market in
the United States if they are listed on The Nasdaq Capital Market. You are urged to
consult your tax advisors regarding the availability of the lower rate for dividends paid
with respect to our Class A ordinary shares, including the effects of any change in law.
Dividends will constitute foreign source income for foreign tax credit limitation purposes.
If the dividends are taxed as qualified dividend income (as discussed above), the amount
of the dividend taken into account for purposes of calculating the foreign tax credit
limitation will be limited to the gross amount of the dividend, multiplied by the reduced
rate divided by the highest rate of tax normally applicable to dividends. The limitation on
foreign taxes eligible for credit is calculated separately with respect to specific classes
of income. For this purpose, dividends distributed by us with respect to our Class A
ordinary shares will constitute “passive category income” but could,
in the case of
certain U.S. Holders, constitute “general category income.”
76
To the extent that the amount of the distribution exceeds our current and accumulated
earnings and profits (as determined under U.S. federal income tax principles), it will be
treated first as a tax-free return of your tax basis in your Class A ordinary shares, and
to the extent the amount of the distribution exceeds your tax basis, the excess will be
taxed as capital gain. We do not intend to calculate our earnings and profits under U.S.
federal income tax principles. Therefore, a U.S. Holder should expect that a distribution
will be treated as a dividend even if that distribution would otherwise be treated as a
non-taxable return of capital or as capital gain under the rules described above.
Taxation of Dispositions of Class A Ordinary Shares
Subject to the passive foreign investment company rules discussed below, you will
recognize taxable gain or loss on any sale, exchange or other taxable disposition of a
share equal to the difference between the amount realized (in U.S. dollars) for the share
and your tax basis (in U.S. dollars) in the Class A ordinary shares. The gain or loss will
be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual
U.S. Holder, who has held the Class A ordinary shares for more than one year, you will
be eligible for reduced tax rates of 0% (for individuals in the 10% or 15% tax brackets),
20% (for individuals in the 39.6% tax brackets) or 15% for all other individuals. The
deductibility of capital
losses is subject to limitations. Any such gain or loss that you
recognize will generally be treated as United States source income or loss for foreign
tax credit limitation purposes.
Passive Foreign Investment Company
Based on our current and anticipated operations and the composition of our assets, we
do not expect to be a passive foreign investment company, or PFIC, for U.S. federal
income tax purposes for our current taxable year ending December 31, 2021. Our actual
PFIC status for
the current
taxable year ending December 31, 2021 will not be
determinable until the close of such taxable year and, accordingly, there is no guarantee
that we will not be a PFIC for the current taxable year. Because PFIC status is a factual
determination for each taxable year which cannot be made until the close of the taxable
year. A non-U.S. corporation is considered a PFIC for any taxable year if either:
●
●
at least 75% of its gross income is passive income, defined as income from interest,
dividends, rents, royalties, gains on property producing foreign personal holding
company income and certain other income that does not involve the active conduct of
a trade or business; or
at least 50% of the value of its assets (based on an average of the quarterly values of
the assets during a taxable year) is attributable to assets that produce or are held for
the production of passive income (the “asset test”).
We will be treated as owning our proportionate share of the assets and earning our
proportionate share of the income of any other corporation in which we own, directly or
indirectly, at least 25% (by value) of the stock.
We must make a separate determination each year as to whether we are a PFIC. As a
result, our PFIC status may change. In particular, because the value of our assets for
purposes of the asset test will generally be determined based on the market price of our
Class A ordinary shares, our PFIC status will depend in large part on the market price of
our Class A ordinary shares. Accordingly, fluctuations in the market price of the Class A
ordinary shares may cause us to become a PFIC. If we are a PFIC for any year during
which you hold Class A ordinary shares, we will continue to be treated as a PFIC for all
succeeding years during which you hold Class A ordinary shares. However, if we cease
to be a PFIC, you may avoid some of the adverse effects of the PFIC regime by making
a “deemed sale” election with respect to the Class A ordinary shares.
If we are a PFIC for any taxable year during which you hold Class A ordinary shares, you
will be subject to special tax rules with respect to any “excess distribution” that you
receive and any gain you realize from a sale or other disposition (including a pledge) of
the Class A ordinary shares, unless you make a “mark-to-market” election as discussed
below. Distributions you receive in a taxable year that are greater than 125% of the
average annual distributions you received during the shorter of the three preceding
taxable years or your holding period for the Class A ordinary shares will be treated as an
excess distribution. Under these special tax rules:
●
the excess distribution or gain will be allocated ratably over your holding period for
the Class A ordinary shares;
77
●
●
the amount allocated to the current taxable year, and any taxable year prior to the first
taxable year in which we were a PFIC, will be treated as ordinary income, and
the amount allocated to each other year will be subject to the highest tax rate in effect
for that year and the interest charge generally applicable to underpayments of tax will
be imposed on the resulting tax attributable to each such year.
The tax liability for amounts allocated to years prior to the year of disposition or “excess
distribution” cannot be offset by any net operating losses for such years, and gains (but
not losses) realized on the sale of the Class A ordinary shares cannot be treated as
capital, even if you hold the Class A ordinary shares as capital assets.
A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-
market election for such stock to elect out of the tax treatment discussed above. If you
make a mark-to-market election for the Class A ordinary shares, you will
include in
income each year an amount equal to the excess, if any, of the fair market value of the
ordinary shares as of the close of your taxable year over your adjusted basis in such
Class A ordinary shares. You are allowed a deduction for the excess,
if any, of the
adjusted basis of the Class A ordinary shares over their fair market value as of the close
of the taxable year. However, deductions are allowable only to the extent of any net
mark-to-market gains on the Class A ordinary shares included in your income for prior
taxable years. Amounts included in your income under a mark-to-market election, as
well as gain on the actual sale or other disposition of the Class A ordinary shares, are
treated as ordinary income. Ordinary loss treatment also applies to the deductible
portion of any mark-to-market loss on the Class A ordinary shares, as well as to any
loss realized on the actual sale or disposition of the Class A ordinary shares, to the
extent that the amount of such loss does not exceed the net mark-to-market gains
previously included for such Class A ordinary shares. Your basis in the Class A ordinary
shares will be adjusted to reflect any such income or loss amounts. If you make a valid
mark-to-market election, the tax rules that apply to distributions by corporations which
are not PFICs would apply to distributions by us, except that the lower applicable capital
gains rate for qualified dividend income discussed above under “Taxation of Dividends
and Other Distributions on our Class A ordinary shares” generally would not apply.
The mark-to-market election is available only for “marketable stock”, which is stock
that is traded in other than de minimis quantities on at least 15 days during each
calendar quarter (“regularly traded”) on a qualified exchange or other market (as
defined in applicable U.S. Treasury regulations), including The Nasdaq Capital Market. If
the Class A ordinary shares are regularly traded on The Nasdaq Capital Market and if
you are a holder of Class A ordinary shares, the mark-to-market election would be
available to you were we to be or become a PFIC.
Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund”
election with respect to such PFIC to elect out of the tax treatment discussed above. A
U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will
generally include in gross income for a taxable year such holder’s pro rata share of the
corporation’s earnings and profits for the taxable year. However, the qualified electing
fund election is available only if such PFIC provides such U.S. Holder with certain
information regarding its earnings and profits as required under applicable U.S. Treasury
regulations. We do not currently intend to prepare or provide the information that would
enable you to make a qualified electing fund election. If you hold Class A ordinary shares
in any year in which we are a PFIC, you will be required to file U.S. Internal Revenue
Service Form 8621 regarding distributions received on the Class A ordinary shares and
any gain realized on the disposition of the Class A ordinary shares.
You are urged to consult your tax advisors regarding the application of the PFIC rules to
your investment in our Class A ordinary shares and the elections discussed above.
Information Reporting and Backup Withholding
Dividend payments with respect to our Class A ordinary shares and proceeds from the
sale, exchange or redemption of our Class A ordinary shares may be subject
to
information reporting to the U.S.
Internal Revenue Service and possible U.S. backup
withholding at a current rate of 28%. Backup withholding will not apply, however, to a
U.S. Holder who furnishes a correct taxpayer identification number and makes any other
required certification on U.S. Internal Revenue Service Form W-9 or who is otherwise
exempt from backup withholding. U.S. Holders who are required to establish their
exempt status generally must provide such certification on U.S. Internal Revenue Service
Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application
of the U.S. information reporting and backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding
may be credited against your U.S. federal
income tax liability, and you may obtain a
refund of any excess amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any
required information.
Under the Hiring Incentives to Restore Employment Act of 2010, certain United States
Holders are required to report information relating to Class A ordinary shares, subject to
certain exceptions (including an exception for Class A ordinary shares held in accounts
maintained by certain financial
institutions), by attaching a complete Internal Revenue
Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax
return for each year in which they hold Class A ordinary shares. U.S. Holders are urged
to consult their tax advisors regarding the application of the U.S. information reporting
and backup withholding rules.
78
F. Dividends and paying agents
Not applicable for annual reports on Form 20-F.
G. Statement by experts
Not applicable for annual reports on Form 20-F.
H. Documents on display
We are subject to the information requirements of the Exchange Act. In accordance with
these requirements, the Company files reports and other information with the SEC. You
may read and copy any materials filed with the SEC at the Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC also maintains a web site at http://www.sec.gov that contains reports and other
information regarding registrants that file electronically with the SEC.
I. Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of the latest fiscal year ended December 31, 2021, we had immaterial derivative
financial instruments (open FX positions with a total fair value of $0) and did not have
any derivative commodity instruments. Our other financial
instruments,
including cash
and cash equivalents,
transaction monetary assets held for clients, net accounts
receivable, prepaid expenses and other current assets, accounts payable, deposits
payable, accrued expenses and other current liabilities, advance from customers, and
income tax payable, are exposed to certain market risk such as foreign currency risk and
interest rate risk. Our overall risk management program focuses on preservation of
capital and the unpredictability of financial markets and has sought to minimize potential
adverse effects on our
financial performance and position. Our other
financial
instruments primarily include cash and cash equivalents, accounts receivable and
accounts payable for whose carrying values approximate to their fair value due to the
short term nature of these balances. Therefore, we do not expect our other financial
instruments to be exposed to material impacts from market risk. However, we have still
summarized the relevant market risk and its potential
impacts to our other financial
instruments as below:
Foreign Currency Exchange Risk
While our reporting currency is the U.S. Dollar, some of our consolidated financial
liability instruments are in the functional currency of RMB. As a result, we are exposed
to foreign exchange risk as our results of operations may be affected by fluctuations in
the exchange rate between the U.S. Dollar and the RMB. If the RMB depreciates against
the U.S. Dollar, the value of our RMB liabilities as expressed in our U.S. Dollar financial
statements will decline. Assets and liabilities are translated at exchange rates at the
balance sheet dates and revenue and expenses are translated at the average exchange
rates and shareholders’ equity is translated at historical exchange rates. Any resulting
translation adjustments are not included in determining net income but are included in
determining other comprehensive income, a component of shareholders’ equity. We have
not entered into any hedging transactions in an effort to reduce our exposure to foreign
exchange risk.
The value of the RMB against the U.S. dollar and other currencies is affected by, among
other things, changes in China’s political and economic conditions. Since July 2005, the
RMB has not been pegged to the U.S. dollar and, although the People’s Bank of China
regularly intervenes in the foreign exchange market to prevent significant short-term
fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in
value against the U.S. dollar or the Euro in the medium to long term. Moreover, it is
possible that in the future, PRC authorities may lift restrictions on fluctuations in RMB
exchange rate and lessen intervention in the foreign exchange market.
We estimated that as of December 31, 2021 and 2020, a 10% appreciation in RMB
against the U.S. dollar would have resulted in a decrease of $3,759,650 and $90,174 to
our financial liabilities denominated in RMB and would have resulted in a corresponding
decrease in our consolidated comprehensive loss, respectively. As of December 31, 2021
and 2020, our financial assets denominated in RMB were material and therefore may be
subject to material market fluctuation.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
We do not have securities other than equity securities issued and outstanding. We do
not have any American Depositary Shares.
79
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
We do not have any material defaults in the payment of principal,
interest, or any
installments under a sinking or purchase fund.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIES HOLDERS AND USE OF
PROCEEDS
Material Modifications to the Rights of Security Holders
There have been no material modifications to the rights of our security holders.
Use of Proceeds
Not applicable.
ITEM 15. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting. The Exchange Act in Rule 13a-15(f ) and 15d-15(f )
defines this as a process designed by, or under the supervision of, the company’s
principal executive and principal
financial officers and effected by the Board of
Directors, management and other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:
●
pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
80
●
●
provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and
reasonable
provide
timely detection of
unauthorized acquisition, use or disposition of the company’s assets that may have a
material effect on the financial statements.
regarding prevention or
assurance
Under the supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, our management assessed the effectiveness of our internal control
over financial reporting as of December 31, 2021.
In making this assessment, our
management used the criteria, established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
(b) Management’s annual report on internal control over financial reporting.
Based on its assessment, our management concluded that as of December 31, 2021, our
disclosure controls and procedures were not effective to ensure that material
information is recorded, processed, summarized and reported by our management on a
timely basis in order to comply with our disclosure obligations under the Exchange Act.
In preparing our consolidated financial statements for the years ended December 31,
2021 and 2020, our management identified material weaknesses in our internal control
over financial reporting, as defined in the standards established by the Public Company
Accounting Oversight Board of the United States, and other significant deficiencies. A
“material weakness” is a deficiency, or a combination of deficiencies, in internal control
over financial reporting such that there is a reasonable possibility that a material
misstatement of the Company’s annual or interim financial statements will not be
prevented or detected on a timely basis. The material weaknesses identified are as
follows: (i) no sufficient personnel with appropriate levels of accounting knowledge and
experience to address complex U.S. GAAP accounting issues and to prepare and review
financial statements and related disclosures under U.S. GAAP; (ii) ineffective oversight
of our financial reporting and internal control by those charged with governance; and (iii)
inadequate design of internal control over the preparation of the financial statements
being audited. These material weaknesses remained as of December 31, 2021. As a
result of inherent limitations, our internal control over financial reporting may not prevent
or detect misstatements, errors or omissions.
To remedy our previously identified material weakness, we have undertaken and will
continue to undertake steps to strengthen our internal control over financial reporting,
including: (i) hiring more qualified resources including financial controller, equipped with
relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the
financial reporting function and to set up a financial and system control framework, (ii)
implementing regular and continuous U.S. GAAP accounting and financial reporting
training programs for our accounting and financial reporting personnel, (iii) establishing
effective oversight and clarifying reporting requirements for non-recurring and complex
transactions to ensure consolidated financial statements and related disclosures are
accurate, complete and in compliance with SEC reporting requirements, and (iv)
enhancing an internal audit function as well as engaging an external consulting firm to
help us assess our compliance readiness under rule 13a-15 of the Exchange Act and
improve overall
internal control. However, such measures have not been fully
implemented and we concluded that the material weakness in our internal control over
financial reporting had not been remediated as of December 31, 2021.
This annual report does not include an attestation report of the Company’s Independent
Registered Public Accounting Firm as we qualified as an “emerging growth company” as
defined under the JOBS Act as of December 31, 2021.
(c) Attestation report of the registered public accounting firm.
Not applicable.
(d) Changes in internal control over financial reporting.
There have been no changes in our internal controls over financial reporting occurred
during the fiscal year ended December 31, 2021, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
81
ITEM 15T. CONTROLS AND PROCEDURES
Not applicable.
ITEM 16. [RESERVED]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
The Company’s Board of Directors has determined that Fangjie Wang qualifies as an
“audit committee financial expert” in accordance with applicable Nasdaq Capital Market
standards. The Company’s Board of Directors has also determined that members of the
Audit Committee are all “independent” in accordance with the applicable Nasdaq
Capital Market standards.
ITEM 16B. CODE OF ETHICS
The Company has adopted a Code of Business Conduct and Ethics that applies to the
Company’s directors, officers, employees and advisors. The Code of Business Conduct
and Ethics is attached as an exhibit to this annual report. Copy of the Code of Business
Conduct and Ethics is also available on our website at www.agmprime.com.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
TPS Thayer LLC was appointed by the Company to serve as its independent registered
public accounting firm for fiscal years ended December 31, 2021. JLKZ CPA LLP was
appointed by the Company to serve as its independent registered public accounting firm
for fiscal years ended December 31, 2020 and 2019. Audit services provided by JLKZ
CPA LLP for fiscal years ended December 31, 2020 and 2019 included the examination
of the consolidated financial statements of the Company; and services related to
periodic filings made with the SEC.
Fees Paid to Independent Registered Public Accounting Firm
AuditFees
TPS Thayer LLC’s fee for the annual audit of our financial statements for the fiscal year
ended December 31, 2021 was $120,000. JLKZ CPA LLP’s fee for the annual audit of
our financial statements for the fiscal year ended December 31, 2020 was $90,000.
Audit-RelatedFees
The Company has not paid TPS Thayer LLC for audit-related services for the fiscal year
ended December 31, 2021.
The Company has not paid JLKZ CPA LLP for audit-related services for the fiscal year
ended December 31, 2020.
TaxFees
The Company has not paid TPS Thayer LLC for tax services for the fiscal year ended
December 31, 2021. The Company has not paid JLKZ CPA LLP for tax services for the
fiscal year ended December 31, 2020.
AllOtherFees
The Company has not paid TPS Thayer LLC for any other services in fiscal year ended
December 31, 2021. The Company has not paid JLKZ CPA LLP for any other services in
fiscal year ended December 31, 2020.
82
AuditCommitteePre-ApprovalPolicies
Before TPS Thayer LLC and JLKZ CPA LLP were engaged by the Company to render
audit or non-audit services, the engagement was approved by the Company’s audit
committee. All services rendered by TPS Thayer LLC and JLKZ CPA LLP have been so
approved.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Neither the Company nor any affiliated purchaser has purchased any shares or other
units of any class of the Company’s equity securities registered by the Company
pursuant to Section 12 of the Securities Exchange Act during the fiscal year ended
December 31, 2021.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 16G. CORPORATE GOVERNANCE
As a company listed on the Nasdaq Capital Market, we are subject to the Nasdaq
corporate governance listing standards. However, Nasdaq rules permit a foreign private
issuer like us to follow the corporate governance practices of its home country. Certain
corporate governance practices in the Cayman Islands, which is our home country, may
differ significantly from the Nasdaq corporate governance listing standards.
We currently follow and intend to continue to follow Cayman Islands corporate
governance practices in lieu of the corporate governance requirements of the Nasdaq
that listed companies must obtain its shareholders’ approval of certain transactions
other than public offerings (Nasdaq rule 5635(d)). To the extent we choose to follow
home country practice in the future, our shareholders may be afforded less protection
than they otherwise would under the Nasdaq corporate governance listing standards
applicable to U.S. domestic issuers. See “Item 3. Key Information—D. Risk Factors—
Risks Related to Our Capital Structure and Class A Ordinary Shares— We are a “foreign
private issuer,” and our disclosure obligations differ from those of U.S. domestic
reporting companies. As a result, we may not provide you the same information as U.S.
domestic reporting companies or we may provide information at different times, which
may make it more difficult for you to evaluate our performance.”
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
83
PART III
ITEM 17. FINANCIAL STATEMENTS
See Item 18.
ITEM 18. FINANCIAL STATEMENTS
Our consolidated financial statements are included at the end of this annual report,
beginning with page F-1.
ITEM 19. EXHIBITS
Exhibit
No.
1.1
2.1
2.2
4.1
4.2
Description of Exhibit
Amended and Restated Memorandum and Articles of Association of AGM Group Holdings Inc., filed as exhibit 3.2 to the Form F-
1 filed on May 15, 2017 and incorporate by reference herein
Form of Warrant, filed as exhibit 4.1 to the Form 6-K filed on December 13, 2021 and incorporate by reference herein
Form of Placement Agent Warrant, filed as exhibit 4.2 to the Form 6-K filed on December 13, 2021 and incorporate by reference herein
English translation of Employment Agreement with Wenjie Tang, filed as exhibit 4.1 to the Form 20-F filed on April 22, 2022 and incorporate by reference herein
English translation of Employment Agreement with Zhihe Yang, filed as exhibit 10.2 to the Form 6-K filed on October 16, 2020 and incorporate by reference herein
4.3*
English translation of Employment Agreement with Yufeng Mi, filed as exhibit 4.3 to the Form 20-F filed on April 22, 2022 and incorporate by reference herein
4.4*
English translation of Employment Agreement with Bin Cao, filed as exhibit 4.4 to the Form 20-F filed on April 22, 2022 and incorporate by reference herein
4.5*
English translation of Employment Agreement with Yafang Wang, filed as exhibit 4.4 to the Form 20-F filed on April 22, 2022 and incorporate by reference herein
4.6
4.7
4.8
4.9
English translation of Agreement with Jialin Liu, filed as exhibit 10.14 to the Form F-1 filed on September 28, 2017 and incorporate by reference herein
English translation of Agreement with Tingfu Xie, filed as exhibit 10.15 to the Form F-1 filed on September 28, 2017 and incorporate by reference herein
English translation of Agreement with Fangjie Wang, filed as exhibit 10.2 to the Form 6-K filed on January 9, 2019 and incorporate by reference herein
English translation of Equity Transfer Agreement with Yushu Kingo City Real Estate Development Co., Ltd. dated January 16, 2020, filed as exhibit 10.1 to the Form 6-
K filed on January 22, 2020 and incorporate by reference herein
4.10
Share Purchase Agreement, dated December 14, 2020, filed as exhibit 10.1 to the Form 6-K filed on December 31, 2020 and incorporate by reference herein
4.11
Promissory Note, dated December 14, 2020, filed as exhibit 10.2 to the Form 6-K filed on December 31, 2020 and incorporate by reference herein
4.12
English translation of Equity Transfer Agreement with Yushu Kingo City Real Estate Development Co., Ltd. Dated April 6, 2021, filed as exhibit 10.1 to the Form 6-
K filed on April 9, 2021 and incorporate by reference herein
4.13
Offer Letter to Jing Shi, dated April 30, 2021, filed as exhibit 10.1 to the Form 6-K filed on May 6, 2021 and incorporate by reference herein
4.14
Employment Agreement with Bo Zhu, dated May 6, 2021, filed as exhibit 10.1 to the Form 6-K filed on May 10, 2021 and incorporate by reference herein
84
4.15 Employment Agreement with Chenjun Li, dated July 12, 2021, filed as exhibit 10.1 to the Form 6-
K filed on July 16, 2021 and incorporate by reference herein
4.16 Employment Agreement with Steven Sim, dated September 24, 2021, filed as exhibit 10.1 to the Form 6-
K filed on September 28, 2021 and incorporate by reference herein
4.17 Transfer Agreement with Yushu Kingo City Real Estate Development Co., Ltd., dated October 20, 2021, filed as exhibit 10.1 to the Form 6-
K filed on October 22, 2021 and incorporate by reference herein
4.18 Placement Agency Agreement, dated December 10, 2021, filed as exhibit 10.1 to the Form 6-
K filed on December 13, 2021 and incorporate by reference herein
4.19 Form of Securities Purchase Agreement, dated December 10, 2021, filed as exhibit 10.2 to the Form 6-
K filed on December 13, 2021 and incorporate by reference herein
4.20 Form of Registration Rights Agreement, dated December 10, 2021, filed as exhibit 10.3 to the Form 6-
K filed on December 13, 2021 and incorporate by reference herein
4.21 Form of Lock-up Agreement, dated December 10, 2021, filed as exhibit 10.4 to the Form 6-
K filed on December 13, 2021 and incorporate by reference herein
8.1
11.1
List of Subsidiaries, filed as exhibit 21.1 to the Form F-
3 filed on January 11, 2022 and incorporate by reference herein
Code of Business Conduct and Ethics, filed as exhibit 14.1 to the Form F-
1 filed on September 19, 2017 and incorporate by reference herein
12.1*
Certification of Chief Executive Officer Required by Rule 13a-14(a)
12.2*
Certification of Chief Executive Officer Required by Rule 13a-14(a)
12.3*
Certification of Chief Financial Officer Required by Rule 13a-14(a)
13.1**
Certification of Chief Executive Officer Required by Rule 13a-
14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code
13.2**
Certification of Chief Executive Officer Required by Rule 13a-
14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code
13.3**
Certification of Chief Financial Officer Required by Rule 13a-
14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code
15.1*
Consent of JLKZ CPA LLP
15.2*
Consent of TPS Thayer LLC
101.INS* XBRL Instance Document.
101.SCH* Inline XBRL Taxonomy Extension Schema Document.
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB* Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*
Filed with this annual report on Form 20-F
**
Furnished with this annual report on Form 20-F
85
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form
20-F and that it has duly caused and authorized the undersigned to sign this annual
report on its behalf.
AGM GROUP HOLDINGS INC.
By:/s/ Wenjie Tang
Name:Wenjie Tang
Title: Co-Chief Executive Officer
Date: May 16, 2022
86
AGM GROUP HOLDINGS INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm (PCAOB ID 6706)
Consolidated Balance Sheets as of December 31, 2021 and 2020
Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Changes in Equity for the years ended December 31, 2021, 2020 and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
Notes to Consolidated Financial Statements
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
AGM Group Holdings Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of AGM Group Holdings
Inc.(“the Company”), as of December 31, 2021 and the related consolidated statements
of operations and comprehensive income, changes in shareholders’ equity and cash
flows for the year then ended and the related notes (collectively referred to as the
“financial statements”).
In our opinion, the financial statements present fairly,
in all
material respects, the consolidated financial position of the Company as of December 31,
2021 and the consolidated results of its operations and its cash flows for the year ended
December 31, 2021, in conformity with U.S generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the Company's financial statements based on
our audit. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States)
("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of
the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audit, we are
required to obtain an understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatements
of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audit
also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of
the financial
statements. We believe that our audit provided a reasonable basis for our opinion.
/s/ TPS Thayer, LLC
We have served as the Company's auditor since 2022
Sugar Land, Texas
May 16, 2022
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To:
The Board of Directors and Stockholders of
AGM Group Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of AGM Group
Holdings, Inc. and subsidiaries (collectively, the “Company”) as of December 31, 2020
and 2019, and the related consolidated statements of operations, stockholders’ equity,
and cash flows for each of the three years ended December 31, 2020, and the related
notes (collectively referred to as the financial statements). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2020 and 2019, and the results of its operations and its cash flows
for each of the three years ended December 31, 2020, in conformity with accounting
principles generally accepted in the United States of America.
Explanatory Paragraph Regarding Going Concern
The accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 3 to the financial statements, the
Company had incurred substantial losses during the year, which raises substantial doubt
about its ability to continue as a going concern. Management’s plan in regards to these
matters are described in Note 3. These financial statements do not
include any
adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s financial statements based on
our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States)
(PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of
the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits, we are
required to obtain an understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement
of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of
the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The Critical Audit Matter communicated below is a matter arising from the current
period audit of the financial statements that was communicated or required to be
communicated to the audit committee and that: (1) relates to accounts or disclosures
that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ JLKZ CPA LLP
JLKZ CPA LLP
Flushing, New York
April 22, 2021
We have served as the Company’s auditor since February 2019.
F-3
AGM GROUP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in US$, except for number of shares)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable, net
December 31, December 31,
2021
2020
$ 18,426,622 $
2,608,325
664,605
-
Inventories
Advances to suppliers
Prepayment and other current assets
Due from related parties
Total current assets
NON - CURRENT ASSETS:
Property and equipment, net
Intangible assets, net
Operating lease right-of-use assets
Deferred tax assets
Total non - current assets
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term borrowings
Accounts payable
Accrued expenses and other payables
Advances from customers
Due to related parties
Deferred government grant - current
Operating lease liabilities - current
Total current liabilities
NON - CURRENT LIABILITIES:
Deferred government grant - non current
Total non - current liabilities
TOTAL LIABILITIES
22,433,140
40,485,521
3,326,425
39,238
87,319,271
322,397
8,633
241,554
129,034
701,618
$ 88,020,889 $
$
1,568,455 $
14,116,569
3,597,440
42,231,914
1,215,573
38,111
51,239
62,819,301
147,812
147,812
$ 62,967,113 $
-
-
5,420,916
116,610
6,202,131
19,320
10,113
-
-
29,433
6,231,564
-
4,974
1,819,545
-
714,436
-
-
2,538,955
-
-
2,538,955
SHAREHOLDERS’ EQUITY:
Class A Ordinary Shares (200,000,000 shares authorized with par
value of $0.001, 24,254,842 and 21,356,290 shares issued and
outstanding as of December 31, 2021 and December 31, 2020,
respectively)
Class B Ordinary Shares (200,000,000 shares authorized with par
value of $0.001, 2,100,000 and 7,100,000 shares issued and
outstanding as of December 31, 2021 and December 31, 2020,
respectively)
Additional paid-in capital
Statutory reserves
Accumulated deficit
Accumulated other comprehensive income
Total shareholders’ equity
$
24,255 $
21,356
2,100
26,010,366
63,659
(1,459,779)
413,175
7,100
8,368,266
-
(4,947,815)
243,703
25,053,776
3,692,610
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$ 88,020,889 $
6,231,565
The accompanying notes are an integral part of these consolidated financial statements
F-4
AGM GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPEATIONS AND COMPREHENSIVE INCOME
(Amounts in US$, except for number of shares)
Revenues
Revenues
Total Revenues
Cost of Revenues
Cost of revenues
Gross profit
Operating expenses
For The Years Ended
December 31,
2021
2020
2019
$ 36,709,931 $
53,305 $
330,000
36,709,931
53,305
330,000
(30,112,363)
(38,534)
(43,056)
6,597,568
14,771
286,944
Selling, general & administrative expenses
Research and development expenses
Total operating expenses
1,607,393
36,317
964,470
63,450
1,369,701
127,117
1,643,710
1,027,920
1,496,818
Income/(Loss) from operations
4,953,858
(1,013,149)
(1,209,874)
Other income/(expenses)
Other income
Other expenses
Gain on equity method investment
Total other income/(expense)
47,167
(43,171)
-
3,996
1,687
(9,343)
-
(7,656)
118,709
(363,815)
33,684
(211,422)
Income/(Loss) from continuing operations before
provision of income taxes
Provision for income taxes expenses
4,957,854
(1,406,159)
(1,020,805)
(76,343)
(1,421,296)
(64,615)
Net income/(loss) from continuing operations
3,551,695
(1,097,148)
(1,485,911)
Discontinued operations
Loss from discontinued operations, net of income tax
Gain from disposal
Income/(loss) from discontinued operations, net of
income tax
-
-
-
(322,490)
347,990
(76,944)
-
25,500
(76,944)
Net income/(loss)
$ 3,551,695 $ (1,071,648) $ (1,562,855)
Comprehensive income/(loss)
Net income/(loss)
Other comprehensive loss
Foreign currency translation adjustment
$ 3,551,695 $ (1,071,648) $ (1,562,855)
-
95,060
-
(154,768)
-
169,472
Total comprehensive income/(loss)
$ 3,721,167 $ (1,226,416) $ (1,467,795)
Income/(Loss) earnings per common share
Continuing operations - Basic
Continuing operations - Diluted
Discontinued operations - Basic
Discontinued operations - Diluted
$
0.17 $
0.17
-
-
(0.05) $
(0.05)
0.00
0.00
(0.07)
(0.07)
(0.00)
(0.00)
Net income/(loss) per common share - basic
Net income/(loss) per common share - diluted
$
$
0.17 $
0.17 $
(0.05) $
(0.05) $
(0.07)
(0.07)
Weighted average Class A ordinary shares outstanding,
basic
Weighted average Class A ordinary shares outstanding,
diluted
21,491,291
21,787,892
21,298,540
21,511,469
21,787,892
21,298,540
The accompanying notes are an integral part of these consolidated financial statements
F-5
AGM GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in US$)
For The Years Ended
December 31,
2021
2020
2019
Cash flows from operating activities
Net income/(loss)
Net gain from discontinued operations, net of tax
$ 3,551,695 $(1,071,648) $(1,562,855)
(76,944)
25,500
-
Net gain/(loss) from continuing operations
3,551,695
(1,097,148)
(1,485,911)
Adjustment to reconcile net income to net cash used in
operating activities
Depreciation and amortization
Amortization of operating lease right-of-use asset
Other income
Gain on equity method investment
Gain from disposal of subsidiary
Changes in operating assets and liabilities:
Accounts receivable
Advances to suppliers
Prepayment and other current assets
Inventories
Deferred tax assets
Accounts payable
Accrued expenses and other payables
Income tax payable
Advances from customers
Deferred government grant
Operating lease liabilities
Net cash used in operating activities from continuing
operations
Net cash used in operating activities from discontinued
operations
38,363
63,347
(22,119)
-
-
33,437
-
-
-
(347,990)
(2,608,325)
(40,485,521)
2,094,491
(22,433,140)
(129,034)
14,111,595
1,777,896
-
42,231,914
3,454
(49,074)
-
-
103,145
-
-
1,763
(48,537)
-
-
-
-
50,273
-
-
(33,684)
-
-
-
347,763
-
-
(76,441)
1,042,072
(4,998)
-
-
-
(1,854,458)
(1,355,330)
(160,926)
-
(296,692)
(35,467)
Net cash used in operating activities
(1,854,458)
(1,652,022)
(196,393)
Cash flows from investing activities
Purchase of property and equipment
Process from sale of equity investment
Acquisition of subsidiaries
Advance deposit for intent acquisition
Net cash used in investing activities from continuing
operations
Net cash used in investing activities from discontinued
operations
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of ordinary shares
Proceeds from related parties
Proceeds from short-term borrowings
Borrowings to related parties
Repayments to related parties
(339,657)
-
-
-
(810)
-
-
-
(700)
361,933
(400,000)
(4,937,664)
(339,657)
(810)
(4,976,431)
-
(385)
(33,956)
(339,657)
(1,195)
(5,010,387)
17,639,999
907,135
1,568,455
(39,238)
(517,670)
667,901
241,822
-
(116,610)
(594,887)
-
6,823
-
-
(587,120)
Net cash provided by financing activities from continuing
operations
Net cash used in financing activities from discontinued
operations
19,558,681
198,226
(580,297)
-
(86,348)
53,968
Net cash provided by financing activities
19,558,681
111,878
(526,329)
Effect of exchange rate changes on cash and cash
equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
Less cash and cash equivalents of discontinued
operations–end of year
397,451
17,762,017
664,605
129,375
(1,411,964)
2,076,569
(55,667)
(5,788,776)
7,865,345
18,426,622
664,605
2,076,569
-
-
613,979
Cash and cash equivalents of continuing operations–end
of year
$ 18,426,622 $
664,605 $ 1,462,590
Supplemental cash flow information
Interest paid
Income taxes paid
Non-cash investing and financing activities
Free operating lease due to government grant
Additions of ROU Assets
Common stock issued on acquisition
Expense paid by related party
Cancelled common stocks issued
$
$
$
$
$
$
$
34,721 $
- $
204,588 $
100,313 $
- $
- $
- $
- $
-
6,400
-
-
- $
- $
- $ 7,600,000
- $
61,864
5,000 $ 7,600,000 $
4,800
The accompanying notes are an integral part of these consolidated financial statements
F-6
AGM GROUP HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Amounts in US$, except for number of shares)
Number of
Class A
Ordinary
Share
Number of
Class B
Ordinary
Share
Class A
Ordinary
Share
Class B
Ordinary
Share
Additional
paid-in
capital
Statutory
Reserves
Retained
Earnings
Accumulated
Other
Comprehensive
Income
Total
Balance,
December
31, 2018
Net loss
Issuance of
common
shares for
acquisition
equities of
Anyi
Cancelled
shareholders’
common
stocks
Foreign
currency
translation
adjustment
Balance,
December
31, 2019
Net loss
Issuance of
common
shares
Cancelled
shareholders’
common
stocks
Foreign
currency
translation
adjustment
Balance,
December
31, 2020
Net income
Issuance of
common
shares
Appropriation
to statutory
reserve
Cancellation of
Class B
21,316,055 11,900,000 $ 21,316 $ 11,900 $ 7,695,605 $
- $(2,313,312) $
(1,562,855)
303,411 $ 5,718,920
(1,562,855)
475,000
475
7,599,525
7,600,000
(4,800,000)
(4,800)
4,800
-
95,060
95,060
21,791,055
7,100,000 $ 21,791 $
7,100 $15,299,930 $
- $(3,876,167) $
(1,071,648)
398,471 $11,851,125
(1,071,648)
40,235
40
667,861
667,901
(475,000)
(475)
(7,599,525)
(7,600,000)
(154,768)
(154,768)
21,356,290
7,100,000 $ 21,356 $
7,100 $ 8,368,266 $
- $(4,947,815) $
3,551,695
243,703 $ 3,692,610
3,551,695
2,898,552
2,899
17,637,100
17,639,999
(5,000,000)
(5,000)
5,000
63,659
(63,659)
-
-
ordinary
shares
Foreign
currency
translation
adjustment
Balance,
December
31, 2021
24,254,842
2,100,000 $ 24,255 $
2,100 $26,010,366 $ 63,659 $(1,459,779) $
413,175 $25,053,776
169,472
169,472
The accompanying notes are an integral part of these consolidated financial statements
F-7
AGM GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES
AGM Group Holdings Inc. (“AGM Holdings”) was incorporated on April 27, 2015 under
the laws of the British Virgin Islands. AGM Holdings is a holding company and do not
own any material assets or liabilities other than holding equity interest of multiple
entities and certain cash and cash equivalents.
On May 21, 2015, AGM Holdings incorporated a wholly owned subsidiary, AGM
Technology Limited (“AGM Technology”)
in Hong Kong. AGM Technology provides
advanced online trading service for financial institutions in Asian areas.
On October 13, 2015, AGM Technology incorporated a Chinese limited liability subsidiary,
AGM Tianjin Construction Development Co., Ltd. (“AGM Tianjin”) formerly known as
Shenzhen AnGaoMeng Financial Technology Service Co., Ltd., for the purpose of being a
holding company for the equity interests in China. On October 19, 2020, AGM Holdings
also incorporated a wholly owned subsidiary, AGM Tianjin International Financial Leasing
Co. Ltd. (“AGM Leasing”) was in China under the laws of PRC. AGM Leasing was
dissolved in July 2021.
On November 13, 2015 and September 28, 2016, AGM Tianjin incorporated two wholly
owned Chinese limited liability subsidiaries, Beijing AnGaoMeng Technology Service Co.,
Ltd. (“AGM Beijing”), and Nanjing Xingaomeng Software Technology Co., Ltd. (“AGM
Nanjing”), respectively. AGM Nanjing was dissolved under the laws of China on May 19,
2020.
On June 14, 2017, AGM Software Service LTD (“AGM Software”) was incorporated under
the laws of BVI. AGM Software is a wholly-owned subsidiary of AGM Holdings and its
principal activity will be assisting AGM Technology in providing core technology services
to customers.
On July 26, 2019, AGM Holdings acquired 100% of Anyi Network Inc. (“Anyi Network”)
and its subsidiaries and paid $400,000 in cash and issued an aggregate of 475,000 duly
authorized, fully paid and nonassessable Class A ordinary shares of the Company, valued
at $16.00 per share to the shareholders of Anyi. The total consideration underlying the
Share Exchange was $8,000,000. Anyi Network was incorporated on September 29,
2017 under the laws of the Cayman Islands. Anyi Network and its subsidiaries (“Anyi”)
provide information accounting software technology and services for small and medium
enterprises in China.
On May 19, 2020, Nanjing Xingaomeng Software Technology Co., Ltd. (“AGM Nanjing”)
was dissolved.
On December 14, 2020, AGM Holdings sold all the equity interest of Anyi Network by
entering into a share purchase agreement with certain buyers, pursuant to which the
Company sold to the buyers 100% equity interest in Anyi Network in exchange for a total
consideration of $8,000,000, payable in the form of canceling 475,000 Class A ordinary
shares of AGM Holdings held by the buyers, valued at $16.00 per share, and payment of
$400,000 in cash. The disposition of Anyi Network includes the disposition of the
subsidiaries of Anyi Network.
On June 17, 2021, AGM Technology incorporated a wholly owned Chinese limited liability
subsidiary, Nanjing Lucun Semiconductor Co. Ltd. (“Nanjing Lucun”) in China under the
laws of PRC. Nanjing Lucun mainly involves in sale of cryptocurrency mining machines
and standardized computing equipment
On July 30, 2021 AGM Holdings incorporated a wholly owned limited liability subsidiary,
AGM Defi Lab Pte Limited (“AGM Defi Lab”) under the laws of Singapore.
On August 8, 2021 AGM Holdings incorporated a wholly owned limited liability subsidiary,
AGM Defi Tech Limited (“AGM Defi Tech”) in Hong Kong.
F-8
On October 21, 2021, AGM Defi Tech incorporated a wholly owned subsidiary, Beijing
Keen Sense Technology Service Co., Ltd (“Beijing Keen Sense”) in China under the laws
of PRC.
AGM Holdings’ subsidiaries are as follows:
Name
AGM Technology Limited (“AGM
Technology “)
AGM Tianjin Construction
Development Co., Ltd. (“AGM
Tianjin”) formerly Shenzhen
AnGaoMeng Financial Technology
Service Co., Ltd.
Beijing AnGaoMeng Technology
Service Co., Ltd.
(“AGM Beijing”)
AGM Software Service LTD (“AGM
Software”)
Nanjing Lucun Semiconductor Co.,
Ltd. (“Nanjing Lucun”)
AGM Defi Lab Pte Limited (“AGM
Defi Lab”)
AGM Defi Tech Limited (“AGM
Defi Tech”)
Beijing Keen Sense Technology
Service Co., Ltd (“Beijing Keen
Sense”)
Date of
Incorporation
Place of
Incorporation
Percentage
of
Effective
Ownership
Principal
Activities
May 21,
2015
October 13,
2015
November
13, 2015
June 14,
2017
June 17,
2021
July 30,
2021
August 8,
2021
October 21,
2021
Hong Kong
China
100% Online trading
service
100% Holding entity
China
100% Software
development
and provider
BVI
100% Core
China
Singapore
technology
service
provider
100% Semiconductor
provider
100% Software
development
and provider
Hong Kong
100% Software
development
and provider
China
100% Software
development
and provider
AGM Technology, AGM Tianjin, AGM Beijing, AGM Nanjing, AGM Software, Nanjing
Lucun, AGM Defi Lab, AGM Defi Tech, and Beijing Keen Sense, are referred to as
subsidiaries. AGM Holdings and its consolidated subsidiaries are collectively referred to
herein as the “Company” unless specific reference is made to an entity.
F-9
Note 2 - SUMMARY OF SIGNIFICANT POLICIES
BasisofPresentation
The accompanying consolidated financial statements are in accordance with accounting
principles generally accepted in the United States of America (“U.S. GAAP”) and
pursuant to the U.S. Securities and Exchange Commission (“SEC”) rules. The Company
included all adjustments that are necessary for the fair presentation of its financial
position, results of operations, and cash flows for the periods presented. This basis of
accounting differs in certain material respects from that used for the preparation of the
books of account of
the Company, which are prepared in accordance with the
accounting principles and the relevant financial regulations applicable to enterprises with
limited liabilities established in China (“China GAAP”), the accounting standards used in
the places of their domicile. The accompanying consolidated financial statements reflect
necessary adjustments not recorded in the books of account of the Company to present
them in conformity with U.S. GAAP.
These consolidated financial statements should be read in conjunction with the financial
statements and footnotes for the fiscal years ended December 31, 2021 and 2020
included in the Form 20-F as filed with the SEC. The results of operations and cash
flows for the fiscal years ended December 31, 2021, 2020 and 2019 are not necessarily
indicative of the results of operations or cash flows which may be reported for future
periods.
PrinciplesofConsolidation
The accompanying consolidated financial statements include the accounts for AGM
Holdings and all
its wholly owned subsidiaries. All
intercompany accounts and
transactions have been eliminated in consolidation.
ForeignCurrencyTranslation
The accompanying consolidated financial statements are presented in United States
dollar (“$”), which is the reporting currency of the Company. For the subsidiaries whose
functional currencies are Renminbi (“RMB”), results of operations and cash flows are
translated at average exchange rates during the period, assets and liabilities are
translated at the exchange rate at the end of the period, and equity is translated at
historical exchange rates. The resulting translation adjustments are included in
determining other comprehensive income or loss. Transaction gains and losses are
reflected in the consolidated statements of income.
The consolidated balance sheet balances, with the exception of equity at December 31,
2021 and December 31, 2020 were translated at RMB6.3757 and RMB6.5378 to $1.00,
respectively. The equity accounts were stated at their historical rate. The average
translation rates applied to consolidated statements of income and cash flows for the
year ended December 31, 2021, 2020 and 2019 were RMB6.4515, RMB6.9003 and
RMB6.9074 to $1.00, respectively.
F-10
UseofEstimates
The preparation of
financial statements in conformity with U.S. GAAP requires
management to make estimates and judgments that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities on the date of the
consolidated financial statements and the reported amounts of revenues and expenses
during the reporting periods. The Company bases its estimates and judgments on
historical experience and on various other assumptions and information that are believed
to be reasonable under the circumstances. Estimates and assumptions of future events
and their effects cannot be perceived with certainty and, accordingly, these estimates
may change as new events occur, as more experience is acquired, as additional
information is obtained and as the Company’s operating environment changes.
Significant estimates and assumptions by management include, among others, useful
lives and impairment of long-lived assets, allowance for doubtful accounts, and income
taxes including the valuation allowance for deferred tax assets. While the Company
believes that the estimates and assumptions used in the preparation of the financial
statements are appropriate, actual results could differ from those estimates. Estimates
and assumptions are periodically reviewed and the effects of revisions are reflected in
the financial statements in the period they are determined to be necessary.
Cashandcashequivalents
Cash and cash equivalents are financial assets that are either cash or highly liquid
investments with an original maturity term of 90 days or less. At December 31, 2021 and
December 31, 2020, the Company’s cash equivalents primarily consist cash in various
financial institutions.
Inventories
Inventories, primarily consisting of cryptocurrency mining machines and standardized
computing equipment, which are finished goods from manufacturers.
Inventories are
stated at the lower of cost or net realizable value, with net realized value represented by
estimated selling prices in the ordinary course of business, less reasonably predictable
costs of disposal and transportation. Cost of inventory is determined using the cost
method. Adjustments are recorded to write down the cost of inventory to the estimated
net realizable value due to slow-moving merchandise and damaged products, which is
dependent upon factors such as historical and forecasted consumer demand. No
inventory write-down was recorded for 2021 and 2020.
Advancestosuppliers
Advances to suppliers primarily consists of prepayments for purchase of inventories of
cryptocurrency mining machines and standardized computing equipment. The Company
maintains an allowance for doubtful accounts to state prepayments at their estimated
realizable value based on a variety of factors, including the possibility of applying the
prepayments to products, significant one-time events, and historical experience.
FairValueofFinancialInstruments
The Company follows the provisions of Accounting Standards Codification (“ASC”) 820,
Fair Value Measurements and Disclosures (“ASC 820”). It clarifies the definition of fair
value, prescribes methods for measuring fair value, and establishes a fair value hierarchy
to classify the inputs used in measuring fair value as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active
markets, quoted prices for identical or similar assets and liabilities in markets that are
not active, inputs other than quoted prices that are observable, and inputs derived from
or corroborated by observable market data.
Level 3-Inputs are unobservable inputs which reflect
the reporting entity’s own
assumptions on what assumptions the market participants would use in pricing the asset
or liability based on the best available information.
The carrying amounts reported in the accompanying consolidated balance sheets for
cash and cash equivalents, accounts receivable, advance to suppliers, prepayment and
other current assets, short-term borrowings, accounts payable, accrued expenses and
other payables, due to related parties and income tax payable approximate their fair
value based on the short-term maturity of these instruments.
AccountsReceivableandAllowanceforDoubtfulAccounts
Accounts receivable consists principally of amounts due from trade customers.
The Company maintains allowances for doubtful accounts for estimated losses from the
receivable amount
that cannot be collected. The Company reviews the accounts
receivable on a periodic basis and makes general and specific allowances when there is
doubt as to the collectability of individual balances.
In evaluating the collectability of
individual receivable balances, the Company considers many factors, including the age
of the balance, a customer’s historical payment history,
its current credit-worthiness
and current economic trends. In determining these estimates, the Company examines
historical write-offs of its receivables and reviews each client’s account to identify any
specific customer collection issues.
F-11
Management believes that the accounts receivable are fully collectable. Therefore, no
allowance for doubtful accounts is deemed to be required on its accounts receivable at
December 31, 2021 and December 31, 2020. The Company historically has not
experienced uncollectible accounts from customers granted with credit sales.
FactoringArrangements
The Company uses a factoring arrangement with a third party financial
institution to
manage working capital and cash flows (See Note 5). Under these programs, the
Company transferred receivables to a financial institution. Available capacity under these
programs is dependent on the level of the trade accounts receivable eligible to be sold
and the financial
institutions’ willingness to purchase such receivables. As such, the
factoring arrangement can be reduced or eliminated at any time due to market
conditions and changes in the credit worthiness of our customers, which would
negatively impact our liquidity.
PropertyandEquipment
Property and equipment are stated at cost
less accumulated depreciation. Cost
represents the purchase price of the asset and other costs incurred to bring the asset
into its existing use.
Identifiable significant
improvements are capitalized and
expenditures for maintenance, repairs, and betterments, including replacement of minor
items, are charged to expense.
Depreciation is computed based on cost, less the estimated residual value, if any, using
the straight-line method over the estimated useful
life. The residual value rate and
useful life of property and equipment are summarized as follows:
Property and Equipment
Electronic equipment
Office equipment
IntangibleAssets
Residual
value rate
Useful
life
5% 3 years
5% 5 years
Intangible assets with definite useful lives are amortized over their estimated useful lives
to their estimated residual values. Intangible assets mainly represent the domain name
at cost, less accumulated amortization on a straight-line basis over an estimated life of
ten years.
Intangible Asset
AGM domain
LeaseCommitments
Residual
value
rate
Useful
life
0% 10 years
On January 1, 2019, the Company adopted Accounting Standards Update No. 2016-02,
Leases (Topic 842) (ASU 2016-02), as amended, which supersedes the lease accounting
guidance under Topic 840, and generally requires lessees to recognize operating and
financing lease liabilities and corresponding right-of-use (ROU) assets on the balance
sheet and to provide enhanced disclosures surrounding the amount,
timing and
uncertainty of cash flows arising from leasing arrangements.
The Company determined if an arrangement is a lease at inception. Operating leases are
included in operating lease right-of-use (“ROU”) assets and short and long-term lease
liabilities in the consolidated balance sheets. Finance leases are included in property and
equipment, other current liabilities, and other long-term liabilities in the consolidated
balance sheets.
F-12
RevenueRecognition
The Company adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue
from Contracts with Customers (“ASC 606”) for all years presented. The core principle
of this new revenue standard is that a company should recognize revenue when control
of the promised goods or services is transferred to the customers, in an amount that
reflects the consideration to which the Company expects to be entitled in exchange for
those goods or services. The following five steps are applied to achieve that core
principle by the Company in its determination of revenue recognition:
● Step 1: Identify the contract(s) with the customer;
● Step 2: Identify the performance obligations in the contract;
● Step 3: Determine the transaction price;
● Step 4: Allocate the transaction price to the performance obligations in the contract; and
● Step 5: Recognize revenue when or as the Company satisfies a performance obligation.
The Company is a server and software developer, engaging in research, development
and sale of server and enterprise application software, including ASIC miner, accounting
software and ERP software, and the software-related after sales services.
The transaction price is allocated to each performance obligation on a relative
standalone selling price basis. The transaction price allocated to each performance
obligation is recognized when that performance obligation is satisfied, at a point in time
or over time as appropriate.
The Company derives revenue from the sales of
the following three items:
(1)
cryptocurrency mining machine and standardized computing equipment, (2) technical
support plans, (3) software customization services, and bundle of products or services
that may include a combination of these items. The Company enters into contracts with
customers that include promises to transfer various products and services, which are
generally capable of being distinct and accounted for as separate performance
obligations. Revenue is recognized when the promised goods or services are transferred
to customers, in an amount that reflects the consideration allocated to the respective
performance obligation. The Company records and recognizes revenues from both
products and services in one account, which is presented as revenues and revenues
from related parties in the accompanying consolidated statements of operations and
comprehensive income.
During 2021, 2020 and 2019, the Company derives revenue from the sale of the
following three items:
(1)
Sales of Cryptocurrency Mining Machines and Standardized Computing Equipment
The Company recognizes product revenues on a gross basis as the Company is
responsible to fulfill the promise to provide specified goods. Revenue is recognized at a
point in time upon the transfer of control of products to customers.
The Company starts this service in 2021.
(2)
Technical Support Plans
The Company sells technical support plans either as a package with the sale of software
products or separately on its own. Each technical support plan has a contractual period
of one year. Revenue is recognized over a period of time throughout the contract period
for the technical support plan, generally is recognized over twelve months period.
However,
the Company did not
record this revenue stream on total
revenue for
December 31, 2021 since the Company discontinued business related to these services
in 2020.
(3) Software Customization Services
The Company delivers its software customization services by developing customized
features on software products to suit customers’ special needs. Upon receiving the
purchase request from the customers, the Company designs, develops, tests, and
implements the specified features to our software products. The Company also includes
a one-year technical support plan specifically for the developed feature(s).
Customers are able to request and purchase the service together with a purchase of our
software product, or separately if the customer has our software products in-use.
Revenue is recognized at a point in time upon customers’ acceptance of the feature(s),
and revenue for the technical support plan is recognized over its service term, which
generally is for twelve months period.
F-13
Contractliability
The contract liabilities consist of advances from customers, which relate to unsatisfied
performance obligations at the end of each reporting period and consists of cash
payments received in advance from customers in sales of server products. As of
December 31, 2021 and December 31, 2020, the Company’s advances from customers
amounted to $42,231,914 and nil, respectively.
The Company reports revenues net of applicable sales taxes and related surcharges.
CostsofRevenues
Cost of revenues primarily consist of: (1) cost of product revenue, which includes direct
costs of cryptocurrency mining machine, standardized computing equipment and
software products; labor costs and employee benefits for software development, data
testing, bug fixes and hacker prevention; research and development expenses; (2) cost
of services and other revenue, which reflects direct costs associated with providing
services, including data center and support costs related to delivering online services.
OperatingLeases
The Company determines if an arrangement is a lease upon inception. A contract is or
contains a lease if the contract conveys the right to control the use of an identified
asset for a period of time in exchange for consideration. The right to control the use of
an asset includes the right to obtain substantially all of the economic benefits of the
underlying asset and the right to direct how and for what purpose the asset is used.
Upon adoption of ASU 2016-02 and related standards, operating lease right-of-use
assets and liabilities are recognized at commencement date based on the present value
of lease payments over the lease term. The discount rate used to calculate present value
is the Company’s incremental borrowing rate or, if available, the rate implicit in the lease.
The Company includes options to renew the lease as part of the right of use lease asset
and liability when it is reasonably certain the Company will exercise the option. The
Company also takes into considerations when certain lease contains fair value purchase
and termination options with an associated penalty.
The Company reviews all leases for capital or operating classification at their inception.
The Company conducts its operations primarily under operating leases as of adoption of
ASC 842 on January 1, 2021.
ResearchandDevelopmentExpenses
Research and development costs are expensed as incurred. The costs primarily consist
of the wage expenses incurred to continuously improve and upgrade the Company’s
services.
Governmentgrants
Government grant is recognized when there is reasonable assurance that the Company
will comply with the conditions attach to it and the grant will be received. From June 15,
2021, Nanjing Pukou Economic Development Zone Management Committee (the
“Committee”) provided an office to the Company for free for 5 years to attract the
enterprise for the development of the integrated circuit industry in Nanjing. As of
December 31, 2021, $185,923 deferred government grant was recorded. The amount of
other income for the government grant recognized during the year ended December 31,
2021 was $22,119.
IncomeTaxes
The Company is governed by the Income Tax Law of China, Inland Revenue Ordinance
of Hong Kong and the U.S. Internal Revenue Code of 1986, as amended. Based on a
review of surrounding facts and circumstances, the revenue generated from AGM
Technology belongs to offshore revenue as its operation is outside Hong Kong.
Therefore, the Company considers AGM Technology is not subject to tax at 16.5% on
the assessable profits arising in or derived from Hong Kong or 8.25% if the net profit
under $2,000,000 for 2019 and beyond under Inland Revenue Ordinance of Hong Kong.
The Company accounts for income taxes using the asset/liability method prescribed by
ASC 740, “Accounting for Income Taxes.” Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial reporting and tax
bases of assets and liabilities using enacted tax rates that will be in effect in the period
in which the differences are expected to reverse. The Company records a valuation
allowance to offset deferred tax assets if, based on the weight of available evidence, it
is more-likely-than-not that some portion, or all, of the deferred tax assets will not be
realized. The effect on deferred taxes of a change in tax rates is recognized as income
or loss in the period that includes the enactment date.
The Act has caused the Company’s deferred income taxes to be revalued. As changes in
tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through
income tax expense. Pursuant to the guidance within SEC Staff Accounting Bulletin No.
118 (“SAB 118”), as of December 31, 2017, the Company recognized the provisional
effects of the enactment of the Act for which measurement could be reasonably
estimated. The ultimate impact of the Act may differ from these estimates due to the
Company’s continued analysis or further regulatory guidance that may be issued as a
result of the Act.
F-14
The Company applied the provisions of ASC 740-10-50, “Accounting for Uncertainty in
Income Taxes,” which provides clarification related to the process associated with
accounting for uncertain tax positions recognized in the Company’s financial statements.
Audit periods remain open for review until the statute of limitations has passed. The
completion of review or the expiration of the statute of limitations for a given audit
period could result in an adjustment to the Company’s liability for income taxes. Any
such adjustment could be material to the Company’s results of operations for any given
quarterly or annual period based, in part, upon the results of operations for the given
period. As of December 31, 2021, December 31, 2020 and December 31, 2019, the
Company had uncertain tax positions accrued, and will continue to evaluate for
uncertain positions in the future.
ValueAddedTax
The amount of VAT liability is determined by applying the applicable tax rate to the
invoiced amount of software service provided. The Company reports revenue net of
China’s VAT for all the periods presented in the accompanying consolidated statements
of operations.
ComprehensiveIncome
ASC 220 “Comprehensive Income” established standards for reporting and display of
comprehensive income,
its components and accumulated balances. Components of
comprehensive income include net income and foreign currency translation adjustments.
For the fiscal years ended 2021, 2020 and 2019, the only component of accumulated
other comprehensive income was foreign currency translation adjustments.
RelatedPartyTransactions
A related party is generally defined as (i) any person and or their immediate family hold
10% or more of the Company’s securities (ii) the Company’s management, (iii) someone
that directly or indirectly controls, is controlled by or is under common control with the
Company, or (iv) anyone who can significantly influence the financial and operating
decisions of the Company. A transaction is considered to be a related party transaction
when there is a transfer of resources or obligations between related parties. The
Company conducts business with its related parties in the ordinary course of business.
Related parties may be individuals or corporate entities.
Transactions involving related parties cannot be presumed to be carried out on an
arm’s-length basis, as the requisite conditions of competitive, free market dealings may
not exist. Representations about transactions with related parties,
if made, shall not
imply that the related party transactions were consummated on terms equivalent to
those that prevail
in arm’s-length transactions unless such representations can be
substantiated. It is not, however, practical to determine the fair value of amounts due
from/to related parties due to their related party nature.
ConcentrationofCreditRisk
Financial
instruments that potentially subject the Company to concentration of credit
risk are cash and cash equivalents, transaction monetary assets held for clients, mark to
market assets for open trading positions, and accounts receivable arising from its
normal business activities. The Company places its cash in what it believes to be credit-
worthy financial institutions or trading platforms. The Company routinely assesses the
financial strength of the customer and, based upon factors surrounding the credit risk,
establishes an allowance, if required, for uncollectible accounts and, as a consequence,
believes that its accounts receivable credit risk exposure beyond such allowance is
limited.
Reclassification
Certain prior year amounts have been reclassified to conform to the current period
presentation. These reclassifications had no impact on the net earnings and financial
position.
EarningsperOrdinaryShare
Basic earnings per ordinary share is computed by dividing net earnings attributable to
ordinary shareholders by the weighted-average number of ordinary shares outstanding
during the period. Diluted earnings per share is computed by dividing net income
attributable to ordinary shareholders by the sum of the weighted-average number of
ordinary shares outstanding and dilutive potential ordinary shares during the period.
F-15
Discontinuedoperation
A discontinued operation may include a component of an entity or a group of
components of an entity, or a business or nonprofit activity. A disposal of a component
of an entity or a group of components of an entity is required to be reported in
discontinued operation if the disposal represents a strategic shift that has (or will have)
a major effect on an entity’s operations and financial results when any of the following
occurs:
(1) the component of an entity or group of components of an entity meets the criteria to
be classified as held for sale;
(2) the component of an entity or group of components of an entity is disposed of by
sale;
(3) the component of an entity or group of components of an entity is disposed of other
than by sale (for example, by abandonment or in a distribution to owners in a spinoff).
The results of operations of discontinued operation for the years ended December 31,
2019, 2020 and 2021 have been reflected separately in the Consolidated Statements of
Income/(Loss) as a single line item for all periods presented in accordance with U.S.
GAAP. Cash flows from discontinued operation of the three categories for the years
ended December 31, 2019, 2020 and 2021 were separately presented in the
Consolidated Statements of Cash Flows for all periods presented in accordance with U.S.
GAAP.
SegmentReporting
The Company uses the “management approach” in determining reportable operating
segments. The management approach considers the internal organization and reporting
used by the Company’s chief operating decision maker for making operating decisions
and assessing performance as the source for determining the Company’s reportable
segments. The Company’s chief operating decision maker has been identified as the
chief executive officer of the Company who reviews financial
information of separate
operating segments based on U.S. GAAP. The chief operating decision maker now
reviews results analyzed by customer. This analysis is only presented at the revenue
level with no allocation of direct or indirect costs. Consequently, the Company has
determined that it has only one operating segment.
RecentlyIssuedAccountingPronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial
Instruments – Credit
Losses”, which will require the measurement of all expected credit losses for financial
assets held at the reporting date based on historical experience, current conditions, and
reasonable and supportable forecasts. Subsequently, the FASB issued ASU No. 2018-19,
Codification Improvements to Topic 326,
to clarify that
receivables arising from
operating leases are within the scope of lease accounting standards. Further, the FASB
issued ASU No. 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11 and ASU 2020-02
to provide additional guidance on the credit losses standard. The ASU is effective for
public company for fiscal years, and interim periods within those fiscal years beginning
after December 15, 2019.
For all other entities including emerging growth companies,
the ASU is effective for fiscal years beginning after December 15, 2020, and interim
periods within fiscal years beginning after December 15, 2021. Early application is
permitted for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018. The Company has adopted ASU 2016-13 since January 1, 2021, the
impact of which on the Company’s consolidated financial statements was immaterial.
Recently issued ASUs by the FASB, except for the ones mentioned above, are not
expected to have a significant
impact on the Company’s consolidated results of
operations or financial position. Other accounting standards that have been issued or
proposed by FASB that do not require adoption until a future date are not expected to
have a material
impact on the consolidated financial statements upon adoption. The
Company does not discuss recent pronouncements that are not anticipated to have an
impact on or are unrelated to its consolidated financial condition, results of operations,
cash flows, or disclosures.
Note 3 - GOING CONCERN
For the fiscal years ended December 31, 2021, the Company had net income of
$3,551,695, and recorded net cash used in operating activities of $1,854,458. As of
December 31, 2021, the Company has working capital of $24,499,970. Therefore, the
management assesses that current working capital will be sufficient
to meet
its
obligations for the next 12 months from the issuance date of this report. The financial
statements are prepared on going concern basis.
F-16
Note 4 - DISCONTINUED OPERATIONS AND DISPOSITION
On December 14, 2020, the Company entered into a share purchase agreement (the
“Agreement”) with Haiyan Huang, Feng Zhi and Yinglu Gao (the “Buyers”), pursuant to
which the Company agreed to sell to the Buyers 100% equity interest in Anyi Network
including its subsidiaries, in exchange for a total consideration of $8,000,000, payable in
the form of canceling 475,000 Class A ordinary shares of the Company held by the
Buyers, valued at $16.00 per share, and payment of $400,000 in cash (the “Cash
Consideration”). The Buyers are former shareholders of Anyi Network. and there is no
affiliation between the Buyers and the Company. The Buyers entered into a promissory
note (the “Promissory Note”). Pursuant to the Promissory Note, the Buyers agreed to
pay the Cash Consideration to the Company on or prior to June 30, 2021. In July 2021,
the Company received $400,000.
On December 14, 2020, the AGM Shares were duly cancelled pursuant to the Agreement.
On December 20, 2020, the Buyers amended the register of members of Anyi Network
Inc. with the Cayman Islands corporate registry.
Pursuant to ASC Topic 205-20, Presentation of Financial Statements - Discontinued
Operations, the results of operations for the fiscal years ended December 31, 2020 from
Anyi Network have been classified to loss from discontinued operations line on the
accompanying consolidated statements of operations and comprehensive loss presented
herein. No assets and liabilities of discontinued operation as of December 31, 2021 and
December 31, 2020.
The summarized operating result of discontinued operations included in the Company’s
consolidated statements of operations consist of the following:
Revenues
Cost of revenues
Gross profit
Operating expenses
Other expenses, net
Loss before income taxes
Income tax expense
Loss from discontinued operations
Gain from disposal, net of taxes
For The Years Ended December
31,
2021
2020
2019
$
- $ 237,431 $ 379,630
199,888
-
160,810
-
-
-
-
-
-
-
76,621
(353,219)
(45,125)
(321,723)
767
(322,490)
347,990
179,742
(196,060)
(2,240)
(18,558)
58,386
(76,944)
-
Total gain (loss) from discontinued operations
$
- $ 25,500 $ (76,944)
Note 5 - ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consisted of the following:
Accounts receivable
December
31,
2021
December
31,
2020
$2,608,325 $
-
No bad debt allowance was recorded for the years ended 2021, 2020 and 2019.
On July 29, 2021, the Company entered into an accounts receivable factoring agreement
(the “Factoring Agreement”) with an unrelated third-party financial
institution. The
Factoring Agreement allows for up to RMB10 million in advances, which are
collateralized by assigned eligible accounts receivable and are subject to funds usage,
no discount, and other fees, as well as service charges. The Factoring Agreement has a
scheduled term of 160 days and is subject to automatic one year extension unless
written notice of intention to terminate is obtained from the Company or unapproved by
both parties. The current Factoring Agreement has a maturity date on January 9, 2022.
The annual interest rate of factoring is 5.60%. The factoring expense equals to 0.5% of
factoring amount, which is $7,797 (RMB50,300) and has been included in other
expenses in the consolidated statement of operations.
The Company has continuing involvement with the assigned accounts receivable as it
services to collect the receivables and is required to repurchase any assigned accounts
receivable that have been deemed uncollectible, that are in dispute, meet other criteria
pursuant to the Factoring Agreement, or upon the occurrence of an event of default, as
defined in the Factoring Agreement. At December 31, 2021, assigned accounts
receivable is $1,568,455 (RMB10,000,000) in the consolidated balance sheet. The total
interest of $37,132 (RMB 239,556) accrued in other expenses and $12,931 (RMB 82,444)
paid under the Factoring Agreement for the fiscal years ended December 31, 2021. The
balance of unpaid accrued interest of $24,201 (RMB 157,112) has been included in
accrued expenses in the consolidated balance sheet.
Note 6 - INVENTORIES
Inventories, primarily consisted of cryptocurrency mining machines and standardized
computing equipment, which are finished goods from manufactures. As of December 31,
2021 and December 31, 2020 inventories consisted of the following:
Finished goods
December 31, December 31,
2021
2020
$ 22,433,140 $
-
No inventory write-down was recorded for the years ended 2021, 2020 and 2019.
F-17
Note 7 - PREPAYMENT AND OTHER CURRENT ASSETS
Prepayment and other current assets consist of prepaid expenses, other receivables,
and deposits.
As of December 31, 2021 and December 31, 2020 prepayment and other current assets
consisted of the following:
Prepaid expenses
Note receivable (1)
Advance deposit for intent acquisition (2)
Loan receivable (3)
Prepaid input VAT
Deposits and others
Total prepayment and other current assets
December
31,
2021
December
31,
2020
$
51,301 $
-
-
400,000
2,848,547
26,577
54,466
400,000
4,937,664
-
-
28,786
$3,326,425 $5,420,916
(1) While the Company entered into the purchase Agreement with the Buyers to sell 100% equity
interest in Anyi Network including its subsidiaries, the Company entered into a Promissory Note,
pursuant to which the Buyers agreed to pay the Cash Consideration of $400,000 to the Company
on or prior to June 30, 2021. The Company received $400,000 in July 2021(See Note 4).
(2)
The Company entered into a letter of intent of equity acquisition with Yushu Kingo City Real
Estate Development Co., Ltd. (“Yushu Kingo”) on February 26, 2019, and made advance
payments upon execution of a letter of intent for completion of due diligence of $4,937,664. On
April 6, 2021, AGM Tianjin and Yushu Kingo entered into a supplement agreement to the equity
transfer agreement. Pursuant to the supplement agreement, Yushu Kingo’s shareholders shall
return the advance payment and pay 10% interest on the total amount to AGM Tianjin if AGM
Tianjin decides not to proceed with the acquisition contemplated by the equity transfer agreement
and terminate such agreement on or before October 31, 2021. On October 20, 2021, AGM
Tianjin entered into an agreement on transfer of creditor rights without recourse right with a non-
affiliated third party, Huanong Yijia (Beijing) Technology Development Co., Ltd. (“Huanong
Yijia”). On November 18, 2021, the Company received net amount $4,961,517 from Huanong
Yijia, which is the consideration of transferring the credit rights.
(3) On October 12, 2021, the Company entered into a loan agreement with AGM Group Ltd., who is
the minority shareholder of the Company holding 20 class A shares as of December 31, 2021. As
AGM Group Ltd. (i) held less than 10% of the Company’s securities shares, (ii) was not the
company’s management, (iii) could not directly or indirectly control the Company, (iv) could not
significantly influence the financial and operating decisions of the Company, the Company is not
regarded it as a related party. Pursuant to the agreement, the company extended a $400,000 loan
to AGM Group Ltd. at the interest rate of 1% for one year as working capital support.
Note 8 - PROPERTY AND EQUIPMENT, NET
As of December 31, 2021 and December 31, 2020, property and equipment, net
consisted of the following:
Electronic equipment
Office equipment
Leasehold improvement
Total property and equipment
Less: accumulated depreciation
Total property and equipment, net
December
31,
2021
December
31,
2020
$ 168,308 $ 163,891
14,034
-
14,391
339,657
522,356
(199,959)
177,925
(158,605)
$ 322,397 $
19,320
The Company added leasehold improvement of $339,657 for the fiscal years ended
December 31, 2021. Depreciation expenses for the fiscal years ended December 31, 2021,
2020 and 2019, were $36,883, $31,957 and $48,793, respectively. There was no
disposals and impairment recorded for these property and equipment for the years
ended December 31, 2021, 2020 and 2019.
F-18
Note 9 - INTANGIBLE ASSETS, NET
As of December 31, 2021 and December 31, 2020, intangible assets, net consisted of the
following:
AGM domain names
Total intangible assets
Less: accumulated amortization
Total intangible assets, net
December
31,
2021
December
31,
2020
$
14,800 $
14,800
14,800
(6,167)
8,633
14,800
(4,687)
10,113
For the fiscal years ended December 31, 2021, 2020 and 2019, amortization expenses
amounted to $1,480, $1,480 and $1,480 respectively. The following is a schedule, by
fiscal years, of amortization amount of intangible asset,
2022
2023
2024
2025
$
1,480
1,480
1,480
1,480
2026
Thereafter
Total
1,480
1,233
8,633
$
Note 10 - RELATED PARTY TRANSACTIONS
As of December 31, 2021, related parties of the Company consist of the following:
Name of Related Party
Zhentao Jiang
Wenjie Tang
Yufeng Mi
Yang Cao
Nature of Relationship
Former Director and principal shareholder
Chief Executive Officer (“CEO”), Director, and shareholder
Chief Technical Officer (“CTO”) and shareholder
Director of Nanjing Lucun
Duetorelatedparties
The Company mainly finance its operations through proceeds borrowed from related
parties. As of December 31, 2021 and December 31, 2020, due to related parties
consisted the following:
Zhentao Jiang
Yufeng Mi
Yang Cao
Total due to related parties
December
31,
2021
December
31,
2020
$1,119,465 $ 712,485
1,951
-
2,000
94,108
$1,215,573 $ 714,436
The balance of due to related parties represents expenses incurred by related parties in
the ordinary course of business. These amounts are interest free, unsecured and could
be settled on demand.
From time to time, the Company borrowed $907,135 from related parties and repaid
$517,670 to related parties in the year ended December 31, 2021. The Company
borrowed $241,822 from related parties and repaid $594,887 to related parties in the
year ended December 31, 2020.
Duefromrelatedparties
As of December 31, 2021 and December 31, 2020, due from related parties consisted the
following:
Wenjie Tang
Total due from related parties
December 31, December 31,
2021
2020
39,238
$
39,238 $
116,610
116,610
Amounts due from related parties are interest free, unsecured and could be settled on
demand.
F-19
Note 11 - SHORT-TERM BORROWINGS
As of December 31, 2021 and December 31, 2020, the short-term borrowings were for
working capital and capital expenditure purposes. Short-term borrowings include an
accounts receivable factoring arrangement with a third-party financial
institution of
Zhongyuan Bank Co., Ltd consist of the following:
Annual
Interest
Rate
Maturity
(Months) Principal
December
31,
2021
December
31,
2020
US$
US$
US$
Short-term borrowings:
ZHONGYUAN BANK CO., LTD (1)
5.60%
Total
January,
2022
1,568,455
1,568,455
1,568,455
-
-
The interest expenses were $37,132 and nil for the fiscal years ended December 31,
2021 and 2020, respectively.
(1) On July 29, 2021, the Company entered into a factoring agreement (see Note 5) with Zhongyuan
Bank for 160 days and maturity date is January 9, 2022, $1,568,455 (RMB10,000,000) accounts
receivable factoring to the bank and received accordingly amount of cash.
F-20
Note 12 - SEGMENT INFORMATION
The Company disaggregated its revenues into categories that depict how the nature,
amount, timing, and uncertainty of revenue and cash flows are affected by economic
factors. The Company derives revenue from the sale of the following three items: (1)
sales of cryptocurrency mining machine and standardized computing equipment, (2)
technical support plans and (3) software customization services.
All of the Company’s long-lived assets are located in China. The Company and its
subsidiaries do not have long-lived assets in the United States for the reporting periods.
Revenues from products and services, and gross profit are as follows:
Segment revenue:
Sales of cryptocurrency mining machine and standardized
computing equipment
Technical support plans
Software customization services
Total revenue from continuing operations
Total revenue from discontinued operations
Cost of revenue
Sales of cryptocurrency mining machine and standardized
computing equipment
Technical support plans
Software customization services
For The Years Ended
December 31,
2021
2020
2019
$ 36,709,931 $
- $
-
-
53,305
-
-
83,731
246,269
36,709,931
$
- $
53,305
330,000
- $ 379,630
$(30,112,363) $
- $
-
-
(38,534)
-
-
(60,529)
(162,269)
Total cost of revenue from continuing operations
Total cost of revenue from discontinued operations
(30,112,363)
$
- $
(38,534)
(222,798)
- $(199,888)
Gross profit
$ 6,597,568 $ 14,771 $ 286,944
Note 13 - OPERATING LEASE
On February 1, 2021, the Company entered into a lease agreement to lease an office in
Beijing with a term of two years under the lease fee of $4,392 per month.
On June 15, 2021, Nanjing Pukou Economic Development Zone Management Committee
(the “Committee”) entered into an investment agreement with Nanjing Lucun. Pursuant
to the investment agreement, the Committee provided the Company an office for free
for 5 years, with an objective of attracting enterprises for the development of the
integrated circuit
industry in Nanjing. Due to this free rental, $185,923 deferred
government grant was recorded as of December 31, 2021. And the amount of other
income for the government grant recognized during the year ended December 31, 2021
was $22,119.
As mentioned above, the estimated effect of lease renewal and termination options, as
applicable, was included in the consolidated financial statements in current period.
As of December 31, 2021, the Company recognized operating lease liabilities, including
both current and noncurrent portions,
in the amount of $51,239 and nil, and the
corresponding net operating lease right-of-use assets of $241,554.
Right-of-use assets
Operating lease liabilities - current
Operating lease liabilities - non-current
Total operating lease liabilities
F-21
December 31, December 31,
2021
2020
$
$
$
241,554 $
51,239 $
-
51,239 $
-
-
-
-
Supplemental information related to operating leases for the year ended December 31,
2021:
Weighted-average remaining lease term of operating leases
Weighted-average discount rate of operating leases
For the
Year
Ended
December
31,
2021
3.5 years
4.81%
The following table summarizes the maturity of the operating lease liabilities as of
December 31, 2021:
Year of 2022
Thereafter
Total lease payments
Less: imputed interest
Present value of operating lease liabilities
Less: current obligation
Long-term obligation on December 31, 2021
Note 14 - SHAREHOLDERS’ EQUITY
Operating
Lease
Liabilities
$
$
$
52,700
-
52,700
1,461
51,239
51,239
-
On July 26, 2019, the Company entered into Acquisition Agreement with Anyi Network
and the shareholders of Anyi.
In connection with the Acquisition Agreement,
the
Company acquired 100% of the equity of Anyi and pay $400,000 in cash and issue an
aggregate of 475,000 duly authorized, fully paid and nonassessable Class A ordinary
shares of the Company, valued at $16.00 per share to the shareholders of Anyi.
On December 14, 2020, the Company cancelled an aggregate of 475,000 Class A
ordinary shares of the Company held by Haiyan Huang, Feng Zhi and Yinglu Gao, who
purchased back 100% of the equity of Anyi Network, valued at $16.00 per share.
In July 2020, the Company issued an aggregated of 40,235 Class A ordinary shares of
the Company to a total of 106 non- affiliate individual
investors, valued at 16.00 per
share, and the Company received proceeds in a total amount of $667,901.
In August 2021, Firebull Holding Limited, holder of 5,000,000 Class A ordinary shares
and 5,000,000 Class B ordinary shares of the Company sold and transferred 5,000,000
Class A ordinary shares to Firebull Tech Limited. Pursuant
to section 11 of
the
Company’s memorandum and articles of association, the 5,000,000 Class B ordinary
shares held by Firebull Holding was cancelled accordingly.
On December 14, 2021, the Company issued 2,898,552 Class A ordinary shares to
investors. For each Class A ordinary share purchased, an investor received from the
Company one-half unregistered warrant, for an aggregate of 1,449,276 warrants. The
3.5-year warrants are exercisable immediately from the date of issuance and have an
exercise price of US$8.3. The purchase price for one Class A ordinary share and one-
half corresponding warrant is US$6.90.
Additionally, the Company has retained FT Global Capital, Inc. (the “Placement Agent”)
to act as exclusive placement agent in connection with this offering. The Company
agreed to issue to the Placement Agent or its designees warrants to purchase up to
202,899 Class A ordinary shares (“Placement Agent’s Warrants”). Such Placement
Agent’s Warrants will be exercisable commencing on the date of issuance at a per share
price of $8.30, subject to certain adjustments, and will expire three and a half (3.5)
years from the date of issuance.
As of December 31, 2021, 24,254,842 shares of Class A ordinary share and 2,100,000
shares of Class B ordinary shares were issued and outstanding. As for Class B ordinary
shares, each Class B ordinary share holder in the Company owns the right to vote, but
shall not (i) receive the right to any dividend paid by the Company; and (ii) receive the
right to any distribution of the surplus assets of the Company on its liquidation.
F-22
Note 15 - INCOME TAX
BritishVirginIslands(“BVI”)
Under the tax laws of BVI, AGM Holdings and AGM Software are not subject to tax on
income or capital gain.
In addition, payments of dividends by the Company to their
shareholders are not subject to withholding tax in the BVI.
HongKong
Under the tax laws of Hong Kong, Anyi Technology and AGM Defi Tech is subject to tax
at 16.5% on the assessable profits arising in or derived from Hong Kong or 8.25% if the
net profit under $2,000,000 for 2019 and beyond, and allowed to offset their future tax
taxable income with taxable operating losses with carried forward indefinitely. Based on
a review of surrounding facts and circumstances, the revenue generated from AGM
Technology belongs to offshore revenue as its operation is in mainland China instead of
in Hong Kong, and therefore AGM Technology was considered as a PRC resident
enterprise.
CaymanIslands
Under the tax laws of Cayman Islands, Anyi Network are not subject to tax on income or
capital gain. In addition, payments of dividends by such entities to their shareholders are
not subject to withholding tax in Cayman Islands.
Singapore
Under the tax laws of Singapore, AGM Defi Lab are subject to tax at 10% on income or
capital gain.
China
On March 16, 2007, the National People’s Congress passed the Enterprise Income Tax
Law (“the China EIT Law”), which was effective as of January 1, 2008. Companies
incorporated in China are allowed to offset future tax taxable income with taxable
operating losses carried forward in a 5-year period.
The China EIT Law also provides that an enterprise established under the laws of foreign
countries or regions but whose “de facto management body” is located in China be
treated as a resident enterprise for PRC tax purpose and consequently be subject to
China income tax at the rate of 25% for its worldwide income. The Implementing Rules
of the China EIT Law merely defines the location of the “de facto management body” as
“the place where the exercising, in substance, of the overall management and control of
the production and business operation, personnel, accounting, properties, etc., of a non-
PRC company is located.” On April 22, 2009, China State Administration of Taxation
further issued a notice entitled “Notice regarding Recognizing Offshore-Established
Enterprises Controlled by PRC Shareholders as Resident Enterprises Based on Their
place of Effective Management.” Under this notice, a foreign company controlled by a
PRC company or a group of PRC companies shall be deemed as a PRC resident
enterprise,
if (i) the senior management and the core management departments in
charge of its daily operations mainly function in China; (ii) its financial decisions and
human resource decisions are subject
to decisions or approvals of persons or
institutions in China; (iii) its major assets, accounting books, company sales, minutes
and files of board meetings and shareholders’ meetings are located or kept in China;
and (iv) more than half of the directors or senior management personnel with voting
rights reside in China. Based on a review of surrounding facts and circumstances, the
Company believe that there is an uncertain tax position as to whether its operations
outside of China will be considered a resident enterprise for PRC tax purposes due to
limited guidance and implementation history of the China EIT Law. Should the Company
be treated as a resident enterprise for PRC tax purposes, the Company will be subject
to PRC tax on worldwide income at a uniform tax rate of 25%. For the fiscal year ended
December 31, 2019, and 2020, the Company has evaluated this uncertain tax position
and recorded a tax liability on the Consolidated Balance Sheet. In 2021, as the business
line of the Company was completely change, the Company adjusted the management
and institutions accordingly. Therefore, companies outside of mainland China were no
longer applicable to the identification of PRC resident enterprises, and the Company did
not record tax liability of the uncertain tax position for the fiscal year ended December
31, 2021.
F-23
The China EIT Law also imposes a withholding income tax of 10% on dividends
distributed by a foreign invested enterprise to its immediate holding company outside of
China, if such immediate holding company is considered as a non-resident enterprise
without any establishment or place within China or if the received dividends have no
connection with the establishment or place of such immediate holding company within
China, unless such immediate holding company’s jurisdiction of incorporation has a tax
treaty with China that provides for a different withholding arrangement. Such
withholding income tax was exempted under the previous income tax regulations. British
Virgin Islands, where the Company is incorporated, did not have such tax treaty with
China.
AGM Beijing, AGM Tianjin, Nanjing Lucun, and Beijing Keen Sense are subject to 25%
China statutory tax rate.
AGM Beijing, AGM Tianjin, Beijing Keen Sense and AGM Defi Lab incurred net loss for
the year ended December
31, 2021.
The provision for income taxes consisted of the following:
For the Years Ended
December 31,
2021
2020
2019
Current
Deferred
Less from discontinued operations
Total from continuing operations
$(1,535,193) $ (77,110) $(123,001)
-
129,034
-
$
- $
(767) $ (58,386)
$(1,406,159) $ (76,343) $ (64,615)
The reconciliations of the statutory income tax rate and the Company’s effective income
tax rate are as follows:
Statutory income tax rate
Tax effect of different tax rates in other jurisdictions
Changes in valuation allowance
Effective tax rate
For the Years Ended
December 31,
2021
2020
2019
25%
3%
-%
28%
25%
3%
(21)%
8%
25%
3%
(24)%
5%
The summary of cumulative net operating losses carried forward for the Company’s
subsidiaries in different regions is as follows:
For the Years Ended
December 31,
2021
2020
2019
PRC Region
HK Region
Singapore Region
Less from discontinued operation of PRC
$ 508,737 $ 445,060 $ 424,478
338,255
45,090
-
-
- $ (127,171)
-
3,385
- $
$
Total cumulative net operating loss carry-forward from
continuing operation
$ 512,122 $ 490,150 $ 889,904
F-24
Components of the Company’s net deferred tax assets are set forth below:
Deferred tax assets:
Net operating loss carry-forwards
Total of deferred tax assets
Less: valuation allowance
Net deferred assets
December
31,
2021
December
31,
2020
$ 129,034 $ 111,265
129,034
-
111,265
(111,265)
$ 129,034 $
-
As of December 31, 2021 and 2020, deferred tax assets of the Company were of
$129,034 and nil, respectively, which was consisted of net operating loss carry-forwards.
As of December 31, 2021, the Management believes that the Company’s cumulative
losses arising from recurring business of subsidiaries constituted significant strong
evidence that most of the deferred tax assets would be realizable, and therefore, no
valuation allowance was accrued accordingly.
AccountingforUncertaintyinIncomeTaxes
The Company and certain subsidiaries are established in various foreign countries with
significant operations located in China. The Company might not be subject to PRC
income tax and did not pay any income tax to PRC however it is uncertain as to whether
China tax authority may take different views about the Company’s tax positions which
may lead to additional tax liabilities.
The tax authority of China Government conducts periodic and ad hoc tax filing reviews
on business enterprises operating in China after those enterprises complete their
relevant tax filings. Therefore, the Company’s PRC entities’ tax filings results are subject
to change. It is therefore uncertain as to whether China tax authority may take different
views about the Company’s PRC entities’ tax filings, which may lead to additional tax
liabilities.
ASC 740 requires recognition and measurement of uncertain income tax positions using
a “more-likely-than-not” approach. The management evaluated the company’s tax
position and recognized liabilities for uncertain tax positions for the years ended
December 31, 2021, 2020 and 2019, and the period from inception (April 27, 2015) to
December 31, 2015. The Company recognized liabilities for uncertain tax positions,
which was included in accrued expenses and other current liabilities on the Consolidated
Balance Sheets for the fiscal year ended December 31, 2019, 2020 and 2021.
The activity of the unrecognized tax benefits related to the Company’s uncertain tax
positions is summarized as follows:
For the
Year
Ended
December
31,
2021
For the
Year
Ended
December
31,
2020
For the
Year
Ended
December
31,
2019
Gross beginning balance
Gross increase to tax positions in the current period
Gross increase to tax position in the prior period
Gross decrease to tax position in the prior period
Lapse of statute limitations
$1,638,673 $1,562,330 $1,483,745
123,001
-
-
-
1,321,482
-
-
-
76,343
-
-
-
Less from discontinued operations
$
- $
- $ (44,416)
Gross ending balance from continuing operations
$2,960,155 $1,638,673 $1,562,330
There were no interests and penalties in relation to the Company uncertain tax positions
for the fiscal years ended December 31, 2021,2020 and 2019.
F-25
Note 16 - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
CreditRisk
Financial instruments which potentially subject the Company to concentrations of credit
risk consist principally of cash and trade accounts receivable. The Company place cash
with high credit quality financial institutions in Singapore, Hongkong and China. As of
December 31, 2021 and December 31, 2020,
the Company had $16,566,953 and
$148,747 of cash balance held in China banks, respectively. China banks protect
consumers against loss if their bank or thrift institution fails, and each of the Company’s
bank accounts are insured up to RMB500,000 (approximately $77,000). As a result, cash
held in China financial institutions of $16,027,953 and $69,219 were not insured as of
December 31, 2021 and December 31, 2020, respectively. The Company have not
experienced any losses in such accounts through December 31, 2021. The Company’s
cash position by geographic area was as follows:
December 31, 2021
December 31, 2020
Country:
Singapore
China (Hongkong)
China (Mainland)
Total cash and cash equivalents
$
259,686
1,599,983
16,566,953
$18,426,622
1% $ 244,646
9% 271,212
90% 148,747
100% $ 664,605
37%
41%
22%
100%
Almost all of the Company’s sales are credit sales which are primarily to customers
whose ability to pay is dependent upon the industry economics prevailing in these areas;
however, the Company believe that the concentration of credit risk with respect to trade
accounts receivable is limited due to generally short payment terms. The Company also
perform ongoing credit evaluations of customers to help further reduce potential credit
risk.
Customers
For the fiscal years ended December 31, 2021, two customers accounted for 70% and
30% of the Company’s revenues, respectively. For the fiscal year ended December 31,
2020, one customer accounted for 100% of the Company’s total revenue. For the fiscal
year ended December 31, 2019, two customers accounted for 75% and 17% of the
Company’s revenues, respectively.
As of December 31, 2021, the Company had $2,608,325 accounts receivable with
factoring, and nil receivable balance as of December 31, 2020.
Suppliers
For the fiscal years ended December 31, 2021, two customers accounted for 72% and
12% of the Company’s cost of revenues, respectively. For the fiscal year ended
December 31, 2020, one customer accounted for 100% of the Company’s total cost of
revenues. For the fiscal year ended December 31, 2019, one customer accounted for
100% of the Company’s total cost of revenues.
As of December 31, 2021, the Company had $14,116,569 accounts payable balance, and
$4,974 payable balance as of December 31, 2020.
Note 17 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the issuance of
the
consolidated financial statements and noted that there are no other subsequent events.
F-26
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