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
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended December 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
OR
Date of event requiring this shell company report:
For the transition period from to
Commission file number: 001-38309
AGM Group Holdings Inc.
(Exact name of Registrant as specified in its charter)
(Translation of Registrant’s name into English)
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)
Bo Zhu, Chief Executive Officer
+86-010-65020507
b.zhu@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, 2023.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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.
☐ Yes ☒ No
☐ Yes ☒ No
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 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 every Interactive Data File required to be submitted
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 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 whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b) by
the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
☐
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
by the International Accounting Standards Board ☐
Other ☐
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
Exchange Act).
☐ Item 17 ☐ Item 18
☐ Yes ☒ No
Table of Contents
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
OFFER STATISTICS AND EXPECTED TIMETABLE
KEY INFORMATION
INFORMATION ON THE COMPANY
UNRESOLVED STAFF COMMENTS
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
FINANCIAL INFORMATION
THE OFFER AND LISTING
ADDITIONAL INFORMATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
PART I
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4A.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 10.
ITEM 11.
ITEM 12.
PART II
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
CONTROLS AND PROCEDURES
[RESERVED]
CODE OF ETHICS
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
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16B.
ITEM 16C.
ITEM 16D.
ITEM 16E.
ITEM 16F.
ITEM 16G. CORPORATE GOVERNANCE
ITEM 16H. MINE SAFETY DISCLOSURE
ITEM 16I.
ITEM 16J.
ITEM 16K. CYBERSECURITY
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
INSIDER TRADING POLICIES
PART III
ITEM 17.
ITEM 18.
ITEM 19.
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS
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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”);
● AGM Canada Holdings Limited., a corporation incorporated in British Columbia, Canada (“AGM Canada”) and a
wholly-owned subsidiary of AGM Holdings;
● AGM Defi Tech Limited., a Hong Kong SAR limited company (“AGM Defi Tech”) and a wholly-owned subsidiary
of AGM Holdings;
● AGM Defi Lab Pte Limited, a Singapore company (“AGM Defi Lab”) and a wholly-owned subsidiary of AGM
Holdings;
● AGM Electronic Technology Limited, a Hong Kong SAR company (“AGM Electronic”) 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 Bixin Electronic Technology Co., Ltd, a company formed under the laws of People’s Republic of China
(“Beijing Bixin”) and a wholly-owned subsidiary of AGM Defi Tech;
● Beijing Keen Sense Technology Service Co., Ltd., a company formed under the laws of People’s Republic of China
(“Beijing Keen Sense”) 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; and
● Nanjing Lucun Semiconductor Co., Ltd. Beijing Branch (“Nanjing Lucun Beijing Branch”), a branch office of
Nanjing Lucun established pursuant to the laws of the PRC.
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, 2023 and
2022, were translated at RMB7.0827 and RMB6.9646 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 Loss/Income and the
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022, and 2021 were RMB7.0467 RMB6.7261,
and RMB6.4515to $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.
ii
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this annual 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
annual 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 annual report reflect our views and assumptions only as of the date this annual
report is signed. Except as required by law, we assume no responsibility for updating any forward-looking statements.
iii
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
PART I
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
Overview
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 11. 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 “Risk Factors – Risks Related to Doing Business in China – Uncertainties with respect to the PRC legal
system could adversely affect us” on page 30 of this annual report.
Corporate Structure
Our equity structure is a direct holding structure. Below is a chart illustrating our corporate structure:
1
Transfers of Cash Among Subsidiaries
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 5 of this
annual report.
Regulatory Permissions
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.
2
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 “Item 3. Key Information—D. Risk Factors”
beginning on page 11 of this annual report.
Risks Related to Our Business and Industry
● 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 16 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 16 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 17 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 11 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 21 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 21 of this annual report);
● The Chinese government exerts substantial 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, if our holding company or subsidiaries were required to obtain approval or filing 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 materially affect the interest of the investors (see “Risk Factors –The Chinese government
exerts substantial 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, if our holding company or
subsidiaries were required to obtain approval or filing 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 materially
affect the interest of the investors” on page 22 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 25 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 30 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 33 of this annual report);
3
● 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 34 of this annual report);
● 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 35 of this annual report);
● The filing, approval or other administration requirements of the CSRC or other PRC government authorities may be
required in connection with our future offshore offering under PRC law, and, if required, we cannot predict whether
or for how long we will be able to complete the filing procedure with the CSRC and obtain such approval or complete
such filing, as applicable (see “Risk Factors – Risks Related to Doing Business in China – The filing, approval or
other administration requirements of the CSRC or other PRC government authorities may be required in connection
with our future offshore offering under PRC law, and, if required, we cannot predict whether or for how long we will
be able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, as
applicable” on page 27 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 Doing Business in China” on page 21 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 38 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 38 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 39 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 41 of this annual report).
4
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 “- Transfers of Cash to and from Our Subsidiaries”, “- Implications of Holding Foreign
Company Accountable Act”, “- PRC Regulatory Permissions” and “Risk Factors – Risks Related to Doing Business in China”
beginning on page 21 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.
5
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.
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%.
6
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.
During the fiscal years ended December 31, 2023, 2022 and 2021, our PRC subsidiaries have not made any transfers or
distributions. During the fiscal years ended December 31, 2023, 2022 and 2021, 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, During the fiscal
years ended December 31, 2023, 2022 and 2021, 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 do not
have any cash management policies that dictate the amount of such funds and how such funds are transferred.
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. On June 22, 2021, United States Senate has
passed the Accelerating Holding Foreign Companies Accountable Act, and on December 29, 2022, legislation entitled
“Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law by President Biden, which
contained, among other things, an identical provision to the Accelerating Holding Foreign Companies Accountable Act and
amended the HFCA Act by requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its
auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time period for triggering
the prohibition on trading. 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. On August 26, 2022, the CSRC, the Ministry of Finance of the PRC (the “MOF”), and the
PCAOB signed a Statement of Protocol (the “Protocol”), governing inspections and investigations of audit firms based in mainland
China and Hong Kong, taking the first step toward opening access for the PCAOB to inspect and investigate registered public
accounting firms headquartered in mainland China and Hong Kong. Pursuant to the fact sheet with respect to the Protocol disclosed
by the U.S. Securities and Exchange Commission (the “SEC”), the PCAOB shall have independent discretion to select any issuer
audits for inspection or investigation and has the unfettered ability to transfer information to the SEC. On December 15, 2022, the
PCAOB Board determined that the PCAOB was able to secure complete access to inspect and investigate registered public
accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary.
However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB Board will
consider the need to issue a new determination.
7
Each of 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, and KCCW Accountancy Corp., the independent registered public
account firm that issued the audit report for the fiscal year ended December 31, 2022 included elsewhere in this annual report, and
GGF CPA LTD, the independent registered public account firm that issued the audit report for the fiscal year ended December 31,
2023 included elsewhere in this annual report, as auditors of companies that are traded publicly in the United States and firms
registered with the PCAOB, are 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. TPS Thayer LLC is headquartered in Sugar Land,
Texas, and is subject to inspection by the PCAOB on a regular basis. KCCW Accountancy Corp. is headquartered in Los Angeles,
California , and is subject to inspection by the PCAOB on a regular basis. GGF CPA LTD is headquartered in Guangzhou, China.
While GGF CPA LTD is based in the PRC, it is registered with PCAOB and subject to PCAOB inspection. In the event it is later
determined that the PCAOB is unable to inspect or investigate completely the GGF CPA LTD because of a position taken by an
authority in a foreign jurisdiction, then such lack of inspection could cause trading of our securities to be prohibited under the
HFCAA, and ultimately result in a determination by a securities exchange to delist the Company’s securities. None of TPS Thayer
LLC, KCCW Accountancy Corp. or GGF CPA LTD is 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 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 35 of this annual report.
PRC Regulatory Permissions
As of the date of this annual report, we and our operating subsidiaries 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. The following table provides details on the licenses and permissions held by our PRC subsidiaries.
Approval
Business License
Recipient
Issuing body
Beijing Keen Sense Technology
Service Co., Ltd.
Beijing Municipal Administration for
Market Regulation
Validity
October 20, 2051
Business License
AGM Tianjing Construction
Tianjing Municipal Administration for
October 12, 2065
Development Co., Ltd.
Market Regulation
Business License
Nanjing Lucun Semiconductor Co.,
Nanjing Municipal Administration for
Indefinite
Ltd.
Market Regulation
Business License
Beijing AnGaoMeng Technology
Beijing Municipal Administration for
November 12, 2035
Service Co., Ltd.
Market Regulation
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.
8
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors (the “M&A Rules”), adopted by six
PRC regulatory agencies in 2006 and amended in 2009, include, among other things, provisions that purport to require that an
offshore special purpose vehicle, formed for the purpose of an overseas listing of securities through acquisitions of domestic
enterprises in China or assets and controlled by enterprises or individuals in China, to obtain the approval of the CSRC prior to the
listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, pursuant to
the M&A Rules and other PRC laws, the CSRC published on its official website relevant guidance regarding its approval of the
listing and trading of special purpose vehicles’ securities on overseas stock exchanges, including a list of application materials.
However, substantial uncertainty remains regarding the scope and applicability of the M&A Rules to offshore special purpose
vehicles.
On July 6, 2021, the relevant PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities
in accordance with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities
and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the
construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies.
These opinions and any related implementation rules to be enacted may subject us to additional compliance requirement in the
future. 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. We cannot assure that we will remain fully compliant with all new regulatory
requirements of these opinions or any future implementation rules on a timely basis, or at all.
Pursuant to Cybersecurity Review Measures which were issued on December 28, 2021 and became effective on February 15, 2022,
network platform operators holding over one million users’ personal information must apply with the Cybersecurity Review Office
for a cybersecurity review before any public offering at a foreign stock exchange. However, given the Cybersecurity Review
Measures were relatively new, there are substantial uncertainties as to the interpretation, application and enforcement of the
Cybersecurity Review Measures. It remains uncertain whether we should apply for cybersecurity review prior to any offshore
offering and that we would be able to complete the applicable cybersecurity review procedures in a timely manner, or at all, if we
are required to do so. In addition, on November 14, 2021, the Cyberspace Administration of China (the “CAC”) published the
Administration Regulations on Network Data Security (Draft for Comments), or the Draft Measures for Network Data Security,
which provides that data processors conducting the following activities shall apply for cybersecurity review: (i) merger,
reorganization or separation of Internet platform operators that have acquired a large number of data resources related to national
security, economic development or public interests affects or may affect national security; (ii) overseas listing of data processors
processing over one million users’ personal information; (iii) listing in Hong Kong which affects or may affect national security;
(iv) other data processing activities that affect or may affect national security. In addition, the Draft Measures for Network Data
Security also require Internet platform operators to establish platform rules, privacy policies and algorithm strategies related to
data, and solicit public comments on their official websites and personal information protection related sections for no less than 30
working days when they formulate platform rules or privacy policies or makes any amendments that may have significant impacts
on users’ rights and interests. The CAC solicited comments on this draft, but there is no timetable as to when it will be enacted.
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 Measures
for Network Data Security 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 Draft Measures for Network Data Security.
On February 17, 2023, the CSRC promulgated Trial Administrative Measures of the Overseas Securities Offering and Listing by
Domestic Companies (the “Overseas Listing Trial Measures”) and five relevant guidelines, which became effective on March 31,
2023. According to the Overseas Listing Trial Measures, PRC domestic companies that seek to offer and list securities in overseas
markets, either in direct or indirect means, are required to fulfill the filing procedure with the CSRC and report relevant
information. The Overseas Listing Trial Measures provides that an overseas listing or offering is explicitly prohibited, if any of the
following: (1) such securities offering and listing is explicitly prohibited by provisions in laws, administrative regulations and
relevant state rules; (2) the intended securities offering and listing may endanger national security as reviewed and determined by
competent authorities under the State Council in accordance with law; (3) the domestic company intending to make the securities
offering and listing, or its controlling shareholder(s) and the actual controller, have committed relevant crimes such as corruption,
bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy during the latest
three years; (4) the domestic company intending to make the securities offering and listing is currently under investigations for
suspicion of criminal offenses or major violations of laws and regulations, and no conclusion has yet been made thereof; or (5)
there are material ownership disputes over equity held by the domestic company’s controlling shareholder(s) or by other
shareholder(s) that are controlled by the controlling shareholder(s) and/or actual controller.
9
The Overseas Listing Trial Measures also provides that if the issuer meets both the following criteria, the overseas securities
offering and listing conducted by such issuer will be deemed as indirect overseas offering by PRC domestic companies: (1) 50% or
more of any of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated
financial statements for the most recent fiscal year is accounted for by domestic companies; and (2) the issuer’s main business
activities are conducted in China, or its main place(s) of business are located in China, or the majority of senior management staff
in charge of its business operations and management are PRC citizens or have their usual place(s) of residence located in China.
Where an issuer submits an application for initial public offering to competent overseas regulators, such issuer must file with the
CSRC within three business days after such application is submitted. In addition, the Overseas Listing Trial Measures provide that
the direct or indirect overseas listings of the assets of domestic companies through one or more acquisitions, share swaps, transfers
or other transaction arrangements shall be subject to filing procedures in accordance with the Overseas Listing Trial Measures. The
Overseas Listing Trial Measures also requires subsequent reports to be filed with the CSRC on material events, such as change of
control or voluntary or forced delisting of the issuer(s) who have completed overseas offerings and listings.
At a press conference held for these new regulations (“Press Conference”), officials from the CSRC clarified that the domestic
companies that have already been listed overseas on or before March 31, 2023 shall be deemed as existing issuers (the “Existing
Issuers”). Existing Issuers are not required to complete the filling procedures immediately, and they shall be required to file with
the CSRC upon occurrences of certain subsequent matters such as follow-on offerings of securities. According to the Overseas
Listing Trial Measures and the Press Conference, the existing domestic companies that have completed overseas offering and
listing before March 31, 2023, such as us, shall not be required to perform filing procedures for the completed overseas securities
issuance and listing. However, from the effective date of the regulation, any of our subsequent securities offering in the same
overseas market or subsequent securities offering and listing in other overseas markets shall be subject to the filing requirement
with the CSRC within three working days after the offering is completed or after the relevant application is submitted to the
relevant overseas authorities, respectively. If it is determined that any approval, filing or other administrative procedures from other
PRC governmental authorities is required for any future offering or listing, we cannot assure you that we can obtain the required
approval or accomplish the required filings or other regulatory procedures in a timely manner, or at all. If we fail to fulfill filing
procedure as stipulated by the Trial Measures or offer and list securities in an overseas market in violation of the Trial Measures,
the CSRC may order rectification, issue warnings to us, and impose a fine of between RMB1,000,000 and RMB10,000,000.
Persons-in-charge and other persons that are directly liable for such failure shall be warned and each imposed a fine from
RMB500,000 to RMB5,000,000. Controlling shareholders and actual controlling persons of us that organize or instruct such
violations shall be imposed a fine from RMB1,000,000 and RMB10,000,000.
On February 24, 2023, the CSRC published the Provisions on Strengthening the Confidentiality and Archives Administration
Related to the Overseas Securities Offering and Listing by Domestic Enterprises (the “Provisions on Confidentiality and Archives
Administration”), which came into effect on March 31, 2023. The Provisions on Confidentiality and Archives Administration
requires that, in the process of overseas issuance and listing of securities by domestic entities, the domestic entities, and securities
companies and securities service institutions that provide relevant securities service shall strictly implement the provisions of
relevant laws and regulations and the requirements of these provisions, establish and improve rules on confidentiality and archives
administration. Where the domestic entities provide with or publicly disclose documents, materials or other items related to the
state secrets and government work secrets to the relevant securities companies, securities service institutions, overseas regulatory
authorities, or other entities or individuals, the companies shall apply for approval of competent departments with the authority of
examination and approval in accordance with law and report the matter to the secrecy administrative departments at the same level
for record filing. Where there is unclear or controversial whether or not the concerned materials are related to state secrets, the
materials shall be reported to the relevant secrecy administrative departments for determination. However, there remain
uncertainties regarding the further interpretation and implementation of the Provisions on Confidentiality and Archives
Administration.
10
As of the date of this annual report, we and our PRC subsidiaries are not required to obtain, nor have we or our PRC subsidiaries
received any inquiry, notice, warning, or sanctions regarding obtaining approval or permission from the CSRC or the CAC or any
other entity that is required to approve our PRC subsidiaries’ operations or required for us to offer securities to foreign investors
under any currently effective PRC laws, regulations, and regulatory rules. If it is determined that we are subject to filing
requirements imposed by the CSRC under the Overseas Listing Regulations or approvals from other PRC regulatory authorities or
other procedures, including the cybersecurity review under the revised Cybersecurity Review Measures, for our future offshore
offerings, it would be uncertain whether we can or how long it will take us to complete such procedures or obtain such approval
and any such approval could be rescinded. Any failure to obtain or delay in completing such procedures or obtaining such approval
for our offshore offerings, or a rescission of any such approval if obtained by us, would subject us to sanctions by the CSRC or
other PRC regulatory authorities for failure to file with the CSRC or failure to seek approval from other government authorization
for our offshore offerings. These regulatory authorities may impose fines and penalties on our operations in China, limit our ability
to pay dividends outside of China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from our
offshore offerings into China or take other actions that could materially and adversely affect our business, financial condition,
results of operations, and prospects, as well as the trading price of our ordinary shares. The CSRC or other PRC regulatory
authorities also may take actions requiring us, or making it advisable for us, to halt our offshore offerings before settlement and
delivery of the securities offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior
to settlement and delivery, they do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other
regulatory authorities later promulgate new rules or explanations requiring that we obtain their approvals or accomplish the
required filing or other regulatory procedures for our prior offshore offerings, we may be unable to obtain a waiver of such
approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative publicity
regarding such approval requirement could materially and adversely affect our business, prospects, financial condition, reputation,
and the trading price of our ordinary shares.
See “The filing, approval or other administration requirements of the CSRC or other PRC government authorities may be required
in connection with our future offshore offering under PRC law, and, if required, we cannot predict whether or for how long we will
be able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, as applicable.” on page
27 of this annual report.
For more details, see “Risk Factors – Risks Related to Doing Business in China – The Chinese government exerts substantial
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, if our holding company or subsidiaries were required to obtain approval or
filing 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 materially affect the interest of the investors” on page 22 of this annual report.
3.A. [Reserved]
3.B. Capitalization and Indebtedness
Not applicable for annual reports on Form 20-F.
3.C. Reasons for the Offer and Use of Proceeds
Not applicable for annual reports on Form 20-F.
3.D. 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.
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.
11
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.
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
affect our business and the results of our operations.
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.
If demand for bitcoin declines, or if another cryptocurrency replaces bitcoin as the most 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.
Our ability to adopt technology in response to changing security needs or trends poses a challenge to the safekeeping of our
digital assets.
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.
We have an evolving business model which is subject to various uncertainties.
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.
12
The development and acceptance of cryptographic and algorithmic protocols governing the issuance of and transactions in
cryptocurrencies is subject to a variety of factors that are difficult to evaluate.
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;
● 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.
13
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, institution or a pool of them could prevent new transactions from gaining confirmations,
halt payments between users, and reverse previously completed transactions, which would erode user confidence in Bitcoin.
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.
The administrators of the Bitcoin network’s source code could propose amendments to the Bitcoin network’s protocols and
software that, if accepted and authorized by the Bitcoin network’s community, could adversely affect our business, results of
operations and financial condition.
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.”
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 result in a “fork” in the blockchain, resulting in the operation of two separate
networks that cannot be merged. The existence of forked blockchains could erode user confidence in Bitcoin and could
adversely impact our business, results of operations and financial condition.
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.
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Acceptance and/or widespread use of bitcoin is uncertain.
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 may cause consumers to use alternative
distributed ledgers or other alternatives.
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.
We may not adequately respond to price fluctuations and rapidly changing technology, which may negatively affect our
business.
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.
We are dependent on our major customers for the majority of our revenues. The loss of one or more significant customers could
adversely affect our financial condition, prospects and results of operations.
For the fiscal year ended December 31, 2023, five customers accounted for 39%, 15%, 14%, 10% and 10% of the Company’s
revenues. For the fiscal year ended December 31, 2022, five customers accounted for 20%, 19%, 14%, 13% and 12% of the
Company’s revenues, respectively. 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.
15
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 fiscal year ended December 31, 2023, four suppliers accounted
for 25%, 21%, 20% and 18% of the Company’s total cost of revenues. For the fiscal year ended December 31, 2022, two suppliers
accounted for 75% and 11% of the Company’s total cost of revenues. 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.
Any failure to offer high-quality product support may adversely affect our relationships with our customers and our financial
results.
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.
We might require additional capital to support business growth, and this capital might not be available on acceptable terms, if at
all.
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, natural disasters and other catastrophes.
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 COVID-19 pandemic
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.
16
If we are not able to continue to innovate or if we fail to adapt to changes in our industry, our business, financial condition and
results of operations would be materially and adversely affected.
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.
If we are unable to maintain existing clients, attract new clients or broaden our market, our business and results of operations
will be adversely affected.
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.
If we do not compete effectively, our results of operations could be harmed.
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.
If we fail to promote and maintain our brand in an effective and cost-efficient way, our business and results of operations may
be harmed.
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.
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.
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.
17
New lines of business or new services may subject us to additional risks.
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.
We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and
competitive position.
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.
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.
We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business
and operations.
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.
18
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.
From time to time, we may evaluate and potentially consummate strategic investments or acquisitions, which could require
significant management attention, disrupt our business and adversely affect our financial results.
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;
● 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 the acquired business before the acquisition, including intellectual property infringement
claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities;
● potential disruptions to our ongoing businesses; and
● unexpected costs and unknown risks and liabilities associated with strategic investments or acquisitions.
19
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, our business may be severely disrupted.
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.
Competition for employees is intense, and we may not be able to attract and retain the qualified and skilled employees needed to
support our business.
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.
A lack of insurance could expose us to significant costs and business disruption.
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.
We have identified material weakness in our internal control over financial reporting. 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 prevent fraud.
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, 2023 and 2022, our management identified material weakness 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 weakness identified is the lack of 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. This material weakness remained as of December 31, 2023. As a result of
inherent limitations, our internal control over financial reporting may not prevent or detect misstatements, errors or omissions.
20
In addition, once we cease to be a “non- accelerated filer” as such term is defined under Rule 12b-2 under the Securities Exchange
Act of 1934 (“Exchange Act”), 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.
Risks Related to Doing Business in China
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.
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.
21
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.
The Chinese government exerts substantial 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, if our holding company
or subsidiaries were required to obtain approval or filing 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 materially affect the interest of the
investors.
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.
22
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.
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.
23
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 Administration Regulations on Network
Data Security (Draft for Comments), or the Draft Measures for Network Data Security 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 Measures for Network Data Security 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.
On February 17, 2023, the CSRC promulgated Trial Administrative Measures of the Overseas Securities Offering and Listing by
Domestic Companies (the “Overseas Listing Trial Measures”) and five relevant guidelines, which became effective on March 31,
2023. According to the Overseas Listing Trial Measures, PRC domestic companies that seek to offer and list securities in overseas
markets, either in direct or indirect means, are required to fulfill the filing procedure with the CSRC and report relevant
information. The Overseas Listing Trial Measures provides that an overseas listing or offering is explicitly prohibited, if any of the
following: (1) such securities offering and listing is explicitly prohibited by provisions in laws, administrative regulations and
relevant state rules; (2) the intended securities offering and listing may endanger national security as reviewed and determined by
competent authorities under the State Council in accordance with law; (3) the domestic company intending to make the securities
offering and listing, or its controlling shareholder(s) and the actual controller, have committed relevant crimes such as corruption,
bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy during the latest
three years; (4) the domestic company intending to make the securities offering and listing is currently under investigations for
suspicion of criminal offenses or major violations of laws and regulations, and no conclusion has yet been made thereof; or (5)
there are material ownership disputes over equity held by the domestic company’s controlling shareholder(s) or by other
shareholder(s) that are controlled by the controlling shareholder(s) and/or actual controller.
The Overseas Listing Trial Measures also provides that if the issuer meets both the following criteria, the overseas securities
offering and listing conducted by such issuer will be deemed as indirect overseas offering by PRC domestic companies: (1) 50% or
more of any of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated
financial statements for the most recent fiscal year is accounted for by domestic companies; and (2) the issuer’s main business
activities are conducted in China, or its main place(s) of business are located in China, or the majority of senior management staff
in charge of its business operations and management are PRC citizens or have their usual place(s) of residence located in China.
Where an issuer submits an application for initial public offering to competent overseas regulators, such issuer must file with the
CSRC within three business days after such application is submitted. In addition, the Overseas Listing Trial Measures provide that
the direct or indirect overseas listings of the assets of domestic companies through one or more acquisitions, share swaps, transfers
or other transaction arrangements shall be subject to filing procedures in accordance with the Overseas Listing Trial Measures. The
Overseas Listing Trial Measures also requires subsequent reports to be filed with the CSRC on material events, such as change of
control or voluntary or forced delisting of the issuer(s) who have completed overseas offerings and listings.
24
At a press conference held for these new regulations (“Press Conference”), officials from the CSRC clarified that the domestic
companies that have already been listed overseas on or before March 31, 2023 shall be deemed as existing issuers (the “Existing
Issuers”). Existing Issuers are not required to complete the filling procedures immediately, and they shall be required to file with
the CSRC upon occurrences of certain subsequent matters such as follow-on offerings of securities. According to the Overseas
Listing Trial Measures and the Press Conference, the existing domestic companies that have completed overseas offering and
listing before March 31, 2023, such as us, shall not be required to perform filing procedures for the completed overseas securities
issuance and listing. However, from the effective date of the regulation, any of our subsequent securities offering in the same
overseas market or subsequent securities offering and listing in other overseas markets shall be subject to the filing requirement
with the CSRC within three working days after the offering is completed or after the relevant application is submitted to the
relevant overseas authorities, respectively. If it is determined that any approval, filing or other administrative procedures from other
PRC governmental authorities is required for any future offering or listing, we cannot assure you that we can obtain the required
approval or accomplish the required filings or other regulatory procedures in a timely manner, or at all. If we fail to fulfill filing
procedure as stipulated by the Trial Measures or offer and list securities in an overseas market in violation of the Trial Measures,
the CSRC may order rectification, issue warnings to us, and impose a fine of between RMB1,000,000 and RMB10,000,000.
Persons-in-charge and other persons that are directly liable for such failure shall be warned and each imposed a fine from
RMB500,000 to RMB5,000,000. Controlling shareholders and actual controlling persons of us that organize or instruct such
violations shall be imposed a fine from RMB1,000,000 and RMB10,000,000.
On February 24, 2023, the CSRC published the Provisions on Strengthening the Confidentiality and Archives Administration
Related to the Overseas Securities Offering and Listing by Domestic Enterprises (the “Provisions on Confidentiality and Archives
Administration”), which came into effect on March 31, 2023. The Provisions on Confidentiality and Archives Administration
requires that, in the process of overseas issuance and listing of securities by domestic entities, the domestic entities, and securities
companies and securities service institutions that provide relevant securities service shall strictly implement the provisions of
relevant laws and regulations and the requirements of these provisions, establish and improve rules on confidentiality and archives
administration. Where the domestic entities provide with or publicly disclose documents, materials or other items related to the
state secrets and government work secrets to the relevant securities companies, securities service institutions, overseas regulatory
authorities, or other entities or individuals, the companies shall apply for approval of competent departments with the authority of
examination and approval in accordance with law and report the matter to the secrecy administrative departments at the same level
for record filing. Where there is unclear or controversial whether or not the concerned materials are related to state secrets, the
materials shall be reported to the relevant secrecy administrative departments for determination. However, there remain
uncertainties regarding the further interpretation and implementation of the Provisions on Confidentiality and Archives
Administration.
We have been closely monitoring the development in the regulatory landscape in China, particularly regarding the requirement of
filings or approvals, including on a retrospective basis, from the CSRC, the CAC or other PRC authorities with respect to this
offering. If any filings, approval, review, or other procedure is in fact required, we are not able to guarantee that we will obtain such
filings, 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 offerings relating to our
securities. Currently, we are not required to seek approval from or make filings to the CSRC, or any other PRC governmental
authorities for our overseas listing plan, nor have we received any inquiry, notice, warning or sanctions regarding our planned
overseas listing from the CSRC or any other PRC governmental authorities as of the date of this annual report. See also “- The
filing, approval or other administration requirements of the CSRC or other PRC government authorities may be required in
connection with our future offshore offering under PRC law, and, if required, we cannot predict whether or for how long we will be
able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, as applicable.”
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.
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.
25
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.
You may have difficulty enforcing judgments obtained against us.
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.
26
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.
The filing, approval or other administration requirements of the CSRC or other PRC government authorities may be required
in connection with our future offshore offering under PRC law, and, if required, we cannot predict whether or for how long we
will be able to complete the filing procedure with the CSRC and obtain such approval or complete such filing, as applicable.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors (the “M&A Rules”), adopted by six
PRC regulatory agencies in 2006 and amended in 2009, include, among other things, provisions that purport to require that an
offshore special purpose vehicle, formed for the purpose of an overseas listing of securities through acquisitions of domestic
enterprises in China or assets and controlled by enterprises or individuals in China, to obtain the approval of the CSRC prior to the
listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, pursuant to
the M&A Rules and other PRC laws, the CSRC published on its official website relevant guidance regarding its approval of the
listing and trading of special purpose vehicles’ securities on overseas stock exchanges, including a list of application materials.
However, substantial uncertainty remains regarding the scope and applicability of the M&A Rules to offshore special purpose
vehicles.
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.
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On July 6, 2021, the relevant PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities
in accordance with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities
and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the
construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies.
These opinions and any related implementation rules to be enacted may subject us to additional compliance requirement in the
future. 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. We cannot assure that we will remain fully compliant with all new regulatory
requirements of these opinions or any future implementation rules on a timely basis, or at all.
Pursuant to Cybersecurity Review Measures which were issued on December 28, 2021 and became effective on February 15, 2022,
network platform operators holding over one million users’ personal information must apply with the Cybersecurity Review Office
for a cybersecurity review before any public offering at a foreign stock exchange. However, given the Cybersecurity Review
Measures were relatively new, there are substantial uncertainties as to the interpretation, application and enforcement of the
Cybersecurity Review Measures. It remains uncertain whether we should apply for cybersecurity review prior to any offshore
offering and that we would be able to complete the applicable cybersecurity review procedures in a timely manner, or at all, if we
are required to do so. In addition, on November 14, 2021, the Cyberspace Administration of China (the “CAC”) published the
Administration Regulations on Network Data Security (Draft for Comments), or the Draft Measures for Network Data Security,
which provides that data processors conducting the following activities shall apply for cybersecurity review: (i) merger,
reorganization or separation of Internet platform operators that have acquired a large number of data resources related to national
security, economic development or public interests affects or may affect national security; (ii) overseas listing of data processors
processing over one million users’ personal information; (iii) listing in Hong Kong which affects or may affect national security;
(iv) other data processing activities that affect or may affect national security. In addition, the Draft Measures for Network Data
Security also require Internet platform operators to establish platform rules, privacy policies and algorithm strategies related to
data, and solicit public comments on their official websites and personal information protection related sections for no less than 30
working days when they formulate platform rules or privacy policies or makes any amendments that may have significant impacts
on users’ rights and interests. The CAC solicited comments on this draft, but there is no timetable as to when it will be enacted.
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 Measures
for Network Data Security 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 Draft Measures for Network Data Security.
On February 17, 2023, the CSRC promulgated Trial Administrative Measures of the Overseas Securities Offering and Listing by
Domestic Companies (the “Overseas Listing Trial Measures”) and five relevant guidelines, which became effective on March 31,
2023. According to the Overseas Listing Trial Measures, PRC domestic companies that seek to offer and list securities in overseas
markets, either in direct or indirect means, are required to fulfill the filing procedure with the CSRC and report relevant
information. The Overseas Listing Trial Measures provides that an overseas listing or offering is explicitly prohibited, if any of the
following: (1) such securities offering and listing is explicitly prohibited by provisions in laws, administrative regulations and
relevant state rules; (2) the intended securities offering and listing may endanger national security as reviewed and determined by
competent authorities under the State Council in accordance with law; (3) the domestic company intending to make the securities
offering and listing, or its controlling shareholder(s) and the actual controller, have committed relevant crimes such as corruption,
bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy during the latest
three years; (4) the domestic company intending to make the securities offering and listing is currently under investigations for
suspicion of criminal offenses or major violations of laws and regulations, and no conclusion has yet been made thereof; or (5)
there are material ownership disputes over equity held by the domestic company’s controlling shareholder(s) or by other
shareholder(s) that are controlled by the controlling shareholder(s) and/or actual controller.
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The Overseas Listing Trial Measures also provides that if the issuer meets both the following criteria, the overseas securities
offering and listing conducted by such issuer will be deemed as indirect overseas offering by PRC domestic companies: (1) 50% or
more of any of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated
financial statements for the most recent fiscal year is accounted for by domestic companies; and (2) the issuer’s main business
activities are conducted in China, or its main place(s) of business are located in China, or the majority of senior management staff
in charge of its business operations and management are PRC citizens or have their usual place(s) of residence located in China.
Where an issuer submits an application for initial public offering to competent overseas regulators, such issuer must file with the
CSRC within three business days after such application is submitted. In addition, the Overseas Listing Trial Measures provide that
the direct or indirect overseas listings of the assets of domestic companies through one or more acquisitions, share swaps, transfers
or other transaction arrangements shall be subject to filing procedures in accordance with the Overseas Listing Trial Measures. The
Overseas Listing Trial Measures also requires subsequent reports to be filed with the CSRC on material events, such as change of
control or voluntary or forced delisting of the issuer(s) who have completed overseas offerings and listings.
At a press conference held for these new regulations (“Press Conference”), officials from the CSRC clarified that the domestic
companies that have already been listed overseas on or before March 31, 2023 shall be deemed as existing issuers (the “Existing
Issuers”). Existing Issuers are not required to complete the filling procedures immediately, and they shall be required to file with
the CSRC upon occurrences of certain subsequent matters such as follow-on offerings of securities. According to the Overseas
Listing Trial Measures and the Press Conference, the existing domestic companies that have completed overseas offering and
listing before March 31, 2023, such as us, shall not be required to perform filing procedures for the completed overseas securities
issuance and listing. However, from the effective date of the regulation, any of our subsequent securities offering in the same
overseas market or subsequent securities offering and listing in other overseas markets shall be subject to the filing requirement
with the CSRC within three working days after the offering is completed or after the relevant application is submitted to the
relevant overseas authorities, respectively. If it is determined that any approval, filing or other administrative procedures from other
PRC governmental authorities is required for any future offering or listing, we cannot assure you that we can obtain the required
approval or accomplish the required filings or other regulatory procedures in a timely manner, or at all. If we fail to fulfill filing
procedure as stipulated by the Trial Measures or offer and list securities in an overseas market in violation of the Trial Measures,
the CSRC may order rectification, issue warnings to us, and impose a fine of between RMB1,000,000 and RMB10,000,000.
Persons-in-charge and other persons that are directly liable for such failure shall be warned and each imposed a fine from
RMB500,000 to RMB5,000,000. Controlling shareholders and actual controlling persons of us that organize or instruct such
violations shall be imposed a fine from RMB1,000,000 and RMB10,000,000.
On February 24, 2023, the CSRC published the Provisions on Strengthening the Confidentiality and Archives Administration
Related to the Overseas Securities Offering and Listing by Domestic Enterprises (the “Provisions on Confidentiality and Archives
Administration”), which came into effect on March 31, 2023. The Provisions on Confidentiality and Archives Administration
requires that, in the process of overseas issuance and listing of securities by domestic entities, the domestic entities, and securities
companies and securities service institutions that provide relevant securities service shall strictly implement the provisions of
relevant laws and regulations and the requirements of these provisions, establish and improve rules on confidentiality and archives
administration. Where the domestic entities provide with or publicly disclose documents, materials or other items related to the
state secrets and government work secrets to the relevant securities companies, securities service institutions, overseas regulatory
authorities, or other entities or individuals, the companies shall apply for approval of competent departments with the authority of
examination and approval in accordance with law and report the matter to the secrecy administrative departments at the same level
for record filing. Where there is unclear or controversial whether or not the concerned materials are related to state secrets, the
materials shall be reported to the relevant secrecy administrative departments for determination. However, there remain
uncertainties regarding the further interpretation and implementation of the Provisions on Confidentiality and Archives
Administration.
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As of the date of this annual report, we and our PRC subsidiaries have obtain the requisite licenses and permits from the PRC
government authorities that are material for the business operations of our PRC subsidiaries. In addition, as of the date of this
annual report, we and our PRC subsidiaries are not required to obtain, nor have we or our PRC subsidiaries received any inquiry,
notice, warning, or sanctions regarding obtaining approval or permission from the CSRC or the CAC or any other entity that is
required to approve our PRC subsidiaries’ operations or required for us to offer securities to foreign investors under any currently
effective PRC laws, regulations, and regulatory rules. If it is determined that we are subject to filing requirements imposed by the
CSRC under the Overseas Listing Regulations or approvals from other PRC regulatory authorities or other procedures, including
the cybersecurity review under the revised Cybersecurity Review Measures, for our future offshore offerings, it would be uncertain
whether we can or how long it will take us to complete such procedures or obtain such approval and any such approval could be
rescinded. Any failure to obtain or delay in completing such procedures or obtaining such approval for our offshore offerings, or a
rescission of any such approval if obtained by us, would subject us to sanctions by the CSRC or other PRC regulatory authorities
for failure to file with the CSRC or failure to seek approval from other government authorization for our offshore offerings. These
regulatory authorities may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of
China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from our offshore offerings into
China or take other actions that could materially and adversely affect our business, financial condition, results of operations, and
prospects, as well as the trading price of our Class A ordinary shares. The CSRC or other PRC regulatory authorities also may take
actions requiring us, or making it advisable for us, to halt our offshore offerings before settlement and delivery of the securities
offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior to settlement and
delivery, they do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory authorities
later promulgate new rules or explanations requiring that we obtain their approvals or accomplish the required filing or other
regulatory procedures for our prior offshore offerings, we may be unable to obtain a waiver of such approval requirements, if and
when procedures are established to obtain such a waiver. Any uncertainties or negative publicity regarding such approval
requirement could materially and adversely affect our business, prospects, financial condition, reputation, and the trading price of
our Class A ordinary shares.
The PRC laws and regulations governing the Company’s business operations are sometimes vague and uncertain. Any changes
in such PRC laws and regulations as well as in the PRC economic, political, and social conditions may have a material and
adverse effect on the PRC economy, and in turn the Company’s business.
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.
Uncertainties with respect to the PRC legal system could adversely affect us.
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.
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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.
Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall
economic growth of China, which could reduce the demand for our services and materially and adversely affect our competitive
position.
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.
A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and
financial condition.
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.
General economic, political and social conditions affect the United States, Europe and other global markets and our business. In
particular, U.S., European and other global markets, as well as our access to financing, may be affected by factors, including
economic growth or its sustainability, persistent inflation, supply chain disruptions, employment levels, work stoppages, labor
shortages and labor disputes, labor costs, wage stagnation, energy prices, oil, gas and fuel prices, fluctuations or other significant
changes in both debt and equity capital markets and currencies, liquidity of the global financial markets, the growth of global trade
and commerce, trade policies, the availability and cost of capital and credit (including as a result of increased interest rates) and
investor sentiment and confidence. Additionally, global markets may be adversely affected by the current or anticipated impact of
cyber incidents or campaigns, military conflict, including the Russia-Ukraine conflict as well as the Hamas-Israel conflict and
rising tensions between China and Taiwan and the relationship between China and the United States, or other geopolitical
uncertainty and instability. The ongoing spread of variants of infectious diseases, such as the COVID-19 virus, may interrupt, or
delay, our clinical trial activities, regulatory reviews, manufacturing activities and supply chain. The COVID-19 outbreak delayed
enrollment in our clinical trials due to prioritization of hospital resources towards the outbreak or other factors, and some patients
may be unwilling to enroll in our trials or be unable to comply with clinical trial protocols if quarantines impede patient movement
or interrupt healthcare services, which would delay our ability to conduct clinical trials or release clinical trial results and could
delay our ability to obtain regulatory approvals and commercialize our product candidates. Any sudden or prolonged market
downturn in the United States or elsewhere could adversely affect our business, results of operations and financial condition,
including capital and liquidity levels.
In addition, continued turbulence in the international markets may adversely affect our ability to access capital markets to meet
liquidity needs.
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Labor laws in the PRC may adversely affect our business and results of operations.
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.
Under the Enterprise Income Tax Law, we may be classified as a “Resident Enterprise” of China. Such classification will likely
result in unfavorable tax consequences to us and our non-PRC stockholders.
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’ ability to increase their registered capital or distribute profits.
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.
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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 the trading rules of the trading exchanges could adversely affect our revenue and profitability.
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.
We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law.
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 the
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 and executive officers.
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.
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Regulatory bodies of the United States may be limited in their ability to conduct investigations or inspections of our operations
in China.
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 our operation of online trading platform
and education programs could be harmed if we are deemed to have violated applicable laws and regulations.
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.
Dividends payable to our foreign investors and gains on the sale of our Class A ordinary shares by our foreign investors may
become subject to PRC tax law.
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.
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Restrictions on currency exchange may limit PRC investors’ ability to make investment.
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.
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 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.
35
On June 22, 2021, the U.S. Senate passed a bill which, if passed by the U.S. House of Representatives, and on December 29, 2022,
legislation entitled “Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law by
President Biden, which contained, among other things, an identical provision to the Accelerating Holding Foreign Companies
Accountable Act and amended the HFCA Act by requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock
exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time
period for triggering the prohibition on trading.
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.
On August 26, 2022, the CSRC, the Ministry of Finance of the PRC (the “MOF”), and the PCAOB signed a Statement of Protocol
(the “Protocol”), governing inspections and investigations of audit firms based in mainland China and Hong Kong, taking the first
step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland
China and Hong Kong. Pursuant to the fact sheet with respect to the Protocol disclosed by the U.S. Securities and Exchange
Commission (the “SEC”), the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation
and has the unfettered ability to transfer information to the SEC. On December 15, 2022, the PCAOB Board determined that the
PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in
mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, should PRC authorities
obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB Board will consider the need to issue a new
determination.
Each of 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, KCCW Accountancy Corp., the independent registered public account
firm that issued the audit report for the fiscal year ended December 31, 2022 included elsewhere in this annual report, and GGF
CPA LTD, the independent registered public account firm that issued the audit report for the fiscal year ended December 31, 2023
included elsewhere in this annual report, as an auditors of companies that are traded publicly in the United States and firms
registered with the PCAOB, are 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. TPS Thayer LLC is headquartered in Sugar Land,
Texas, and is subject to inspection by the PCAOB on a regular basis. KCCW Accountancy Corp. is headquartered in Los Angeles,
California, and is subject to inspection by the PCAOB on a regular basis. GGF CPA LTD is headquartered in Guangzhou, China.
While GGF CPA LTD is based in the PRC, it is registered with PCAOB and subject to PCAOB inspection. In the event it is later
determined that the PCAOB is unable to inspect or investigate completely the GGF CPA LTD because of a position taken by an
authority in a foreign jurisdiction, then such lack of inspection could cause trading of our securities to be prohibited under the
HFCAA, and ultimately result in a determination by a securities exchange to delist the Company’s securities. None of TPS Thayer
LLC, KCCW Accountancy Corp. or GGF CPA LTD is 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. 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.
36
Uncertainties in the interpretation and enforcement of Chinese laws and regulations could limit the legal protections available
to us.
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 Party of China and the General
Office of the State Council may subject us to additional compliance requirement in the future.
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.
37
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.
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 annual 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 12.52% 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 former
CEO, holds approximately 38.12% 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, thereby depriving shareholders of
the ability to protect their interests.
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 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.
Under the laws 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.
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.
38
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.
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
different times, which may make it more difficult for you to evaluate our performance.
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.
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.
39
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 do not intend to pay dividends for the foreseeable future.
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’s attention.
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.
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.
40
The obligation to disclose information publicly may put us at a disadvantage to competitors that are private companies.
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.
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.
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 negative impact on the market price of our
Class A ordinary shares.
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.
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ITEM 4. INFORMATION ON THE COMPANY
4.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 laws 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 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 laws 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 laws 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 laws 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 laws 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.
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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.
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. On November 24, 2022, Nanjing Lucun established a branch in Beijing.
On July 30, 2021, AGM Defi Tech Limited (“AGM Defi Tech”) was incorporated under the laws 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 August 8, 2021, AGM Defi Lab Pte Limited (“AGM Defi Lab”) was incorporated under the laws 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 October 21, 2021, Beijing Keen Sense Technology Service Co., Ltd. (“Beijing Keen Sense”) was incorporated 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 January 26, 2024, AGM Electronic Technology Limited (“AGM Electronic”) was incorporated under the laws of Hong Kong.
AGM Electronic is a wholly owned subsidiary of AGM Holdings.
On April 17, 2024, AGM Canada Holdings Limited (“AGM Canada”) was incorporated under the laws of British Columbia,
Canada. AGM Canada is a wholly-owned subsidiary of AGM Holdings.
On April 26, 2024, Beijing Bixin Electronic Technology Co., Ltd (“Beijing Bixin”) was incorporated under the laws of the People’s
Republic of China. Beijing Bixin is a wholly-owned subsidiary of AGM Electronic.
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.
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.
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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.
During the fiscal years ended December 31, 2023, 2022 and 2021, our PRC subsidiaries have not made any transfers or
distributions. During the fiscal years ended December 31, 2023, 2022 and 2021, 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, During the fiscal
years ended December 31, 2023, 2022 and 2021, 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 do not
have any cash management policies that dictate the amount of such funds and how such funds are transferred.
Corporate Information
Our principal executive office is at c/o Creative Consultants (Hong Kong) Limited, Room 1502-3 15/F., Connaught Commercial
Building, 185 Wanchai Road, Wanchai, Hong Kong. The telephone number of our principal executive offices is +86-010-
65020507. Our registered office and our registered agent’s office in the British Virgin Islands are both at OMC Chambers,
Wickhams Cay 1, Road Town, Tortola, British Virgin Islands. Our registered agent in the United States is Vcorp Agent Services,
Inc. We maintain a website at www.agmprime.com. We do not incorporate the information on our website into this annual report
and you should not consider any information on, or that can be accessed through, our website as part of this annual report.
4.B. Business Overview
We are a technology company. Our products and services include: 1) technology hardware research and development, manufacture,
and sales; 2) a futures trading solution catering to clients using MetaTrader 5; and 3) a foreign exchange (“Forex”) trading system
that provides services to financial institutions outside of China. Our mission is to become one of the key participants and
contributors in the global technology hardware supply chain and fintech blockchain ecosystem.
Technology hardware research and development, manufacture, and sales
In the 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.
Futures trading system
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.
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Forex trading system
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 PRC
region. This service is currently managed through AGM Defi Tech.
Recent Development
Change of Board of Directors and Management
On April 30, 2021, Tingfu Xie tendered his resignation as director, the Chair 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 Chair 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.
On October 7, 2023, Wenjie Tang tendered his resignation as a director and the Co-CEO of the Company, effective October 7,
2023. Mr. Tang remains as an advisor on an as-needed basis. Bo Zhu, the Chief Strategy Officer of the Company, was appointed as
the succeeding director and the Co-CEO of the Company, effective October 7, 2023 until the Company’s next annual meeting of
shareholders and until his successor is duly elected and qualified, or until his earlier death, resignation or removal.
On October 9, 2023, Jing Shi tendered her resignation as a director, the Chair of the Nominating Committee, and a member of the
Audit Committee and the Compensation Committee of the Company, effective October 9, 2023.
Jiaqi Zhu was appointed as the succeeding director, the Chair of the Nominating Committee and a member of the Audit Committee
and the Compensation Committee of the Company, effective October 9, 2023 until the Company’s next annual meeting of
shareholders and until his successor is duly elected and qualified, or until is earlier death, resignation or removal.
On October 31, 2023, Mr. Chenjun Li tendered his resignation as the Chairman of the Board, a director and the Co-CEO of the
Company, effective October 31, 2023.
On December 13, 2023, Steven Yuan Ning Sim tendered his resignation as the Chief Financial Officer of the Company, effective
December 13, 2023.
Registered Direct Offering and Concurrent Private Placement
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.
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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.
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.
Change of Independent Registered Public Accounting Firm
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.
On July 3, 2023, the Company notified its independent registered public accounting firm, TPS Thayer LLC its decision to dismiss
TPS Thayer LLC as the Company’s auditor. The Audit Committee and the Board of Directors of the Company ratified the
appointment of KCCW Accountancy Corp. as its new independent registered public accounting firm to audit the Company’s
financial statements.
On March 13, 2024, KCCW Accountancy Corp. notified the Company its decision to resign as the Company’s auditor. The Audit
Committee and the Board of Directors of the Company ratified the appointment of HTL International, LLC as its new independent
registered public accounting firm to audit the Company’s financial statements.
On May 10, 2024, HTL International, LLC notified the Company its decision to resign as the Company’s auditor. The Audit
Committee and the Board of Directors of the Company ratified the appointment of GGF CPA LTD as its new independent
registered public accounting firm to audit the Company’s financial statements.
46
Sales Channels and Long-Term Opportunities
For fintech software, currently we are marketing our services through direct communication with potential broker or institutional
clients. For the ASIC business, senior sales personnel contact customers directly to promote and introduce product attributes,
functions, operation and maintenance. 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
For the fiscal year ended December 31, 2023, five customers accounted for 39%, 15%, 14%, 10% and 10% of the Company’s total
revenue. For the fiscal years ended December 31, 2022, five customers accounted for 20%, 19%, 14%, 13% and 12% of the
Company’s revenues, respectively. For the fiscal years ended December 31, 2021, two customers accounted for 70% and 30% of
the Company’s revenues, respectively.
Suppliers
For the fiscal year ended December 31, 2023, four suppliers accounted for 25%, 21%, 20% and 18% of the Company’s total cost of
revenues. For the fiscal years ended December 31, 2022, two suppliers accounted for 75% and 11% of the Company’s total cost of
revenues. For the fiscal years ended December 31, 2021, two suppliers accounted for 72% and 12% of the Company’s cost of
revenues, respectively.
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.
On May 17, 2023, the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC
(“Nasdaq”) indicating that, because the Company had not yet filed its Annual Report on Form 20-F for the fiscal year ended
December 31, 2022 (the “2022 Annual Report”), the Company did not comply with Nasdaq Listing Rule 5250(c)(1) for continued
listing.
Pursuant to the Nasdaq Listing Rules, the Company had 60 calendar days from the date of the Notice to submit a plan of
compliance to Nasdaq. The Company timely submitted a plan of compliance to Nasdaq and on July 17, 2023, the Company
received a letter from Nasdaq notifying it that Nasdaq granted the Company an exception to enable it to regain compliance with the
Rule (the “Exception”). Pursuant to the Exception, the Company must file its 2022 Annual Report for the period ended December
31, 2022 on or before November 13, 2023. On November 13, 2023, the Company filed its 2022 Annual Report and therefore
regained compliance with the Nasdaq Listing Rule.
On May 20, 2024, the Company received a letter from the Listing Qualifications Department of Nasdaq indicating that, because the
Company had not yet filed its Annual Report on Form 20-F for the fiscal year ended December 31, 2023 (the “2023 Annual
Report”), the Company did not comply with Nasdaq Listing Rule 5250(c)(1) for continued listing.
Pursuant to the Nasdaq Listing Rules, the Company had 60 calendar days from the date of the Notice to submit a plan of
compliance to Nasdaq. On June 18, 2024, the Company filed this 2023 Annual Report.
Regulations
Regulation of Internet Information Services
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.
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.
47
Regulation of Internet Content
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.
Regulation of Internet Security
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.
Regulation Relating to Privacy Protection
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.
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.
48
Regulations on Intellectual Property Rights
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.
Regulations on Dividend Distributions
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.
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.
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Regulations on Tax
PRC Enterprise Income Tax
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
consequences to us and our non-PRC stockholders.”
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.
50
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 establishment of a non-PRC
company.”
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.
PRC Value-added Tax
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.
SAFE Circular 37
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.
51
Share Option Rules
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.
Employment Laws
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.
4.C. Organizational structure.
The following is a list of our subsidiaries as of the date of this annual report.
Subsidiaries
AGM Technology Limited (“AGM HK”)
AGM Tianjin Construction Development
Co., Ltd. (“AGM Tianjin”)
Jurisdiction of
Incorporation/Formation
Hong Kong SAR
People’s Republic of China
Date of Incorporation/
Formation
May 21, 2015
October 13, 2015
Beijing AnGaoMeng Technology Service
People’s Republic of China
November 13, 2015
Co., Ltd. (“AGM Beijing”)
AGM Software Service LTD (“AGM
Software”)
British Virgin Islands
Nanjing Lucun Semiconductor Co., Ltd.
People’s Republic of China
(“Nanjing Lucun”)
AGM Defi Tech Limited (“AGM Defi
Hong Kong SAR
Tech”)
AGM Defi Lab Pte Limited (“AGM Defi
Singapore
Lab”)
June 14, 2017
June 17, 2021
July 30, 2021
August 8, 2021
Beijing Keen Sense Technology Service
People’s Republic of China
October 21, 2021
Co., Ltd. (“Beijing Keen Sense”)
Nanjing Lucun Semiconductor Co., Ltd.
People’s Republic of China
November 24, 2022
Beijing Branch (“Nanjing Lucun
Beijing Branch”)
AGM Electronic Technology Limited
(“AGM Electronic”)
Hong Kong SAR
January 26, 2024
AGM Canada Holdings Limited (“AGM
British Columbia, Canada
Canada”)
Beijing Bixin Electronic Technology Co.,
People’s Republic of China
Ltd (“Beijing Bixin”)
April 17, 2024
April 26, 2024
52
Below is a chart illustrating our corporate structure:
4.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, 2023, we owned three domain names. We also had
two registered trademarks in China as of December 31, 2022 but we have retired and cancelled the registration in July 2023.
53
Property and Equipment
As of December 31, 2023 and 2022, 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,
2023
December 31,
2022
$
$
542,755 $
13,547
502,396
1,058,698
(679,020)
379,678 $
541,931
13,777
510,915
1,066,623
(377,262)
689,361
Depreciation and amortization expenses for the years ended December 31, 2023, 2022 and 2021 were $309,623, $198,797 and
$36,883, respectively. For the years ended December 31, 2023, 2022 and 2021, the Company recognized loss of $7,450, nil and nil
on disposed of property and equipment in the consolidated statements of operations, respectively. There was no impairment
recorded for these property and equipment for the years ended December 31, 2023, 2022 and 2021.
Lease commitments
We lease offices and residential properties for employee’s dormitories rent expenses for the years ended December 31, 2023, 2022
and 2021 were $126,037, $114,488 and $51,239, respectively. The Company has future minimum lease obligations as of
December 31, 2023 as follows:
Year of 2024
Year of 2025
Year of 2026
Thereafter
Less: lease commitments on terminations
Total
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
54
Commitment
Amount
79,596
48,372
8,062
-
-
136,030
$
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our
audited consolidated financial statements and the related notes included elsewhere in this annual report. This discussion contains
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
“Risk Factors” and elsewhere in this annual report.
Overview
We aim to become an integrated technology company with blockchain oriented ASIC chip design, advanced encryption mining
machine production, and financial technology software services. In 2021, we have launched the first internal brand ASIC
encryption mining machine - KOI Miner C16 (“C16”), with technical parameters higher than the industry average level.
We derive revenue from the sales of cryptocurrency mining machine and standardized computing equipment. Revenue is
recognized when the promised goods are transferred to customers, in an amount that reflects the consideration allocated to the
respective performance obligation. 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.
Costs and Expenses
We primarily incur the following costs and expenses:
Costs of revenues. Cost of revenues primarily consist of cost of product revenue, which includes direct costs of cryptocurrency
mining machines, standardized computing equipment.
Selling, general and administrative expenses. Selling, general and administrative expenses consist primarily of bad debt expense,
compensation expense for our corporate staff and personnel supporting our corporate staff, marketing costs, office supplies,
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.
Research and development expenses. Research and development costs are expensed as incurred. The costs primarily consist of the
wage expenses incurred to continuously improve and upgrade our services.
5.A. Operating Results.
Revenues
Cost of Revenues
Gross profit
Operating expenses
Selling, general & administrative expenses
Research and development expenses
Total operating expenses
(Loss)/Income from operations
Other income/(expenses)
Other income
Other expenses
Total other (expenses)/income
(Loss)/Income before provision of income taxes
Provision for income taxes benefit/(expenses)
For The Year Ended December 31,
2021
2022
2023
$ 92,907,172 $ 242,395,556 $ 36,709,931
(88,278,140) (195,807,066) (30,112,363)
6,597,568
46,588,490
4,629,032
13,870,634
-
13,870,634
-
(9,241,602)
30,395,048
-
30,395,048
-
16,193,442
1,607,393
36,317
1,643,710
-
4,953,858
106,202
(487,919)
(381,717)
-
(9,623,319)
2,184,039
118,265
(491,299)
(373,034)
-
15,820,408
(4,344,769)
47,167
(43,171)
3,996
-
4,957,854
(1,406,159)
Net (loss)/income
$ (7,439,280) $ 11,475,639 $ 3,551,695
55
Revenues
Our total revenues decreased by $149.5 million or 62%, from $242.4 million in fiscal 2022 to $92.9 million in fiscal 2023. All of
our total revenues for both fiscal 2023 and fiscal 2022 generated from third parties and no revenues incurred from related party.
The decrease of total revenues was primarily due to a decrease of sales volume of cryptocurrency mining machine and standardized
computing equipment which resulted from overall softening in market demand, as well as the lower selling price which resulted
from the declining bitcoin price.
Our total revenues increased by $205.7 million or 560%, from $36.7 million in fiscal 2021 to $242.4 million in fiscal 2022. All of
our total revenues for both fiscal 2022 and fiscal 2021 generated from third parties and no revenues incurred from related party.
The substantial increase in sales revenue was primarily attributed to the growth in new customers and existing customers’ sales
volume. As price-rising market trends of major cryptocurrencies like Bitcoin led to higher mining profits, customers are further
motivated to invest in ASIC crypto mining machines. The booming cryptocurrency market has attracted more people to ASIC
crypto mining machines, bringing in numerous new customers for us. Furthermore, the steady rise in sales volume among existing
customers demonstrated a stable customer base and their trust in us.
Cost of Revenues and Gross Margin
Cost of revenues decreased by $107.5 million or 55%, from $195.8 million in fiscal 2022 to $88.3 million for the fiscal 2023. The
decrease was primarily due to the decrease in procurement costs of cryptocurrency mining machines and standardized computing
equipment for fiscal 2023, which was in line with the decrease of revenue. Gross margin for fiscal 2023 was 5%, as compared to
19% for fiscal 2022. As the declining bitcoin price leads to the lower selling price of cryptocurrency mining machine while the
procurement cost was relatively stable, the gross margin decreased sharply in 2023 compared with the same period of 2022.
Cost of revenues increased by $165.7 million or 550%, from $30.1 million in fiscal 2021 to $195.8 million for the fiscal 2022. The
increase was primarily due to the increase in procurement costs of cryptocurrency mining machines and standardized computing
equipment for fiscal 2022, which was in line with the increase of revenue. Gross margin for fiscal 2022 was 19%, as compared to
18% for fiscal 2021. The gross margin of sales cryptocurrency mining machine and standardized computing equipment was
relatively stable.
Selling, General and Administrative expenses
Selling, general and administrative expenses consist primarily of credit losses, sales and administrative employee-related expenses,
professional fees, travel costs and other corporate expenses. Selling, general and administrative expenses were $13.9 million for the
fiscal 2023, a decrease of $16.5 million, compared with the fiscal 2022. The significant decrease was primarily due to (1) the
provision of advances to suppliers of $28.6 million, and partially offset by (2) the reversal of allowance for credit losses, amounted
to $21.9 million, which was recorded in year 2022 but the receivables were collected in 2023.
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
$30.4 million for the year of 2022, an increase of $28.8 million, or 1793% from December 31, 2021 to December 31, 2022. The
increase was primarily due to (1) recorded bad debt expenses of accounts receivable of the year 2022 (2) increased professional
service fees including investor relations management, financial consulting for business operation; and (3) increased salary expenses
due to increased headcount of selling, general and administrative personnel from a weighted average number of 16 to 25.
56
Research and Development Expenses
We incurred nil, nil and $36,317 in research and development in fiscal 2023, 2022 and 2021, respectively. Research and
development expenses decreased by $36,317, or 100%, for fiscal 2022 compared to fiscal 2021. We have not invested in
cryptocurrency mining machine R&D.
(Loss)/Income from operations
As a result of the factors described above, operating loss was $9.2 million for fiscal 2023, compared to operating income of $16.2
million for fiscal 2022, a decrease in operation income of $25.4 million, or 157%. Our operation income in fiscal 2022 was $16.2
million, compared to $5.0 million for fiscal 2021, an increase in operation income of $11.2 million, or 226%.
Other (expenses)/income
For fiscal 2023, other expense, net of other income, were $0.4 million, compared to other expense, net of other income, were $0.4
million for fiscal 2022, a change of $8,683. The decrease of other expenses was primarily attributed to the loss of liquidated
damages in 2022.
For fiscal 2022, other expense, net of other income, were $0.4 million, compared to other income, net of other expense, were
$3,996 for fiscal 2021, a change of $0.4 million. The increase of other expenses was primarily attributable to the foreign currency
translation loss, partially offset by government subsidies received for being in informational development industry.
(Loss)/Income before provision of income taxes
As a result of the foregoing, our loss before provision of income taxes was $9.6 million, or $0.31per share (basic and diluted), for
the year ended December 31, 2023, as compared with income before provision of income taxes of $15.8 million, or $0.47 per share
(basic and diluted), for the year ended December 31, 2022. Our income before provision of income taxes was $5.0 million for fiscal
2021, or $0.17 per share (basic and diluted), for the year ended December 31, 2021.
Income Tax
For fiscal 2023, we had provision for income tax benefit of $ 2.2 million, an increase of $6.5 million, or 150%, as compared to
income tax expenses of $4.3 million for fiscal 2022. Tax benefit was generated from the loss before provision of income taxes.
For fiscal 2022, we had provision for income tax of $4.3 million, an increase of $2.9 million, or 209%, as compared to expense for
income tax of $1.4 million for fiscal 2021. The increase of tax expense is primarily due to the increase in income before provision
of income taxes.
Net (loss)/income
As a result of the factors described above, our net loss for fiscal 2023 was $7.4 million, compared to net income for fiscal 2022 of
$11.5 million, was a decrease in net income of $18.9 million, or 165%. Our net income for fiscal 2022 was $11.5 million,
compared to $3.6 million for fiscal 2021, an increase in net income of $7.9 million, or 223%.
57
Foreign currency translation
The accompanying consolidated financial statements are presented in United States dollar (“$”), 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., and Beijing Keen Sense Technology Service 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, 2023 and 2022, were translated at
RMB7.0827 and RMB6.9646 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 Loss/Income and the Consolidated Statements of
Cash Flows for the years ended December 31, 2023, 2022 and 2021 were RMB RMB7.0467, RMB6.7261 and RMB6.4515 to
$1.00, respectively.
Net gains and losses resulting from foreign exchange translations are included in the comprehensive income/loss 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 loss of $3,571,930 and $6,578,195 for the years ended December 31, 2023 and 2022, respectively, and
a foreign currency translation gain of $169,472 for the year ended December 31, 2021. This non-cash loss had the effect on our
reported comprehensive loss or income.
5.B. Liquidity and Capital Resources.
Liquidity
For the years ended December 31, 2023 and 2022
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, 2023 and 2022, we had working capital of $9.1 million and $22.3
million, including cash and cash equivalents and restricted cash of $1.6 million and $4.1 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, 2022 to December 31, 2023:
Working capital:
Total current assets
Total current liabilities
Working capital
December 31, December 31,
2023
2022
Change
Percentage
Change
$ 87,119,145 $ 116,819,369 $(29,700,224)
77,981,722
94,520,092 (16,538,370)
9,137,423 $ 22,299,277 $(13,161,854)
$
(25)%
(17)%
(59)%
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.
58
Cash Flow Summary
The following table sets forth certain items in our consolidated statements of cash flows for 2023, 2022 and 2021.
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 and restricted cash
Cash and cash equivalents, beginning of the year
Cash and cash equivalents and restricted cash, end of the year
For The Year Ended December 31,
2021
2022
2023
(1,854,458)
(1,691,718) (17,342,268)
(339,657)
(332,308)
(10,708)
7,005,744 19,558,681
1,322,819
(2,092,354)
397,451
(3,684,350)
(2,471,961) (14,353,182) 17,762,017
664,605
4,073,440 18,426,622
4,073,440 18,426,622
1,601,479
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
Operating Activities:
December 31, December 31,
2023
56,031 $
1,310,551
234,897
1,601,479 $
2022
154,311
3,678,925
240,204
4,073,440
$
$
Net cash used in operating activities was $1.7 million for fiscal 2023, primarily due to a net loss of $7.4 million. The adjustments
for changes in assets and liabilities primarily included the reversal for credit losses of $21.9 million, an increase of advances to
suppliers of $88.1 million due to the optimistic outlook on the market and we made advance payment to suppliers to secure the
products, and a decrease of accounts payable of $42.7 million; partially offset by the provision of advances to suppliers of $28.6
million, a decrease of accounts receivable of $107.5 million due to well collection and an increase of advances from customers of
$26.0 million.
Net cash used in operating activities was $17.3 million for fiscal 2022, primarily due to a net income of $11.5 million. The
adjustments for changes in assets and liabilities primarily included an increase of accounts receivable of $119.0 million, and a
decrease of advances from customers of $35.9 million due to the surged increase of revenue; partially offset by an increase of
accounts payable of $50.1 million due to the increased purchase of cryptocurrency mining machines and standardized computing
equipment, the allowance for doubtful accounts of $27.5 million, and a decrease of inventories of $17.2 million as we finished
more sales in 2022.
Net cash used in operating activities was $1.9 million for fiscal 2021, primarily due to a net income of $3.6 million. The
adjustments for changes in assets and liabilities primarily included (i) an increase of advances to suppliers of $40.5 million, (ii) an
increase of inventories of $22.4 million, offset by (iii) a decrease of advances from customers of $42.2 million and (iv) a decrease
of accounts payable of $14.1 million.
59
Investing Activities:
Net cash used in investing activities included $10,708 for purchase of property and equipment in fiscal 2023.
Net cash used in investing activities included $282,308 for purchase of property and equipment and leasehold improvement in
fiscal 2022; and $50,000 for purchase of intangible asset.
Net cash used in investing activities was $339,657 for the leasehold improvement in fiscal 2021.
Financing Activities:
Net cash provided by financing activities was $1.3 million for fiscal 2023. It was mainly attributable to proceeds from related
parties of $4.5 million; partially offset by repayments to related parties of $3.2 million.
Net cash provided by financing activities was $7.0 million for fiscal 2022. It was mainly attributable to proceeds from related
parties of $10.0 million and receipt of financing deposit of $0.5 million; partially offset by repayments to related parties of $2.0
million and repayments of loans and borrowings of $1.5 million.
Net cash provided by financing activities was $19.6 million for fiscal 2021. It was mainly attributable to proceeds from issuance of
Class A ordinary shares of $17.6 million and proceeds from short-term borrowings of $1.6 million.
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.
Regulatory Restrictions on Capital Injections
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.
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.
60
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.
61
Capital Resources
As of December 31, 2023 and 2022
The following table provides certain selected balance sheets comparisons as of December 31, 2023 and December 31, 2022:
Cash and cash equivalents
Restricted cash
Accounts receivable
Inventories
Advances to suppliers, net
Prepayment and other current assets, net
Total current assets
Property and equipment, net
Intangible assets, net
Operating lease right-of-use assets
Deferred tax asset
Total non-current assets
Total assets
Accounts payable
Accrued expenses and other payables
Advance from customers
Due to related parties
Deferred revenue - current
Operating lease liabilities, current
Income tax payable
Total current liabilities
Operating lease liabilities, non-current
Deferred government grant, non-current
Total non-current liabilities
Total liabilities
Cash
$
-
3,915,456
December 31, December 31,
Increase
(Decrease)
2023
2022
1,599,906 $
4,073,440 $ (2,473,534)
1,573
1,573
4,860,571
92,755,701 (87,895,130)
5,502,404
1,586,948
71,303,444
13,139,128 58,164,316
915,603
2,935,644
3,851,247
87,119,145 116,819,369 (29,700,224)
(309,683)
(11,479)
(222,736)
2,561,453
2,017,555
$ 97,547,345 $ 125,230,014 $(27,682,669)
379,678
44,007
270,248
9,734,267
10,428,200
689,361
55,486
492,984
7,172,814
8,410,645
$ 21,812,072 $ 64,500,197 $(42,688,125)
2,874,126
(890,981)
4,572,765 25,558,983
1,339,351
8,087,981
1,081
36,529
(82,840)
162,576
224,161
14,285,918
94,520,092 (16,538,370)
(93,832)
(39,257)
(133,089)
$ 78,114,845 $ 94,786,304 $(16,671,459)
1,983,145
30,131,748
9,427,332
37,610
79,736
14,510,079
77,981,722
73,596
59,527
133,123
167,428
98,784
266,212
%
(61)%
N/A
(95)%
41%
>100%
31%
(25)%
(45)%
(21)%
(45)%
36%
24%
(22)%
(66)%
(31)%
>100%
17%
3%
(51)%
2%
(17)%
>100%
(40)%
(50)%
(18)%
As of December 31, 2023, we have a total of $1.6 million in cash and cash equivalents and restricted cash, among which $0.1
million was held inside China (Mainland), and $1.5 million was held outside of China (Mainland). As of December 31, 2022, we
have a total of $4.1 million in cash and cash equivalents, among which $0.2 million was held inside China (Mainland), and $3.9
million 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.
Prepaid expenses and other current assets, net
As of December 31, 2023, balances of prepayment and other current assets were $3.9 million, an increase of $0.9 million,
compared to $2.9 million as of December 31, 2022. The increase was primarily due to increase of loan receivable, partially offset
by decreased prepaid input VAT, as shown in the following table.
Loan receivable
Prepaid input VAT
Deposits and others
Subtotal
Allowance for credit losses
Total prepayment and other current assets
December 31, December 31,
2023
3,776,608 $
14,318
1,216,089
5,007,015
(1,155,768)
3,851,247 $
$
$
2022
1,605,000
1,106,489
224,155
2,935,644
-
2,935,644
62
Current assets
Current assets as of December 31, 2023 totaled $87.1 million, a decrease of $29.7 million from our December 31, 2022 balance.
The decrease was primarily resulted from a $87.9 million decrease in accounts receivable, partially offset by a $58.2 million
increase in advances to suppliers.
Current liabilities
Current liabilities as of December 31, 2023 totaled $78.0 million, a decrease of $16.5 million from our December 31, 2022 balance.
The decrease was primarily resulted from a $42.7 million decrease in accounts payable, partially offset by a $25.6 million increase
in advances from customers.
Credit Facility
We mainly finance our operations through proceeds borrowed from related parties. As of December 31, 2023, due to related parties
were $9.4 million, an increase of $1.3 million, compared to $8.1 million as of December 31, 2022. Due to related parties as of
December 31, 2023 and 2022 include:
Yufeng Mi
Yang Cao
HongKong Kisen
Total due to related parties
December 31, December 31,
2023
4,571
182,558
9,240,203
9,427,332 $
2022
1,831
86,150
8,000,000
8,087,981
$
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 $4.5 million from related parties and repaid $3.2 million to related parties in the year ended
December 31, 2023. We borrowed $10.0 million from related parties and repaid $2.0 million to related parties in the year ended
December 31, 2022.
5.C. Research and Development, Patent and Licenses, etc.
Please refer to “Item 4. Information on the Company – D. Property, Plant and Equipment – Intellectual Property.”
5.D. Trend Information.
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.
5.E. Critical Accounting Estimates
Critical Accounting Policies
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. 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.
63
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.
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that
were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to
occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a
material impact on our financial condition or results of operations. We consider our critical accounting estimates include (i)
revenue recognition; (ii) allowance for credit losses; (iii) provision of advances to suppliers; (iv) valuation allowances of deferred
tax assets; and (v) uncertainty of tax position.
Revenue Recognition
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 satisfy a performance obligation.
We are a mining machine 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.
We derive revenue from the sale of cryptocurrency mining machine and standardized computing equipment for the years ended
December 31, 2023, 2022 and 2021. 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
loss/income.
Allowance for credit losses
Accounts receivable consists principally of amounts due from trade customers. Credit is extended based on an evaluation of the
customer’s financial condition and collateral is not generally required.
We evaluate the accounts receivable for expected credit losses on a regular basis. We maintain an estimated allowance for credit
losses to reduce its accounts receivable to the amount that it believes will be collected. We use the length of time a balance has
been outstanding, the payment history, creditworthiness and financial conditions of the customers and industry trend as credit
quality indicators to monitor our receivables within the scope of expected credit losses model, along with reasonable and
supportable forecasts as a basis to develop our expected loss estimates. We adjust the allowance percentage periodically when there
are significant differences between estimated credit losses and actual bad debts. If there is strong evidence indicating that the
accounts receivable is likely to be unrecoverable, the Company also makes specific allowance in the period in which a loss is
determined to be probable. Accounts receivable balances are written off after all collection efforts have been exhausted.
64
We reversed credit losses of $21.9 million and recorded bad debt expense of $1.9 million for the year ended December 31, 2023
and recorded $27.5 million and nil bad debt expense for the year ended December 31, 2022 and 2021, respectively.
Provision of advance to suppliers
Advance to suppliers, which is settled when the products are provided and accepted by us. We review its advances to suppliers
periodically and determines the adequacy of provision. A provision will be provided, once the likelihood of future economic
benefits associated with the advances to supplier is remote, to reflect the recoverable amount from the advances to suppliers. For
the years ended December 31, 2023, 2022 and 2021, we recorded provision of advances to suppliers of $28.6 million, nil and nil,
respectively.
Valuation allowance of deferred tax assets
We account 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. We
record 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. For the years ended December 31, 2023, 2022 and
2021, we recorded nil valuation allowance of deferred tax assets.
Uncertainty of tax position
The China EIT Law 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, we 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 our subsidiaries be treated as a resident enterprise for PRC tax purposes, we
will be subject to PRC tax on worldwide income at a uniform tax rate of 25%. For the years ended December 31, 2023, and 2022,
we have evaluated this uncertain tax position and recorded a tax liability on the Consolidated Balance Sheet. As of December 31,
2023 and 2022, income tax payable related to the uncertain tax position were $12.2 million and $11.8 million, respectively.
Recent Accounting Pronouncements
In March 2023, the FASB issued ASU No. 2023-01, “Leases (Topic 842): Common Control Arrangements”, which amends certain
provisions of ASC 842 that apply to arrangements between related parties under common control. In addition, the ASU amends the
accounting for leasehold improvements in common-control arrangements for all entities. ASU 2023-01 is effective for fiscal years
beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted in any annual
or interim period as of the beginning of the related fiscal year. The Company will adopt ASU 2023-01 from January 1, 2024. The
Company expects the impact of adoption of this ASU to be immaterial to its financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvement to Income Tax Disclosure. This standard requires more
transparency about income tax information through improvements to income tax disclosures primarily related to the rate
reconciliation and income taxes paid information. This standard also includes certain other amendments to improve the
effectiveness of income tax disclosures. ASU 2023-09 is effective for public business entities, for annual periods beginning after
December 15, 2024. For entities other than public business entities, the amendments are effective for annual periods beginning
after December 15, 2025. The Company is in the process of evaluation the impact of adopting this new guidance on its
consolidated financial statement.
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.
65
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6.A. Directors and Management
The following table provides information regarding our executive officers and directors as of the date hereof:
Name
Bo Zhu
Yufeng Mi
Jialin Liu
Jiaqi Zhu
Fangjie Wang
Yafang Wang
Age
38
48
66
44
34
47
Position(s)
Chief Executive Officer, Chief Strategy Officer and Director
Chief Technology Officer
Independent Director and Chair of Compensation Committee.
Independent Director and Chair of Nominating Committee
Independent Director and the Chair of the Audit Committee
Secretary of the Board
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.
Bo Zhu. Dr. Zhu has served as the Chief Strategy Officer since May 2021 and as the Chief Executive Officer and a director since
October 2023. Dr. 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. Dr. Zhu is the sole director of HongKong Kisen Co., Limited since November 2019, which is engaged in import and
export trades of electronic components based on communication chips and IoT sensor modules. Dr. Zhu was an assistant researcher
at Zhejiang University from 2013 to 2017. Dr. Zhu is also accomplished in academia. He has partaken in multiple research
programs where he focuses on data analysis, intelligent and large data visualization, parallel computing and numerical simulation,
He has published over 20 research papers, 19 of which are indexed in SCI/EI (science and engineering). Dr. Zhu received his PhD
in Computer Science and Technology from Zhejiang University in 2013.
Yufeng Mi. Mr. Mi has served as Chief Technology Officer since January 2016. Before co-founding our subsidiary AGM Beijing,
he co-founded Beijing Miteke Technology Co. Ltd. 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.
Jialin Liu. Mr. Liu has served as our Independent Director and Chair 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.
Jiaqi Zhu. Mr. Zhu has served as our Independent Director and Chair of Nominating Committee since October 2023. Mr. Zhu has
been working in the finance and fintech industry since 2015. Mr. Zhu previously worked as a data scientist at Cubist, Point72. He is
an expert in quantitative trading using machine learning algorithms, and is very familiar with the trend and development of creative
crypto and web3 projects. He earned his Ph.D. degree in Electrical Engineering from Nanyang Technological University, and
Master’s degree in Quantitative Finance from National University of Singapore.
66
Fangjie Wang. Ms. Wang has served as our Independent Director and Chair of Audi Committee since January 2019. 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.
Yafang Wang. Ms. Wang has served as our Secretary of the Board since May 2018. 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 each of Bo Zhu, Yufeng Mi, Jialin Liu, Jiaqi Zhu, Fangjie Wang and Yafang Wang and
any other employee or member of the board of directors of the Company.
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.
Board Diversity
The Board of Directors does not have a formal policy with respect to Board nominee diversity. In recommending proposed
nominees to the Board of Directors, the Nominating Committee is charged with building and maintaining a board that has an ideal
mix of talent and experience to achieve our business objectives in the current environment. In particular, the Nominating
Committee is focused on relevant subject matter expertise, depth of knowledge in key areas that are important to us, and diversity
of thought, background, perspective and experience so as to facilitate robust debate and broad thinking on strategies and tactics
pursued by us.
The following table provides certain information regarding the diversity of our Board of Directors as of the date of this annual
report.
Board Diversity Matrix (As of the date of this annual report)
Country of Principal Executive Offices:
Foreign Private Issuer
Disclosure Prohibited Under Home Country Law
Total Number of Directors
Part I: Gender Identity
Directors
Part II: Demographic Background
Hong Kong
Yes
No
4
Did Not
Disclose
Gender
Female
Male
Non-Binary
1
3
0
0
Underrepresented Individual in Home Country Jurisdiction
LGBTQ+
—
—
67
6.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. Bo Zhu, Mr.
Yufeng Mi and Ms. Yafang Wang.
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, 2023 and 2022.
Name and Principal Position
Bo Zhu
Chief Executive Officer, Chief
Strategy Office and Director(1)
Yufeng Mi
Chief Technology Officer
Yafang Wang
Secretary of the Board
Wenjie Tang
Former Co-Chief Executive
Officer(2)
Chenjun Li
Former Co-Chief Executive
Officer(3)
Steven Sim
Former Chief Financial Officer(4)
Fiscal Year
or Period
2023
2022
Salary
($)
120,000
120,000
Bonus
($)
Stock
Awards
($)
All Other
Compensation
($)
-
-
-
-
-
-
Total
($)
120,000
120,000
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
30,000
30,000
30,625.22
31,013.99
31,500
42,000
-
31,204.23
37,644
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
30,000
30,000
- 30,625.22
- 31,013.99
-
31,500
-
42,000
-
-
-
- 31,204.23
-
37,644
(1) Bo Zhu was appointed as the Chief Strategy Officer, effective May 6, 2021 and as the Chief-Executive Officer and a director
on October 9, 2023.
(2) Wenjie Tang was a director and the Chief Executive Officer from January 2016 to October 2023, and has remained as an
advisor on an as-needed basis.
(3) Chenjun Li was a Co-Chief Executive Officer from July 2021 to October 2023 and as a director and the Chairman of the Board
from September 2021 to October 2023.
(4) Steven Sim was the Chief Financial Officer from September 2021 to December 2023.
68
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 Fangjie Wang, Jialin Liu and Jiaqi Zhu. In addition,
our executive director Bo Zhu and former executive directors Chenjun Li and Wenjie Tang received compensation for their service
as officers of the Company. Bo Zhu, Chenjun Li and Wenjie Tang have not received and will not receive compensation as directors
of the Company.
The table below indicates the compensations we paid to our Board of Directors in their capacity as directors for fiscal years 2023
and 2022:
Name
Bo Zhu
Director(1)
Fangjie Wang
Independent Director and Chair
of Audit Committee
Jialin Liu
Independent Director and Chair
of Compensation Committee
Jiaqi Zhu
Director and Chair of
Nominating Committee(2)
Chenjun Li
Former Chair of the Board(3)
Wenjie Tang
Former Director(4)
Jing Shi
Former Independent Director
and Chair of Nominating
Committee(5)
Fiscal Year
or Period
Salary
($)
Bonus
($)
Stock
Awards
($)
All Other
Compensation
($)
Total
($)
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
-
-
-
-
-
-
-
-
-
-
10,633.76
11,120.83
9,221.59
9,643.98
-
-
-
-
-
22,500
30,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10,633.76
- 11,120.83
-
-
9,221.59
9,643.98
-
-
-
-
-
-
-
-
-
-
-
-
-
22,500
30,000
(1) Bo Zhu was appointed as the Chief Strategy Officer, effective May 6, 2021 and as the Chief-Executive Officer and a director
on October 9, 2023. Mr. Tang received an annual salary for his service as the Chief Strategy Officer and Chief Executive
Officer. He did not receive any compensation as a director.
(2) Jiaqi Zhu was appointed as a director, the Chair of the Nominating Committee, and a member of the Audit Committee and the
Compensation Committee of the Company, effective October 9, 2023.
(3) Chenjun Li was a Co-Chief Executive Officer from July 2021 to October 2023 and as a director and the Chairman of the Board
from September 2021 to October 2023. During his tenure, Mr. Li received an annual salary for his service as the co-Chief
Executive Officer. He did not receive any compensation as a director.
(4) Wenjie Tang was a director and the Chief Executive Officer from January 2016 to October 2023, and has remained as an
advisor on an as-needed basis. During his tenure, Mr. Tang received an annual salary for his service as the Chief Executive
Officer. He did not receive any compensation as a director.
(5) Jing Shi was a director, the Chair of the Nominating Committee, and a member of the Audit Committee and the Compensation
Committee of the Company, from April 2021 to October 2023.
69
2024 Equity Incentive Plan
In April 2024, the Company adopted the 2024 equity incentive plan (the “2024 Equity Incentive Plan”), which provides for an
aggregate of 3,750,000 Class A ordinary shares to be available for awards to current or prospective employees, directors, advisors
or consultants of the Company or its affiliates.
As of the date of this annual report, no awards have been granted under the 2024 Equity Incentive Plan.
Compensation Recovery Policy
On December 1, 2023, our board of directors adopted an executive compensation recovery policy (the “Compensation Recovery
Policy”), providing for the recovery of certain incentive-based compensation from current and former executive officers of the
Company in the event the Company is required to restate any of its financial statements filed with the SEC under the Exchange Act
in order to correct an error that is material to the previously-issued financial statements, or that would result in a material
misstatement if the error were corrected in the current period or left uncorrected in the current period. Adoption of the
Compensation Recovery Policy was mandated by new Nasdaq listing standards introduced pursuant to Exchange Act Rule 10D-1.
The Compensation Recovery Policy is in addition to Section 304 of the Sarbanes-Oxley Act of 2002 which permits the SEC to
order the disgorgement of bonuses and incentive-based compensation earned by a registrant issuer’s chief executive officer and
chief financial officer in the year following the filing of any financial statement that the issuer is required to restate because of
misconduct, and the reimbursement of those funds to the issuer. A copy of the Compensation Recovery Policy has been filed
herewith as Exhibit 97.1.
6.C. Board practices
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. 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.
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.
70
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), Jiaqi Zhu, Jialin Liu
● Compensation Committee: Jialin Liu (Chair), Jiaqi Zhu, Fangjie Wang
● Nominating Committee: Jiaqi Zhu (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 Mr. Jiaqi Zhu. Ms. Fangjie Wang is the Chair of our Audit
Committee. We have determined that Ms. Fangjie Wang, Mr. Jialin Liu and Mr. Jiaqi Zhu 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.
71
Compensation Committee
Our Compensation Committee consists of Mr. Jialin Liu, Ms. Fangjie Wang and Mr. Jiaqi Zhu. Mr. Jialin Liu is the Chair of our
Compensation Committee. We have determined that Mr. Jialin Liu, Ms. Fangjie Wang and Mr. Jiaqi Zhu 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 approval, the compensation for our chief
executive officer and other executive 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 factors
relevant to that person’s independence from management.
Nominating Committee
Our Nominating Committee consists of Mr. Jiaqi Zhu, Ms. Fangjie Wang and Mr. Jialin Liu. Mr. Jiaqi Zhu is the Chair of our
Nominating Committee. We have determined that Mr. Jiaqi Zhu, 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.
72
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).
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.
73
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.
Insider Trading Policy
The Board of Directors also adopted an insider trading policy governing the purchase, sale, and other dispositions of our securities
by directors, senior management, and employees. A copy of the insider trading policies is attached as an exhibit to this annual
report.
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.
6.D. Employees
As of December 31, 2023, we had a total of 28 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.
6.E. Share ownership
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 annual 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.
74
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 annual 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 194 registered shareholders of record of Class A ordinary shares and 2
registered shareholders of record of Class B ordinary shares.
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
-
0%
-
0%
-
0%
1,350,000
5.57%
600,000
28.57% 4,350,000
12.52%
-
-
-
-
0%
0%
0%
0%
-
-
-
-
0%
0%
0%
0%
-
-
-
-
0%
0%
0%
0%
Named Executive Officers and
Directors
Directors and Named Executive
Officers:
Bo Zhu, Chief Executive Officer,
Chief Strategy Officer and
Director
Yufeng Mi, Chief Technology
Officer(1)
Yafang Wang, Secretary of the
Board
Jiaqi Zhu, Independent Director
and Chair of Nominating
Committee
Fangjie Wang, Independent
Director and Chair of Audit
Committee
Jialin Liu, Independent Director
and Chair of Compensation
Committee
All directors and executive
officers as a group (6 persons) 1,350,000
5.57%
600,000
28.57% 4,350,000
12.52%
5% Beneficial Owners:
Wenije Tang, Former Chief
Executive Officer and
Director(2)
5,750,000
23.71% 1,500,000
71.43% 13,250,000
38.12%
(1) 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. In addition, Light Wave Technology Holdings Ltd., a company formed under the laws of the British Virgin Islands,
holds 750,000 Class A ordinary shares. Yufeng Mi is a shareholder and a director of Light Wave Technology Holdings Ltd. and
holds the voting and dispositive power of all 750,000 Class A ordinary shares held by Light Wave Technology Holdings Ltd.
Therefore, Yufeng Mi is deemed the beneficial owner of the 750,000 Class A ordinary shares held by Light Wave Technology
Holdings Ltd.
(2) Wenjie Tang holds 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, Next Block Holdings Ltd., a company formed under the laws of the British Virgin Islands, holds 2,050,000 Class A
ordinary shares. Wenjie Tang is a shareholder and a director of Next Block Holdings Ltd. and holds the voting and dispositive
power of all 2,050,000 Class A ordinary shares held by Next Block Holdings. Therefore, Wenjie Tang is deemed the beneficial
owner of the 2,050,000 Class A ordinary shares held by Next Block Holdings Ltd. Furthermore, Firebull Tech Limited, a
company formed under the laws of Hong Kong SAR, holds 2,200,000 Class A ordinary shares. Wenjie Tang is a shareholder
and a director of Firebull Tech Limited and holds the voting and dispositive power of all 2,200,000 Class A ordinary shares
held by Firebull Tech Limited. Therefore, Wenjie Tang is deemed the beneficial owner of the 2, 200,000 Class A ordinary
shares held by Firebull Tech 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.
75
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7.A. Major Shareholders
Please refer to “Item 6. Directors, Senior Management and Employees — 6.E. Share Ownership.”
7.B. Related Party Transactions
As of December 31, 2023, related parties of the Company consist of the following:
Name of Related Party
Yufeng Mi
Yang Cao
HongKong Kisen Co., Limited
Due to related parties
Nature of Relationship
Chief Technical Officer (“CTO”) and shareholder
Director of Nanjing Lucun
Company ultimately controlled by Chief Strategy Officer (“CSO”)
The Company mainly finance its operations through proceeds borrowed from related parties. As of December 31, 2023 and 2022,
due to related parties consisted of the following:
Yufeng Mi
Yang Cao
HongKong Kisen (1)
Total due to related parties
December 31,
2022
Interest
Exchange
Rate
December 31,
2023
1,831
86,150
Received Repayment Expenses Translation
(30)
-
(1,436)
-
-
8,000,000 4,384,975 (3,160,000)
(1,466)
8,087,981 4,485,589 (3,160,000)
-
-
15,228
15,228
2,770
97,844
4,571
182,558
9,240,203
9,427,332
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 $4,485,589 from related parties and repaid $3,160,000 to related parties in the year
ended December 31, 2023. From time to time, the Company borrowed $10,000,000 from related parties and repaid $2,000,000 to
related parties in the year ended December 31, 2022. The Company borrowed $907,135 from related parties and repaid $517,670 to
related parties in the year ended December 31, 2021.
7.C. Interests of Experts and Counsel
Not applicable.
76
ITEM 8. FINANCIAL INFORMATION
8.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.
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.
8.B. Significant Changes
We have not experienced any significant changes since the date of our audited consolidated financial statements included in this
annual report.
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ITEM 9. THE OFFER AND LISTING
9.A. Offer and listing details
Not applicable for annual reports on Form 20-F.
9.B. Plan of distribution
Not applicable for annual reports on Form 20-F.
9.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 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.
On May 17, 2023, the Company received a letter from the Nasdaq indicating that, because the Company had not yet filed its
Annual Report on Form 20-F for the fiscal year ended December 31, 2022, the Company did not comply with Nasdaq Listing Rule
5250(c)(1) for continued listing.
Pursuant to the Nasdaq Listing Rules, the Company had 60 calendar days from the date of the Notice to submit a plan of
compliance to Nasdaq. The Company timely submitted a plan of compliance to Nasdaq and on July 17, 2023, the Company
received a letter from Nasdaq notifying it that Nasdaq granted the Company an Exception to enable it to regain compliance with the
Rule. Pursuant to the Exception, the Company must file its Form 20-F for the period ended December 31, 2022 on or before
November 13, 2023. The Company filed its Annual Report on Form 20-F for the fiscal year ended December 31, 2022 on
November 13, 2024. On November 13, 2023, the Company received a letter from Nasdaq notifying the Company that, based on
the November 13, 2023 filing of the Form 20-F, Nasdaq has determined that the Company complies with the Nasdaq Listing Rules.
Accordingly, the matter has been closed.
9.D. Selling shareholders
Not applicable for annual reports on Form 20-F.
9.E. Dilution
Not applicable for annual reports on Form 20-F.
9.F. Expenses of the issue
Not applicable for annual reports on Form 20-F.
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ITEM 10. ADDITIONAL INFORMATION
10.A. Share capital
Private Placement
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.
Disposition of Anyi Network, 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.
Registered Direct Offering and Concurrent Private Placement
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.
10.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 annual 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.
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General
Class A Ordinary Shares
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.
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:
● 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.
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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.
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.
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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.
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:
● 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.
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10.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.
10.D. Exchange controls
Regulations on Foreign Currency Exchange
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.
10.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.
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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.
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;
● insurance companies;
● regulated investment companies;
● real estate investment trusts;
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● 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;
● 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.
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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.”
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.
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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;
● 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.
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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.
10.F. Dividends and paying agents
Not applicable.
10.G. Statement by experts
Not applicable.
10.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.
10.I. Subsidiary Information
For a listing of our subsidiaries, see “Item 4. Information of the Company - C. Organizational Structure.”
10.J. Annual Report to Security Holders
Not applicable.
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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of the latest fiscal year ended December 31, 2023, 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 loss/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, 2023 and 2022, a 10% appreciation in RMB against the U.S. dollar would have resulted in a
decrease of $5,168,400 and $2,585,525 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, 2023 and 2022, 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
12.A. Debt Securities
Not applicable.
12.B. Warrants and Rights
Not applicable.
12.C. Other Securities
Not applicable.
12.D. American Depositary Shares
Not applicable.
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ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
PART II
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
14.A. – 14.D. Material Modifications to the Rights of Security Holders
There have been no material modifications to the rights of our security holders.
14.E. Use of Proceeds
Private Placement
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. We used the proceeds
for working capital and general corporate purposes.
Registered Direct Offering and Concurrent Private Placement
On December 14, 2021, we consummated (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, for gross proceeds of approximately US$20 million. We used the proceeds for working capital
and general corporate purposes.
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;
● 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
● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of the company’s assets that may have a material effect on the financial statements.
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, 2023. 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, 2023, 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, 2023 and 2022, 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, 2023. As a result of inherent limitations, our internal control over financial
reporting may not prevent or detect misstatements, errors or omissions.
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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,
2023.
This annual report does not include an attestation report of the Company’s Independent Registered Public Accounting Firm as we
qualified as an “non- accelerated filer” as such term is defined under Rule 12b-2 under the Exchange Act as of December 31, 2023.
(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,
2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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
GGF CPA LTD as appointed by the Company to serve as its independent registered public accounting firm for fiscal years ended
December 31, 2023. KCCW Accountancy Corp. was appointed by the Company to serve as its independent registered public
accounting firm for fiscal years ended December 31, 2022. TPS Thayer LLC was appointed by the Company to serve as its
independent registered public accounting firm for fiscal years ended December 31, 2021.
Fees Paid to Independent Registered Public Accounting Firm
Audit Fees
GGF CPA LTD’s fee for the annual audit of our financial statements for the fiscal year ended December 31, 2023 was $180,000
KCCW Accountancy Corp.’s fee for the annual audit of our financial statements for the fiscal year ended December 31, 2022 was
$180,000. TPS Thayer LLC’s fee for the annual audit of our financial statements for the fiscal year ended December 31, 2021 was
$175,000.
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Audit-Related Fees
The Company has not paid GGF CPA LTD for audit-related services for the fiscal year ended December 31, 2023.
The Company has not paid KCCW Accountancy Corp. for audit-related services for the fiscal year ended December 31, 2022.
The Company has not paid TPS Thayer LLC for audit-related services for the fiscal year ended December 31, 2021.
Tax Fees
The Company has not paid GGF CPA LTD for tax services for the fiscal year ended December 31, 2023.
The Company has not paid KCCW Accountancy Corp. for tax services for the fiscal year ended December 31, 2022.
The Company has not paid TPS Thayer LLC for tax services for the fiscal year ended December 31, 2021.
All Other Fees
The Company has not paid GGF CPA LTD for any other services in fiscal year ended December 31, 2023.
The Company has not paid KCCW Accountancy Corp. for any other services in fiscal year ended December 31, 2022.
The Company has not paid TPS Thayer LLC for any other services in fiscal year ended December 31, 2021.
Audit Committee Pre-Approval Policies
Before GGF CPA LTD, TPS Thayer LLC and KCCW Accountancy Corp. 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 GGF CPA LTD,
KCCW Accountancy Corp. and TPS Thayer LLC 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, 2023.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
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.
On July 3, 2022, the Company notified its independent registered public accounting firm, TPS Thayer LLC its decision to dismiss
TPS Thayer LLC as the Company’s auditor. The Audit Committee and the Board of Directors of the Company ratified the
appointment of KCCW Accountancy Corp. as its new independent registered public accounting firm to audit the Company’s
financial statements.
On March 13, 2024, KCCW Accountancy Corp. notified the Company its decision to resign as the Company’s auditor. The Audit
Committee and the Board of Directors of the Company ratified the appointment of HTL International, LLC as its new independent
registered public accounting firm to audit the Company’s financial statements.
On May 10, 2024, HTL International, LLC notified the Company its decision to resign as the Company’s auditor. The Audit
Committee and the Board of Directors of the Company ratified the appointment of GGF CPA LTD as its new independent
registered public accounting firm to audit the Company’s financial statements.
94
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 British Virgin Islands, which is our home country, may differ significantly from the Nasdaq
corporate governance listing standards and may result in less protection than is accorded to investors under rules applicable to
domestic U.S. issuers.
During the fiscal year ended December 31, 2023 and during the period from January 1, 2024 until the date of this annual report, we
have followed certain home country corporate governance practices instead of Nasdaq Listing Rule 5620, which provides that
(with certain exceptions not relevant to the conclusions expressed herein) each company listing common stock or voting preferred
stock, and their equivalents, shall hold an annual meeting of shareholders no later than one year after the end of the company’s
fiscal year-end. The Company did not hold an annual meeting of shareholders during the fiscal year ended December 31, 2023.
Such practice is not prohibited by British Virgin Islands law.
Except for the foregoing, the Company endeavors to comply with the Nasdaq corporate governance practices. To the extent we
choose to follow home country practice in lieu of other Nasdaq listing rules 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.
ITEM 16J. INSIDER TRADING POLICIES
The Board of Directors also adopted an insider trading policy governing the purchase, sale, and other dispositions of our securities
by directors, senior management, and employees. A copy of the insider trading policies is attached as an exhibit to this annual
report.
ITEM 16K. CYBERSECURITY
Our Board of Directors is responsible for reviewing the Company’s cybersecurity risk management and control systems in relation
to the financial reporting by the Company, including the Company’s cybersecurity strategy. We maintain a process for assessing,
identifying and managing material risks from cybersecurity threats, including risks relating to disruption of business operations or
financial reporting systems, intellectual property theft; fraud; extortion; harm to employees or customers; violation of privacy laws
and other litigation and legal risk; and reputational risk, as part of our overall risk management system and processes. We asses and
manage our cybersecurity risks though our Information Technologies (“IT”) Committee, which is integrated by the Chief Executive
Officer and the Chief Financial Officer. The Chief Executive Officer presents to our Board of Directors, on a yearly basis, the work
carried out on the identification, categorization, and mitigation procedures put in place in relation to the most relevant risks of the
company, including cybersecurity risks. In this sense, risks related to cybersecurity have been categorized as “high relevance” for
the Company.
Our IT department is responsible for targeted and regular monitoring of cybersecurity risks. They independently and continuously
monitor cybersecurity risks and countermeasures to defend against such threats and, in the event of a cybersecurity threat or
cybersecurity incident, inform executive management and our Board of Directors. In addition to the regular meetings between
executive management and the individual risk owners mainly consisting out of the various departments’ heads, a comprehensive
cybersecurity risk analysis for internal and external risks is carried out as appropriate.
According to the priority of the cybersecurity risks as result of the risk evaluation, risks are addressed by concrete actions and, if
appropriate and possible, necessary countermeasures. In order to be able to react quickly and flexibly to cybersecurity risks, risk
management is integrated into existing processes and reporting channels. Our risk management program considers cybersecurity
risks alongside other company risks, and our enterprise risk professionals consult with company subject matter experts to gather
information necessary to identify cybersecurity risks and evaluate their nature and severity, as well as identify mitigations and
assess the impact of those mitigations on residual risk. We may engage third parties from time to time to conduct risk assessments.
95
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.
Description of Exhibit
1.1
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
2.1
2.2
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
2.3
Description of Securities, filed as exhibit 2.3 to the Form 20-F filed on November 13, 2023 and incorporated by
reference herein
4.1
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
4.2*
4.3*
4.4*
4.7
English translation of Employment Agreement with Yufeng Mi, dated April 5, 2022
English translation of Employment Agreement with Yafang Wang dated May 1, 2022
English translation of Agreement with Jialin Liu, dated March 16, 2023
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
4.8
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
96
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 10, 2021, filed as exhibit 10.1 to the Form 6-K filed on May 10,
2021 and incorporate by reference herein
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
4.18
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
4.22
Employment Agreement with Jiaqi Zhu, dated October 9, 2023, filed as exhibit 10.1 to the Form 6-K filed on October
10, 2023, and incorporate by reference herein
4.23
AGM Group Holdings Inc. 2024 Equity Incentive Plan, filed as exhibit 99.1 to the Form 6-K filed on April 30, 2024,
8.1*
11.1
and incorporate by reference herein
List of Subsidiaries
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
11.2
Insider Trading Policy, filed as exhibit 11.2 to the Form 20-F filed on November 13 ,2023 and incorporate by
reference herein
12.1*
Certification of Principal Executive Officer Required by Rule 13a-14(a)
12.2*
Certification of Principal Financial Officer Required by Rule 13a-14(a)
13.1**
Certification of Principal Executive Officer and Principal Financial Offier Required by Rule 13a-14(b) and
Section 1350 of Chapter 63 of Title 18 of the United States Code
97
15.1*
Consent of GGF CPA LTD
15.2*
Consent of KCCW Accountancy Corp.
15.3*
Consent of TPS Thayer LLC
97.1*
Compensation Recovery Policy
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
98
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.
SIGNATURES
AGM GROUP HOLDINGS INC.
By: /s/ Bo Zhu
Name: Bo Zhu
Title: Chief Executive Officer, Chief Strategy
Officer and Director
Date: June 18, 2024
99
AGM GROUP HOLDINGS INC.
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID: 2729)
Report of Independent Registered Public Accounting Firm (PCAOB ID: 2851)
Report of Independent Registered Public Accounting Firm (PCAOB ID: 6706)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations and Comprehensive Loss/Income for the years ended December 31, 2023,
2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021
Consolidated Statements of Changes in Equity for the years ended December 31, 2023, 2022 and 2021
Notes to Consolidated Financial Statements
F-1
F-2
F-3
F-5
F-6
F-7
F-9
F-8
F-10 – F-
27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To: The Board of Directors and Stockholders of
AGM Group Holdings, Inc.
Opinion on Financial Statements
We have audited the accompanying consolidated balance sheet of AGM Group Holdings Inc. (“the Company”), as of December 31,
2023 and the related consolidated statements of operations and comprehensive loss, changes in shareholder’s equity and cash slows
for the year ended December 31, 2023, and the related notes (collectively referred to as the consolidated financial statements). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2023 and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with
accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated 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 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 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 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 provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) related to the accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matters or on the accounts or disclosures to which they relate.
Impairment Assessment of Advances to Suppliers
As described in Note 2 to the consolidated financial statements, advances to suppliers primarily consisted of prepayments for the
purchase of inventories. The Company reviews its advances to suppliers periodically and determines the adequacy of provision.
Once the Company considers that the likelihood of future economic benefits associated with the advances to supplier is remote, a
provision would be provided to reflect the expected recoverable amount from the advances to suppliers.
We identified the provision for advances to suppliers as a critical audit matter due to the material balance on the balance sheet and
significant judgement and assumptions were used by the Management regarding the valuation of the provision during the year,
which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit
evidence relating to Management’s assessment of the amount to provide the provision of advances to suppliers.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. The primary procedures we performed to address this critical audit matter
included the following:
-
Reviewed the Company’s accounting policies, contracts, assumptions and estimates concerning future economic benefits and
evaluate whether management’s conclusions were appropriate.
-
Tested the amount of provision recognized based on supporting documents.
/s/ GGF CPA LTD
We have served as the Company’s auditor since 2024.
Guangzhou, Guangdong, China
PCAOB NO: 2729
June 18, 2024
F-2
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,
2022 and the related consolidated statements of operations and comprehensive loss/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,
2022 and the consolidated results of its operations and its cash flows for the year ended December 31, 2022, 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.
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. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we
are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Critical Audit Matter Description
As described in Note 2 to the consolidated financial statements, the Company’s revenue is derived from the delivery of its products.
The sale of products by the Company is considered complete when the products are delivered at that time the ownership and risk of
loss have been transferred to the customer.
F-3
The Company considers the contracts with its customer contain one performance obligation, and the Company is entitled to the
consideration when performance obligation is satisfied at a point in time. The amount of revenue to be recognized is determined by
the contracts between the Company and its customer. The Company recognizes revenue when the product is delivered.
The principal considerations for our determination that performing procedures relating to revenue recognition, specifically the
identification and evaluation of the timing and amount of revenue recognition, is a critical audit matter, involved judgment
exercised by management in identifying and evaluating the performance obligation. Auditor judgement is involved in performing
our audit procedures to evaluate whether the timing and amount of revenue recognition was appropriately stated.
How the Critical Audit Matter Will Be Addressed in the Audit
Our audit procedures over determining the timing and amount of revenue recognition involved, among others, evaluation of
management’s assessment in regard to the identification of performance obligation of revenue. We selected sales transactions and
performed the following procedures:
- Evaluated the terms and conditions of each selected transaction and the appropriateness of the accounting treatment within the
context of the five-step model prescribed by ASC 606, Revenue from Contracts with Customers, and evaluated whether
management’s conclusions were appropriate.
- Tested the amount of revenue recognized by agreeing to relevant supporting documents.
/s/ KCCW Accountancy Corp.
We have served as the Company’s auditor since 2023
Diamond Bar, California
November 13, 2023
F-4
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 loss/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-5
AGM GROUP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in US$, except for number of shares)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Inventories
Advances to suppliers, net
Prepayment and other current assets, net
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:
Accounts payable
Accrued expenses and other payables
Advances from customers
Due to related parties
Deferred government grant, current
Operating lease liabilities, current
Income tax payable
Total current liabilities
NON - CURRENT LIABILITIES:
Operating lease liabilities, non-current
Deferred government grant, non-current
Total non - current liabilities
TOTAL LIABILITIES
December 31, December 31,
2023
2022
$
4,073,440
1,599,906 $
-
1,573
92,755,701
4,860,571
3,915,456
5,502,404
13,139,128
71,303,444
3,851,247
2,935,644
87,119,145 116,819,369
379,678
44,007
270,248
9,734,267
10,428,200
689,361
55,486
492,984
7,172,814
8,410,645
$ 97,547,345 $ 125,230,014
$ 21,812,072 $ 64,500,197
2,874,126
4,572,765
8,087,981
36,529
162,576
14,285,918
94,520,092
1,983,145
30,131,748
9,427,332
37,610
79,736
14,510,079
77,981,722
73,596
59,527
133,123
167,428
98,784
266,212
$ 78,114,845 $ 94,786,304
SHAREHOLDERS’ EQUITY:
Class A Ordinary Shares (200,000,000 shares authorized with par value of $0.001, 24,254,842
and 24,254,842 shares issued and outstanding as of December 31, 2023 and December 31,
2022, respectively)
$
24,255 $
24,255
Class B Ordinary Shares (200,000,000 shares authorized with par value of $0.001, 2,100,000 and
2,100,000 shares issued and outstanding as of December 31, 2023 and December 31, 2022,
respectively)
Additional paid-in capital
Statutory reserves
Retained earnings
Accumulated other comprehensive loss
Total shareholders’ equity
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
2,100
26,502,856
335,696
2,304,543
(9,736,950)
19,432,500
2,100
26,502,856
335,696
9,743,823
(6,165,020)
30,443,710
$ 97,547,345 $ 125,230,014
The accompanying notes are an integral part of these consolidated financial statements
F-6
AGM GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPEATIONS AND COMPREHENSIVE (LOSS)/INCOME
(Amounts in US$, except for number of shares)
For The Year Ended December 31,
2021
2022
2023
Revenues
Cost of revenues
Gross profit
Operating expenses
Selling, general & administrative expenses
Research and development expenses
Total operating expenses
(Loss)/Income from operations
Other income/(expenses)
Other income
Other expenses
Total other (expenses)/income
(Loss)/Income before provision of income taxes
Provision for income taxes benefit/(expenses)
$ 92,907,172 $ 242,395,556 $ 36,709,931
(88,278,140) (195,807,066) (30,112,363)
6,597,568
46,588,490
4,629,032
13,870,634
-
13,870,634
30,395,048
-
30,395,048
1,607,393
36,317
1,643,710
(9,241,602)
16,193,442
4,953,858
106,202
(487,919)
(381,717)
118,265
(491,299)
(373,034)
47,167
(43,171)
3,996
(9,623,319)
2,184,039
15,820,408
(4,344,769)
4,957,854
(1,406,159)
Net (loss)/income
$ (7,439,280) $ 11,475,639 $ 3,551,695
Other comprehensive (loss)/income
Foreign currency translation adjustment
Total comprehensive (loss)/income
(Loss)/Earnings per common share
Basic
Diluted
(3,571,930)
$ (11,011,210) $
(6,578,195)
169,472
4,897,444 $ 3,721,167
$
(0.31) $
(0.31)
0.47 $
0.47
0.17
0.17
Weighted average Class A ordinary shares outstanding, basic
Weighted average Class A ordinary shares outstanding, diluted
24,254,842
24,254,842
24,254,842 21,491,291
24,254,842 21,511,469
The accompanying notes are an integral part of these consolidated financial statements
F-7
AGM GROUP HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Number of
Class A
Ordinary
Share
Balance, December 31, 2020 21,356,290 7,100,000 $ 21,356 $
Net income
-
Issuance of common shares
2,899
Appropriation to statutory
Number of
Class B
Ordinary
Share
-
2,898,552
Class A
Ordinary
Share
-
-
Class B
Ordinary
Share
Additional
paid-in
capital
Statutory
Reserves
7,100 $ 8,368,266 $
-
-
- 17,637,100
Accumulated
other
comprehensive
income/(loss)
(Accumulated
loss)/
Retained
earnings
(4,947,815) $
3,551,695
-
- $
-
-
reserve
Cancellation of Class B
ordinary shares
Foreign currency translation
-
-
-
-
-
63,659
(63,659)
- (5,000,000)
-
(5,000)
5,000
-
-
Total
243,703 $ 3,692,610
- 3,551,695
- 17,639,999
-
-
-
-
adjustment
-
Balance, December 31, 2021 24,254,842 2,100,000 $ 24,255 $
-
Net income
Appropriation to statutory
-
-
-
-
-
-
2,100 $26,010,366 $ 63,659 $
-
-
-
-
-
(1,459,779) $
11,475,639
169,472
169,472
413,175 $25,053,776
- 11,475,639
reserve
Deposit received on issuance
of common shares
Foreign currency translation
-
-
-
-
-
-
-
- 272,037
(272,037)
-
-
-
492,490
-
-
-
492,490
adjustment
-
Balance, December 31, 2022 24,254,842 2,100,000 $ 24,255 $
Net loss
-
Appropriation to statutory
-
-
-
-
-
-
2,100 $26,502,856 $ 335,696 $
-
-
-
-
-
9,743,823 $
(7,439,280)
(6,578,195) (6,578,195)
(6,165,020) $30,443,710
- (7,439,280)
reserve
Foreign currency translation
-
-
-
-
-
-
-
-
-
adjustment
-
Balance December 31, 2023 24,254,842 2,100,000 $ 24,255 $
-
-
-
-
2,100 $26,502,856 $ 335,696 $
-
-
2,304,543 $
(3,571,930) (3,571,930)
(9,736,950) $19,432,500
The accompanying notes are an integral part of these consolidated financial statements
F-8
AGM GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in US$)
Cash flows from operating activities
Net (loss) income
Adjustment to reconcile net income to net cash used in operating activities
Depreciation and amortization
Amortization of operating lease right-of-use asset
(Reversal)/allowance for credit losses
Provision of advances to suppliers
Other income
Deferred tax benefits
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Advances to suppliers
Prepayment and other current 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
Cash flows from investing activities
Purchase of property and equipment
Purchase of intangible asset
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
Receipt of financing deposit
Repayments of loans and borrowings
Borrowings to related parties
Repayments to related parties
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents and restricted cash
Cash and cash equivalents, beginning of the year
Cash and cash equivalents and restricted cash, end of the year
Supplemental cash flow information
Interest paid
Income taxes paid
Supplemental disclosures of non-cash activities:
Free operating lease due to government grant
Additions of ROU Assets
Cancelled common stocks issued
For The Year Ended December 31,
2021
2022
2023
$ (7,439,280) $ 11,475,639 $ 3,551,695
321,102
152,619
(18,898,441)
28,605,502
(40,501)
(2,578,177)
201,944
138,709
27,469,288
-
(42,431)
(7,061,293)
38,363
63,347
-
-
(22,119)
(129,034)
107,537,272 (119,006,660)
(1,660,677)
(88,065,195)
(2,085,340)
(42,676,557)
(802,793)
237,378
25,999,451
-
(298,081)
(1,691,718)
198,990
(2,608,325)
17,210,179 (22,433,140)
23,795,007 (40,485,521)
2,094,491
50,070,180 14,111,595
272,411
1,713,032
12,509,424
1,505,485
(35,891,398) 42,231,914
3,454
-
(49,074)
(122,878)
(1,854,458)
(17,342,268)
(10,708)
-
(10,708)
(282,308)
(50,000)
(332,308)
(339,657)
-
(339,657)
-
4,482,819
-
-
-
-
(3,160,000)
1,322,819
- 17,639,999
907,135
10,000,000
1,568,455
-
-
492,490
-
(1,486,746)
(39,238)
-
(2,000,000)
(517,670)
7,005,744 19,558,681
(2,092,354)
(2,471,961)
4,073,440
1,601,479
(3,684,350)
397,451
(14,353,182) 17,762,017
664,605
18,426,622
4,073,440 18,426,622
$
$
$
$
$
- $
156,842 $
6,938 $
218,121 $
34,721
-
- $
136,598 $
- $
- $
416,013 $
- $
204,588
100,313
5,000
The accompanying notes are an integral part of these consolidated financial statements
F-9
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
(“BVI”). AGM Holdings is a holding company and does 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 engaged in the sale of cryptocurrency mining machines and standardized computing equipment.
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 November 13, 2015, AGM Tianjin incorporated a wholly owned Chinese limited liability subsidiaries, Beijing AnGaoMeng
Technology Service Co., Ltd. (“AGM Beijing”).
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.
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 the People’s Republic of China (the “PRC”). Nanjing Lucun
is primarily engaged in the sale of cryptocurrency mining machines and standardized computing equipment. On November 24,
2022, Nanjing Lucun Semiconductor Co., Ltd. Beijing Branch was incorporated.
On July 30, 2021 AGM Holdings incorporated a wholly owned limited liability subsidiary, AGM Defi Lab Ptd 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. 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. These three subsidiaries are mainly engaged in software development.
F-10
AGM GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES (Continued)
As of December 31, 2023, AGM Holdings’ subsidiaries are as follows:
Name
AGM Technology Limited
(“AGM Technology “)
Date of
Incorporation
May 21, 2015
Place of
Incorporation
Hong Kong
AGM Tianjin Construction
October 13, 2015
China
Percentage
of
Effective
Ownership
Principal Activities
100%
100%
Sale of cryptocurrency mining
machines and standardized
computing equipment
Holding entity
Development Co., Ltd. (“AGM
Tianjin”) formerly Shenzhen
AnGaoMeng Financial
Technology Service Co., Ltd.
Beijing AnGaoMeng Technology
Service Co., Ltd.
(“AGM Beijing”)
November 13, 2015
China
100%
Software development and provider
AGM Software Service LTD
June 14, 2017
(“AGM Software”)
Nanjing Lucun Semiconductor
Co., Ltd. (“Nanjing Lucun”)
June 17, 2021
BVI
China
100%
Core technology service provider
100%
Sale of cryptocurrency mining
machines and standardized
computing equipment
Software development and provider
AGM Defi Lab Ptd Limited
July 30, 2021
Singapore
100%
(“AGM Defi Lab”)
AGM Defi Tech Limited (“AGM
August 8, 2021
Hong Kong
100%
Software development and provider
Defi Tech”)
Beijing Keen Sense Technology
Service Co., Ltd (“Beijing
Keen Sense”)
October 21, 2021
China
100%
Software development and provider
AGM Technology, AGM Tianjin, AGM Beijing, 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.
Note 2 - SUMMARY OF SIGNIFICANT POLICIES
Basis of Presentation
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”) to reflect the financial position, results of operations and cash flows of the Company. Significant
accounting policies followed by the Company in the preparation of the accompanying consolidated financial statements are
summarized below.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts for AGM Holdings and all its consolidated subsidiaries.
All intercompany accounts and transactions have been eliminated in consolidation.
F-11
AGM GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - SUMMARY OF SIGNIFICANT POLICIES (Continued)
Foreign Currency Translation
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 operations.
The consolidated balance sheet balances, with the exception of equity at December 31, 2023 and December 31, 2022 were
translated at RMB7.0827 and RMB6.9646 to $1.00, respectively. The equity accounts were stated at their historical rate. The
average translation rates applied to consolidated statements of operations and cash flows for the years ended December 31, 2023,
2022 and 2021 were RMB7.0467, RMB6.7261 and RMB6.4515 to $1.00, respectively.
Use of 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 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, allowance for credit losses, provision of advances to suppliers, discount rate for leases, depreciation of property and
equipment and impairment assessments of long-lived assets 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.
Cash and Cash Equivalents
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, 2023 and 2022, the Company’s cash equivalents primarily consist cash in various financial
institutions.
Restricted cash
Restricted cash consists of frozen deposits due to overdue reconciliations. The balance of restricted cash was $1,573 and nil as of
December 31, 2023 and 2022, respectively.
Inventories
Inventories, primarily consisting of 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 first-
in first-out 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 the years ended December 31, 2023, 2022, and 2021.
F-12
AGM GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - SUMMARY OF SIGNIFICANT POLICIES (Continued)
Advances to Suppliers
Advances to suppliers primarily consists of prepayments for purchase of cryptocurrency mining machines and standardized
computing equipment. Advance payment depends on specific circumstances, including the industry practice, negotiations with
suppliers, security for steady supply of products, and the delivery time of products received from suppliers after the advance
payment. Advance to suppliers is settled when the products are provided and accepted by the Company. The Company reviews its
advance to suppliers on a periodic basis and determines the adequacy of provision. Provision is recognized to reflect the expected
recoverable amount from the advances to suppliers when the Company considers the likelihood of future economic benefits
associated with the advances to supplier is remote.
Fair Value of Financial Instruments
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
and other current assets, accounts payable and other payables, due to related parties and contingent consideration approximate their
fair value based on the short-term maturity of these instruments.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable consists principally of amounts due from trade customers. Credit is extended based on an evaluation of the
customer’s financial condition and collateral is not generally required.
The Company evaluates its accounts receivable for expected credit losses on a regular basis. The Company maintains an estimated
allowance for credit losses to reduce its accounts receivable to the amount that it believes will be collected. The Company uses the
length of time a balance has been outstanding, the payment history, creditworthiness and financial conditions of the customers and
industry trend as credit quality indicators to monitor the Company’s receivables within the scope of expected credit losses model,
along with reasonable and supportable forecasts as a basis to develop the Company’s expected loss estimates. The Company adjusts
the allowance percentage periodically when there are significant differences between estimated credit losses and actual bad debts.
If there is strong evidence indicating that the accounts receivable is likely to be unrecoverable, the Company also makes specific
allowance in the period in which a loss is determined to be probable. Accounts receivable balances are written off after all
collection efforts have been exhausted.
Adoption of Accounting Standards Update (“ASU” 2016-13)
In June 2016, the FASB issued ASU 2016-13: Financial Instruments-Credit Losses (Topic 326), which requires entities to measure
all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and
reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit
losses on financial assets measured at amortized cost. The Company has adopted ASU 2016-13 since January 1, 2021, the impact
of which on the Company’s consolidated financial statements was immaterial.
F-13
AGM GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - SUMMARY OF SIGNIFICANT POLICIES (Continued)
Property and Equipment
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
Leasehold improvement
Intangible Assets
Residual
value
rate
Useful
life
3 years
5 years
Shorter of the lease term or the estimated
useful life of the assets
5%
5%
0%
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 name
Software
Revenue Recognition
Residual
value
rate
Useful
life
10 years
5 years
0%
0%
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 developer, engaging in research, development and sale of server, including ASIC miner, and standardized
computing equipment and bundle of products or services that may include a combination of these items.
The Company derives revenue from the sales of cryptocurrency mining machines and standardized computing equipment 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. The transaction price is allocated to each performance obligation on a relative standalone selling
price basis.
F-14
AGM GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - SUMMARY OF SIGNIFICANT POLICIES (Continued)
The Company acts as a principal as it takes control of the merchandises, is primarily obligated for the merchandise sold to the
consumers, bears inventory risks and has the latitude in establishing prices. For the years ended December 31, 2023, 2022 and
2021, the Company derives revenue from the sale 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.
Contract liability
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, cryptocurrency
mining machines and standardized computing equipment. As of December 31, 2023 and 2022, the Company’s advances from
customers amounted to $30,131,748 and $4,572,765, respectively.
The Company reports revenues net of applicable sales taxes and related surcharges.
Costs of Revenues
Cost of revenues primarily consist of cost of product revenue, which includes direct costs of cryptocurrency mining machines,
standardized computing equipment.
Leases
On January 1, 2021, 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 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. Operating leases are included in operating lease right-of-use (“ROU”) assets and
current and non-current 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. There were no finance leases for the years
ended December 31, 2023, 2022 and 2021.
Selling, General & Administrative Expenses
Selling, general and administrative expenses consist primarily of credit losses, sales and administrative employee-related expenses,
professional fees, travel costs, and other corporate expenses.
Research and Development Expenses
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.
F-15
AGM GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - SUMMARY OF SIGNIFICANT POLICIES (Continued)
Government Grants
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, 2023 and 2022, the balance of deferred government grant was $97,137 and
$135,313, respectively. The amount of other income for the government grant recognized during the years ended December 31,
2023, 2022 and 2021 was $40,501, $42,431 and $22,119, respectively.
Income Taxes
The Company is governed by the Income Tax Law of China and Inland Revenue Ordinance of Hong Kong, 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.
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, 2023, 2022 and 2021, the Company had
uncertain tax positions accrued, and will continue to evaluate for uncertain positions in the future.
Value Added Tax
The amount of Value Added Tax (“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.
Comprehensive (Loss)/ Income
ASC 220 “Comprehensive Income” established standards for reporting and display of comprehensive (loss)/income, its
components and accumulated balances. Components of comprehensive (loss)/income include net loss/income and foreign currency
translation adjustments. For the years ended December 31, 2023, 2022 and 2021, the only component of accumulated other
comprehensive loss was foreign currency translation adjustments.
F-16
AGM GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - SUMMARY OF SIGNIFICANT POLICIES (Continued)
Related Party Transactions
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.
Concentration and risks
a) Concentration of credit risk
Financial instruments that potentially subject the Company to concentration of credit risk are cash and cash equivalents, and
accounts receivable arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy
financial institutions. 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, consequently, believes that its accounts
receivable credit risk exposure beyond such allowance is limited.
b) Foreign currency exchange rate risk
The functional currency and the reporting currency of the Company are RMB and U.S. dollars, respectively. The Company’s
exposure to foreign currency exchange rate risk primarily relates to cash and cash equivalents, accounts receivable and accounts
payable. Any significant fluctuation of RMB against U.S. dollars may materially and adversely affect the Company’s cash flows,
revenues, earnings and financial positions.
c) Currency convertibility risk
The Company transacts some of its business in RMB, which is not freely convertible into foreign currencies. All foreign exchange
transactions continue to take place either through the People’s Bank of China (the “PBOC”) or other banks authorized to buy and
sell foreign currencies at the exchange rates quoted by the PBOC. Approval of foreign currency payments by the PBOC or other
institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed
contracts.
(Loss)/Earnings per Common Share
Basic (loss)/earnings per ordinary share is computed by dividing net (loss)/earnings attributable to ordinary shareholders by the
weighted-average number of ordinary shares outstanding during the period. Diluted (loss)/earnings per share is computed by
dividing net (loss)/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-17
AGM GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - SUMMARY OF SIGNIFICANT POLICIES (Continued)
Statutory reserves
In accordance with the PRC Company Laws, the Company’s PRC subsidiaries must make appropriations from their after-tax
profits as determined under the People's Republic of China Generally Accepted Accounting Principles (“PRC GAAP”) to non-
distributable reserve funds including statutory surplus fund and discretionary surplus fund. The appropriation to the statutory
surplus fund must be 10% of the after-tax profits as determined under PRC GAAP. Appropriation is not required if the statutory
surplus fund has reached 50% of the registered capital of the PRC companies. Appropriation to the discretionary surplus fund is
made at the discretion of the PRC companies.
The statutory surplus fund and discretionary surplus fund are restricted for use. They may only be applied to offset losses or
increase the registered capital of the respective companies. These reserves are not allowed to be transferred to the Company by way
of cash dividends, loans or advances, nor can they be distributed except for liquidation.
For the years ended December 31, 2023, 2022 and 2021, profit appropriation to statutory surplus fund for the Company’s entities
incorporated in the PRC was nil, $272,037 and $63,659, respectively. No appropriation to other reserve funds was made for any of
the periods presented.
Segment Reporting
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.
Recently Issued Accounting Pronouncements
In March 2023, the FASB issued ASU No. 2023-01, “Leases (Topic 842): Common Control Arrangements”, which amends certain
provisions of ASC 842 that apply to arrangements between related parties under common control. In addition, the ASU amends the
accounting for leasehold improvements in common-control arrangements for all entities. ASU 2023-01 is effective for fiscal years
beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted in any annual
or interim period as of the beginning of the related fiscal year. The Company will adopt ASU 2023-01 from January 1, 2024. The
Company expects the impact of adoption of this ASU to be immaterial to consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvement to Income Tax Disclosure. This standard requires more
transparency about income tax information through improvements to income tax disclosures primarily related to the rate
reconciliation and income taxes paid information. This standard also includes certain other amendments to improve the
effectiveness of income tax disclosures. ASU 2023-09 is effective for public business entities, for annual periods beginning after
December 15, 2024. For entities other than public business entities, the amendments are effective for annual periods beginning
after December 15, 2025. The Company is in the process of evaluation the impact of adopting this new guidance on its
consolidated financial statement.
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.
F-18
AGM GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - ACCOUNTS RECEIVABLE, NET
Accounts receivable consisted of the following:
Accounts receivable
Allowance for credit losses
December 31, December 31,
2023
2022
12,275,650 120,224,989
(7,415,079)
(27,469,288)
4,860,571 $ 92,755,701
$
The Company reversed credit losses of $21,946,806 and recorded credit losses of $1,892,597 for the year ended December 31,
2023 and recorded $27,469,288 and nil bad debt expense for the year ended December 31, 2022 and 2021, respectively.
Note 4 – ADVANCES TO SUPPLIERS, NET
Advances to suppliers consisted of the following:
Advances to suppliers
Provision for impairment
December 31, December 31,
2023
2022
99,908,946
(28,605,502)
13,139,128
-
$ 71,303,444 $ 13,139,128
For the year ended December 31, 2023, 2022 and 2021, the Company recorded provision of $28,605,502, nil and nil for the
advances to suppliers.
Note 5 - INVENTORIES
Inventories, primarily consisted of cryptocurrency mining machines and standardized computing equipment, which are finished
goods from manufactures. As of December 31, 2023 and 2022, inventories consisted of the following:
Finished goods
No inventory write-down was recorded for the years ended December 31, 2023, 2022 and 2021.
Note 6 - PREPAYMENT AND OTHER CURRENT ASSETS
December
31,
2023
5,502,404 $
December 31,
2022
3,915,456
Prepayment and other current assets consist of prepaid expenses, other receivables, and deposits. As of December 31, 2023 and
2022, prepayment and other current assets consisted of the following:
Loan receivable (1)
Prepaid input VAT
Deposits and others
Subtotal
Allowance for credit losses (2)
Total prepayment and other current assets
F-19
December 31, December 31,
2023
3,776,608 $
14,318
1,216,089
5,007,015
(1,155,768)
3,851,247 $
$
$
2022
1,605,000
1,106,489
224,155
2,935,644
-
2,935,644
AGM GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - PREPAYMENT AND OTHER CURRENT ASSETS (Continued)
(1) In 2021, the Company entered into a loan agreement to lend $400,000 loan to AGM Group Ltd. In April 2022, the Company
extended additional $900,000 loan to AGM Group Ltd. at the interest rate of 1% as working capital support and change the
amount to $1,200,000 in April 4, 2023. As of December 31, 2023, the total amount of loans to AGM Group Ltd. was
$1,350,000, generating interest income of $24,441.
On April 10, 2022 and 31 July, 2022, the Company entered into a loan agreement with a third party, Muliang Agriculture
Limited, to lend $280,000 and $25,000 at the interest rate of 1% for one year as working capital support. On April 9, 2023,
both parties agreed to extend the loan to December 31, 2024 and change the amount to $600,000. As of December 31, 2023,
the total amount of loans to Muliang Agriculture Limited was $465,000, generating interest income of $5,745.
On March 1, 2023, the Company entered into a loan agreement with a third party, Northnew Management Limited, to lend
$2,000,000 at the interest rate of 1%. As of December 31, 2023, the total amount of loans to Northnew Management Limited
was $1,925,426, generating interest income of $5,996.
(2) For the year ended December 31, 2023, the Company recorded credit losses of $1,155,768 for the long-age deposit. No bad
debt allowance was recorded for the year ended December 31, 2022 and 2021.
Note 7 - PROPERTY AND EQUIPMENT, NET
As of December 31, 2023 and 2022, 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, December 31,
2023
542,755 $
13,547
502,396
1,058,698
(679,020)
379,678 $
2022
541,931
13,777
510,915
1,066,623
(377,262)
689,361
$
$
Depreciation and amortization expenses for the years ended December 31, 2023, 2022 and 2021 were $309,623, $198,797 and
$36,883, respectively. For the years ended December 31, 2023, 2022 and 2021, the Company recognized loss of $7,450, nil and nil
on disposed of property and equipment in the consolidated statements of operations, respectively. There was no impairment
recorded for these property and equipment for the years ended December 31, 2023, 2022 and 2021.
Note 8 - INTANGIBLE ASSETS, NET
As of December 31, 2023 and 2022, intangible assets, net consisted of the following:
AGM domain name
Software
Total intangible assets
Less: accumulated amortization
Total intangible assets, net
December 31, December 31,
2023
2022
$
14,800 $
50,000
64,800
(20,793)
44,007
14,800
50,000
64,800
(9,314)
55,486
For the years ended December 31, 2023, 2022 and 2021, amortization expenses amounted to $11,479, $3,147 and $1,480
respectively. The following is an estimated, by fiscal years, of amortization amount of intangible asset,
Year ending December 31,
2024
2025
2026
11,480
11,480
11,480
2027
Total
9,567
44,007
F-20
AGM GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - RELATED PARTY TRANSACTIONS AND BALANCES
As of December 31, 2023, related parties of the Company consist of the following:
Name of Related Party
Yufeng Mi
Yang Cao
HongKong Kisen Co., Limited (“HongKong Kisen”)
Nature of Relationship
Chief Technical Officer (“CTO”) and shareholder
Director of Nanjing Lucun
Company ultimately controlled by Chief Strategy Officer (“CSO”)
Due to related parties
The Company mainly finance its operations through proceeds borrowed from related parties. As of December 31, 2023 and 2022,
due to related parties consisted the following:
Yufeng Mi
Yang Cao
HongKong Kisen (1)
Total due to related parties
December 31,
2022
Interest
Exchange
Rate
December 31,
2023
1,831
86,150
Received Repayment Expenses Translation
(30)
-
(1,436)
-
-
8,000,000 4,384,975 (3,160,000)
(1,466)
8,087,981 4,485,589 (3,160,000)
-
-
15,228
15,228
2,770
97,844
4,571
182,558
9,240,203
9,427,332
(1) On April 7, 2022, the Company entered into a loan agreement with HongKong Kisen to borrow $10,000,000 at the interest rate
of 0.1% for 10 months as working capital support and repaid $2,000,000 to HongKong Kisen in advance in 2022.
On January 1, 2023, both parties agreed to terminate the loan agreement mentioned above and obtain borrowings up to
$20,000,000 at the interest rate of 0.1% for one year as working capital support. In 2023, the Company borrowed $4,384,975
from HongKong Kisen and repaid $3,160,000, generating interest expense of $9,316, as of December 31,2023, total interest
payable is $15,228. The loan mentioned above can be extended on both parties’ consensus.
Apart from loan from HongKong Kisen, 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.
Note 10 - OPERATING LEASE
The Company leases offices space and dormitories under non-cancellable operating leases. The Company considers those renewal
or termination options that are reasonably certain to be exercised in the determination of the lease term and initial measurement of
right of use assets and lease liabilities.
The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the
classification criteria of a finance or operating lease.
As of December 31, 2023, the Company had no long-term leases that were classified as a financing lease, and the Company’s lease
contracts only contain fixed lease payments and do not contain any residual value guarantee.
F-21
AGM GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - OPERATING LEASE (Continued)
The balance of right-of-use assets and operating lease liabilities are as follow:
Right-of-use assets
Operating lease liabilities, current
Operating lease liabilities, non-current
Total operating lease liabilities
December
31,
2023
270,248 $
$
$
$
79,736 $
73,596
153,332 $
December 31,
2022
492,984
162,576
167,428
330,004
Supplemental information related to operating leases for the years ended December 31, 2023 and 2022:
Weighted-average remaining lease term of operating leases
Weighted-average discount rate of operating leases
The following table summarizes the maturity of the operating lease liabilities as of December 31, 2023:
Year of 2024
Year of 2025
Year of 2026
Total lease payments
Less: imputed interest
Present value of operating lease liabilities
Less: current obligation
Non-current obligation on December 31, 2023
Note 11 - SHAREHOLDERS’ EQUITY
For the Year Ended
December 31,
2023
2.26 years
2022
2.33 years
4.43%
4.62%
Operating
Leases
$
$
$
79,596
48,372
8,062
136,030
(17,302)
153,332
79,736
73,596
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. As of December 31, 2023, 24,254,842
shares of class A ordinary share and 2,100,000 shares of Class B ordinary shares were issued and outstanding. The Company
deposited with the Escrow Agent an aggregate amount of $500,000 in order to provide a source of funding for certain
indemnification obligations of the Company. In December 2022, the Company received the refund of the deposit of $492,490,
deducting the charge fee.
F-22
AGM GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11 - SHAREHOLDERS’ EQUITY (Continued)
Warrants
For each Class A ordinary share purchased on December 14, 2021, 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 per share. The purchase price for one 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 $8.3, subject to certain adjustments, and will expire three and a half
(3.5) years from the date of issuance.
The Company’s outstanding warrants are classified as equity since they qualify for exception from derivative accounting as they
are considered to be indexed to the Company’s own stock and require net share settlement. The fair value of the warrants of $12.2
million is valued based on the Black-Scholes-Merton model and is recorded as additional paid-in capital from common stock on the
relative fair value of net proceeds received using the following assumptions:
Annual dividend yield
Expected life (years)
Risk-free interest rate
Expected volatility
-
3.5
1.01%
152.16%
As of December 31, 2023 and 2022, the Company had 1,652,175 and 1,652,175 warrants outstanding to purchase 1,652,175 and
1,652,175 class A ordinary shares with weighted average exercise price of $8.3 per share and remaining contractual lives of 1.45
and 2.45 years.
Following is a summary of the status of warrants outstanding and exercisable as of December 31, 2023:
Warrants outstanding, as of December 31, 2021
Issued
Exercised
Expired
Warrants outstanding, as of December 31, 2022
Issued
Exercised
Expired
Warrants outstanding, as of December 31, 2023
Warrants exercisable, as of December 31, 2023
F-23
Weighted
Average
Exercise
Price
8.3
-
-
8.3
-
-
-
8.3
8.3
Warrants
$
1,652,175
-
-
1,652,175 $
-
-
-
1,652,175 $
1,652,175 $
AGM GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12 - RESTRICTED NET ASSETS
Part of the Company’s operations are conducted through its PRC subsidiaries, and the Company’s ability to pay dividends is
primarily dependent on receiving distributions of funds from its subsidiaries. Relevant PRC statutory laws and regulations permit
payments of dividends by its subsidiaries only out of their retained earnings, if any, as determined in accordance with PRC
accounting standards and regulations, and after it has met the PRC requirements for appropriation to statutory reserves. Paid-in
capital and additional paid-in capital of its subsidiaries included in the Company’s consolidated net assets are also non-distributable
for dividend purposes.
In accordance with the Company Law of the PRC and the PRC regulations on enterprises with foreign investment, whether a
domestic enterprise or a wholly owned foreign enterprise (“WFOE”) established in the PRC are both required to provide certain
statutory reserves, namely general reserve fund, the enterprise expansion fund and staff welfare and bonus fund which are
appropriated from net profit as reported in the enterprise’s PRC statutory accounts. Both a domestic enterprise and a WFOE are
required to allocate at least 10% of its annual after-tax profit to the general reserve until such reserve has reached 50% of its
registered capital based on the enterprise’s PRC statutory accounts. Appropriations to the enterprise expansion fund and staff
welfare and bonus fund are at the discretion of the board of directors. The aforementioned reserves can only be used for specific
purposes and are not distributable as cash dividends. All of the Company’s PRC consolidated subsidiaries are subject to the above
mandated restrictions on distributable profits.
As a result of these PRC laws and regulations, the Company’s PRC subsidiaries are restricted in their ability to transfer a portion of
their net assets to the Company. As of December 31, 2023 and 2022, net assets restricted in the aggregate included in the
Company’s consolidated net assets were both $335,696.
Note 13 - INCOME TAX
British Virgin Islands (“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.
Hong Kong
Under the tax laws of Hong Kong, AGM 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.
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.
F-24
AGM GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 - INCOME TAX (Continued)
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 believes 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 years ended December 31, 2023,
2022 and 2021, the Company has evaluated this uncertain tax position and recorded a tax liability on the Consolidated Balance
Sheet.
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, 2023.
The provision for income taxes consisted of the following:
Current
Deferred
Total
For The Year Ended December 31,
2021
2022
2023
(394,138) $(11,406,062) $ (1,535,193)
129,034
7,061,293
2,578,177
$ 2,184,039 $ (4,344,769) $ (1,406,159)
$
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
Tax effect of non-deductible expenses
Changes in valuation allowance
Effective tax rate
F-25
For The Year Ended December 31,
2021
2022
2023
25%
-2%
0%
0%
23%
25%
2%
1%
-%
28%
25%
3%
-%
-%
28%
AGM GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 - INCOME TAX (Continued)
The summary of cumulative net operating losses carried forward for the Company’s subsidiaries in different regions is as follows:
PRC Region
HK Region
Singapore Region
Total cumulative net operating loss carry-forward
Components of the Company’s net deferred tax assets are set forth below:
Deferred tax assets:
Net operating loss carry-forwards
Allowance for credit losses
Provision of advances to suppliers
Lease liability
Total of deferred tax assets
Less: valuation allowance
Net deferred tax assets
Defer tax liabilities:
Right-of-use assets
Total deferred tax liabilities
Deferred tax assets, net
For The Year Ended December 31,
2021
2022
2023
508,737
-
3,385
512,122
$ 2,666,264 $ 1,262,629 $
-
6,444
$ 2,674,612 $ 1,269,073 $
1,908
6,440
December 31, December 31,
2023
2022
$
$
$
$
$
469,409 $
2,142,711
7,151,376
38,333
9,801,829 $
-
9,801,829 $
305,492
6,867,322
-
-
7,172,814
-
7,172,814
(67,562) $
(67,562)
9,734,267 $
-
-
7,172,814
As of December 31, 2023 and 2022, deferred tax assets, net of the Company were of $9,734,267 and $7,172,814, respectively,
which was consisted of allowance for credit losses, provision of advances to suppliers and operating loss carry-forwards. As of
December 31, 2023, 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.
Accounting for Uncertainty in Income Taxes
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, 2023, 2022 and 2021, and the period from inception (April 27, 2015) to December 31, 2015. The Company
recognized liabilities for uncertain tax positions, which was included in income tax payable on the Consolidated Balance Sheets as
of December 31, 2023 and 2022.
F-26
AGM GROUP HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 - INCOME TAX (Continued)
The activity of the unrecognized tax positions related to the Company’s uncertain tax positions is summarized as follows:
Gross beginning balance
Gross increase to tax positions in the current period
Gross ending balance
2023
As of December 31,
2022
$ 6,567,028 $ 2,960,155 $ 1,638,673
1,321,482
$ 6,961,166 $ 6,567,028 $ 2,960,155
3,606,873
394,138
2021
There were no interests and penalties in relation to the Company uncertain tax positions for the years ended December 31, 2023,
2022 and 2021.
Note 14 - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Credit Risk
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, 2023 and 2022, the Company had $56,031 and $154,311 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 $70,595). As a result, cash held in China financial institutions of nil and nil were not insured as
of December 31, 2023 and December 31, 2022, respectively. The Company have not experienced any losses in such accounts
through December 31, 2023.
The Company’s cash position by geographic area was as follows:
Country:
Singapore
China (Hongkong)
China (Mainland)
Total cash and cash equivalents, and restricted cash
December 31, 2023
December 31, 2022
$
234,897
1,310,551
56,031
$ 1,601,479
15% $
82%
3%
240,204
3,678,925
154,311
100% $ 4,073,440
6%
90%
4%
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 year ended December 31, 2023, five customers accounted for 39%, 15%, 14%, 10% and 10% of the Company’s revenues,
respectively. For the year ended December 31, 2022, five customers accounted for 20%, 19%, 14%, 13% and 12% of the
Company’s revenues, respectively. For the year ended December 31, 2021, two customers accounted for 70% and 30% of the
Company’s revenues, respectively.
Suppliers
For the year ended December 31, 2023, four suppliers accounted for 25%, 21%, 20% and 18% of the Company’s total cost of
revenues. For the year ended December 31, 2022, two suppliers accounted for 75% and 11% of the Company’s total cost of
revenues. For the year ended December 31, 2021, two suppliers accounted for 72% and 12% of the Company’s cost of revenues,
respectively.
Note 15 - COMMITMENTS AND CONTINGENCIES
As of December 31, 2023, the Company entered into lease agreements as lessee with third parties for the operation. The Company
has total future lease payment of $136,030. As of December 31, 2023, the Group did not have any purchase commitments or capital
commitments.
Note 16 - SUBSEQUENT EVENTS
The Company has performed an evaluation of subsequent events through June 18, 2024, which was the date of the consolidated
financial statements were issued, and determined that no other events that would have required adjustment or disclosure in the
consolidated financial statements except for the events mentioned below.
On April 10, 2024, AGM Holdings acquires 100% equity interests of AGM Electronic Technology Limited (“AGM HK”) at a
consideration of the registered capital investment amounted to HK$ 1. AGM HK engages in the sale of cryptocurrency mining
machines and standardized computing equipment and aims to expand the market shares oversea.
On April 17, 2024, AGM Holdings incorporated a wholly owned subsidiary, AGM Canada Holdings Limited (“AGM Canada”) in
Canada. AGM Canada engages in the sale of cryptocurrency mining machines and standardized computing equipment and aims to
explore the Canada market.
On April 26, 2024, AGM HK incorporated a wholly owned subsidiary, Beijing Bixin Electronic Technology Co., Limited, in China.
On April 30, 2024, the Board of Directors of AGM Group Holdings Inc. approved and adopted an equity incentive plan (“2024
Equity Incentive Plan”). Under the 2024 Equity Incentive Plan, the Compensation Committee of the Board is authorized to deliver
an aggregate of 3,750,000 Class A Ordinary Shares.
F-27