AGMH AGM Group Holdings Inc

Prospectus filed pursuant to Rule 424(b)(4) 

Registration Statement No. 333-282420

 

AGM Group Holdings Inc.

 

Up to 16,390,000 Class A Ordinary Shares

 

Warrants to Purchase up to 65,559,999 Class A Ordinary Shares and

Up to 65,559,999 Class A Ordinary Shares issuable upon the exercise of the Warrants

 

We are offering on a best-efforts basis of up to 16,390,000 Class A ordinary shares, par value $0.001 per share of AGM Group Holdings Inc. (“AGM Holdings”, the “Company”, “we”, “our”, “us”), together with warrants to purchase up to 65,559,999 Class A ordinary shares, at a combined offering price of $0.33 per share and warrant, which is the last reported sale price of our Class A ordinary share, as reported on the Nasdaq Capital Market on February 28, 2025. Each Class A ordinary share is sold together with one warrant. Each whole warrant entitles the holder thereof to initially purchase one Class A ordinary share, and has an initial exercise price per share equal to up to 100% of the combined offering per share and the accompanying warrant or pursuant to a cashless exercise option or an alternate cashless exercise option, and will expire on a date no later than the fifth anniversary of the original issuance date. The warrants are not tradable on Nasdaq. The terms of the warrants will include (i) a potential one-time reset of the exercise price and number of our Class A ordinary shares underlying the warrants, (ii) an alternative cashless exercise option, and (iii) the anti-dilution reset mechanism as described under “Description of Warrants.”

 

The Company is authorized to issue a maximum of 400,000,000 shares with a par value of $0.001 each, being a dual class structure consisting of 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 prospectus, 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.

 

Our Class A ordinary shares are currently traded on the Nasdaq Capital Market, or Nasdaq, under the symbol “AGMH.” On February 28, 2025, the last reported sale price of our Class A ordinary shares on Nasdaq was $0.33. There is no established public trading market for the warrants, and we do not expect a market to develop. We do not intend to apply for listing of the warrants on any securities exchange or other nationally recognized trading system. Without an active trading market, the liquidity of the warrants will be limited.

 

Because there is no minimum offering amount required as a condition to closing this offering, we may sell fewer than all of the securities offered hereby, which may significantly reduce the amount of proceeds received by us, and investors in this offering will not receive a refund in the event that we do not sell an amount of securities sufficient to pursue the business goals outlined in this prospectus. Because there is no minimum offering amount, investors could be in a position where they have invested in our Company, but we are unable to fulfill our objectives due to a lack of interest in this offering. Also, any proceeds from the sale of securities offered by us will be available for our immediate use, despite uncertainty about whether we would be able to use such funds to effectively implement our business plan. See “Risk Factors” on page 15 for more information. We intend to complete one closing of this offering but may undertake one or more additional closings for the sale of the additional securities to the investors in the initial closing.

 

Investors are cautioned that you are not buying shares of a China-based operating company but instead are buying shares of a British Virgin Islands holding company with operations conducted by our subsidiaries based in China and that this structure involves unique risks to investors.

 

This is an offering of the Class A ordinary shares and warrants of the British Virgin Islands holding company. We conduct our business through our subsidiaries in China, Hong Kong SAR, Canada, the British Virgin Islands and Singapore. You will not and may never have direct ownership in the operating entities based in China, Hong Kong SAR, Canada, the British Virgin Islands and Singapore.

 

 

Unless otherwise stated, as used in this prospectus, the terms “AGM Holdings” “we,” “us,” “our Company,” and the “Company” refer to AGM Group Holdings Inc., a BVI business company limited by shares incorporated under the laws of the British Virgin Islands. AGM Group Holdings Inc. is a British Virgin Islands holding company and is not a Chinese operating company. As a holding company with no material operations of its own, it conducts all of its operations and operates its business in China, Hong Kong SAR and Canada through its subsidiaries in China, Hong Kong SAR, Canada, the British Virgin Islands and Singapore. Because of our corporate structure as a British Virgin Islands holding company with operations conducted by our subsidiaries, it involves unique risks to investors. Furthermore, Chinese regulatory authorities could change the rules and regulations regarding foreign ownership in the industry in which the Company operates, which would likely result in a material change in our operations and/or a material change in the value of the securities we are registering for sale, including that it could cause the value of such securities to significantly decline or become worthless. Investors in our securities should be aware that they do not directly hold equity interests in the Chinese operating entities, but rather are purchasing equity solely in AGM Holdings, our British Virgin Islands holding company, which indirectly owns 100% equity interests in the PRC subsidiaries. Our securities offered in this offering are securities of our British Virgin Islands holding company instead of shares of our subsidiaries in China.

 

Investing in our securities involves a high degree of risk. Before buying any securities, you should carefully read the discussion of material risks of investing in our securities in “Risk Factors” beginning on page 15 of this prospectus.

 

Because some of our operations are 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 that 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 evolving, and therefore, these adjustments could result in a material change in our operations and/or the value of our Class A ordinary shares or could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our Class A ordinary shares to significantly decline or be worthless. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. For a detailed description of risks relating to doing business in China, please refer to risks disclosed under “Risk Factors — Risks Related to Doing Business in China” on page 25 and “— Risks Related to this Offering,” beginning on page 48 of this prospectus for a discussion of these legal and operational risks and information that should be considered before making a decision to purchase our securities.

 

PRC government’s significant authority in regulating our operations and its oversight and control over offerings conducted overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide regulations, including data security or anti-monopoly related regulations, in this nature may cause the value of such securities to significantly decline. We are not operating in an industry that prohibits or limits foreign investment. As of the date of this prospectus, according to our PRC counsel, Skylight Law Firm, although we are required under the Trial Administrative Measures of the Overseas Securities Offering and Listing by Domestic Companies and relevant five guidelines (collectively, the “Overseas Listing Trial Measures”) to complete the filing procedure with the China Securities Regulatory Commission (the “CSRC”) in connection with our offering (including this offering and any subsequent offering) within three business days after such offering is completed, no relevant PRC laws or regulations in effect requires that we or our subsidiaries obtain permission from any PRC authorities to issue securities to foreign investors, and we and our subsidiaries have not received any inquiry, notice, warning, sanction, or any regulatory objection to this offering from the CSRC, the Cyberspace Administration of China (the “CAC”), or any other PRC authorities that have jurisdiction over our operations. However, if we do not receive or maintain the approvals, or we inadvertently conclude that such approvals are not required, or applicable laws, regulations, or interpretations change such that we are required to obtain approval in the future, we may be subject to investigations by competent regulators, fines or penalties, ordered to suspend our relevant operations and rectify any non-compliance, prohibited from engaging in relevant business or conducting any offering, and these risks could result in a material adverse change in our operations, 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. 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. Except for the filing procedure with the CSRC required under the Overseas Listing Trial Measures in connection with our offering (including this offering and any subsequent offering) within three business days after such offering is completed, no relevant PRC laws or regulations in effect requires that we or our subsidiaries obtain permission from any PRC authorities to issue securities to foreign investors. 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 26.

 

 

Quickly evolving rules and regulations in China, as well as differences in enforcement due to complex cases, could result in a material adverse change in our operations and the value of our Class A ordinary shares. On February 17, 2023, the CSRC promulgated Trial Administrative Measures of the Overseas Securities Offering and Listing by Domestic Companies and relevant five guidelines (collectively, the “Overseas Listing Trial Measures”), which became effective on March 31, 2023. The Overseas Listing Trial Measures comprehensively improve and reform the existing regulatory regime for overseas offering and listing of mainland China domestic companies’ securities and regulates both direct and indirect overseas offering and listing of mainland China domestic companies’ securities by adopting a filing-based regulatory regime. According to the Overseas Listing Trial Measures, (i) mainland China domestic companies that seek to offer or list securities overseas, both directly and indirectly, should fulfill the filing procedure and report relevant information to the CSRC; if a mainland China domestic company fails to complete the filing procedure or conceals any material fact or falsifies any major content in its filing documents, such mainland China domestic company may be subject to administrative penalties, such as order to rectify, warnings, fines, and its controlling shareholders, actual controllers, the person directly in charge and other directly liable persons may also be subject to administrative penalties, such as warnings and fines; (ii) if the issuer meets both of the following conditions, the overseas offering and listing shall be determined as an indirect overseas offering and listing by a mainland China domestic company: (a) any of the total assets, net assets, revenues or profits of the domestic operating entities of the issuer in the most recent accounting year accounts for more than 50% of the corresponding figure in the issuer’s audited consolidated financial statements for the same period; (b) its major operational activities are carried out in mainland China or its main places of business are located in mainland China, or the senior managers in charge of operation and management of the issuer are mostly PRC citizens or have their usual place(s) of residence located in mainland China. A PRC domestic company that seeks to offer and list securities in overseas markets shall fulfill the filing procedure with the CSRC per the requirements of the Overseas Listing Trial Measures. Where a PRC domestic company seeks to indirectly offer and list securities in overseas markets, the issuer shall designate a major domestic operating entity, which shall, as the domestic responsible entity, file with the CSRC. The Overseas Listing Trial Measures also lay out requirements for the reporting of material events. Breaches of the Overseas Listing Trial Measures, such as offering and listing securities overseas without fulfilling the filing procedures, shall bear legal liabilities, including a fine between RMB 1.0 million (approximately $150,000) and RMB 10.0 million (approximately $1.5 million), and the Overseas Listing Trial Measures heighten the cost for offenders by enforcing accountability with administrative penalties and incorporating the compliance status of relevant market participants into the Securities Market Integrity Archives. The Overseas Listing Trial Measures require subsequent reports to be filed with the CSRC on material events, such as change of control or voluntary or forced delisting of the issuers who have completed overseas offerings and listings. In addition, an overseas-listed company must also submit the filing with respect to its follow-on offerings, issuance of convertible corporate bonds and exchangeable bonds, and other equivalent offering activities, within the time frame specified by the Overseas Listing Trial Measures. However, if we do not maintain the permissions and approvals of the filing procedure in a timely manner under PRC laws and regulations, we may be subject to investigations by competent regulators, fines or penalties, ordered to suspend our relevant operations and rectify any non-compliance, prohibited from engaging in relevant business or conducting any offering, and these risks could result in a material adverse change in our operations, limit our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. As the Overseas Listing Trial Measures were newly published, there exists uncertainty with respect to the filing requirements and their implementation. Any failure or perceived failure of us to fully comply with such new regulatory requirements could significantly limit or completely hinder our ability to offer or continue to offer securities to investors, cause significant disruption to our business operations, and severely damage our reputation, which could materially and adversely affect our financial condition and results of operations and could cause the value of our securities to significantly decline or be worthless. For more details, see “Risk Factors — Risks Related to Doing Business in China —

 

Due to different circumstances, there are differences regarding the interpretation and enforcement of PRC laws, rules and regulations in different cases” on page 30 and 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 34.

 

As confirmed by our PRC counsel, Skylight Law Firm, we will not be subject to cybersecurity review with the CAC, after the Cybersecurity Review Measures became effective on February 15, 2022, since we currently do not have over one million users’ personal information and do not anticipate that we will be collecting over one million users’ personal information in the foreseeable future, which we understand might otherwise subject us to the Cybersecurity Review Measures; we are also not subject to network data security review by the CAC if the Draft Regulations on the Network Data Security Administration are enacted as proposed, since we currently do not have over one million users’ personal information and do not collect data that affects or may affect national security and we do not anticipate that we will be collecting over one million users’ personal information or data that affects or may affect national security in the foreseeable future, which we understand might otherwise subject us to the Security Administration Draft. 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 34.

 

 

According to the Circular of the State Council on Further Strengthening the Administration of Share Issuance and Listing Abroad (the “Circular”), since the date of effectiveness of the Overseas Listing Trial Measures on March 31, 2023, an overseas-listed company must also submit the filing with respect to its follow-on offerings, issuance of convertible corporate bonds and exchangeable bonds, and other equivalent offering activities, within the time frame specified by the Overseas Listing Trial Measures. As a result, we will be required to file with the CSRC within three business days after the completion of this offering. We begin the process of preparing a report and other required materials in connection with the CSRC filing, which will be submitted to the CSRC in due course after this offering. However, if we do not maintain the permissions and approvals of the filing procedure in a timely manner under PRC laws and regulations, we may be subject to investigations by competent regulators, fines or penalties, ordered to suspend our relevant operations and rectify any non-compliance, prohibited from engaging in relevant business or conducting any offering, and these risks could result in a material adverse change in our operations, limit our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. As the Circular and Overseas Listing Trial Measures were newly published, there exists uncertainty with respect to the filing requirements and their implementation. Any failure or perceived failure of us to fully comply with such new regulatory requirements could significantly limit or completely hinder our ability to offer or continue to offer securities to investors, cause significant disruption to our business operations, and severely damage our reputation, which could materially and adversely affect our financial condition and results of operations and could cause the value of our securities to significantly decline or be worthless. 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 34 and “Risk Factors — Risks Related to Doing Business in China — Due to different circumstances, there are differences regarding the interpretation and enforcement of PRC laws, rules and regulations in different cases.” on page 30.

 

As of the date of this prospectus, according to our PRC counsel, Skylight Law Firm, although we are required under the Overseas Listing Trial Measures to complete the filing procedure in connection with our offering (including this offering and any subsequent offering) within three business days after such offering is completed, no relevant PRC laws or regulations in effect requires that we or our subsidiaries obtain permission from any PRC authorities to issue securities to foreign investors, and we and our subsidiaries have not received any inquiry, notice, warning, sanction, or any regulatory objection to this offering from the CSRC, the CAC, or any other PRC authorities that have jurisdiction over our operations. 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 regulation by PRC government based on the objective of optimizing the market.

 

 

In addition, since 2021, the Chinese government has strengthened its anti-monopoly supervision, mainly in three aspects: (1) establishing the National Anti-Monopoly Bureau; (2) revising and promulgating anti-monopoly laws and regulations, including: the Anti-Monopoly Law (draft Amendment published on October 23, 2021 for public opinions), the anti-monopoly guidelines for various industries, and the detailed Rules for the Implementation of the Fair Competition Review System; and (3) expanding the anti-monopoly law enforcement targeting Internet companies and large enterprises. As of the date of this prospectus, the Chinese government’s recent statements and regulatory actions related to anti-monopoly concerns have not impacted our ability to conduct business, accept foreign investments, or list on a U.S. or other foreign exchange because neither the Company nor its PRC subsidiaries engage in monopolistic behaviors that are subject to these statements or regulatory actions.

 

On March 24, 2021, the U.S. Securities and Exchange Commission (the “SEC”) adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the Holding Foreign Companies Accountable Act (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 HFCAA 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 the Public Company Accounting Oversight Board (the “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 HFCAA. 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 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 prospectus, 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 prospectus, 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 prospectus, 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 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 “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 42 of this prospectus.

 

 

AGM Holdings is a holding company with no operations of its own. We conduct our operations in China, Hong Kong SAR, and Canada primarily through our subsidiaries established in China, Hong Kong SAR, Canada, the British Virgin Islands and Singapore. We may rely on dividends to be paid by our 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 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 Holdings, AGM Holdings is permitted under the BVI laws to provide funding to our subsidiaries in Singapore, Hong Kong SAR, the British Virgin Islands and Canada through loans or capital contributions without restrictions on the amount of the funds, subject to satisfaction of applicable government registration, approval and filing requirements. Our subsidiaries in Hong Kong SAR are permitted under Hong Kong laws to provide funding to our subsidiaries in the PRC.

 

Subject to the BVI Business Companies Act (2020 Revised Edition) (the “BVI Act”) and our memorandum and articles of association, our Board of Directors may authorize and declare a distribution 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 distribution the value of our assets will exceed our liabilities and we will be able to pay our debts as they become due. 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%. Withholding tax regarding dividends is exempted in Hong Kong.

 

Our subsidiaries, AGM Technology Limited, a Hong Kong SAR limited company (“AGM HK”), AGM Defi Tech Limited., a Hong Kong SAR limited company (“AGM Defi Tech”), AGM Electronic Technology Limited, a Hong Kong SAR company (“AGM Electronic”), and AGM Integrated Tech Limited, a Hong Kong SAR company (“AGM Integrated”), are permitted under the laws of Hong Kong to provide funding to AGM Holdings through dividend distribution out of profits available for distributions.  AGM Software Service LTD, our subsidiary incorporated under the laws of the British Virgin Islands company limited by shares (“AGM Software”) is permitted under the BVI laws to provide funding to AGM Holdings through distribution as long as that immediately following the distribution the value of AGM Software’s assets will exceed its liabilities and it will be able to pay its debts as they become due. Under the Business Corporations Act of British Columbia, AGM Canada Holdings Limited., a corporation incorporated in British Columbia, Canada (“AGM Canada”) and a wholly-owned subsidiary of AGM Holdings, is permitted to pay dividends to AGM Holdings, whether out of profits, capital, or otherwise, unless its charter or an enactment provides otherwise. Under the Business Corporations Act of Alberta, Canada, AGM Energy Corp., a corporation incorporated in Alberta, Canada (“AGM Energy”) and a 49% owned entity by AGM Canada, is permitted to declare or pay a dividends if there are no reasonable grounds for believing that (a) the corporation is unable to pay its liabilities as they become due, or (b) the realizable value of the corporation’s assets would be less than its liabilities. Per section 403 of the Singaporean Companies Act, AGM Defi Lab, our subsidiary established in Singapore, can declare dividends to AGM Holdings if there are profits available at the time of the declarations.

 

Current PRC regulations permit our PRC subsidiaries to pay dividends to AGM HK, AGM Defi Tech, AGM Electronic and AGM Integrated 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 entities 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.

 

 

Certain payments from our PRC subsidiaries to the Hong Kong subsidiaries are subject to PRC taxes, including business taxes and a value-added tax (the “VAT”). 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 Holdings to AGM HK, AGM Defi Tech, AGM Electronic and AGM Integrated, or from AGM HK, AGM Defi Tech, AGM Electronic and AGM Integrated to AGM Holdings. 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.

 

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.

 

To ensure foreign exchange market and exchange rate stability, the People’s Bank of China and the State Administration of Foreign Exchange, or SAFE, have implemented a series of capital optimization 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 supervision and our PRC subsidiaries’ dividends and other distributions may be subject to tightened scrutiny in the future. The PRC government also imposes supervision 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.

 

During the period from January 1, 2024 to the date of this prospectus and fiscal years ended December 31, 2023, 2022 and 2021, no cash or asset transfers have occurred among the Company and its subsidiaries and we have not declared any dividends to our shareholders. We do not expect to pay any cash dividends in the foreseeable future. We do not have any cash management policies that dictate the amount of such funds and how such funds are transferred.

 

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

		Per Class A ordinary share and accompanying warrant				Total
Offering price(1)		US $	0.33			US $	5,408,700.00
Placement agent’s fees(2)		US $	0.02475			US $	405,652.5
Proceeds to our company before expenses(3)		US $	0.30525			US $	5,003,047.5

 

(1)	The Class A ordinary shares and accompanying warrants are offered at an  offering price of US$0.33 per share and accompanying warrant, which is the last reported sale price of our Class A ordinary shares, as reported on the Nasdaq Capital Market on  February 28, 2025.
(2)	We have agreed to pay the placement agent a cash fee equal to 7.5% of the aggregate gross proceeds raised in this offering. We have also agreed to reimburse the placement agent for certain of their offering-related expenses. In addition, the placement agent will receive such number of compensation warrants (the “Placement Agent’s Warrants”) as is equal to 2% of ‎the aggregate number of securities sold in this offering. The ‎Placement Agent’s Warrants will be exercisable at price equal to 125% of the offering price sold in this offering. See “Plan of Distribution” beginning on page 108 of this prospectus for a description of the compensation to be received by the placement agent.
(3)	We estimate the total expenses of this offering payable by us, excluding the placement agent’s fees and reimbursement of the placement agent’s expenses, will be approximately US$208,481.60.

 

We have engaged Maxim Group LLC (the “placement agent”) as our exclusive placement agent to use its reasonable best efforts to solicit offers to purchase our securities in this offering. The placement agent has no obligation to purchase and are not purchasing or selling the securities offered by us, and are not required to arrange for the purchase or sale of any specific number or dollar amount of our securities, but will use their reasonable best efforts to solicit offers to purchase the securities offered by this prospectus. Because there is no minimum offering amount required as a condition to closing in this offering the actual offering amount, the placement agent’s fee, and proceeds to us, if any, are not presently determinable and may be substantially less than the total maximum offering amounts set forth above and throughout this prospectus. We have agreed to pay the placement agent fees set forth in the table above, to issue the Placement Agent’s Warrants and to provide reimbursement of certain expenses and certain other compensation to the placement agent. See “Plan of Distribution” of this prospectus for more information regarding these arrangements.

 

We will deliver Class A ordinary shares being issued to the investors electronically and will mail such investors physical warrant certificates for the warrants sold in this offering, upon closing and receipt of investor funds for the purchase of the securities offered pursuant to this prospectus. We expect the delivery of such securities against payment in U.S. dollars will be made in New York, New York on or about, March 4, 2025.

 

 

Prospectus dated March 2, 2025.

 

 

TABLE OF CONTENTS

 

	Page
ABOUT THIS PROSPECTUS	ii
SPECIAL NOTES REGARDING FORWARD-LOOKING STATEMENTS	iv
PROSPECTUS SUMMARY	1
RISK FACTORS	15
ENFORCEABILITY OF CIVIL LIABILITIES	51
USE OF PROCEEDS	52
DIVIDEND POLICY	53
CAPITALIZATION	54
DILUTION	55
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	56
BUSINESS	74
MANAGEMENT	85
EXECUTIVE COMPENSATION	91
PRINCIPAL SHAREHOLDER	93
RELATED PARTY TRANSACTIONS	95
DESCRIPTION OF SHARES AND CERTAIN BRITISH VIRGIN ISLANDS CONSIDERATIONS	96
DESCRIPTION OF WARRANTS	101
TAXATION	102
PLAN OF DISTRIBUTION	108
EXPENSES RELATING TO THIS OFFERING	113
LEGAL MATTERS	114
EXPERTS	114
WHERE YOU CAN FIND ADDITIONAL INFORMATION	115
INDEX TO FINANCIAL STATEMENTS	F-1

 

 

ABOUT THIS PROSPECTUS

 

We and the placement agent have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by us or on our behalf or to which we have referred you and which we have filed with the SEC. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted or where the person making the offer or sale is not qualified to do so or to any person to whom it is not permitted to make such offer or sale. For the avoidance of doubt, no offer or invitation to subscribe for our securities is made to the public in the British Virgin Islands The information contained in this prospectus is current only as of the date on the front cover of the prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

 

Commonly Used Defined Terms

 

Except where the context otherwise requires and for purposes of this prospectus only, “we,” “us,” “our company,” “Company,” “our” and “AGM Holdings” refer to AGM Group Holdings Inc., a British Virgin Islands company limited by shares. We have the following subsidiaries:

 

	●	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 Energy Corp., a corporation incorporated in Alberta, Canada (“AGM Energy”) and a 49% owned entity by AGM Canada;
	●	AGM Integrated Tech Limited, a Hong Kong SAR company (“AGM Integrated”), 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 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 PRC and a wholly-owned subsidiary of AGM HK;
	●	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 (“Beijing Bixin”), a company formed under the laws of People’s Republic of China (the “PRC”) and a wholly-owned subsidiary of AGM Electronic;
	●	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;
	●	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; and
	●	Nanjing Lucun Semiconductor Co., Ltd. (“Nanjing Lucun”), a PRC company and a wholly-owned subsidiary of AGM HK.

 

This prospectus 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 RMB6.4515 to $1.00, respectively. The condensed consolidated balance sheet balances, with the exception of equity, at June 30, 2024 was translated at RMB7.1268 to $1.00. The equity accounts were stated at their historical rate. The average translation rates applied to condensed consolidated statements of operations and cash flows for the six months ended June 30, 2024 and 2023 were RMB7.1051, RMB6.9291 to $1.00, respectively.

 

We obtained the industry and market data used in this prospectus 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 prospectus other than to the extent specifically cited in this prospectus. We have sought to provide current information in this prospectus and believe that the statistics provided in this prospectus remain up-to-date and reliable, and these materials are not incorporated in this prospectus other than to the extent specifically cited in this prospectus.

 

 

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain matters discussed in this prospectus 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 “Risk Factors,” and elsewhere in this prospectus, 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 prospectus reflect our views and assumptions only as of the date this prospectus is signed. Except as required by law, we assume no responsibility for updating any forward-looking statements.

 

 

 

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.

 

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.

 

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.

 

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.

 

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 Class A ordinary shares.

 

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.

 

As the result of the discontinued business, for the six months ended June 30, 2024, one customer accounted for 99% of the Company’s revenues. 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. 

 

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 six months ended June 30, 2024, one supplier accounted for 100% of the Company’s total cost of revenues. 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.

 

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 cryptocurrencies and blockchain technology hardware 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. For the technology hardware 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. 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 technology hardware is in rapid growth due to rapid growth of actual and predicted demand. The market, thus, has become more competitive. 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.

 

 

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. 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.

 

There is a growing emphasis on intellectual property rights in China. Due to the different circumstances of the case, there are differences in the application of law. 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.

 

 

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.

 

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. 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, as well as the six months ended June 30, 2024, 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 and June 30, 2024. As a result of inherent limitations, our internal control over financial reporting may not prevent or detect misstatements, errors, or omissions.

 

 

In addition, once we cease to be a “non- accelerated filer” as such term is defined under Rule 12b-2 under the 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, Hong Kong SAR, Canada, the British Virgin Islands and Singapore. 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 supervision, and more compliance requirements may be put forward by SAFE for cross-border transactions falling under both the current account and the capital account. Any limitation on the ability of our PRC subsidiary to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

 

 

In addition, the Enterprise Income Tax Law, or EIT, and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated. Any limitation on the ability of our PRC subsidiary to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

 

Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC entity. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including, without limitation, that (a) the Hong Kong entity must be the beneficial owner of the relevant dividends; and (b) the Hong Kong entity must directly hold no less than 25% share ownership in the PRC entity during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong entity must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by our PRC subsidiaries to their immediate holding companies, AGM HK, AGM Defi Tech, AGM Electronic and AGM Integrated. As of the date of this prospectus, AGM Beijing, Beijing Keen Sense, Beijing Bixin, AGM Tianjing and Nanjing Lucun currently do not have plans to declare and pay dividends to AGM HK, AGM Defi Tech, AGM Electronic and AGM Integrated and we have not applied for the tax resident certificate from the relevant Hong Kong tax authority. AGM HK, AGM Defi Tech, AGM Electronic and AGM Integrated intend to apply for the tax resident certificate when AGM Beijing, Beijing Keen Sense, Beijing Bixin, AGM Tianjing and Nanjing Lucun plan to declare and pay dividends to them. When AGM Beijing, Beijing Keen Sense, Beijing Bixin, AGM Tianjing and Nanjing Lucun plan to declare and pay dividends to AGM HK, AGM Defi Tech, AGM Electronic and AGM Integrated 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. Except for the filing procedure with the CSRC required under the Overseas Listing Trial Measures in connection with our offering (including this offering and any subsequent offering) within three business days after such offering is completed, no relevant PRC laws or regulations in effect requires that we or our subsidiaries obtain permission from any PRC authorities to issue securities to foreign investors. 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 increasingly higher requirements for the compliance of the market economy, 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 affected China-based operating companies whose securities are listed in the United States. 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 deepening the reform field or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.

 

Given recent statements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers, any such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless.

 

 

Recently, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Severely Cracking Down on Illegal Securities Activities According to Law, or the Opinions, which was made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems, will be taken to deal with the risks and incidents of China-concept overseas listed companies. As of the date of this prospectus, 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 compliance requirements from regulatory agency in the provinces in which they operate. The Company could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and government sub-divisions. The Company may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for any failure to comply. Additionally, the governmental and regulatory interference could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.

 

Furthermore, it is uncertain when and whether the Company will be required to obtain permission from the PRC government to list on U.S. exchanges in the future, and even when such permission is obtained, whether it will be denied or rescinded. Although the Company is currently not required to obtain permission from any of the PRC federal or local government to obtain such permission and has not received any denial to list on the U.S. exchange, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its business or industry.

 

 

On December 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 Revised Review Measures, 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.   On August 30, 2024, the executive meeting of The State Council deliberated and adopted the Administration Regulations on Network Data Security (Draft). If the Administration Regulations on Network Data Security (Draft) 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 the Overseas Listing Trial Measures, 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.

 

 

At the 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 Overseas Listing Trial Measures or offer and list securities in an overseas market in violation of the Overseas Listing 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 prospectus. 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.”

 

 

Due to different circumstances, there are differences regarding the interpretation and enforcement of PRC laws, rules, and regulations in different cases.

 

Substantially all of our operations are conducted in the PRC, and are governed by PRC laws, rules and regulations. Our PRC subsidiaries are subject to laws, rules, and regulations applicable to foreign investment in China. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value.

 

In 1979, the PRC government began to promulgate a comprehensive system of laws, rules and regulations governing economic matters in general. The overall effect of legislation over the past four decades has significantly enhanced the protections afforded to various forms of foreign investment in China. However, China has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not sufficiently cover all aspects of economic activities in China or may be subject to significant degrees of interpretation by PRC regulatory agencies. Due to the rapid development of China’s economy, the PRC legal system continues to rapidly evolve. The huge size and complexity of China’s economy can lead to differences in the interpretation and application of laws. Since China and the United States are very different in terms of political and legal systems, if investors view China issues solely from the perspective of the United States, it may bring pressure and impact on our business. 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. Except for the filing procedure with the CSRC required under the Overseas Listing Trial Measures in connection with our offering (including this offering and any subsequent offering) within three business days after such offering is completed, no relevant PRC laws or regulations in effect requires that we or our subsidiaries obtain permission from any PRC authorities to issue securities to foreign investors. 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 26 of this prospectus.

 

Due to the high caseload, administrative and court proceedings in China may require waiting lines, resulting in substantial costs and diversion of resources and management attention. Because of the different circumstances of the cases, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business, financial condition and results of operations.

 

On July 6, 2021, 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. 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, and cybersecurity and data privacy protection requirements and similar matters. The Opinions remain unclear on how the law will be interpreted, amended, and implemented by the relevant PRC governmental authorities, but the Opinions and any related implementing rules to be enacted may subject us to compliance requirements in the future.

 

On August 20, 2021, the SCNPC promulgated the Personal Information Protection Law, which took effect on November 1, 2021. The Personal Information Protection Law aims at protecting the personal information rights and interests, regulating the processing of personal information, ensuring the orderly and free flow of personal information in accordance with the law, and promoting the reasonable use of personal information. According to the Personal Information Protection Law, personal information includes all kinds of identified or identifiable information related to natural persons recorded by electronic or other means, but excludes de-identified information. The Personal Information Protection Law also specified the rules for handling sensitive personal information, which includes biometrics, religious beliefs, specific identities, medical health, financial accounts, trails and locations, and personal information of teenagers under fourteen years old and other personal information, which, upon leakage or illegal usage, may easily infringe the personal dignity or harm of safety of livelihood and property. Personal information handlers shall bear responsibility for their personal information handling activities, and adopt necessary measures to safeguard the security of the personal information they handle. Otherwise, the personal information handlers will be ordered for rectification or suspension or termination of provision of services, confiscation of illegal income, subject to fines or other penalties.

 

 

On July 7, 2022, the CAC issued the Measures on Security Assessment of the Cross-border Transfer of Data, effective from September 1, 2022. The measures provide that four types of cross-border transfers of critical data or personal data generated from or collected in the PRC should be subject to a security assessment, which include: (i) a data processor to transfer important data overseas; (ii) either a critical information infrastructure operator, or a data processor processing personal information of more than 1 million individuals, transfers personal information overseas; (iii) a data processor who has, since January 1 of the previous year, transferred personal information of more than 100,000 individuals overseas cumulatively, or transferred sensitive personal information of more than 10,000 individuals overseas cumulatively; or (iv) other circumstances under which security assessment of data cross-border transfer is required as prescribed by the national cyberspace administration. We have applied for a security assessment by the CAC regarding the cross-border transfer of certain data in our business operations in accordance with the Measures on Security Assessment of the Cross-border Transfer of Data. However, since these measures are relatively new, the interpretation and implementation of these measures in practice are subject to changes, including the assessment result by the CAC.

 

As advised by our PRC counsel, Skylight Law Firm, we are not among “data processor” as mentioned above. In addition, neither the Company nor its subsidiaries is an operator of any “critical information infrastructure” as defined under the PRC Cybersecurity Law and the Security Protection Measures on Critical Information Infrastructure. However, Measures for Cybersecurity Review (2021 version) was recently adopted and the Opinions remain unclear on how it will be interpreted, amended and implemented by the relevant PRC governmental authorities.

 

There remains uncertainties as to when the final measures will be issued and take effect, how they will be enacted, interpreted or implemented, and whether they will affect us. If we inadvertently conclude that the Measures for Cybersecurity Review (2021 version) do not apply to us, or applicable laws, regulations, or interpretations change and it is determined in the future that the Measures for Cybersecurity Review (2021 version) become applicable to us, we may be subject to review when conducting data processing activities, and may face challenges in addressing its requirements and make necessary changes to our internal policies and practices. We may incur substantial costs in complying with the Measures for Cybersecurity Review (2021 version), which could result in material adverse changes in our business operations and financial position. If we are not able to fully comply with the Measures for Cybersecurity Review (2021 version), our ability to offer or continue to offer securities to investors may be significantly limited or completely hindered, and our securities may significantly decline in value or become worthless.

 

Thus, it is still uncertain how PRC governmental authorities will regulate overseas listing in general and whether we are required to obtain any specific regulatory approvals. Furthermore, if the CSRC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for any follow-on offering, we may be unable to obtain such approvals which could significantly limit or completely hinder our ability to offer or continue to offer securities to our investors.

 

Furthermore, the PRC government authorities may strengthen compliance requirements over offerings that are conducted overseas and/or foreign investment in China-based issuers like us. Such actions taken by the PRC government authorities may intervene or influence our operations, which are beyond our control. Therefore, any such action may adversely affect our operations and significantly limit or hinder our ability to offer or continue to offer securities to you and reduce the value of such securities.

 

The impact of case differences on law enforcement and the increasing compliance requirements of the Chinese government could result in a material change in our operations, financial performance and/or the value of our Class A ordinary shares or impair our ability to raise money.

 

 

The M&A Rules and certain other PRC regulations establish strict 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.

 

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 as amended in 2022 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 RMB12 billion and at least two of these operators each had a turnover of more than RMB800 million within China, or (ii) the total turnover within China of all the operators participating in the concentration exceeded RMB4  billion, and at least two of these operators each had a turnover of more than RMB800 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 a BVI business company incorporated under the laws of the British Virgin Islands, and substantially all of our assets are located outside of the United States. Virtually all of our assets and a substantial portion of our current business operations are conducted in the PRC. In addition, almost all of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons is located outside the United States. As a result, it may be difficult for you to bring an action against these individuals within the United States. It may also be difficult for you to enforce the U.S. courts judgments obtained in U.S. courts, including judgments based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, many of whom are not residents in the United States, and whose significant part of assets are located outside of the United States.

 

In addition, there is uncertainty as to whether the courts of the British Virgin Islands or the PRC, respectively, would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. In addition, it is uncertain whether such British Virgin Islands or PRC courts would entertain original actions brought in the courts of the British Virgin Islands or the PRC against us or such persons predicated upon the securities laws of the United States or any state.

 

The recognition and enforcement of foreign judgments are provided for under the Chinese Civil Procedure Law. Chinese courts may recognize and enforce foreign judgments in accordance with the requirements of the Chinese Civil Procedure Law based either on treaties between China and the country where the judgment is made or in reciprocity between jurisdictions. China does not have any treaties or other agreements with the British Virgin Islands or the United States that provide for the reciprocal recognition and enforcement of foreign judgments. As a result, it is uncertain whether a Chinese court would enforce a judgment rendered by a court in either of these two jurisdictions.

 

The United States and the British Virgin Islands do not have a treaty providing for reciprocal recognition and enforcement of judgments of courts of the United States in civil and commercial matters and that a final judgment for the payment of money rendered by any general or state court in the United States based on civil liability, whether or not predicated solely upon the U.S. federal securities laws, may not be enforceable in the British Virgin Islands. A final and conclusive judgment obtained in U.S. federal or state courts under which a sum of money is payable as compensatory damages (i.e., not being a sum claimed by a revenue authority for taxes or other charges of a similar nature by a governmental authority, or in respect of a fine or penalty or multiple or punitive damages) may be the subject of an action on a debt in the court of the British Virgin Islands.

 

The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary duties of our directors to us under BVI law are governed by the BVI Companies Act and the common law of the BVI. The common law of the BVI is derived in part from comparatively limited judicial precedent in the BVI as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the BVI. The rights of our shareholders and the fiduciary duties of our directors under BVI law are not as clearly established as they would be under statutes or judicial precedent in some states in the United States. In particular, the BVI has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the BVI. In addition, BVI companies may not have the standing to initiate a shareholder derivative action in a federal court of the United States.

 

Our shareholders are entitled, by giving written notice to the Company, to inspect the Company’s memorandum and articles of association, register of shareholders, register of directors and minutes of meetings and resolutions of shareholders. However, pursuant to BVI law, our directors may, if they are satisfied that it would be contrary to the Company’s interests to allow a shareholder to inspect the register of shareholders, register of directors, minutes of meetings, resolution of shareholders, or any part of such document, refuse to permit the shareholder to inspect that document or limit the inspection of that document, including limiting the making of copies or the taking of extracts from the records. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

 

Certain corporate governance practices in the BVI differ significantly from requirements for companies incorporated in other jurisdictions such as the United States. Currently, we do not plan to rely on BVI practice with respect to any corporate governance matter. However, if we choose to follow BVI practice in the future, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.

 

As a result of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by our management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States. For a discussion of significant differences between the provisions of the BVI Companies Act and the laws applicable to companies incorporated in the United States and their shareholders, see “Description of Shares and Certain British Virgin Islands Considerations — Difference in Corporate Law.”

 

 

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) each of 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.

 

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 of this prospectus, 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 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. On August 30, 2024, the executive meeting of The State Council deliberated and adopted the Administration Regulations on Network Data Security (Draft).

 

We believe that we will not be subject to the effective Cybersecurity Review Measures, 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 the Overseas Listing Trial Measures, 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.

 

At the 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 Overseas Listing Trial Measures or offer and list securities in an overseas market in violation of the Overseas Listing 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.

 

 

As of the date of this prospectus, we and our PRC subsidiaries have obtained 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 prospectus, according to our PRC counsel, Skylight Law Firm, although we are required under the Overseas Listing Trial Measures to complete the filing procedure in connection with our offering (including this offering and any subsequent offering) within three business days after such offering is completed, no relevant PRC laws or regulations in effect requires that we or our subsidiaries obtain permission from any PRC authorities to issue securities to foreign investors, and we and our subsidiaries have not received any inquiry, notice, warning, sanction, or any regulatory objection to this offering from the CSRC, the CAC, or any other PRC authorities that have jurisdiction over our operations. 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. 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.

 

The PRC laws and regulations governing the Company’s business operations are constantly evolving. Any changes in such PRC laws and regulations as well as in the PRC economic, political, and social conditions may have a material effect on the PRC economy, and in turn the Company’s business.

 

The PRC laws and regulations governing the Company’s business are constantly evolving 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.

 

The difference in the legal system between PRC and the United States has an adverse impact on companies’ international operations.

 

The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value.

 

 

In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, the PRC legal system is based on written statutes and prior court decisions have limited value as precedents. Since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules may not be uniform and enforcement of these laws, regulations and rules involves uncertainties. These uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights or tort claims. In addition, the regulatory uncertainties may be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments or benefits from us. Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have a retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. In particular, PRC laws and regulations concerning the businesses that we are involved in are developing and evolving. Although we have taken measures to comply with the laws and regulations that are applicable to our business operations and avoid conducting any non-compliant activities under the applicable laws and regulations, the PRC governmental authorities may promulgate new laws and regulations regulating the industry in the future. We cannot assure you that our practice would not be deemed to violate any new PRC laws or regulations relating to the industry. Moreover, developments in the industry may lead to changes in PRC laws, regulations, and policies or in the interpretation and application of existing laws, regulations and policies that may limit or restrict online reading marketplaces like us, which could materially and adversely affect our business and operations.

 

The political and economic policies of the Chinese government, while favorable to China’s economic growth, could have a material adverse effect on China’s overall economic growth in the event of political friction and economic sanctions between the U.S. government and 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 impact 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, adjust 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 global economy and slower growth in China could materially and adversely affect our business and financial condition.

 

Any prolonged slowdown in the global economy and slower growth in China may have a negative impact on our business, results of operations and financial condition. In particular, general economic factors and conditions in worldwide, including the general interest rate environment and unemployment rates, may affect our customer’s purchase of technology hardware. 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 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 Chinese mainland 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.

 

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 requirements 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.

 

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.

 

 

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.

 

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.

 

 

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, if we are deemed a PRC resident enterprise, 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 “Business — 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 securities may decline significantly.

 

Strict procedure on currency exchange may limit PRC investors’ ability to make investment.

 

To ensure foreign exchange market and exchange rate stability, the PBOC and the State Administration of Foreign Exchange, or SAFE, have implemented a series of capital optimization 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 focus on capital market stability, and more regulations 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.

 

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 HFCAA 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 HFCAA. 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 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 prospectus, 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 prospectus, 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 prospectus, 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. 

 

 

Differences in the interpretation and enforcement of Chinese laws and regulations and those in the United States may impact 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. Differences in the interpretation and enforcement of Chinese laws and regulations and those in the United States may impact the legal protections available to us. Due to the rapid development of China’s economy, the PRC legal system continues to rapidly evolve, the huge size and complexity of China’s economy can lead to differences in the interpretation and application of laws.

 

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, 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 optimize 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 the different circumstances of the cases, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. Since China and the United States are very different in terms of political and legal systems, if investors view China issues solely from the perspective of the United States, it may bring pressure and impact on our business.

 

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 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.

 

 

Risks Related to Our Share Structure and Class A Ordinary Shares

 

The dual-class structure of our Class A 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 prospectus, 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 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 of this prospectus. As of the date of this prospectus, 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 28.56% of 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 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.

 

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 Class A ordinary shares 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 may experience extreme stock price volatility, including any stock-run up, unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Class A ordinary shares.

 

In addition to the risks addressed above in “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,” our Class A ordinary shares may be subject to extreme volatility that is seemingly unrelated to the underlying performance of our business. In particular, our Class A ordinary shares may be subject to rapid and substantial price volatility, low volumes of trades and large spreads in bid and ask prices, given that we will have relatively small public floats after this offering. Such volatility, including any stock-run up, may be unrelated to our actual or expected operating performance, financial condition, or prospects.

 

 

Holders of our Class A ordinary shares may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our Class A ordinary shares. As a result of this volatility, investors may experience losses on their investment in our securities. Furthermore, the potential extreme volatility may confuse the public investors of the value of our stock, distort the market perception of our stock price and our company’s financial performance and public image, negatively affect the long-term liquidity of our Class A ordinary shares, regardless of our actual or expected operating performance. If we encounter such volatility, including any rapid stock price increases and declines seemingly unrelated to our actual or expected operating performance and financial condition or prospects, it will likely make it difficult and confusing for prospective investors to assess the rapidly changing value of our Class A ordinary shares and understand the value thereof.

 

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.

 

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 securities if the market price of our securities 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 prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business, brand and reputation and results of operations.

 

We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our Board of Directors, particularly to serve on our Audit Committee and Compensation Committee, and qualified executive officers.

 

The obligation to disclose information publicly may put us at a disadvantage to 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 prospectus, 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 Class A ordinary 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.

 

Risks Related to the Offering

 

This is a best efforts offering, no minimum number or dollar amount of securities is required to be sold, and we may not raise the amount of capital we believe is required for our business plans.

 

The placement agent has agreed to use their reasonable best efforts to solicit offers to purchase the securities in this offering. The placement agent has no obligation to buy any of the securities from us or to arrange for the purchase or sale of any specific number or dollar amount of the securities. There is no required minimum number of securities that must be sold as a condition to completion of this offering. Because there is no minimum offering amount required as a condition to the closing of this offering, the actual offering amount, placement agent’s fees and proceeds to us are not presently determinable and may be substantially less than the maximum amounts set forth above. We may sell fewer than all of the securities offered hereby, which may significantly reduce the amount of proceeds received by us, and investors in this offering will not receive a refund in the event that we do not sell an amount of securities sufficient to fund our business plan. Thus, we may not raise the amount of capital we believe is required for our operations in the short-term and may need to raise additional funds, which may not be available or available on terms acceptable to us.

 

Because there is no minimum required for the offering to close, investors in this offering will not receive a refund in the event that we do not sell an amount of securities sufficient to pursue the business goals outlined in this prospectus.

 

We have not specified a minimum offering amount in connection with this offering. Because there is no minimum offering amount, investors could be in a position where they have invested in our company, but we are unable to fulfill our objectives due to a lack of interest in this offering. Further, any proceeds from the sale of securities offered by us will be available for our immediate use, despite uncertainty about whether we would be able to use such funds to effectively implement our business plan. Upon closing of this offering, investor funds will not be returned under any circumstances whether during or after this offering.

 

 

There is no public market for the warrants.

 

There is no established public trading market for the warrants, and we do not expect a market to develop. In addition, we do not intend to apply to list the warrants on any national securities exchange or other nationally recognized trading system, including the Nasdaq Stock Market LLC. Without an active market, the liquidity of the warrants will be limited.

 

The warrants in this offering are speculative in nature.

 

The warrants in this offering do not confer any rights of Class A ordinary shares ownership on their holders, but rather merely represent the right to acquire Class A ordinary shares. Each warrant entitles the holder thereof to initially purchase one Class A ordinary share, and has an initial exercise price per share equal to up to 100% of the combined offering price per Class A ordinary share and the accompanying warrant or pursuant to a cashless exercise option or an alternate cashless exercise option, and will expire on a date no later than the fifth anniversary of the original issuance date. If the warrants are exercised by way of an alternative cashless exercise, such exercising holder will receive 1.2 Class A ordinary shares for each warrant they exercise, without any cash payment to us. No fractional Class A ordinary shares will be issued in connection with the exercise of a warrants. Further, on the 19th calendar day immediately following the initial exercise date of the warrants (the “Reset Date”), if the then effective exercise price is high than 100% of the lowest VWAP during the period beginning 11 calendar days following the initial exercise date of the warrants and ending on the Reset Date, subject to a floor price of $0.099, which is equal to 30% of Nasdaq Minimum Price, as defined under Nasdaq Listing Rule 5635(d) (as adjusted for share splits, share dividends, recapitalizations, reorganizations, reclassification, combinations, reverse share splits or other similar events occurring after the initial exercise date) (the “Reset Price”), the exercise price shall be reduced to the Reset Price. If the exercise price is adjusted to the Reset Price, then the number of warrant shares issuable under the warrant will be proportionately increased so that after such adjustment the aggregate exercise price payable for the warrant will be equal to the aggregate exercise price of the warrant immediately prior to the reset date. If an alternative cashless exercise occurs, such exercise will result in substantial dilution to shareholder, and if such alternative cashless exercise occurs after the Reset Date, the dilution will be even more substantial.

 

In addition, following this offering, the market value of the warrants, if any, is uncertain and there can be no assurance that the market value of the warrants will equal or exceed their imputed offering price. The warrants will not be listed or quoted for trading on any market or exchange.

 

Holders of the warrants will not have rights of holders of our Class A ordinary shares until such warrants are exercised.

 

Until holders of warrants acquire Class A ordinary shares upon exercise of the warrants, holders of warrants will have no rights with respect to the Class A ordinary shares underlying such warrants.

 

If the warrants are exercised by way of an alternative cashless exercise, especially after the reset date shareholders may suffer substantial dilution.

  

If the warrants are exercised by way of an alternative cashless exercise, such exercising holder will receive 1.2 Class A ordinary shares for each warrant they exercise, without any cash payment to us. No fractional Class A ordinary shares will be issued in connection with the exercise of a warrants. Further, on the 19th calendar day immediately following the initial exercise date of the warrants (the “Reset Date”), if the then effective exercise price is high than 100% of the lowest VWAP during the period beginning 11 calendar days following the initial exercise date of the warrants and ending on the Reset Date, subject to a floor price of $0.099, which is equal to 30% of Nasdaq Minimum Price, as defined under Nasdaq Listing Rule 5635(d) (as adjusted for share splits, share dividends, recapitalizations, reorganizations, reclassification, combinations, reverse share splits or other similar events occurring after the initial exercise date) (the “Reset Price”), the exercise price shall be reduced to the Reset Price. If the exercise price is adjusted to the Reset Price, then the number of warrant shares issuable under the warrant will be proportionately increased so that after such adjustment the aggregate exercise price payable for the warrant will be equal to the aggregate exercise price of the warrant immediately prior to the reset date. If an alternative cashless exercise occurs, such exercise will result in substantial dilution to shareholder, and if such alternative cashless exercise occurs after the Reset Date, the dilution will be even more substantial.

 

We will likely not receive any additional funds upon the exercise of the warrants.

  

The warrants may be exercised by way of an alternative cashless exercise, in which case the holder would not pay a cash purchase price upon exercise, but instead would receive upon such exercise the number of Class A ordinary shares equal to the number of warrants being exercised multiplied by 1.2. No fractional Class A ordinary shares will be issued in connection with the exercise of a warrants. Accordingly, we will likely not receive any additional funds upon the exercise of the warrants.

 

The sale or availability for sale of substantial amounts of our Class A ordinary shares could adversely affect their market price.

 

Each of our directors and executive officers, and holders of five percent (5%) or more of our outstanding Class A ordinary shares (and all holders of securities exercisable for or convertible into Class A ordinary shares) have agreed with the placement agent, subject to certain exceptions, not to sell, transfer or otherwise dispose of any Class A ordinary shares for a period ending six (6) months from the closing of this offering. See “Plan of Distribution.” Class A ordinary shares subject to these lock-up agreements will become eligible for sale in the public market upon expiration of these lock-up agreements, subject to limitations imposed by Rule 144 under the Securities Act . If our shareholders sell substantial amounts of our Class A ordinary shares in the public market, the market price of our Class A ordinary shares could fall. Moreover, the perceived risk of this potential dilution could cause shareholders to attempt to sell their Class A ordinary shares and investors to short our Class A ordinary shares. These sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

 

 

We have also agreed that for a period of ninety (90) days from the closing of this offering, neither we nor any of our subsidiaries shall (i) issue, enter into any agreement to issue or announce the issuance or proposed issuance of any Class A ordinary shares (and all holders of securities exercisable for or convertible into Class A ordinary shares) or (ii) file any registration statement or amendment or supplement thereto, or (iii) effect or enter into an agreement to effect any issuance by the Company or any of its Subsidiaries of ordinary shares or ordinary share equivalents (or a combination of units thereof) involving a Variable Rate Transaction (as defined in the placement agency agreement), in each case without the placement agent’s or the investors’ prior written consent, subject to certain exemptions.

 

In addition, sales of substantial amounts of our Class A ordinary shares in the public market after the completion of this offering, or the perception that these sales could occur, could adversely affect the market price of our Class A ordinary shares and could materially impair our ability to raise capital through equity offerings in the future. The Class A ordinary shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, and shares held by our existing shareholders may also be sold in the public market in the future subject to the restrictions in Rule 144 and Rule 701 under the Securities Act and the applicable lock-up agreements, if any. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our Class A ordinary shares. See “Plan of Distribution” for a more detailed description of the restrictions on selling our securities after this offering.

 

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

 

To the extent (i) we raise more money than required for the purposes explained in the section titled “Use of Proceeds” or (ii) we determine that the proposed uses set forth in that section are no longer in the best interests of our Company, we cannot specify with any certainty the particular uses of such net proceeds that we will receive from this offering. Our management will have broad discretion in the application of such net proceeds, including working capital, possible acquisitions, and other general corporate purposes, and we may spend or invest these proceeds in a way with which our shareholders disagree. The failure by our management to apply these funds effectively could harm our business and financial condition. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

 

The price of the Class A ordinary shares and other terms of this offering have been determined by us along with our placement agent.

 

If you purchase our Class A ordinary shares in this offering, you will pay a price that was not established in a competitive market. Rather, you will pay a price that was determined by us along with our placement agent. The offering price for our Class A ordinary shares may bear no relationship to our assets, book value, historical results of operations or any other established criterion of value. The trading price, if any, of the Class A ordinary shares that may prevail in any market that may develop in the future, for which there can be no assurance, may be higher or lower than the price you paid for our Class A ordinary shares.

 

In addition, we will issue up to 16,390,000 Class A ordinary shares and warrants to purchase up to 65,559,999 Class A ordinary shares and Placement Agent’s Warrants to purchase up to 327,800 Class A ordinary shares (collectively accounting for approximately 339% of our currently issued and outstanding Class A ordinary shares). Each warrant entitles the holder thereof to initially purchase one Class A ordinary share, and has an initial exercise price per share equal to up to 100% of the combined offering price per Class A ordinary share and the accompanying warrant or pursuant to a cashless exercise option or an alternate cashless exercise option, and will expire on a date no later than the fifth anniversary of the original issuance date. If the warrants are exercised by way of an alternative cashless exercise, such exercising holder will receive 1.2 Class A ordinary shares for each warrant they exercise, without any cash payment to us. No fractional Class A ordinary shares will be issued in connection with the exercise of any warrants. Further, on the 19th calendar day immediately following the initial exercise date of the warrants (the “Reset Date”), if the then effective exercise price is high than 100% of the lowest VWAP during the period beginning 11 calendar days following the initial exercise date of the warrants and ending on the Reset Date, subject to a floor price of $0.099, which is equal to 30% of Nasdaq Minimum Price, as defined under Nasdaq Listing Rule 5635(d) (as adjusted for share splits, share dividends, recapitalizations, reorganizations, reclassification, combinations, reverse share splits or other similar events occurring after the initial exercise date) (the “Reset Price”), the exercise price shall be reduced to the Reset Price. If the exercise price is adjusted to the Reset Price, then the number of warrant shares issuable under the warrant will be proportionately increased so that after such adjustment the aggregate exercise price payable for the warrant will be equal to the aggregate exercise price of the warrant immediately prior to the reset date. If an alternative cashless exercise occurs, such exercise will result in substantial dilution to shareholder, and if such alternative cashless exercise occurs after the Reset Date, the dilution will be even more substantial.

 

Such issuance will cause a reduction in the proportionate ownership and voting power of all other shareholders. Additionally, we cannot assure you that, if the holders of such warrants exercise the warrant for cash, such holders 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.

 

If you purchase our securities in this offering, you will incur immediate and substantial dilution in the book value of your shares.

 

Investors purchasing our securities in this offering will pay a price per share that substantially exceeds the pro forma as adjusted net tangible book value per share. As a result, investors purchasing Class A ordinary shares in this offering will incur immediate dilution of $0.11 per share. For more information on the dilution, you may experience as a result of investing in this offering, see the section of this prospectus entitled “Dilution.”

 

Purchasers who purchase our securities in this offering pursuant to a securities purchase agreement may have rights not available to purchasers that purchase without the benefit of a securities purchase agreement.

 

In addition to rights and remedies available to all purchasers in this offering under U.S. federal securities and U.S. state law, the purchasers that enter into a securities purchase agreement will also be able to bring claims of breach of contract against us. The ability to pursue a claim for breach of contract provides those investors with the means to enforce the covenants uniquely available to them under the securities purchase agreement including, but not limited to (i) timely delivery of securities, (ii) agreement to not issue any shares or securities convertible into shares for a period of days from closing of the offering, subject to certain exceptions and (iii) indemnification for breach of contract.

 

 

ENFORCEABILITY OF CIVIL LIABILITIES

 

We are incorporated under the laws of the British Virgin Islands with limited liability. We are incorporated in the British Virgin Islands because of certain benefits associated with being a British Virgin Islands company, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of exchange control or currency restrictions and the availability of professional and support services. However, the British Virgin Islands has a less developed body of securities laws as compared to the United States and provides protections for investors to a lesser extent. In addition, British Virgin Islands companies may not have standing to sue before the federal courts of the United States.

 

Substantially all of our assets are located outside the United States. In addition, a majority of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or such persons or to enforce against them or against us, judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof.

 

Mourant Ozannes (BVI), our counsel as to BVI law, have advised us that there is uncertainty as to whether the courts of the BVI would:

 

●

recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or

 

●

entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

 

We have been advised by our Mourant Ozannes (BVI) as BVI legal counsel that the courts of the BVI are unlikely (i) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the securities laws of the United States or any State; and (ii) in original actions brought in the BVI , to impose liabilities against us predicated upon the civil liability provisions of the securities laws of the United States or any State, in so far as the liabilities imposed by those provisions are penal in nature. Although there is no statutory enforcement in the BVI of judgments obtained in the United States, the courts of the BVI will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the BVI , such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a BVI judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the BVI (awards of punitive or multiple damages may well be held to be contrary to public policy). A BVI Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere. There is recent Privy Council authority (which is binding on the BVI Court) in the context of a reorganization plan approved by the New York Bankruptcy Court which suggests that due to the universal nature of bankruptcy/insolvency proceedings, foreign money judgments obtained in foreign bankruptcy/insolvency proceedings may be enforced without applying the principles outlined above. However, a more recent English Supreme Court authority (which is highly persuasive but not binding on the BVI Court), has expressly rejected that approach in the context of a default judgment obtained in an adversary proceeding brought in the New York Bankruptcy Court by the receivers of the bankruptcy debtor against a third party, and which would not have been enforceable upon the application of the traditional common law principles summarized above and held that foreign money judgments obtained in bankruptcy/insolvency proceedings should be enforced by applying the principles set out above, and not by the simple exercise of the courts’ discretion. We understand that there isn’t any BVI Court judgment or statute that conclusively resolves these conflicting approaches and it remains the case that the law regarding the enforcement of bankruptcy/insolvency related judgments is still in a state of uncertainty.

 

We have appointed Cogency Global Inc. Inc. as our agent to receive service of process with respect to any action brought against us in the United States District Court for districts in the State of New York under the federal securities laws of the United States or of any State of the United States or any action brought against us in the Supreme Court of the State of New York under the securities laws of the State of New York.

 

There is uncertainty as to whether the courts of China would (1) recognize or enforce judgments of United States courts obtained against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or (2) be competent to hear original actions brought in each respective jurisdiction, against us or such persons predicated upon the securities laws of the United States or any state thereof.

 

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.

 

For a detailed description of risks related to enforceability of civil liabilities, please refer to “Risk Factors — Risks Related to Doing Business in China — You may have difficulty enforcing judgments obtained against us” on page 33.

 

USE OF PROCEEDS

 

Based upon an offering price of US$0.33 per Class A ordinary share and accompanying warrant (the last reported sale price of our Class A ordinary shares, as reported on the Nasdaq Capital Market on February 28, 2025), we estimate that we will receive net proceeds from this offering of approximately US$4.7 million, assuming no exercise of the warrants included in the securities, after deducting the placement agent’s fees, reimbursement of placement agent’s expenses, and the estimated offering expenses payable by us.

 

On December 1, 2024, AGM HK entered into a purchase agreement (the “Vendor Agreement”) with a third-party vendor to acquire 2,000 bitcoin mining machines for a total purchase price of US$9.62 million (the “Purchase Price”). The Company shall pay 10% of the Purchase Price within fifteen business days from the date of the Vendor Agreement and the remaining 90% of the Purchase Price within fifteen business days upon receiving the delivery notification from the vendor of the machines. The delivery will be arranged in approximately two weeks following the full payment of the Purchase Price. The Vendor Agreement also provided us with an option to acquire up to approximately 30,000 additional mining units, which we are eligible to exercise until December 31, 2025.

 

We anticipate using the net proceeds of this offering primarily for the purchase of bitcoin mining machines pursuant to the Vendor Agreement and will utilize excess capital raised towards investment in data centers and working capital. As we may not sell all of the securities offered hereby, the net proceeds from this offering may be less than our obligations under the Vendor Agreement.

 

This expected use of the net proceeds from this offering represents our intentions based upon our current plans and prevailing business conditions, which could change in the future as our plans and prevailing business conditions evolve. Predicting the cost necessary to develop product candidates can be difficult and the amounts and timing of our actual expenditures may vary significantly depending on numerous factors. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering. See “Risk Factors — Risks Related to the Offering — We have broad discretion in the use of the net proceeds from this offering and may not use them effectively” on page 50 of this prospectus.

 

 

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 distribution if the directors are satisfied on reasonable grounds that, immediately after such 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 “Solvency Test”). The resolution of directors authorizing the payment of a distribution must contain a statement that, in the directors’ opinion, the company will satisfy these two tests immediately after the payment of distribution.

 

In addition to the above, all dividends are subject to certain restrictions under BVI law and the Company’s memorandum and articles of association, namely that:

 

●

if, after a dividend is authorized (but before it is paid), our board of directors cease to be satisfied (on reasonable grounds) that the Company will be able to satisfy the Solvency Test after the dividend is paid, then such dividend is deemed not to have been authorized;

 

●

the directors must notify each shareholder of any dividend authorized by them;

 

●

no interest accrues on any dividend; and

 

if a shareholder fails to claim any dividend for three years after the date on which it was authorized by the directors, the directors may decide by a resolution of directors that the dividend is forfeited for the benefit of the Company.

 

Subject to the Company’s articles of association, each Class A Ordinary Share confers on the holder (i) the right to an equal share in any distribution paid by the Company in accordance with the BVI Companies Act and the articles and (ii) an equal share in the distribution of any surplus assets of the Company on its liquidation.

 

Subject to the Company’s articles of association, each Class B Ordinary Share does not confer on the holder (i) the right to right to any dividend paid by the Company or (ii) to any distribution of the surplus assets of the Company on its liquidation.

 

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 subsidiaries. AGM Software is permitted under the BVI laws to provide funding to AGM Holdings through dividend distribution as long as that immediately following the distribution the value of AGM Software’s assets will exceed its liabilities and it will be able to pay its debts as they become due. Under the Business Corporations Act of British Columbia, AGM Canada is permitted to pay dividends to AGM Holdings, whether out of profits, capital, or otherwise, unless its charter or an enactment provides otherwise. Under the Business Corporations Act of Alberta, Canada, AGM Energy is permitted to declare or pay a dividends if there are no reasonable grounds for believing that (a) the corporation is unable to pay its liabilities as they become due, or (b) the realizable value of the corporation’s assets would be less than its liabilities. Per section 403 of the Companies Act, AGM Defi Lab, our subsidiary established in Singapore, can declare dividends to AGM Holdings if there are profits available at the time of the declarations. AGM HK, AGM Defi Tech, AGM Electronic and AGM Integrated are permitted under the laws of Hong Kong to provide funding to AGM Holdings through dividend distribution out of profits available for distributions. Withholding tax regarding dividends is exempted in Hong Kong.

 

Current PRC regulations permit our PRC subsidiaries to pay dividends to AGM HK, AGM Defi Tech, AGM Electronic and AGM Integrated 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.

  

 

CAPITALIZATION

 

The following table sets forth our capitalization as of June 30, 2024:

 

●

on an actual basis;

 

●

on a pro forma as adjusted basis to reflect the issuance and sale of up to 16,390,000 Class A ordinary shares and accompanying warrants to purchase up to 65,559,999 Class A ordinary shares offered in this offering, at an offering price of US$0.33 per Class A ordinary share and accompanying warrant, which is the last reported sale price of our Class A ordinary shares on Nasdaq on  February 28, 2025, after deducting placement agent’s fees and estimated offering expenses payable by us, and assuming no exercise of the related warrants and no other change to the number of securities sold by us as set forth on the front cover of this prospectus, assuming no exercise of the warrants or the Placement Agent’s Warrants sold in this offering.

 

You should read this capitalization table in conjunction with “Use of Proceeds” appearing elsewhere in this prospectus and the “Operating and Financial Review and Prospectus” and the consolidated financial statements and the related notes in this prospectus.

 

		As of June 30, 2024								Pro Forma
		Actual (Audited)								as Adjusted(2)
Shareholder’s Equity:
Class A ordinary shares (US$0.001 par value, 200,000,000 shares authorized, 24,254,842 shares issued and outstanding; 40,644,842 shares issued and outstanding pro forma as further adjusted)			24,255								40,645
Class B ordinary shares (US$0.001 par value, 200,000,000 shares authorized, 2,100,000 shares issued and outstanding; 2,100,000 shares issued and outstanding pro forma as further adjusted)			2,100								2,100
Additional paid-in capital			26,502,856								31,181,032
Statutory reserves			335,696								335,696
Accumulated deficit			(12,617,239	)							(12,617,239	)
Accumulated other comprehensive loss			(9,922,536	)							(9,922,536	)
Total AGM Holdings Limited shareholders’ equity			4,325,132								9,019,698
Non-controlling interests			-								-
Total shareholders’ equity			4,325,132								9,019,698
Total capitalization		$	4,325,132								9,019,698

 

(1)

Reflects the sale of 16,390,000 Class A ordinary shares and accompanying warrants to purchase up to 65,559,999 Class A ordinary shares in this offering, at the offering price of $0.33 per Class A ordinary share and accompanying warrant, and after deducting the estimated placement agent’s fee of $405,652.50, the reimbursement of placement agent’s expenses of up to $100,000 and estimated offering expenses of $208,481.60 payable by us. Additional paid-in capital reflects the net proceeds we received from this offering, after deducting the placement agent’s fees, and estimated offering expenses payable by us.

 

 

DILUTION

 

If you invest in the securities in this offering, your ownership interest will be immediately diluted to the extent of the difference between the offering price per Class A ordinary share and accompanying warrant included in the securities and the net tangible book value per ordinary share after this offering. Dilution results because the offering price per Class A ordinary share and accompanying warrant included in the securities is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding Class A ordinary shares.

 

Net tangible book value represents the amount of our total consolidated tangible assets, which represent the amount of our total consolidated assets, excluding intangible assets, less total consolidated liabilities. Our historical net tangible book value as of June 30, 2024 was US$4,286,865, or US$0.18 per ordinary share. Our historical net tangible book value is the amount of our total tangible assets less our liabilities. Historical net tangible book value per ordinary share is our historical net tangible book value divided by the number of outstanding ordinary share as of June 30, 2024.

 

Dilution is determined by subtracting net tangible book value per ordinary share, after giving effect to the additional proceeds we will receive from this offering, from the offering price of US$0.33 per Class A ordinary share and accompanying warrant which is the last reported sale price of our Class A ordinary share on Nasdaq on February 28, 2025, and after deducting placement agent’s fees and estimated offering expenses payable by us.

 

Without taking into account any other changes in net tangible book value after June 30, 2024 other than to give effect to the sale of the Class A ordinary shares and accompanying warrants offered in this offering, at an offering price of US$0.33, which is the last reported sale price of our Class A ordinary share on Nasdaq on February 28, 2025, after deducting the placement agent’s fees and estimated offering expenses payable by us and assuming no exercise of the related warrants, our pro forma as adjusted net tangible book value as of June 30, 2024 would have been US$8,981,431, or US$0.22 per ordinary share. This represents an immediate increase in net tangible book value of US$0.04 per ordinary share to the existing shareholders and an immediate dilution in net tangible book value of US$0.11 per ordinary share to investors purchasing securities in this offering. The following table illustrates such dilution: The following table illustrates this dilution:

 

Offering price per Class A ordinary share and accompanying warrant		US$	0.33
Net tangible book value per share as of June 30, 2024		US$	0.18
Increase in net tangible book value per ordinary share attributable to payments by new investors		US$	0.04
Pro forma as adjusted net tangible book value per share after this offering		US$	0.22
Dilution per share to new investors in this offering		US$	0.11

 

The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual offering price and other terms of this offering determined at pricing. The tables and discussion above are based on a total of 24,254,842 Class A ordinary share and 2,100,000 Class B ordinary shares issued and outstanding as of the date of this prospectus.

 

The discussion and tables above assume no exercise of any warrants to be issued in this offering. To the extent that we issue additional ordinary share in the future, there will be further dilution to new investors participating in this offering.

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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 the prospectus. 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 the prospectus.  

  

Overview 

  

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. 

  

Operating Results For The Six Months Ended June 30, 2024 and 2023

  

Revenues

 

Revenues from continuing operations for the six months ended June 30, 2024 were approximately $3.8 million, an 88% decrease from $31.7 million for the six months ended June 30, 2023. Revenues dropping dramatically was mainly due to three reasons. Firstly, we entered into fewer sales contracts for the six months ended June 30, 2024. secondly, our clients postponed the date of delivery. As a result, advances from customers have not yet been recognized as revenues. Further, we stopped selling one of the products as it resulted in negative gross margins in previous periods.

 

Cost of Revenues

  

Cost of revenues primarily consist of cost of product revenue, which includes direct costs of cryptocurrency mining machines, standardized computing equipment.

  

Our cost of revenues saw a decrease of 93% from approximately $30.7 million for the six months ended June 30, 2023 to $2.1 million for the six months ended June 30, 2024. The decrease in cost of revenues is in line with the decline in revenues.

  

Gross profits

  

Gross profits for the six months ended June 30, 2024 was $1.7 million, compared to $1.1 million for the six months ended June 30, 2023. The increase in gross profits was contributed by a large drop in cost of revenues compared to that in revenue. Gross margin for the six months ended June 30, 2024 was 44.8% compared to 3.3% for the six months ended June 30, 2023. The increase in gross margin was mainly because we stopped a product contributing a negative gross margin.

  

  

Selling, General and Administrative Expenses

  

Selling, general and administrative expenses consist primarily of credit losses, sales and administrative employee-related expenses and professional fees.

  

During the six months ended June 30, 2024, selling, general and administrative expenses increased from a credit of approximately $21.5 million to $15.7 million for the six months ended June 30, 2023. The increase was primarily due to the reversal of allowance for doubtful account which was recorded in the six months ended June 30, 2023.

  

Net (Loss)/Income from continuing operations

  

As a result of the foregoing, our net loss from continuing operations was $10.6 million or ($0.44) per share (basic and diluted) for the six months ended June 30, 2024 compared to net income from continuing operations of $16.7 million or $0.69 per share (basic and diluted).

  

Loss from discontinued operation, net of income taxes

  

Our loss from discontinued operations was $4.3 million or ($0.18) per share (basic and diluted) for the six months ended June 30, 2024 compared to $0.5 million or ($0.02) per share (basic and diluted) for the six months ended June 30, 2023.

  

The table below sets forth the operating result of discontinued operation included in our condensed consolidated statements of operation:

 

		June 30,				December 31,
		2024				2023
Revenues		$	23,287,088			$	4,851,551
Cost of revenues			(22,785,394	)			(4,621,665	)
Gross profit			501,694				229,886
Operating expenses			5,582,294				969,378
Other income, net			48,541				16,562
Loss before income tax			(5,032,059	)			(722,930	)
Income tax expense			729,740				180,733
Total loss from discontinued operations			(4,302,319	)			(542,197	)

  

Net (loss)/Income

  

As a result of the factors described above, our net loss for the six months ended June 30, 2024 was $14.9 million, compared to net income of $16.1 million for the six months ended June 30, 2023.

  

Foreign currency translation

  

The accompanying condensed 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 Condensed Consolidated Balance Sheets balances, with the exception of equity at June 30, 2024 and December 31, 2023, were translated at RMB7.1268 and RMB7.0827 to $1.00, respectively. The equity accounts were stated at their historical rate. The average translation rates applied to the Condensed Consolidated Statements of Operations and Comprehensive Loss/Income and the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 were RMB7.1051and RMB7.0467 to $1.00, respectively.

  

  

Net gains and losses resulting from foreign exchange translations are included in the comprehensive income/loss on the condensed 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 $185,586 and $3,410,742 for the six months ended June 30, 2024 and 2023, respectively. This non-cash loss had the effect on our reported comprehensive loss or income.

  

Operating Results For The Years Ended December 31, 2023, 2022 and 2021

 

		For The Year Ended December 31,
		2023				2022				2021
Revenues		$	92,907,172			$	242,395,556			$	36,709,931
Cost of Revenues			(88,278,140	)			(195,807,066	)			(30,112,363	)
Gross profit			4,629,032				46,588,490				6,597,568
Operating expenses
Selling, general & administrative expenses			13,870,634				30,395,048				1,607,393
Research and development expenses			-				-				36,317
Total operating expenses			13,870,634				30,395,048				1,643,710
			-				-				-
(Loss)/Income from operations			(9,241,602	)			16,193,442				4,953,858
Other income/(expenses)
Other income			106,202				118,265				47,167
Other expenses			(487,919	)			(491,299	)			(43,171	)
Total other (expenses)/income			(381,717	)			(373,034	)			3,996
			-				-				-
(Loss)/Income before provision of income taxes			(9,623,319	)			15,820,408				4,957,854
Provision for income taxes benefit/(expenses)			2,184,039				(4,344,769	)			(1,406,159	)
Net (loss)/income		$	(7,439,280	)		$	11,475,639			$	3,551,695

  

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 impairment provision of other current assets of $ 29.8 million, which were not likely to be collected in cash or utilized against receive of products, 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. 

  

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%. 

  

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. 

  

Liquidity and Capital Resources As Of June 30, 2024 and December 31, 2023

  

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 June 30, 2024 and December 31, 2023, we had working deficit of $10.2 million and working capital of $9.1 million, including cash and cash equivalents and restricted cash of $1.2 million and $1.5 million, respectively. 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, 2023 to June 30, 2024:

  

		June 30,				December 31,								Percentage
		2024				2023				Change				Change
Working capital:
Total current assets		$	56,203,311			$	87,119,145			$	(30,915,834	)			(35	)%
Total current liabilities			66,365,747				77,981,722				(11,615,975	)			(15	)%
Working capital		$	(10,162,436	)		$	9,137,423			$	(19,299,859	)			(211	)%

  

Because the exchange rate conversion is different for the condensed consolidated balance sheets and the condensed consolidated statements of cash flows, the changes in assets and liabilities reflected on the condensed consolidated statements of cash flows are not necessarily identical with the comparable changes reflected on the condensed consolidated balance sheets.

 

Liquidity and Capital Resources As Of 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: 

  

		December 31,				December 31,								Percentage
		2023				2022				Change				Change
Working capital:
Total current assets		$	87,119,145			$	116,819,369			$	(29,700,224	)			(25	)%
Total current liabilities			77,981,722				94,520,092				(16,538,370	)			(17	)%
Working capital		$	9,137,423			$	22,299,277			$	(13,161,854	)			(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. 

  

Cash Flow Summary For The Six Months Ended June 30, 2024 and 2023 

 

The following table sets forth certain items in our condensed consolidated statements of cash flows for the six months ended June 30, 2024 and 2023.

 

		June 30,				June 30,
		2024				2023
Net cash used in operating activities		$	(590,727	)		$	(1,093,474	)
Net cash used in investing activities			-				(18,167	)
Net cash provided by financing activities			487,507				1,400,000
Exchange rate effect on cash, cash equivalents and restricted cash			(264,495	)			(618,528	)
Net change in cash and cash equivalents			(367,715	)			(330,169	)
Cash and cash equivalents, beginning of the year			1,601,479				4,073,440
Cash and cash equivalents, end of the year			1,233,764				3,743,271
Less cash and cash equivalents of discontinued operations – end of period			22,191				273,713
Cash and cash equivalents of continuing operations – end of period		$	1,211,573			$	3,469,558

 

We have cash and cash equivalents held in financial institutions in the following countries (regions):

 

		June 30,				December 31,
Country (Region)		2024				2023
China (Mainland)		$	55			$	400
China (Hong Kong)			976,695				1,310,551
Singapore			234,823				234,897
Total cash and cash equivalents		$	1,211,573			$	1,545,848

 

Operating Activities:

 

Net cash used in operating activities of continuing operations for the six months ended June 30, 2024 was $641,048 (total of $590,726 including net cash provided by discontinued operations of $50,321), primarily due to a net loss from continuing operations of $10,619,463, a decrease in advances from customers of $3,706,627 and offset by allowance for doubtful accounts of $14,788,061.

 

Net cash used in operating activities of continuing operations for the six months ended June 30, 2023 was $4,044,149 (total of $1,093,474 including net cash provided by discontinued operating activities of $2,950,675), primarily due to a net income from continuing operations of $16,655,952 offset by a decrease in accounts payable of $20,255,606.

 

Investing Activities:

  

No cash spent in investing activities of continuing operations and discontinued operations for the six months ended June 30, 2024.

  

Net cash used in investing activities of continuing and discontinued operations for the six months ended June 30, 2023 was nil and $18,167 for purchase of property and equipment respectively.

  

  

Financing Activities:

  

Net cash provided by financing activities of continuing operations for the six months ended June 30, 2024 was $560,000 (total of $487,507 including net cash used in financing activities of discontinued operations of $72,493), which was solely from proceeds from related parties.

  

Net cash provided by financing activities of continuing operations for the six months ended June 30, 2023 was $1,400,000 including proceeds from related parties of $1,620,000, and offset by repayments to related parties of $220,000.

  

Cash Flow Summary  For The Years Ended December 31, 2023, 2022 and 2021

  

The following table sets forth certain items in our consolidated statements of cash flows for 2023, 2022 and 2021. 

  

		For The Year Ended December 31,
		2023				2022				2021
Net cash used in operating activities			(1,691,718	)			(17,342,268	)			(1,854,458	)
Net cash used in investing activities			(10,708	)			(332,308	)			(339,657	)
Net cash provided by financing activities			1,322,819				7,005,744				19,558,681
Effect of exchange rate changes on cash and cash equivalents			(2,092,354	)			(3,684,350	)			397,451
Net change in cash and cash equivalents and restricted cash			(2,471,961	)			(14,353,182	)			17,762,017
Cash and cash equivalents, beginning of the year			4,073,440				18,426,622				664,605
Cash and cash equivalents and restricted cash, end of the year			1,601,479				4,073,440				18,426,622

  

We have cash and cash equivalents held in financial institutions in the following countries (regions): 

  

		December 31,				December 31,
Country (Region)		2023				2022
China (Mainland)		$	56,031			$	154,311
China (Hong Kong)			1,310,551				3,678,925
Singapore			234,897				240,204
Total cash and cash equivalents		$	1,601,479			$	4,073,440

  

Operating Activities: 

   

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 impairment provision of other current assets of $29.8 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. 

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. 

  

  

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 of this prospectus, 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. 

  

  

Capital Resources As of June 30, 2024 and December 31, 2023

 

The following table provides certain selected balance sheets comparisons as of June 30, 2024 and December 31, 2023: 
  

		June 30,				December 31,				Increase
		2024				2023				(Decrease)				%
Cash and cash equivalents		$	1,211,573			$	1,544,275			$	(332,702	)			(22	)%
Restricted cash			-				1,573				(1,573	)			(100	)%
Accounts receivable			-				4,860,571				(4,860,571	)			(100	)%
Inventories			-				-				-				N/A
Advances to suppliers			43,975,791				56,414,753				(12,438,962	)			(22	)%
Prepayment and other current assets			4,141,916				3,776,609				365,307	)			10	%
Assets of discontinued operations - current			6,874,031				20,521,364				(13,647,333	)			(67	)%
Total current assets			56,203,311				87,119,145				(30,915,834	)			(35	)%
Property and equipment, net			-				-				-				N/A
Intangible assets, net			38,267				44,007				(5,740	)			(13	)%
Operating lease right-of-use assets			-				-				-				N/A
Deferred tax asset			10,859,094				7,156,011				3,703,083				52	%
Assets of discontinued operations - non-current			3,626,915				3,228,182				398,733				12	%
Total non-current assets			14,524,276				10,428,200				4,096,076				39	%
Total assets		$	70,727,587			$	97,547,345			$	(26,819,758	)			(27	)%
Accounts payable		$	19,936,752			$	19,909,752			$	27,000				0.14	%
Accrued expenses and other payables			1,035,134				926,140				108,994				12	%
Advance from customers			539				3,707,166				(3,706,627	)			(100	)%
Due to related parties			9,804,969				9,240,203				564,766				6	%
Deferred revenue - current			-				-				-				N/A
Operating lease liabilities, current			-				-				-				N/A
Income tax payable			14,146,946				13,839,598				307,348				2	%
Liabilities of discontinued operations - current			21,441,407				30,358,863				(8,917,456	)			(29	)%
Total current liabilities			66,365,747				77,981,722				(11,615,975	)			(15	)%
Operating lease liabilities, non-current			-				-				-				N/A
Deferred government grant, non-current			-				-				-				N/A
Liabilities of discontinued operations - non-current			36,708				133,123				(96,415	)			(72	)%
Total non-current liabilities			36,708				133,123				(96,415	)			(72	)%
Total liabilities		$	66,402,455			$	78,114,845			$	(11,712,390	)			(15	)%

 

Cash 
  

As of June 30, 2024, we have a total of $1.2 million in cash and cash equivalents and restricted cash, of which only $55 was held inside China (Mainland), and the rest was held outside of China (Mainland). As of December 31, 2023, we have a total of $1.5 million in cash and cash equivalents and restricted cash, of which only $400 was held inside China (Mainland), and the rest 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 
  

Balance of repayment and other current assets increased by $0.3 million to $4.1 million as of June 30, 2024, compared to $3.8 million as of December 31, 2023. The increase was primarily due to an increase in loan receivable as shown in the following table:

  

		June 30,				December 31,
		2024				2023
Loan receivable		$	4,161,309			$	3,776,608
Prepaid input VAT			-				-
Deposits and others			1,136,375				1,155,769
Subtotal			5,297,684				4,932,377
Allowance for credit losses			(1,155,768	)			(1,155,768	)
Total prepayment and other current assets		$	4,141,916			$	3,776,609

  

Current assets 

  

Balance of current assets decreased by $30.9 million from $87.1 million as of December 31, 2023 to $56.2 million as of June 30, 2024. The decrease was primarily due to a reduction of $4.86 million in accounts receivable, a decline of $12.4 million in advances to suppliers and a decrease of $13.6 million in assets of discontinued operations – current.

 

Current liabilities 

 

Balance of current liabilities reduced by $11.6 million from $78.0 million as of December 31, 2023 to $66.4 million as of June 30, 2024. The decrease was mainly contributed by a decline of $3.7 million in advances from customers, a reduction of $8.9 million in liabilities of discontinued operations – current and partially offset an increase of $0.6 million in amounts due to related parties and an increase of $0.63 million in income tax payable.

  

Credit Facility 

  

We mainly finance our operations through proceeds borrowed from related parties. Balance of due to related parties increased by $0.6 million from $9.2 million as of December 31, 2023 to $9.8 million as of June 30, 2024. A breakdown of due to related parties as of June 30, 2024 and December 31, 2023 is set forth below:

  

		June 30,				December 31,
		2024				2023
HongKong Kisen			9,804,969				9,240,203
Total due to related parties		$	9,804,969			$	9,240,203

  

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 $0.6 million from related parties as of June 30, 2024. We borrowed $4.5 million from related parties and repaid $3.2 million to related parties in the year ended December 31, 2023.

  

Research and Development, Patent and Licenses, etc. 

  

Please refer to “Business – Intellectual Property,” and “– Property, Plant and Equipment.”

  

Trend Information. 

  

Other than as disclosed elsewhere in the prospectus, 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. 

  

  

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. 

  

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 prospectus. 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. 

  

Discontinued Operation

  

A discontinued operation may include a component of an entity or a group of components of an entity, or a business or non-profit activity. A disposal of a component of an entity is required to be reported in discontinued operation if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when any of the following occurs: (1) the component of an entity or group of components of an entity meets the criteria to be classified as held for sale; (2) the component of an entity or group of components of an entity is disposed of by sale; (3) the component of an entity or group of components of an entity is disposed of other than by sale (for example, by abandonment or in ad distribution to owners in a spinoff).

  

For the component disposed of other than by sale in accordance with paragraph 360-10-45-15, the Company adopted ASC Topic 205-20-45-3 and reported the results of operations of the discontinued operations, less applicable income tax expenses or benefits as a separate component in the statement where net income (loss) is reported for current and all prior periods presented.

  

Based on a strategic plan, the Company plans to sell Nanjing Lucun, AGM Tianjin, AGM Beijing, and Beijing Keen Sense. As of June 30, 2024 and December 31, 2023, the operation of these entities was classified as a discontinued operation. For the six months ended June 30, 2024 and 2023, the operation of the above entities was presented in discontinued operations.

  

Reclassification

  

Certain prior period amounts have been reclassified to conform to current period presentation in order to reflect the discontinued operations of Nanjing Lucun, AGM Tianjin, AGM Beijing and Beijing Keen Sense. None of the ese reclassifications had an impact on reported financial position or cash flows for any of the period presented.

  

  

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 six months ended June 30, 2024 for the years ended December 31, 2023. 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. 

    

We recorded bad debt expense of $40,018 from continuing operations for the six months ended June 30, 2024 and reversed credit losses of $21.9 million from continuing operations for the six months ended June 30, 2023 respectively. We recorded bad debt expense of $4,921,509 and $nil from discontinued operation operations for the six months ended June 30, 2024 and 2023 respectively.

  

Provision of other current assets 

  

(1)

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 six months ended June 30, 2024 and 2023, we recorded provision of advances to suppliers of $14.75 million and nil from continuing operations, respectively. We reversed provision of advances to suppliers of $2,219,353 and recorded provision of advances to suppliers of $2,021,851 from discontinued operation for the six months ended June 30, 2024 and recorded nil provision of advances to suppliers for the six months ended June 30, 2023, from discontinued operation, respectively.

  

(2)

Other current assets, which is primarily consisted of security deposit that the deposit shall return to the Company at the end of the terms if there are no any default events. As of June 30, 2024 and December 31, 2024, accumulated credit losses were both $1.2 million. For the six months ended June 30, 2024 and 2023, we did not record any bad debt expenses.

  

  

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 six months ended June 30, 2024 and 2023, we recorded valuation allowance of deferred tax assets of $1,286 and nil from continuing operations and $524,618.00 and nil from discontinued operation, respectively.

  

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 six months ended June 30, 2024, and for the years ended December 31, 2023 we have evaluated this uncertain tax position and recorded a tax liability on the Condensed Consolidated Balance Sheet. As of June 30, 2024,and December 31, 2023, income tax payable related to the uncertain tax position were $12.5million and $12.2 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. 

  

  

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: 

  

		December 31,				December 31,				Increase
		2023				2022				(Decrease)				%
Cash and cash equivalents		$	1,599,906			$	4,073,440			$	(2,473,534	)			(61	)%
Restricted cash			1,573				-				1,573				N/A
Accounts receivable			4,860,571				92,755,701				(87,895,130	)			(95	)%
Inventories			5,502,404				3,915,456				1,586,948				41	%
Advances to suppliers			71,303,444				13,139,128				58,164,316				>100	%
Prepayment and other current assets			3,851,247				2,935,644				915,603				31	%
Total current assets			87,119,145				116,819,369				(29,700,224	)			(25	)%
Property and equipment, net			379,678				689,361				(309,683	)			(45	)%
Intangible assets, net			44,007				55,486				(11,479	)			(21	)%
Operating lease right-of-use assets			270,248				492,984				(222,736	)			(45	)%
Deferred tax asset			9,734,267				7,172,814				2,561,453				36	%
Total non-current assets			10,428,200				8,410,645				2,017,555				24	%
Total assets		$	97,547,345			$	125,230,014			$	(27,682,669	)			(22	)%
Accounts payable		$	21,812,072			$	64,500,197			$	(42,688,125	)			(66	)%
Accrued expenses and other payables			1,983,145				2,874,126				(890,981	)			(31	)%
Advance from customers			30,131,748				4,572,765				25,558,983				>100	%
Due to related parties			9,427,332				8,087,981				1,339,351				17	%
Deferred revenue - current			37,610				36,529				1,081				3	%
Operating lease liabilities, current			79,736				162,576				(82,840	)			(51	)%
Income tax payable			14,510,079				14,285,918				224,161				2	%
Total current liabilities			77,981,722				94,520,092				(16,538,370	)			(17	)%
Operating lease liabilities, non-current			73,596				167,428				(93,832	)			>100	%
Deferred government grant, non-current			59,527				98,784				(39,257	)			(40	)%
Total non-current liabilities			133,123				266,212				(133,089	)			(50	)%
Total liabilities		$	78,114,845			$	94,786,304			$	(16,671,459	)			(18	)%

  

Cash 

  

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. 

  

		December 31,				December 31,
		2023				2022
Loan receivable		$	3,776,608			$	1,605,000
Prepaid input VAT			14,318				1,106,489
Deposits and others			1,216,089				224,155
Subtotal			5,007,015				2,935,644
Allowance for credit losses			(1,155,768	)			-
Total prepayment and other current assets		$	3,851,247			$	2,935,644

  

 

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: 

  

		December 31,				December 31,
		2023				2022
Yufeng Mi			4,571				1,831
Yang Cao			182,558				86,150
HongKong Kisen			9,240,203				8,000,000
Total due to related parties		$	9,427,332			$	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. 

  

Research and Development, Patent and Licenses, etc. 

  

Please refer to “Business – Intellectual Property,” and “– Property, Plant and Equipment.”

  

Trend Information. 

  

Other than as disclosed elsewhere in the prospectus, 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. 

  

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. 

  

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 prospectus. 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. 

    

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 other current assets 

  

(1)

Advance to suppliers, which is settled when the products are provided and accepted by us. We review our advance to suppliers on a periodic basis and determines the adequacy of provision when amounts outstanding are not likely to be collected in cash or utilized against receive of products. 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.

  

(2)

Other current assets, which is primarily consisted of security deposit that the deposit shall return to the Company at the end of the terms if there are no any default events. For the years ended December 31, 2023, 2022 and 2021, we recorded provision of other current assets of $1.2 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.

 

 

BUSINESS

 

We are a technology company. Our products and services include technology hardware research and development, and assembling and sales of technology hardware. Our mission is to become one of the key participants and contributors in the global technology hardware supply chain and fintech blockchain ecosystem.

 

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 104^TH/S, and AvalonMiner1246 of Canaan, which has an A1246 hash rate of 90^TH/S, power consumption of 3420W and power efficiency of 38J/T, and Whatminer M30S ++ of MicroBT, which has a hash rate of 112^TH/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.

 

 

Corporate Structure and History

 

Our equity structure is a direct holding structure. Below is a chart illustrating our corporate structure:

 

 

AGM Holdings was incorporated on April 27, 2015 under the laws of the British Virgin Islands.

 

AGM HK was incorporated on May 21, 2015 under the laws of Hong Kong. It is an operating subsidiary focused on serving customers in Asia.

 

AGM Tianjin was incorporated on October 13, 2015 in Tianjin under the laws of the People’s Republic of China. AGM Tianjing a subsidiary of AGM HK. 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.

  

AGM Beijing was incorporated on November 13, 2015 in Beijing under the laws of the People’s Republic of China. AGM Beijing is a subsidiary of AGM Tianjin and its principal activities include software design, technology transfer, technology consulting, technology promotion and data processing.

 

AGM Software was incorporated on June 14, 2017 under the laws of BVI. AGM Software is a subsidiary of AGM Holdings and its principal activity will be assisting AGM HK in providing our core technology services to customers in Hong Kong.

 

On July 26, 2019, AGM Holdings acquired 100% of the equity interest in Anyi Network, Inc. (“Anyi Network”) and its subsidiaries, which was subsequently disposed of in December 2020.

 

On April 16, 2019, AGMTrade UK LTD (“AGM UK”), a 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 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 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 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 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 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 and was dissolved in July 2021.

 

On June 17, 2021, 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 subsidiary of AGM HK. 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, which was de-registered on October 10, 2024.

 

On August 9, 2021, AGM Defi Tech was incorporated under the laws of Hong Kong. AGM Defi Tech is a subsidiary of AGM Holdings and its principal activity is to provide software development and consulting services in Asia.

 

On July 30, 2021, AGM Defi Lab was incorporated under the laws of Singapore. AGM Defi Lab is a subsidiary of AGM Holdings and its principal activity is to provide software development and consulting services in Asia.

 

On October 21, 2021, Beijing Keen Sense was incorporated under the laws of the People’s Republic of China. Beijing Keen Sense is a 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 in Asia.

 

On January 26, 2024, AGM Electronic, a direct subsidiary of AGM Holdings, was incorporated under the laws of Hong Kong. AGM Electronic was formed to conduct technology hardware research and development, manufacture, and sales in Asia.

 

On April 17, 2024, AGM Canada, a direct subsidiary of AGM Holdings, was incorporated under the laws of British Columbia, Canada. AGM Canada was formed to conduct technology hardware research and development, manufacture, and sales in North America.

 

On April 26, 2024, Beijing Bixin, a direct subsidiary of AGM Electronic, was incorporated under the laws of the People’s Republic of China. Beijing Bixin was formed to serve customers in Asia.

 

On October 1, 2024, AGM Energy was incorporated under the laws of Alberta, Canada. AGM Canada owns 49% of AGM Energy. This entity does not have any operations as of the date of this prospectus. 

 

On December 4, 2024, AGM Integrated was incorporated under the laws of Hong Kong. AGM Holdings owns 100% of AGM Integrated. This entity does not have any operations as of the date of this prospectus.

 

Recent Development

 

On August 23, 2024, Chong Chao Ma, aged 44, was appointed Chief Executive Officer of AGM Canada, effective immediately.

 

In October 2024, we decided to sell its subsidiaries, Nanjing Lucun, AGM Tianjin, AGM Beijing, and Beijing Keen Sense based on a strategic plan. We have not identified any potential purchaser nor entered into any definitive agreement. Our decision to sell the subsidiaries is part of our plan to retreat from the Chinese market, as we have plans to explore beyond the realms of machinery sales to data center operations. From our extensive research and past experience, we have observed the machinery sales industry specifically in China to be of excess production capacity, low entry threshold, and high competition.

 

On October 2, 2024, AGM Canada entered into a partnership agreement with Nowlit Solutions Corp. to establish AGM Energy as part of our strategic move to facilitate our expansion in the artificial intelligence and cryptocurrency market in North America. AGM Canada holds 49% equity ownership in AGM Energy.

 

On December 1, 2024, AGM HK entered into the Vendor Agreement with a third-party vendor to acquire 2,000 bitcoin mining machines for a total Purchase Price of US$9.62 million. The Company shall pay 10% of the Purchase Price within fifteen business days from the date of the Vendor Agreement and the remaining 90% of the Purchase Price within fifteen business days upon receiving the delivery notification from the vendor of the machines. The delivery will be arranged in approximately two weeks following the full payment of the Purchase Price. The Vendor Agreement also provided us with an option to acquire up to approximately 30,000 additional mining units, which we are eligible to exercise until December 31, 2025.

 

On December 20, 2024, we announced a strategic partnership with Nowlit Solutions Corp. to expand high-performance computing capabilities. Pursuant to the agreement, Nowlit Solutions Corp. plans to contribute 50 megawatts data center assets to AGM Energy which would enable the data center to host over 6,800 high performance computing servers, providing an estimated computing power of 2,457 petahashes.

 

 

Sales Channels and Long-Term Opportunities

 

For the technology hardware 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 six months ended June 30, 2024, one customer accounted for 99% of the Company’s total revenue. 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 six months ended June 30, 2024, one supplier accounted for 100% of the Company’s total cost of revenues. 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 of this prospectus, 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.

 

Compliance with Nasdaq Listing Rule 5250(c)(1)

 

On May 20, 2024, 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, 2023, the Company did not comply with Nasdaq Listing Rule 5250(c)(1) for continued listing.

 

The Company filed the Annual Report on Form 20-F for the fiscal year ended December 31, 2023 on June 18, 2024.

 

On June 20, 2024, the Company received a letter from Nasdaq notifying the Company that, based on the June 18, 2024 filing of the Form 20-F, Nasdaq has determined that the Company complies with the Rule. Accordingly, the matter has been closed.

 

 

Compliance with Nasdaq Listing Rule 5450(a)(1)

 

On July 15, 2024, the Company received written notice from the Nasdaq that the Company was not in compliance with the minimum bid price requirement for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5450(a)(1) requires listed securities to maintain a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”), and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the Minimum Bid Price Requirement exists if the deficiency continues for a period of 30 consecutive trading days. The Company was provided a period of 180 calendar days to regain compliance with the Minimum Bid Price Requirement.

 

Since then, Nasdaq has determined that for 10 consecutive business days, from August 16, 2024 through August 30, 2024, the closing bid price of the Company’s Class A ordinary shares has been at $1.00 per share or greater. On September 3, 2024, the Staff notified the Company that it has regained compliance with the Rule and the matter is now closed.

 

Employees

 

As of December 31, 2023 and June 30, 2024, we had a total of 28 and 25 full-time employees, respectively. 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.

 

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 and the date of this prospectus, we owned three domain names and three trademarks.

 

Property, Plant and Equipment

 

Except as described below, we do not own any real property and do not lease any other properties.

 

Address		Monthly Rent		Lease Beginning on		Lease Expiring on		Space (square meters)		Purpose
Unit A (Room 1101), 11th Floor, Building A, Smart Valley Core R&D Center, No. 69 Shuangfeng Road, Pukou Economic Development Zone, Nanjing, Jiangsu Province, China		*		2021/6/15		2026/6/14		390.96		Office
No. 28, Lanhua Road, Pukou Development Zone, Nanjing, Jiangsu Province, China		RMB27,480 (approximately US$3,900)		2021/11/1		2024/12/31		916.00		Office
Room 1007, Building 5, No. 88 Jianguo Road, Chaoyang District, Beijing, China		RMB9,000 (approximately US$1,277)		2024/5/13		2025/5/14		88.32		Office and employees’ dormitory
Talent Apartment Phase II, Zifeng Research and Innovation Center, No. 121 Baihe Road, Pukou District, Nanjing, Jiangsu Province, China		RMB800 (approximately US$114)		2024/4/1		2025/3/31		30.00		Employees’ dormitory

 

*	The rent has been waived under a policy to attract business.

 

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. Our Chief Executive Officer asses and manage our cybersecurity risks and 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.  

 

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.

 

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.

 

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 10 years, 15 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.

 

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.

 

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.

 

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.

 

 

Economic Substance

 

The BVI, together with several other non-European Union jurisdictions, have recently introduced legislation aimed at addressing concerns raised by the Council of the European Union (the “EU”) as to offshore structures engaged in certain activities which attract profits without real economic activity. With effect from January 1, 2019, the Economic Substance (Companies and Limited Partnerships) Act, 2018 (as amended, the “Substance Law”) came into force in the BVI introducing certain economic substance requirements for BVI “relevant entities” which are engaged in certain banking, insurance, fund management, financing and leasing, headquarters, shipping, holding company, intellectual property or distribution and service center business (being “relevant activities”) and are in receipt of gross income arising from relevant activities in any relevant financial period. In the case of business companies incorporated before January 1, 2019, the economic substance requirements apply for financial years commencing June 30, 2019.

 

The economic substance requirements that are imposed include that in-scope companies be directed and managed in the BVI, have core income generating activities in the BVI, and have an adequate level of employees, expenditures, and premises in the BVI. Business companies that carry on holding company business (which means it only holds equity participations in other entities and only earns dividends and capital gains) will be subject to reduced substance requirements.

 

Beneficial ownership

 

The Beneficial Ownership Secure Search System Act, 2017 (as amended) of the BVI requires registered agents in the BVI to create a database of beneficial ownership information relating to in-scope entities for which they act as registered agent. Subject to certain exemptions, in-scope BVI companies are required to:

 

●

identify its parent, immediate parent, ultimate parent and beneficial owner or registrable legal entity (or, if it is listed on a recognized exchange, provide details of that exchange);

 

●

identify whether it carries on one or more relevant activities for economic substance purposes and, if so, which ones;

 

●

provide details of any applicable exchange listing where its securities are listed on a recognized exchange; and

 

●

where the company carries on a relevant activity and is not a non-resident, provide certain additional information regarding its immediate parent and ultimate parent (if any).

 

A BVI company is obliged to notify its registered agent of (i) the required beneficial ownership information within 15 days of identifying it; and (ii) the required economic substance information regarding the carrying on of a relevant activity or listing on a recognized exchange within six months following the end of the financial reporting period in question. A BVI company who becomes aware of a change in the prescribed information relating to a beneficial owner or registrable legal entity must, within 15 days of becoming aware of the change, notify its registered agent of the change(s) and the date(s) on which it or they took place.

 

 

MANAGEMENT

 

The following table provides information regarding our executive officers and directors as of the date of this prospectus: 

  

Name		Age		Position(s)
Bo Zhu		38		Chief Executive Officer, Chief Strategy Officer, and Director
Yufeng Mi		48		Chief Technology Officer
Jialin Liu		66		Independent Director and Chair of Compensation Committee.
Jiaqi Zhu		44		Independent Director and Chair of Nominating Committee
Fangjie Wang		34		Independent Director and the Chair of the Audit Committee
Yafang Wang		47		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. 

  

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 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

  

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.

  

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 prospectus, the Board of Directors has adopted procedures for communication with the officers and directors on September 15, 2017. Stockholders will be given specific information on how he/she can direct communications to the officers and directors of the Company at our annual stockholders’ meetings. All communications from stockholders are relayed to the members of the Board of Directors.

  

  

Board Committees

  

We have established and adopted charters for three standing committees under the Board of Directors: the Audit Committee, the Compensation Committee, the Nominating Committee. Each Committee consists of only independent directors of the Company.

 

	●	Audit Committee: Fangjie Wang (Chair), 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.

 

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.

 

Copies 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.

  

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.

  

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.

 

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.

 

 

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, 2024 and 2023.

  

Name and Principal Position		Fiscal Year or Period				Salary ($)				Bonus ($)				Stock Awards ($)				All Other Compensation ($)				Total ($)
Bo Zhu			2024				-				-				-				-				-
Chief Executive Officer, Chief Strategy Office and Director(1)			2023				120,000				-				-				-				120,000
Yufeng Mi			2024				30,000				-				-				-				30,000
Chief Technology Officer			2023				30,000				-				-				-				30,000
Yafang Wang			2024				-				-				-				-				-
Secretary of the Board			2023				30,625.22				-				-				-				30,625.22

  

(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.

 

 

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 2024 and 2023:

 

Name		Fiscal Year			Salary ($)				Bonus ($)				Stock Awards ($)				All Other Compensation ($)				Total ($)
Bo Zhu		2024				120,000				-				-				-				120,000
Director(1)		2023				120,000				-				-				-				120,000
Fangjie Wang		2024				10,633.76				-				-								10,633.76
Independent Director and Chair of Audit Committee		2023				10,633.76				-				-				-				10,633.76
Jialin Liu		2024				9,221.59				-				-				-				9,221.59
Independent Director and Chair of Compensation Committee		2023				9,221.59				-				-				-				9,221.59
Jiaqi Zhu		2024								-				-				-
Director and Chair of Nominating Committee(2)		2023				-				-				-				-				-

  

(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.

   

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 prospectus, 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.

 

 

PRINCIPAL SHAREHOLDER

 

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 the prospectus by: 

  

	●	Each person who is known by us to beneficially own more than 5% of our outstanding Class A ordinary shares and Class B ordinary shares;
	●	Each of our director, director nominees and named executive officers; and
	●	All directors and named executive officers as a group.

  

Our company is authorized to issue 200,000,000 Class A ordinary shares of $0.001 par value per share and 200,000,000 Class B ordinary shares of $0.001 par value per share. The number and percentage of ordinary shares beneficially owned are based on 24,254,842 Class A ordinary shares of $0.001 par value per share and 2,100,000 Class B ordinary shares of $0.001 par value per share issued and outstanding as of the date of this prospectus. 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 the date of this prospectus 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 of this prospectus, we have 194 registered shareholders of record of Class A ordinary shares and 2 registered shareholders of record of Class B ordinary shares.

 

Named Executive Officers and Directors		Amount of  Beneficial  Ownership  (Class A)				Percentage  Ownership  (Class A)				Amount of  Beneficial  Ownership  (Class B)				Percentage  Ownership  (Class B)				Combined  Voting  Power  of Class A  and  Class B				Combined  Voting  Power of  Class A  and  Class B  Ordinary  Shares as a  Percentage(3)
Directors and Named Executive Officers:
Bo Zhu, Chief Executive Officer, Chief Strategy Officer, and Director			-				-				-				-				-				-
Yufeng Mi, Chief Technology Officer(1)			1,350,000				5.57	%			600,000				28.57	%			4,350,000				12.52	%
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.

 

 

RELATED PARTY TRANSACTIONS

 

As of December 31, 2024, related parties of the Company consist of the following:

 

Name of Related Party		Nature of Relationship
HongKong Kisen Co., Limited (“HongKong Kisen”)		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, 2024 and 2023, due to related parties consisted the following:

  

		December 31,												Interest				Exchange Rate				December 31,
		2023				Received				Repayment				Expenses				Translation				2024（unaudited）
HongKong Kisen (1)			9,240,203				967,874				-				9,806				-				10,217,883
Total due to related parties			9,240,203				967,874				-				9,806				-				10,217,883

  

(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. In 2024, the Company borrowed $967,874 from HongKong Kisenas, generating interest expense of $9,806, in the year ended December 31, 2024, the total amount of loans to HongKong Kisen was $10,192,849, total interest payable is $25,034. 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.

 

As of December 31, 2023, related parties of the Company consist of the following: 

  

Name of Related Party		Nature of Relationship
Yufeng Mi		Chief Technical Officer (“CTO”) and shareholder
Yang Cao		Director of Nanjing Lucun
HongKong Kisen Co., Limited		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 of the following: 

  

		December 31,												Interest				Exchange Rate				December 31,
		2022				Received				Repayment				Expenses				Translation				2023
Yufeng Mi			1,831				2,770				-				-				(30	)			4,571
Yang Cao			86,150				97,844				-				-				(1,436	)			182,558
HongKong Kisen (1)			8,000,000				4,384,975				(3,160,000	)			15,228				-				9,240,203
Total due to related parties			8,087,981				4,485,589				(3,160,000	)			15,228				(1,466	)			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. 

 

 

DESCRIPTION OF SHARES AND CERTAIN BRITISH VIRGIN ISLANDS CONSIDERATIONS

 

Memorandum and articles of association

 

AGM Holdings was incorporated on April 27, 2015 under the BVI Act 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 prospectus, there are 24,254,842 Class A ordinary shares and 2,100,000 Class B ordinary shares issued and outstanding.

 

Our memorandum and articles of association do not permit a director to decide what compensation he or she will receive. All decisions about the compensation of directors will be recommended by the Compensation Committee, upon its formation, and approved by the Board of Directors as a whole, both acting only when a quorum of members is present.

 

The following are summaries of the material provisions of our memorandum and articles of association and the BVI Act, insofar as they relate to the material terms of our Class A ordinary shares. As a convenience to potential investors, we provide the below description of BVI law and our memorandum and articles of association together with a comparison to similar features under Delaware law. 

 

Class A Ordinary Shares

 

General

 

Each Class A ordinary share in the Company confers upon the shareholder the right to one vote per share at a meeting of the shareholders of the Company or on any resolution of shareholders. Holders of our Class A ordinary 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.

 

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.

 

 

Class B Ordinary Shares

 

General

 

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 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 Class B ordinary shares 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 body corporate, 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 without the need for any notice, but if any resolution of members is adopted otherwise than by the unanimous written consent of all members, a copy of such resolution shall forthwith be sent to all members not consenting to such resolution.

 

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. 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.

 

 

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, but if any resolution is adopted otherwise than by the unanimous written consent of all directors or all members of a committee of directors, a copy of such resolution shall forthwith be sent to all directors or all members of a committee of directors not consenting to such resolution.

 

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.

 

Additionally, BVI law provides certain shareholder remedies for a minority shareholder whose rights have been breached or who disagrees with the way the Company is being managed. These remedies include an action for unfair prejudice and a derivative action.

 

Duties of directors

 

Under BVI law, our directors owe the Company certain statutory and fiduciary duties including, among others, a duty to act honestly, in good faith, for a proper purpose and in what the director believes to be in the best interests of the Company. Our directors are also required, when exercising powers or performing duties as a director, to exercise the care, diligence and skill that a reasonable director would exercise in comparable circumstances, taking into account without limitation, the nature of the Company, the nature of the decision and the position of the director and the nature of the responsibilities undertaken. In the exercise of their powers, our directors must ensure neither they nor the Company acts in a manner which contravenes the BVI Act or our memorandum and articles of association, as amended and re-stated from time to time.

 

The functions and powers of our board of directors include, among others:

 

●

managing the business and affairs of the Company;

 

●

exercising the powers of the Company to incur any debt, liability or other obligation (including to give a guarantee, indemnity or other payment obligation in respect of the obligations of any person) and create any charge over its assets or undertaking (whether present or future) as security for any debt, liability or other obligation of the Company or any other person; and

 

●

executing cheques, promissory notes, bills of exchange and other negotiable instruments on behalf of the Company.

 

Interested transactions

 

A director may vote, attend a board meeting and be included for the purposes of a quorum, sign a document on behalf of the Company, or do any other thing in their capacity as a director with respect to any transaction in which that director is interested. A director must immediately disclose the interest to all other directors after becoming aware of the fact that they are interested in a transaction entered into or to be entered into by the Company. Subject to compliance with the BVI Companies Act, a director shall not, by reason of that director’s office, be accountable to the Company for any remuneration, profit or other benefit derived, or resulting, from such transaction and no such transaction shall be liable to be avoided on the grounds that a director has an interest in it or derives any remuneration, profit or other benefit from it.

 

A disclosure is only made when it is brought to the attention of every director. The disclosure by a director that they are a member, director, officer or trustee of another named entity or other individual, or has a fiduciary relationship with respect to the entity or individual, and is to be regarded as interested in any transaction which may, after the date of the entry or disclosure of interest, be entered into with the Company or that director, is a sufficient disclosure of interest in relation to that transaction.

 

 

Directors and officers

 

Unless the shareholders decide otherwise by a resolution of shareholders, the number of directors is not subject to a maximum number but the minimum number of directors shall be one.

 

The first directors were appointed by the Company’s first BVI registered agent.

 

Subject to the Company’s articles of association and the BVI Act, our directors may by a resolution of directors:

 

●

appoint any person to hold any office with the Company (including chairperson of directors, chief executive officer, vice president, secretary, and treasurer) on any terms, and for any period, they think fit. A person may hold more than one office at the same time;

 

●

delegate any of their powers to any committee, consisting of one or more directors on any terms they think fit; and/or

 

●

appoint any person (including a director) to be an agent of the Company and delegate their powers to that agent on any terms they think fit.

 

The directors cannot delegate to a committee the power to:

 

●

amend the memorandum and articles of association of the Company;

 

●

change the Company’s registered office or registered agent;

 

●

designate committees of directors other than a sub-committee of it;

 

●

delegate powers to a committee of directors other than a sub-committee of it;

 

●

appoint or remove a director or agent;

 

●

fix emoluments of directors;

 

●

approve a plan of merger, consolidation, or arrangement;

 

●

make a declaration of solvency or approve a liquidation plan;

 

●

make a determination that the Company will, immediately after a proposed distribution, satisfy the Solvency Test; or

 

●

authorize the Company to continue as a Company incorporated under the laws of a jurisdiction outside the British Virgin Islands.

 

The directors cannot delegate to an agent the power to:

 

●

amend the memorandum and articles of association of the Company;

 

●

change the Company’s registered office or registered agent;

 

●

designate committees of directors;

 

●

delegate powers to a committee of directors;

 

●

appoint or remove any director or agent other than a substitute or sub-delegate;

 

●

fix the compensation of any director;

 

●

approve a plan of merger, consolidation, or arrangement;

 

●

make a declaration of solvency or approve a liquidation plan;

 

●

make a determination that the Company will, immediately after a proposed distribution, satisfy the Solvency Test; or

 

●

authorize the Company to continue as a Company incorporated under the laws of a jurisdiction outside the British Virgin Islands.

 

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.

 

 

Nil paid and partly paid shares

 

The directors may issue shares that are nil paid or partly paid on issue. Shares that are not fully paid on issue are subject to the forfeiture provisions of the Company’s articles of association. For this purpose, shares are not considered to be fully paid on issue if the consideration for which they are issued is a promissory note (or other written obligation to contribute money or property) or a contract for future services.

 

Transfer of Class A Ordinary Shares

 

Shares listed on Nasdaq may be transferred without the need for a written instrument of transfer if the transfer is carried out in accordance with the laws, rules, procedures and other requirements applicable to shares listed on Nasdaq (including, but not limited to, the applicable Nasdaq listing rules). The transfer of a share is only effective once the name of the transferee is entered in the register of shareholders.

 

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 Shares and forfeiture of Shares

 

Our Board of Directors may from time to time make calls upon shareholders for any amounts unpaid on their Shares in a notice served to such shareholders at least 14 days prior to the specified date of payment. A call may be made payable in instalments. The directors may postpone a call or revoke it (in whole or part). A call is taken to have been made at the time the resolution of directors to make the call is passed.

 

Issuance of 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 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.

 

 

DESCRIPTION OF WARRANTS

 

The following summary of certain terms and provisions of the warrants that are being offered hereby is not complete and is subject to, and qualified in its entirety by, the provisions of the warrant, the form of which is filed as an exhibit to the registration statement of which this prospectus forms a part.

 

Form. The warrants will be issued as individual warrant agreements to the investors. You should review the form of warrant, filed as an exhibit to the registration statement of which this prospectus forms a part, for a complete description of the terms and conditions applicable to the warrants.

 

Exercisability. The warrants will be exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice accompanied by payment in full in immediately available funds for the number of Class A ordinary shares purchased upon such exercise (except in the case of a cashless exercise or alternative cashless exercise as described below). One warrant is for one Class A ordinary share. A holder (together with its affiliates) may not exercise any portion of the warrants to the extent that the holder would own more than 4.99% (or, at the election of the holder, 9.99%) of the outstanding Class A ordinary shares immediately after exercise, except that upon at least 61 days’ prior notice from the holder to us, the holder may increase the amount of ownership of outstanding Class A ordinary shares after exercising the holder’s warrants up to 9.99% of the number of Class A ordinary shares outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the warrants. Purchasers of warrants in this offering may also elect prior to the issuance of the warrants to have the initial exercise limitation set at 9.99% of our outstanding Class A ordinary shares. No fractional Class A ordinary shares will be issued in connection with the exercise of a warrants.

 

Duration and Exercise Price. The initial exercise price per whole Class A ordinary share purchasable upon the exercise of the warrants is equal to up to 100% of the combined offering price per Class A ordinary share and the accompanying warrant. The warrants will be immediately exercisable and may be exercised for a period of up to five years after issuance. On the 19th calendar day immediately following the initial exercise date of the warrants (the “Reset Date”), if the then effective exercise price is high than 100% of the lowest VWAP during the period beginning 11 calendar days following the initial exercise date of the warrants and ending on the Reset Date, subject to a floor price of $0.099, which is equal to 30% of Nasdaq Minimum Price, as defined under Nasdaq Listing Rule 5635(d) (as adjusted for share splits, share dividends, recapitalizations, reorganizations, reclassification, combinations, reverse share splits or other similar events occurring after the initial exercise date) (the “Reset Price”), the exercise price shall be reduced to the Reset Price. If the exercise price is adjusted to the Reset Price, then the number of warrant shares issuable under the warrant will be proportionately increased so that after such adjustment the aggregate exercise price payable for the warrant will be equal to the aggregate exercise price of the warrant immediately prior to the reset date. The exercise price of the warrants is subject to appropriate adjustment in the event of certain stock dividends and distributions, share splits, share combinations, reclassifications or similar events affecting our Class A ordinary shares and also upon any distributions of assets, including cash, shares or other property to our shareholders.

 

Cashless Exercise. If, at any time after the holder’s purchase of warrants, such holder exercises its warrants and a registration statement registering the issuance of the Class A ordinary shares underlying the warrants under the Securities Act is not then effective or available (or a prospectus is not available for the resale of Class A ordinary shares underlying the warrants), then in lieu of making the cash payment otherwise contemplated to be made to us upon such exercise in payment of the aggregate exercise price, the holder shall instead receive upon such exercise (either in whole or in part) only the net number of Class A ordinary shares determined according to a formula set forth in the warrants. Notwithstanding anything to the contrary, in the event we do not have or maintain an effective registration statement, there are no circumstances that would require us to make any cash payments or net cash settle the warrants to the holders.

 

In addition, a holder of warrants may also provide notice and elect an “alternative cashless exercise” pursuant to which they would receive an aggregate number of shares equal to the product of (x) the aggregate number of Class A ordinary shares that would be issuable upon a cash exercise of the warrant and (y) 1.2. No fractional Class A ordinary shares will be issued in connection with the exercise of a warrants. If, upon exercise, a holder would be entitled to receive a fractional interest in a Class A ordinary share, the Company will round down to the nearest whole number of the number of Class A ordinary shares to be issued to the holder.

 

Transferability. Subject to applicable laws, the warrants may be offered for sale, sold, transferred, or assigned at the option of the holder upon surrender of the warrants to us together with the appropriate instruments of transfer.

 

Exchange Listing. We do not plan on applying to list the warrants on the Nasdaq Capital Market, any other national securities exchange or any other nationally recognized trading system.

 

Fundamental Transactions. In the event of a fundamental transaction, as described in the warrants and generally including any reorganization, recapitalization or reclassification of our Class A ordinary shares, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our Class A ordinary shares, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding Class A ordinary shares, the holders of the warrants will be entitled to receive upon exercise of the warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the warrants immediately prior to such fundamental transaction. In the case of certain fundamental transactions affecting us, a holder of warrants, upon exercise of such warrants after such fundamental transaction, will have the right to receive, in lieu of Class A ordinary shares, the same amount and kind of securities, cash or property that such holder would have been entitled to receive upon the occurrence of the fundamental transaction, had the warrants been exercised immediately prior to such fundamental transaction. In lieu of such consideration, a holder of warrants may instead elect to receive a cash payment based upon the Black-Scholes value of their warrants.

 

Rights as a Shareholder. Except by virtue of such holder’s ownership of our Class A ordinary shares, the holder of a warrant does not have the rights or privileges of a holder of our Class A ordinary shares, including any voting rights, until the holder exercises the warrants.

 

 

TAXATION

 

The following brief description of Chinese enterprise laws is designed to highlight the enterprise-level taxation on our earnings, which will affect the amount of dividends, if any, we are ultimately able to pay to our shareholders.

 

PRC enterprise income tax is calculated based on taxable income determined under PRC accounting principles. The Enterprise Income Tax Law (the “EIT Law”), effective as of January 1, 2008, enterprises pay a unified income tax rate of 25% and unified tax deduction standards are applied equally to both domestic-invested enterprises and foreign-invested enterprises. Under the EIT Law, an enterprise established outside of the PRC with “de facto management bodies” within the PRC is considered a resident enterprise and will normally be subject to the enterprise income tax at the rate of 25% on its global income. If the PRC tax authorities subsequently determine that AGM Holding and its subsidiaries in PRC or any future non-PRC subsidiary should be classified as a PRC resident enterprise, then such entity’s global income will be subject to PRC income tax at a tax rate of 25%. In addition, under the EIT Law, payments from the subsidiaries in PRC to us may be subject to a withholding tax. The EIT Law currently provides for a withholding tax rate of 20%. If AGM Holdings or any of its subsidiaries in PRC is deemed to be a non-resident enterprise, then it will be subject to a withholding tax at the rate of 20% on any dividends paid by its Chinese subsidiaries to such entity. In practice, the tax authorities typically impose the withholding tax rate of 10% rate, as prescribed in the implementation regulations; however, there can be no guarantee that this practice will continue as more guidance is provided by relevant government authorities. We are actively monitoring the proposed withholding tax and are evaluating appropriate organizational changes to minimize the corresponding tax impact.

 

According to the Sino-U.S. Tax Treaty which was effective on January 1, 1987 and aimed to avoid double taxation disadvantage, income that is incurred in one nation should be taxed by that nation and exempted from the other nation, but for the dividend that is generated in China and distributed to foreigner in other nations, a rate 10% tax will be charged.

 

Our company will have to withhold that tax when we are distributing dividends to our foreign investors. If we do not fulfill this duty, we will receive a fine up to five times of the amount we are supposed to pay as tax or other administrative penalties from government. The worst case could be criminal charge of tax evasion to responsible persons. The criminal penalty for this offense depends on the tax amount the offender evaded, and the maximum penalty will be 3-7 years imprisonment plus fine.

 

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 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 13%, with the deductibles the company may get in the business process, it will bear less burden than previous Business Tax.

 

Hong Kong Taxation

 

Hong Kong profits tax is payable by every person (including a body corporate, partnership, and sole proprietorship) carrying on a trade, profession, or business in Hong Kong on the profits arising in or derived from Hong Kong from such trade, profession, or business. With effect from April 1, 2018, a two-tiered profits tax regime applies, under which the profits tax on the first HK$2 million of profits is charged at the rate of 8.25%, whereas profits in excess of HK$2 million are subject to the standard profits tax rate of 16.5%. However, only one “entity” (which, for the purpose of the Inland Revenue Ordinance (Chapter 112 of the Laws of Hong Kong), refers to a natural person, a body of persons or a body corporate, including a corporation, a partnership and a trust) within a group of “connected entities” can enjoy the two-tier profit tax rates. An entity is regarded as a “connected entity” of another entity if: (i) one of the has control over the other; (ii) both of them are under common control of the same entity; or (iii) in the case of the first entity being a natural person carrying on business as a sole proprietorship, the other entity is the same person carrying on another sole proprietorship business. For the purpose of the two-tiered profits tax regime, a group of connected entities will need to nominate which entity will benefit and to make election accordingly. If no nomination has been made, the assessable profits of each entity within the group will be chargeable to the standard profits tax rate.

 

 

British Virgin Islands Taxation

 

Under the BVI Act as currently in effect, a holder of shares in a BVI company who is not a resident of the British Virgin Islands is exempt from British Virgin Islands income tax on dividends paid with respect to such shares and 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, provided the BVI company does not have a direct or indirect interest in any land in the BVI. 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, provided the BVI company does not have a direct or indirect interest in any land in the BVI.

 

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;
	●	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. 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.

 

 

Exercise, Lapse or Redemption of a Warrant

 

Subject to the PFIC rules discussed below and except as discussed below with respect to the cashless exercise of a warrant, a U.S. holder generally will not recognize gain or loss on the exercise of a warrant. A U.S. holder’s tax basis in a Class A ordinary share received upon exercise of the warrant generally will be an amount equal to the sum of the U.S. holder’s initial investment in the warrant (which will equal the portion of the U.S. holder’s purchase price for the units that is allocated to the warrant, as described above) and the exercise price of such warrant. The U.S. holder’s holding period for a Class A ordinary share received upon exercise of the warrant will begin on the date following the date of exercise (or possibly the date of exercise) of the warrants and will not include the period during which the U.S. holder held the warrants. If a warrant is allowed to lapse unexercised, a U.S. holder generally will recognize a capital loss equal to such holder’s tax basis in the warrant.

 

The tax consequences of a cashless exercise of a warrant are not clear under current law. A cashless exercise may not be taxable, either because the exercise is not a realization event or because the exercise is treated as a recapitalization for U.S. federal income tax purposes. In either situation, a U.S. holder’s tax basis in the Class A ordinary shares received generally will equal the U.S. holder’s tax basis in the warrant. If the cashless exercise was not a realization event, it is unclear whether a U.S. holder’s holding period for the Class A ordinary shares acquired pursuant to the exercise of such warrant will commence on the date of exercise of the warrant or the day following the date of exercise of the warrant. If the cashless exercise were treated as a recapitalization, the holding period of the Class A ordinary shares will generally include the holding period of the warrant. It is also possible that a cashless exercise may be treated as a taxable exchange in which gain or loss would be recognized because a U.S. holder may be deemed to have surrendered a portion of its warrants in a taxable transaction to pay the exercise price for the balance of its warrants that are treated as exercised for U.S. federal income tax purposes. In such event, a U.S. holder would recognize capital gain or loss in an amount equal to the difference between the exercise price for the total number of warrants treated as exercised and the U.S. holder’s tax basis in the warrants deemed surrendered. In this case, a U.S. holder’s tax basis in the Class A ordinary shares received would equal the U.S. holder’s tax basis in the warrants treated as exercised plus the exercise price of such warrants. It is unclear whether a U.S. holder’s holding period for the Class A ordinary shares would commence on the date of exercise of the warrants or the day following the date of exercise of the warrants.

 

Due to the absence of authority on the U.S. federal income tax treatment of a cashless exercise, there can be no assurance which, if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a court of law. Accordingly, U.S. holders should consult their tax advisors regarding the tax consequences of a cashless exercise.

 

Subject to the PFIC rules described below, if we redeem warrants for cash or if we purchase warrants in an open market transaction, such redemption or purchase generally will be treated as a taxable disposition to the U.S. holder.

 

Possible Constructive Distributions

 

The terms of each warrant provide for an adjustment to the number of Class A ordinary shares for which the warrant may be exercised or to the exercise price of the warrant in certain events. An adjustment which has the effect of preventing dilution generally is not taxable. The U.S. holders of the warrants would, however, be treated as receiving a constructive distribution from us if, for example, the adjustment increases the warrant holders’ proportionate interest in our assets or earnings and profits (e.g., through an increase in the number of Class A ordinary shares that would be obtained upon exercise) as a result of a distribution of cash to the holders of our Class A ordinary shares which is taxable to the U.S. holders of such Class A ordinary shares as described under “— Taxation of Dividends and Other Distributions on our Class A ordinary shares” above. Such constructive distribution would be subject to tax as described under that section in the same manner as if the U.S. holders of the warrants received a cash distribution from us equal to the fair market value of such increased interest. For certain information reporting purposes, we are required to determine the date and amount of any such constructive distributions. Proposed Treasury regulations, which we may rely on prior to the issuance of final regulations, specify how the date and amount of constructive distributions are determined.

 

 

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, 2024. Our actual PFIC status for the current taxable year ending December 31, 2024 will not be determinable until the close of such taxable year and, accordingly, there is no guarantee that we will not be a PFIC for the current taxable year. Because PFIC status is a factual determination for each taxable year which cannot be made until the close of the taxable year. A non-U.S. corporation is considered a PFIC for any taxable year if either:

 

	●	at least 75% of its gross income is passive income, defined as income from interest, dividends, rents, royalties, gains on property producing foreign personal holding company income and certain other income that does not involve the active conduct of a trade or business; or
	●	at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”).

 

We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock.

 

We must make a separate determination each year as to whether we are a PFIC. As a result, our PFIC status may change. In particular, because the value of our assets for purposes of the asset test will generally be determined based on the market price of our Class A ordinary shares, our PFIC status will depend in large part on the market price of our Class A ordinary shares. Accordingly, fluctuations in the market price of the Class A ordinary shares may cause us to become a PFIC. If we are a PFIC for any year during which you hold Class A ordinary shares, we will continue to be treated as a PFIC for all succeeding years during which you hold Class A ordinary shares. However, if we cease to be a PFIC, you may avoid some of the adverse effects of the PFIC regime by making a “deemed sale” election with respect to the Class A ordinary shares.

 

If we are a PFIC for any taxable year during which you hold Class A ordinary shares, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of the Class A ordinary shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the Class A ordinary shares will be treated as an excess distribution. Under these special tax rules:

 

	●	the excess distribution or gain will be allocated ratably over your holding period for the Class A ordinary shares;
	●	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 securities and the elections discussed above.

 

Information Reporting and Backup Withholding

 

Dividend payments with respect to our Class A ordinary shares and proceeds from the sale, exchange or redemption of our Class A ordinary shares may be subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding at a current rate of 28%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

 

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information.

 

Under the Hiring Incentives to Restore Employment Act of 2010, certain United States Holders are required to report information relating to Class A ordinary shares, subject to certain exceptions (including an exception for Class A ordinary shares held in accounts maintained by certain financial institutions), by attaching a complete Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they hold Class A ordinary shares. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

 

 

PLAN OF DISTRIBUTION

 

Pursuant to a placement agency agreement, we have engaged Maxim Group LLC (the “placement agent”) to act as our placement agent on a reasonable best efforts basis in connection with this offering. The placement agent is not purchasing or selling any such securities, nor are they required to arrange for the purchase and sale of any specific number or dollar amount of such securities, other than to use their “reasonable best efforts,” to arrange for the sale of such securities by us. The terms of this offering are subject to market conditions and negotiations between us, the placement agent, and prospective investors. The placement agency agreement does not give rise to any commitment by the placement agent to purchase any of our securities, and the placement agent will have no authority to bind us by virtue of the placement agency agreement. Further, the placement agent does not guarantee that they will be able to raise new capital in any prospective offering. The placement agent may engage sub-agents or selected dealers to assist with this offering.

 

We entered into a securities purchase agreement (the “Securities Purchase Agreement”) directly with an investor in connection with this offering. In addition to the rights and remedies available to all investors in this offering under U.S. federal and U.S. state securities laws, the investors which entered into a securities purchase agreement will also be able to bring claims of breach of contract against us. Investors who did not enter into a securities purchase agreement shall rely solely on this prospectus in connection with the purchase of our securities in this offering. We have agreed to indemnify the investors against certain losses resulting from our breach of any of our representations, warranties, or covenants under agreements with the purchasers as well as under certain other circumstances described in the Securities Purchase Agreement.

 

We will deliver to the investors the Class A ordinary shares electronically and will mail such investors physical warrant certificates for the warrants underlying the securities, upon closing and receipt of investor funds for the purchase of the securities offered pursuant to this prospectus. We intend to complete one closing of this offering, but may undertake one or more additional closings for the sale of the additional securities to the investors in the initial closing.

 

Placement Agent Fees, Commissions and Expenses

 

We have agreed to pay to the placement agent a cash fee equal to 7.5% of the aggregate gross proceeds raised in this offering.

 

We have also agreed to reimburse the placement agent (i) up to US$100,000 in the event the offering is completed and (ii) up to US$50,000 if an offering is not consummated for its actual and accountable out-of-pocket expenses related to the offering, including any fees and disbursements of the placement agent’s legal counsel and, if applicable, any electronic road show service used in connection with the offering.

 

The following table shows the public offering price, placement agent’s fees and proceeds, before expenses, to us.

 

		Per Class A ordinary share and accompanying warrant				Total
Offering price		US$	0.33			US$	5,408,700
Placement agent’s fees		US$	0.02475			US$	405,652.5
Proceeds to our company before expenses		US$	0.30525			US$	5,003,047.5

 

We estimate the total expenses payable by us for this offering to be approximately US$714,134.10, which amount includes (i) a placement agent’s fee of US$405,652.50; (ii) the reimbursement of placement agent’s expenses in the amount of up to US$100,000 in connection with this offering; and (iii) other estimated expenses of approximately US$208,481.60 which include legal, accounting, printing costs and various fees associated with the registration of the securities.

 

Placement Agent’s Warrants

 

We have agreed to issue to the placement agent and to register herein warrants to purchase up to 327,800 Class A ordinary shares (equal to 2% of the total amount of securities sold in this offering, the “Placement Agent’s Warrants”) and to also register herein such underlying Class A ordinary shares. The Placement Agent’s Warrants will be exercisable at any time, and from time to time, in whole or in part, commencing from six (6) months after the effective date of the registration statement of which this prospectus forms a part and will expire on the fifth (5^th) anniversary of the commencement of sales of this offering. The Placement Agent’s Warrants are exercisable at a per share price of 125% of the offering price of the securities offered hereby.

 

 

The Placement Agent’s Warrants shall not be redeemable. The Placement Agent’s Warrants may be exercised as to all or a lesser number of shares, and will contain provisions for one demand registration of the sale of the underlying Class A ordinary shares at our expense, one demand registration of the sale of the underlying Class A ordinary shares at the Placement Agent’s Warrants holders’ expenses, and unlimited “piggyback” registration rights at our expense for a period of five (5) years from the commencement of sales of this offering.

 

The Placement Agent’s Warrants and the underlying Class A ordinary shares will be deemed compensation by FINRA, and therefore subject to FINRA Rule 5110. The Placement Agent’s Warrants may not be sold, transferred, assigned, pledged or hypothecated, or be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days from the commencement of sales of this offering, except that they may be assigned, in whole or in part, to any officer, partner, registered person or affiliate of the placement agent, and to members of the syndicate or selling group and their respective officers, partners, registered persons and affiliates.

 

Right of First Refusal

 

We have agreed to grant the placement agent the right of first refusal, for a period of six (6) months after the closing of this offering (but no longer than three (3) years from commencement of sales of this offering), to act as sole managing underwriter and sole book runner, sole placement agent, or sole sales agent, for any and all future public or private equity, equity-linked or debt (excluding commercial bank debt) offerings for which the Company retains the service of an underwriter, agent, advisor, finder or other person or entity in connection with such offering on terms that are the same or more favorable to the Company comparing to terms offered to the Company by other underwriters/placement agents during such six (6) month period of the Company, or any successor to or any subsidiary of the Company. Such offer shall be made in writing in order to be effective. The placement agent shall notify the Company within three (3) business days of its receipt of the written offer contemplated above as to whether or not it agrees to accept such retention. If the placement agent should decline such retention, the Company shall have no further obligations to the placement agent with respect to the offering for which it has offered to retain the placement agent.

 

Lock-Up Agreements

 

In connection with this offering, each of our executive officers, directors, and holders of more than 5% of our Class A ordinary shares (and all holders of securities exercisable for or convertible into Class A ordinary shares) has agreed, subject to certain exceptions set forth in the lock-up agreements, for a period of six (6) months after the closing of this offering, they shall neither offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any securities of the Company without the placement agent’s prior written consent, including the issuance of Class A ordinary shares upon the exercise of currently outstanding options approved by the placement agent.

 

Securities Issuance Standstill

 

We have also agreed, subject to certain exceptions set forth in the placement agency agreements, for a period of ninety (90) days from the closing of this offering, the Company shall neither offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any securities of the Company without the placement agent’s prior written consent, including the issuance of Class A ordinary shares upon the exercise of currently outstanding options approved by the placement agent.

 

Other Compensation

 

Upon the closing of this offering, or if the engagement period as provided in the engagement letter between us and the placement agent ends prior to a closing of an offering (other than a termination for cause), then if within six (6) months following such time, we complete any financing of equity, equity-linked or debt or other capital raising activity with, or receives any proceeds from, any of the investors contacted or introduced by the placement agent during engagement period as provided in the engagement letter, then the Company will pay the placement agent upon the closing of such financing or receipt of such proceeds the compensation equivalent to the commission as described in this section, in each case only with respect to the portion of such financing received from such investors.

 

Listing

 

Our Class A ordinary shares have been listed on the Nasdaq Capital Market under the symbol “AGMH.” There is no established public trading market for the warrants, and we do not plan to list the warrants on the Nasdaq Capital Market or any other securities exchange or trading market. Without an active trading market, the liquidity of the warrants will be limited.

 

Regulation M

 

The placement agent may be deemed to be underwriters within the meaning of Section 2(a)(11) of the Securities Act and any fees received by them and any profit realized on the sale of the securities by them while acting as principal might be deemed to be underwriting commissions under the Securities Act. The placement agent will be required to comply with the requirements of the Securities Act and the Exchange Act including, without limitation, Rule 10b-5 and Regulation M under the Exchange Act. These rules and regulations may limit the timing of purchases and sales of the securities by the placement agent. Under these rules and regulations, the placement agent may not (i) engage in any stabilization activity in connection with our securities; and (ii) bid for or purchase any of our securities or attempt to induce any person to purchase any of our securities, other than as permitted under the Exchange Act, until they have completed their participation in the distribution.

 

 

Other Relationships

 

From time to time, the placement agent may provide various advisory, investment and commercial banking and other services to us in the ordinary course of business, for which it may receive customary fees and commissions. However, except as disclosed in this prospectus, we have no present arrangements with the placement agent for any services.

 

We have agreed to indemnify the placement agent against certain liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the placement agency agreement. If we are unable to provide this indemnification, we will contribute to payments that the placement agent may be required to make for these liabilities.

 

Affiliations

 

The placement agent and its respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing, and brokerage activities. The placement agent and its affiliates may from time to time in the future engage with us and perform services for us or in the ordinary course of their business for which they will receive customary fees and expenses. In the ordinary course of their various business activities, the placement agent and its respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of us. The placement agent and its respective affiliates may also make investment recommendations and/or publish or express independent research views in respect of these securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in these securities and instruments. 

 

Electronic Distribution 

 

A prospectus in electronic format may be made available on websites or through other online services maintained by the placement agent of this offering, or by its affiliates. Other than the prospectus in electronic format, the information on the placement agent’s website and any information contained in any other website maintained by the placement agent is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the placement agent in its capacity as the placement agent, and should not be relied upon by investors. 

 

In connection with this offering, the placement agent or certain securities dealers may distribute prospectuses by electronic means, such as e-mail.

 

Selling Restrictions

 

No action may be taken in any jurisdiction other than the United States that would permit a public offering of the securities or the possession, circulation or distribution of this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such shares be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

 

Notice to Prospective Investors in the Cayman Islands

 

This prospectus does not constitute a public offer of our securities, whether by way of sale or subscription, in the Cayman Islands. Class A ordinary shares have not been offered or sold, and will not be offered or sold, directly or indirectly, in the Cayman Islands.

 

Notice to Prospective Investors in Hong Kong

 

The contents of this prospectus have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this prospectus, you should obtain independent professional advice. Please note that (i) our shares may not be offered or sold in Hong Kong, by means of this prospectus or any document other than to “professional investors” within the meaning of Part I of Schedule 1 of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) (SFO) and any rules made thereunder, or in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32, Laws of Hong Kong) (CO) or which do not constitute an offer or invitation to the public for the purpose of the CO or the SFO, and (ii) no advertisement, invitation or document relating to our shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the SFO and any rules made thereunder.

 

 

Notice to Prospective Investors in the People’s Republic of China

 

This prospectus may not be circulated or distributed in the PRC and the shares may not be offered or sold, and will not offer or sell to any person for re-offering or resale directly or indirectly to any resident of the PRC except pursuant to applicable laws, rules and regulations of the PRC. For the purpose of this paragraph only, the PRC does not include Taiwan and the special administrative regions of Hong Kong and Macau.

 

Notice to Prospective Investors in Taiwan, the Republic of China

 

The Class A ordinary shares have not been and will not be registered with the Financial Supervisory Commission of Taiwan, the Republic of China, pursuant to relevant securities laws and regulations and may not be offered or sold in Taiwan through a public offering or in any manner which would constitute an offer within the meaning of the Securities and Exchange Act of Taiwan or would otherwise require registration with or the approval of the Financial Supervisory Commission of Taiwan.

 

Notice to Prospective Investors in Canada

 

Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.

 

Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering. Our securities may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of our securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.

 

Notice to Prospective Investors in the United Kingdom

 

This prospectus is only being distributed to and is only directed at persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 within, and/or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling with Article 49(2)(a) to (d) (all such persons together being referred to as “relevant persons”).

 

This prospectus and its contents are confidential and should not be distributed, published, or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom who is not a relevant person should not act or rely on this prospectus or any of its contents.

 

Notice to Prospective Investors in Singapore

 

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of our securities may not be circulated or distributed, nor may our securities be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor (as defined in Section 4A of the Securities and Futures Act 2001 (the “SFA”)) pursuant to Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA (where applicable) and Regulation 3 of the Securities and Futures (Classes of Investors) Regulations 2018 of Singapore, and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

 

 

Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

 

(a)

a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

 

(b)

a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

 

securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:

 

(1)

to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

 

(2)

where no consideration is or will be given for the transfer;

 

(3)

where the transfer is by operation of law;

 

(4)

as specified in Section 276(7) of the SFA; or

 

(5)

as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018 of Singapore.

 

In connection with Section 309B of the SFA and the Securities and Futures (Capital Markets Products) Regulations 2018 (the “CMP Regulations 2018”), unless otherwise specified before an offer of the shares, the Company has determined, and hereby notifies all relevant persons (as defined in Section 309A(1) of the SFA) (where applicable), that the shares are “prescribed capital markets products” (as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).

 

Notice to Prospective Investors in the European Economic Area

 

In relation to each Member State of the European Economic Area (each a “Member State”), none of our securities have been offered or will be offered pursuant to the offering to the public in that Member State prior to the publication of a prospectus in relation to our securities which has been approved by the competent authority in that Member State or, where appropriate, approved in another Member State and notified to the competent authority in that Member State, all in accordance with the Prospectus Regulation, except that offers of our securities may be made to the public in that Member State at any time under the following exemptions under the Prospectus Regulation:

 

●

to any legal entity which is a qualified investor as defined under the Prospectus Regulation;

 

●

to fewer than 150 natural or legal persons (other than qualified investors as defined under the Prospectus Regulation), subject to obtaining the prior consent of the underwriter for any such offer; or

 

●

in any other circumstances falling within Article 1(4) of the Prospectus Regulation.

 

provided that no such offer of our securities shall require us or any of our representatives to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation and each person who initially acquires any of our securities or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with each of the representatives and us that it is a “qualified investor” as defined in the Prospectus Regulation.

 

In the case of any of our securities being offered to a financial intermediary as that term is used in Article 5 of the Prospectus Regulation, each such financial intermediary will be deemed to have represented, acknowledged and agreed that our securities acquired by it in the offer have not been acquired on a nondiscretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any of our securities to the public other than their offer or resale in a Member State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.

 

For the purposes of this provision, the expression an “offer to the public” in relation to any of our securities in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any of our securities to be offered so as to enable an investor to decide to purchase or subscribe for any of our securities, and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129 (as amended).

 

 

EXPENSES RELATING TO THIS OFFERING

 

Set forth below is an itemization of the total expenses, excluding placement agent’s fees and expense reimbursements, expected to be incurred in connection with this offering by us. With the exception of the SEC registration fee and the FINRA filing fee, all amounts are estimates.

 

Securities and Exchange Commission Registration Fee		$	4,539
FINRA Filing Fee		$	5,113
Legal Fees and Expenses		$	161,481.60
Accounting Fees and Expenses		$	27,000
Miscellaneous		$	10,348
Total Expenses		$	208,481.60

 

We will bear these expenses and the placement agent’s fees and expenses incurred in connection with the offer and sale of the securities by us.

 

 

LEGAL MATTERS

 

The validity of the securities offered in this offering and certain other legal matters as to British Virgin Islands law will be passed upon for us by Mourant Ozannes (BVI), our counsel as to British Virgin Islands law. Ortoli Rosenstadt LLP is acting as counsel to our company regarding U.S. securities law matters. Legal matters as to PRC law will be passed upon for us by Skylight Law Firm. Ortoli Rosenstadt LLP may rely upon Skylight Law Firm with respect to matters governed by PRC law and Mourant Ozannes with respect to matters as to British Virgin Islands law. Ellenoff Grossman & Schole LLP is acting as counsel to the placement agent.

 

EXPERTS

 

Our consolidated financial statements as of December 31, 2023 and for the year ended December 31, 2023 in this prospectus have been so included in reliance on the report of GGF CPA LTD, the independent registered public accounting firm, given on the authority of said firm as experts in accounting and auditing. The current address of GGF CPA LTD is Level 3, Shop 119 No. 2, Jingang Avenue, Nansha District, Guangzhou, Guangdong 510000.

 

Our consolidated financial statements as of December 31, 2022 and for the year ended December 31, 2022 in this prospectus have been so included in reliance on the report of KCCW Accountancy Corp., the independent registered public accounting firm, given on the authority of said firm as experts in accounting and auditing. The current address of KCCW Accountancy Corp. is 3333 S. Brea Canyon Rd., Suite 206, Diamond Bar, CA 91765.

 

Our consolidated financial statements as of December 31, 2021 and for the year ended December 31, 2021 in this prospectus have been so included in reliance on the report of TPS Thayer, LLC. the independent registered public accounting firm, given on the authority of said firm as experts in accounting and auditing. The current address of TPS Thayer, LLC is 1600 Hwy 6 Suite 100, Sugar Land, TX 77478.

 

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

 

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 Company appointed KCCW Accountancy Corp. as its new independent registered public accounting firm to audit the Company’s financial statements. The decision to change the independent registered public accounting firm was recommended and approved by the Audit Committee and the Board of Directors of the Company. During the fiscal years ended December 31, 2022 and 2021 and through July 3, 2023, the date of dismissal, (a) there were no disagreements with TPS Thayer LLC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of TPS Thayer LLC, would have caused it to make reference thereto in its reports on the financial statements for such years and (b) there were no “reportable events” as described in Item 304(a)(1)(v) of Regulation S-K. On July 3, 2023, the Company provided TPS Thayer LLC with a copy of the Current Report of Form 6-K and TPS Thayer LLC furnish the Company with a letter addressed to the SEC stating that it agrees with the above statements.

 

On March 13, 2024, KCCW Accountancy Corp. notified the Company its decision to resign as the Company’s auditor. The Company appointed HTL International, LLC as its new independent registered public accounting firm to audit the Company’s financial statements. The decision to change the independent registered public accounting firm was recommended and approved by the Audit Committee and the Board of Directors of the Company. During the fiscal years ended December 31, 2023 and 2024 and through March 13, 2024, the date of resignation, (a) there were no disagreements with KCCW Accountancy Corp. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KCCW Accountancy Corp., would have caused it to make reference thereto in its reports on the financial statements for such years and (b) there were no “reportable events” as described in Item 304(a)(1)(v) of Regulation S-K. On March 27, 2024, the Company provided KCCW Accountancy Corp. with a copy of the Current Report of Form 6-K and KCCW Accountancy Corp. furnish the Company with a letter addressed to the SEC stating that it agrees with the above statements.

 

On May 10, 2024, HTL International, LLC notified the Company its decision to resign as the Company’s auditor. The Company appointed GGF CPA LTD as its new independent registered public accounting firm to audit the Company’s financial statements. The decision to change the independent registered public accounting firm was recommended and approved by the Audit Committee and the Board of Directors of the Company. During the fiscal years ended December 31, 2023 and 2024 and through May 10, 2024, the date of resignation, (a) there were no disagreements with HTL International, LLC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of HTL International, LLC, would have caused it to make reference thereto in its reports on the financial statements for such years and (b) there were no “reportable events” as described in Item 304(a)(1)(v) of Regulation S-K. On May 10, 2024, the Company provided HTL International, LLC with a copy of the Current Report of Form 6-K and HTL International, LLC furnish the Company with a letter addressed to the SEC stating that it agrees with the above statements.

 

 

WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

We are subject to periodic reporting and other informational requirements of the Exchange Act, as applicable to foreign private issuers. Accordingly, we are required to file reports, including annual report on Form 20-F, and other information with the SEC. As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of proxy statements to shareholders under the federal proxy rules contained in Sections 14(a), (b) and (c) of the Exchange Act, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

 

The registration statements, reports and other information so filed can be inspected and copied at the public reference facilities maintained by the SEC. You can request copies of these documents upon payment of a duplicating fee, by writing to the SEC. Please call the SEC for further information on the operation of the public reference rooms. The SEC also maintains a website that contains reports, proxy statements and other information about issuers, such as us, who file electronically with the SEC. The address of that website is http://www.sec.gov. The information on that website is not a part of this prospectus.

 

No dealers, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

 

AGM GROUP HOLDINGS INC.

c/o Creative Consultants (Hong Kong) Limited

Room 1502-3 15/F., Connaught Commercial Building, 185 Wanchai Road

Wanchai, Hong Kong

+86-010-65020507 – telephone

 

 

AGM GROUP HOLDINGS INC.

INDEX TO FINANCIAL STATEMENTS

 

CONTENTS		PAGE(S)
UNAUDITED INTERIOM CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2024 AND DECEMBER 31, 2023		F-2
UNAUDITED INTERIOM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME(LOSS) FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023		F-3
UNAUDITED INTERIOM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023		F-4
UNAUDITED INTERIOM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023		F-5
NOTES TO UNAUDITED INTERIOM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS		F-6

 

CONTENTS		PAGE(S)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ( PCAOB ID:2729)		F-25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ( PCAOB ID:2851)		F-26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ( PCAOB ID:6706)		F-28
CONSOLIDATED BALANCE SHEETS AS OF DECEMEBR 31, 2023 AND 2022		F-29
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021		F-30
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021		F-31
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2023, 2022 AND 2021		F-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		F-33

 

 

AGM GROUP HOLDINGS, INC.

UNAUDITED INTERIOM CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in US$, except for number of shares)

 

		June  30,				December 31,
		2024				2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	1,211,573			$	1,544,275
Restricted cash			-				1,573
Accounts receivable, net			-				4,860,571
Inventories			-				-
Advances to suppliers, net			43,975,791				56,414,753
Prepayment and other current assets, net			4,141,916				3,776,609
Assets of discontinued operations - current			6,874,031				20,521,364
Total current assets			56,203,311				87,119,145
NON - CURRENT ASSETS:
Property and equipment, net			-				-
Intangible assets, net			38,267				44,007
Operating lease right-of-use assets			-				-
Deferred tax assets			10,859,094				7,156,011
Assets of discontinued operations - non-current			3,626,915				3,228,182
Total non - current assets			14,524,276				10,428,200
TOTAL ASSETS		$	70,727,587			$	97,547,345
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	19,936,752			$	19,909,752
Accrued expenses and other payables			1,035,134				926,140
Advances from customers			539				3,707,166
Due to related parties			9,804,969				9,240,203
Deferred government grant, current			-				-
Operating lease liabilities, current			-				-
Income tax payable			14,146,946				13,839,598
Liabilities of discontinued operations - current			21,441,407				30,358,863
Total current liabilities			66,365,747				77,981,722
NON - CURRENT LIABILITIES:
Operating lease liabilities, non-current			-				-
Deferred government grant, non-current			-				-
Liabilities of discontinued operations - non-current			36,708				133,123
Total non - current liabilities			36,708				133,123
TOTAL LIABILITIES		$	66,402,455			$	78,114,845
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)			2,100				2,100
Additional paid-in capital			26,502,856				26,502,856
Statutory reserves			335,696				335,696
Retained earnings			(12,617,239	)			2,304,543
Accumulated other comprehensive loss			(9,922,536	)			(9,736,950	)
Total shareholders’ equity			4,325,132				19,432,500
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	70,727,587			$	97,547,345

  

  

AGM GROUP HOLDINGS, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPEATIONS AND COMPREHENSIVE (LOSS)/INCOME

(Amounts in US$, except for number of shares)

 

		For The Six Months Ended June 30,
		2024				2023
Revenues		$	3,826,875			$	31,735,966
Cost of revenues			(2,112,000	)			(30,677,276	)
Gross profit			1,714,875				1,058,690
Operating expenses
Selling, general & administrative expenses			15,653,615				(21,458,707	)
Research and development expenses
Total operating expenses			15,653,615				(21,458,707	)
(Loss)/Income from operations			(13,938,740	)			22,517,397
Other income/(expenses)
Other income			26,076				22,345
Other expenses			(102,556	)			(143,023	)
Total other (expenses)/income			(76,480	)			(120,678	)
Income (loss) from continuing operation before provision of income taxes			(14,015,220	)			22,396,719
Provision for income taxes benefit/(expenses)			3,395,757				(5,740,767	)
Net (loss)/income from continuing operation			(10,619,463	)			16,655,952
Loss from discontinued operation, net of income tax			(4,302,319	)			(542,197	)
Net (loss)/income		$	(14,921,782	)		$	16,113,755
Net income/(loss) from continuing operations per ordinary share:
Basic and diluted		$	(0.44	)		$	0.69
Net income/(loss) from discontinued operation per ordinary share:
Basic and diluted		$	(0.18	)		$	(0.02	)
Net income/(loss) per ordinary share:
Basic and diluted		$	(0.62	)		$	0.66
Weighted average shares outstanding
Basic and diluted			24,254,842				24,254,842
Comprehensive income/(loss)
Net income/(loss)			(14,921,782	)			16,113,755
Other comprehensive (loss)/income
Foreign currency translation adjustment			(185,586	)			(3,410,742	)
Total comprehensive (loss)/income		$	(15,107,368	)		$	12,703,013
Weighted average Class A ordinary shares outstanding, basic			24,254,842				24,254,842
Weighted average Class A ordinary shares outstanding, diluted			24,254,842				24,254,842

 

 

AGM GROUP HOLDINGS, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

		Number of Class A Ordinary Share				Number of Class B Ordinary Share				Class A Ordinary Share				Class B Ordinary Share				Additional paid-in capital				Statutory Reserves				(Accumulated loss)/ Retained earnings				Accumulated other comprehensive income/(loss)				Total
Balance, December 31, 2022			24,254,842				2,100,000			$	24,255			$	2,100			$	26,502,856			$	335,696			$	9,743,823			$	(6,165,020	)		$	30,443,710
Net income																											16,113,755								16,113,755
Issuance of common shares
Appropriation to statutory reserve
Cancellation of Class B ordinary shares
Foreign currency translation adjustment																															(3,410,742	)			(3,410,742	)
Balance, June 30, 2023			24,254,842				2,100,000			$	24,255			$	2,100			$	26,502,856			$	335,696			$	25,857,578			$	(9,575,762	)		$	43,146,723

 

		Number of Class A Ordinary Share				Number of Class B Ordinary Share				Class A Ordinary Share				Class B Ordinary Share				Additional paid-in capital				Statutory Reserves				(Accumulated loss)/ Retained earnings				Accumulated other comprehensive income/(loss)				Total
Balance, December 31, 2023			24,254,842				2,100,000			$	24,255			$	2,100			$	26,502,856			$	335,696			$	2,304,543			$	(9,736,950	)		$	19,432,500
Net income																											(14,921,782	)							(14,921,782	)
Issuance of common shares
Appropriation to statutory reserve
Cancellation of Class B ordinary shares
Foreign currency translation adjustment																															(185,586	)			(185,586	)
Balance, June 30, 2024			24,254,842				2,100,000			$	24,255			$	2,100			$	26,502,856			$	335,696			$	(12,617,239	)		$	(9,922,536	)		$	4,325,132

 

 

AGM GROUP HOLDINGS, INC.

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in US$)

 

		For The Six Months Ended June 30,
		2024				2023
Cash flows from operating activities
Net income (loss)		$	(14,921,782	)		$	16,113,755
Net income (loss) from continuing operations			(10,619,463	)			16,655,952
Net income (loss) from discontinued operations, net of tax			(4,302,319	)			(542,197	)
Adjustment to reconcile net (loss)/income to net cash used in operating activities
(Depreciation and amortization			5,740				5,741
Amortization of operating lease right-of-use asset			-				-
Allowance for doubtful accounts			14,788,061				(21,946,806	)
Other income			-				-
Changes in operating assets and liabilities:
Accounts receivable			4,820,553				14,837,479
Inventories			-				-
Advances to suppliers			(2,309,081	)			(7,446,908	)
Prepayment and other current assets			(365,307	)			(111,523	)
Deferred tax assets			(3,703,105	)			5,486,702
Accounts payable			27,000				(20,225,606	)
Accrued expenses and other payables			113,833				(76,442	)
Income tax payable			307,348				254,065
Advances from customers			(3,706,627	)			8,523,197
Deferred government grant			-				-
Operating lease liabilities			-				-
Loan receivable from third parties			-				-
Net cash used in operating activities from continuing operations			(641,048	)			(4,044,149	)
Net cash provided by operating activities from discontinued operations			50,321				2,950,675
Net cash used in operating activities			(590,727	)			(1,093,474	)
Cash flows from investing activities
Purchase of property and equipment			-				-
Purchase of construction in progress			-				-
Net cash used in investing activities from continuing operations			-				-
Net cash used in investing activities from discontinued operations			-				(18,167	)
Net cash used in investing activities			-				(18,167	)
Cash flows from financing activities
Proceeds from related parties			560,000				1,620,000
Proceeds from short-term borrowings			-				-
Additions/disposal of ROU Assets			-				-
Repayments to related parties			-				(220,000	)
Net cash provided by financing activities from continuing operations			560,000				1,400,000
Net cash used in financing activities from discontinued operations			(72,493	)			-
Net cash provided by financing activities			487,507				1,400,000
Effect of exchange rate changes on cash and cash equivalents			(264,495	)			(618,528	)
Net change in cash and cash equivalents			(367,715	)			(330,169	)
Cash and cash equivalents, beginning of the period			1,601,479				4,073,440
Cash and cash equivalents, end of the period			1,233,764				3,743,271
Less cash and cash equivalents of discontinued operations, end of the period			22,191				273,713
Cash and cash equivalents of continuing operations–end of period			1,211,573				3,469,558
Supplemental cash flow information		$	-			$	-
Interest paid		$	-			$	-
Income taxes paid			-				-
Non-cash investing and financing activities		$				$
Disposals of ROU Assets		$	-			$	-

 

 

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.

  

On January 26, 2024 AGM Holdings incorporated a wholly owned limited liability subsidiary, AGM Electronic Technology Limited(“AGM HK”) in Hong Kong. On April 17, 2024 AGM Holdings incorporated a wholly owned limited liability subsidiary, AGM Canada Holdings Limted (“AGM Canada”) in Canada. On April 26, 2024 AGM HK incorporated a wholly owned limited liability subsidiary, Beijing Bixin Electronic Technology Co., Ltd (“AGM Bixin”) in China under the laws of PRC.

  

 

Note 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES (Continued)

 

As of June 30, 2024, AGM Holdings’ subsidiaries are as follows:

 

Name		Date of Incorporation		Place of Incorporation		Percentage of Effective Ownership		Principal Activities
AGM Technology Limited (“AGM Technology “)		May 21, 2015		Hong Kong		100%		Sale of cryptocurrency mining machines and standardized computing equipment
AGM Tianjin Construction Development Co., Ltd. (“AGM Tianjin”) formerly Shenzhen AnGaoMeng Financial Technology Service Co., Ltd.		October 13, 2015		China		100%		Holding entity
Beijing AnGaoMeng Technology Service Co., Ltd. (“AGM Beijing”)		November 13, 2015		China		100%		Software development and provider
AGM Software Service LTD (“AGM Software”)		June 14, 2017		BVI		100%		Core technology service provider
Nanjing Lucun Semiconductor Co., Ltd. (“Nanjing Lucun”)		June 17, 2021		China		100%		Sale of cryptocurrency mining machines and standardized computing equipment
AGM Defi Lab Ptd Limited (“AGM Defi Lab”)		July 30, 2021		Singapore		100%		Software development and provider
AGM Defi Tech Limited (“AGM Defi Tech”)		August 8, 2021		Hong Kong		100%		Software development and provider
Beijing Keen Sense Technology Service Co., Ltd (“Beijing Keen Sense”)		October 21, 2021		China		100%		Software development and provider
AGM Electronic Technology Limited (“AGM HK”)		January 26, 2024		Hong Kong		100%		Sale of cryptocurrency mining machines and standardized computing equipment
AGM Canada Holdings Limted (“AGM Canada”)		April 17, 2024		Canada		100%		Sale of cryptocurrency mining machines and standardized computing equipment
Beijing Bixin Electronic Technology Co., Ltd (“AGM Bixin”)		April 26, 2024		China		100%		Software development and provider

  

AGM Technology, AGM Tianjin, AGM Beijing, AGM Software, Nanjing Lucun, AGM Defi Lab, AGM Defi Tech, Beijing Keen Sense, AGM HK, AGM Canada, and AGM Bixin 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 interim condensed 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 condensed consolidated financial statements are summarized below.

  

Principles of Consolidation

  

The accompanying condensed consolidated financial statements include the accounts for AGM Holdings and all its consolidated subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

  

Discontinued Operation

  

A discontinued operation may include a component of an entity or a group of components of an entity, or a business or non-profit activity. A disposal of a component of an entity is required to be reported in discontinued operation if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when any of the following occurs: (1) the component of an entity or group of components of an entity meets the criteria to be classified as held for sale; (2) the component of an entity or group of components of an entity is disposed of by sale; (3) the component of an entity or group of components of an entity is disposed of other than by sale (for example, by abandonment or in ad distribution to owners in a spinoff).

  

For the component disposed of other than by sale in accordance with paragraph 360-10-45-15, the Company adopted ASC Topic 205-20-45-3 and reported the results of operations of the discontinued operations, less applicable income tax expenses or benefits as a separate component in the statement where net income (loss) is reported for current and all prior periods presented.

  

Based on a strategic plan, the Company plans to sell Nanjing Lucun, AGM Tianjin, AGM Beijing, and Beijing Keen Sense. As of June 30, 2024 and December 31, 2023, the operation of these entities was classified as a discontinued operation. For the six months ended June 30, 2024 and 2023, the operation of the above entities was presented in discontinued operations.

  

Reclassification

  

Certain prior period amounts have been reclassified to conform to current period presentation in order to reflect the discontinued operations of Nanjing Lucun, AGM Tianjin, AGM Beijing and Beijing Keen Sense. None of the ese reclassifications had an impact on reported financial position or cash flows for any of the period presented.

  

Foreign Currency Translation

 

The accompanying condensed 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 condensed consolidated statements of operations.

  

The condensed consolidated balance sheet balances, with the exception of equity at June 30, 2024 and December 31, 2023 were translated at RMB7.1268 and RMB7.0827 to $1.00, respectively. The equity accounts were stated at their historical rate. The average translation rates applied to condensed consolidated statements of operations and cash flows for the six months ended June 30, 2024 and 2023 were RMB7.1051, RMB6.9291 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 condensed 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 June 30, 2024 and December 31, 2023, the Company’s cash equivalents primarily consist cash in various financial institutions.

  

  

Note 2 - SUMMARY OF SIGNIFICANT POLICIES (Continued)

  

Restricted cash

 

Restricted cash consists of frozen deposits due to overdue reconciliations. The balance of restricted cash was nil and nil from continuing operations and nil and $1,573 from discontinued operation as of June 30, 2024 and December 31, 2023, 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 six months ended June 30, 2024 and the year ended December 31, 2023.

  

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 condensed 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.

  

  

Note 2 - SUMMARY OF SIGNIFICANT POLICIES (Continued)

  

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 condensed consolidated financial statements was immaterial.

  

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		Residual value rate				Useful life
Electronic equipment			5	%		3 years
Office equipment			5	%		5 years
Leasehold improvement			0	%		Shorter of the lease term or the estimated useful life of the assets

 

Intangible Assets

 

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		Residual value rate				Useful life
AGM domain name			0	%		10 years
Software			0	%		5 years

 

Revenue Recognition

 

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.

 

 

Note 2 - SUMMARY OF SIGNIFICANT POLICIES (Continued)

 

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.

  

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 six months ended June 30, 2024 and 2023, 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 June 30, 2024 and December 31, 2023, the Company’s advances from customers amounted to $539 and $3,707,166 from continuing operations and$16,357,806 and $26,424,582 from discontinued operation, 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 condensed consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in the condensed consolidated balance sheets. There were no finance leases for the six months ended June 30, 2024 and the years ended December 31, 2023.

 

 

Note 2 - SUMMARY OF SIGNIFICANT POLICIES (Continued)

 

Selling, General & Administrative Expenses

 

Selling, general and administrative expenses consist primarily of credit losses, sales and administrative employee-related expenses and professional fees.

 

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.

  

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 June 30, 2024 and December 31, 2023, the balance of deferred government grant was nil and nil from continuing operations and$74,937 and $97,137 from discontinued operation, respectively. The amount of other income for the government grant recognized during the six months ended June 30, 2024 and 2023 was nil and nil from continuing operations and$20,084and $20,594 from discontinued operation, 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 June 30, 2024,and December 31, 2023, the Company had uncertain tax positions accrued, and will continue to evaluate for uncertain positions in the future.

 

 

Note 2 - SUMMARY OF SIGNIFICANT POLICIES (Continued)

 

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 condensed 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 six months ended June 30, 2024 and 2023 , the only component of accumulated other comprehensive loss was foreign currency translation adjustments.

  

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.

  

  

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 six months ended June 30, 2024 and the year ended December 31, 2023, profit appropriation to statutory surplus fund for the Company’s entities incorporated in the PRC was nil and nil, 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 condensed 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 condensed 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 condensed 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 condensed 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 condensed consolidated financial condition, results of operations, cash flows, or disclosures.

  

  

Note 3 - ACCOUNTS RECEIVABLE, NET

 

Accounts receivable consisted of the following:

 

		June 30,				December 31,
		2024				2023
Accounts receivable			7,455,097				12,275,650
Allowance for credit losses			(7,455,097	)			(7,415,079	)
Accounts receivable, net		$	-			$	4,860,571

 

For the six months ended June 30, 2024 and December 31, 2023, the Company recorded credit losses of $7,455,097 and $7,415,079 from continuing operations and $4,906,524 and $0 from discontinued operations, respectively.

  

Note 4 - ADVANCES TO SUPPLIERS, NET

 

Advances to suppliers consisted of the following:

 

		June 30,				December 31,
		2024				2023
Advances to suppliers			78,772,548				76,463,466
Provision for impairment			(34,796,757	)			(20,048,713	)
Advances to suppliers, net		$	43,975,791			$	56,414,753

 

For the six months ended June 30, 2024 and December 31,2023, the Company recorded provision of $34,796,757 and $20,048,713 from continuing operations and $8,306,942 and $8,556,789 from discontinued operations, respectively.

  

Note 5 - INVENTORIES

 

Inventories, primarily consisted of cryptocurrency mining machines and standardized computing equipment, which are finished goods from manufactures. As of June 30, 2024 and December 31, 2023, inventories consisted of the following:

 

			June 30,				December 31,
			2024				2023
Finished goods		$	-			$	-

 

No inventory write-down was recorded for the six months ended June 30, 2024 and December 31,2023.

  

  

Note 6 - Prepayment and OTHER CURRENT ASSETS

 

Prepayment and other current assets consist of prepaid expenses, other receivables, and deposits. As of June 30, 2024 and December 31, 2023, prepayment and other current assets consisted of the following:

  

		June 30,				December 31,
		2024				2023
Loan receivable (1)		$	4,161,309			$	3,776,608
Prepaid input VAT			-				-
Deposits and others			1,136,375				1,155,769
Subtotal			5,297,684				4,932,377
Allowance for credit losses (2)			(1,155,768	)			(1,155,768	)
Total prepayment and other current assets		$	4,141,916			$	3,776,609

  

(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 June 30, 2024, the outstanding amount of loans to AGM Group Ltd. was $1,350,000, generating interest income of $31,172

  

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 increased the amount to $600,000. As of June 30, 2024, the outstanding amount of loans to Muliang Agriculture Limited was $465,000, generating interest income of $8,064

  

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%. On February 6, 2024, both parties agreed to extend the loan to February 28, 2025 and increased the amount to $2,300,000.As of June 30, 2024, the outstanding amount of loans to Northnew Management Limited was $2,295,426, generating interest income of $16,963. 

 

(2)

As of June 30, 2024 and December 31, 2023, the Company recorded credit losses of $1,155,768 and $1,155,768 for the long-age deposit, respectively.

  

 

Note 7 - INTANGIBLE ASSETS, NET

 

As of June 30, 2024 and December 31, 2023, intangible assets, net consisted of the following:

 

		June 30,				December 31,
		2024				2023
AGM domain name		$	14,800			$	14,800
Software			50,000				50,000
Total intangible assets			64,800				64,800
Less: accumulated amortization			(26,533	)			(20,793	)
Total intangible assets, net			38,267				44,007

 

For the six months ended June 30, 2024 and 2023, amortization expenses amounted to $5,740 and $5,740 respectively. The following is an estimated, by fiscal years, of amortization amount of intangible asset:

 

Year ending December 31,
2024 (remaining 6 months)		$	5,740
2025			11,480
2026			11,480
2027			9,567
Total		$	38,267

 

Note 8 - RELATED PARTY TRANSACTIONS AND BALANCES

 

As of June 30, 2024, related parties of the Company consist of the following:

 

Name of Related Party		Nature of Relationship
HongKong Kisen Co., Limited (“HongKong Kisen”)		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 June 30, 2024 and December 31, 2023, due to related parties consisted the following:

  

		December 31,												Interest				Exchange Rate				June 30,
		2023				Received				Repayment				Expenses				Translation				2024
HongKong Kisen (1)			9,240,203				560,000				-				4,766				-				9,804,969
Total due to related parties			9,240,203				560,000				-				4,766				-				9,804,969

  

(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. In 2024, the Company borrowed $560,000 from HongKong Kisenas, generating interest expense of $4,766, of June 30,2024, the total amount of loans to HongKong Kisen was $9,784,975, total interest payable is $19,994. 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 9 - SHAREHOLDERS’ EQUITY

 

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 June 30, 2024, 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.

  

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)			3.5
Risk-free interest rate			1.01	%
Expected volatility			152.16	%

  

  

Note 9 - SHAREHOLDERS’ EQUITY (Continued)

  

As of June 30, 2024, and December 31, 2023, 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 0.95 and 1.45 years.

  

Following is a summary of the status of warrants outstanding and exercisable as of June 30, 2024:

  

		Warrants				Weighted Average Exercise Price
Warrants outstanding, as of December 31, 2022						$
Issued			1,652,175				8.3
Exercised			-				-
Expired			-				-
Warrants outstanding, as of December 31, 2023			1,652,175			$	8.3
Issued			-				-
Exercised			-				-
Expired			-				-
Warrants outstanding, as of June 30, 2024			1,652,175			$	8.3
Warrants exercisable, as of June 30, 2024			1,652,175			$	8.3

  

Note 10 - 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 June 30, 2024 and December 31, 2023, net assets restricted in the aggregate included in the Company’s consolidated net assets were both $335,696.  

 

 

Note 11 - DISCONTINUED OPERATION

 

On October 25, 2024, the Company decided to sell the subsidiaries, Nanjing Lucun, AGM Tianjin, AGM Beijing, and Beijing Keen Sense based on a strategic plan. Purchase has not yet been identified however these entities are ready for sale. The disposal of the entities was treated as a discontinued operation for all periods or years presented.

 

In accordance with the provision of ASC 205-20, the Company has separately reported the assets and liabilities of the discontinued operations in the Condensed Consolidated Balance Sheets. The assets and liabilities have been reflected as discontinued operations in the Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023, and consist of the following:

 

		June  30,				December 31,
		2024				2023
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	22,191			$	54,058
Restricted cash			-				1,573
Accounts receivable, net			96,537				-
Inventories							5,502,404
Advances to suppliers, net			6,477,049				14,888,691
Prepayment and other current assets, net			278,254				74,638
Total current assets			6,874,031				20,521,364
NON - CURRENT ASSETS:
Property and equipment, net			237,376				379,678
Intangible assets, net			-				-
Operating lease right-of-use assets			99,719				270,248
Deferred tax assets			3,289,820				2,578,256
Total non - current assets			3,626,915				3,228,182
TOTAL ASSETS		$	10,500,946			$	23,749,546
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	1,741,791			$	1,902,320
Accrued expenses and other payables			2,624,596				1,057,005
Advances from customers			16,357,806				26,424,582
Due to related parties			4,543				187,129
Deferred government grant, current			38,229				37,610
Operating lease liabilities, current			8,819				79,736
Income tax payable			665,623				670,481
Total current liabilities			21,441,407				30,358,863
NON - CURRENT LIABILITIES:
Operating lease liabilities, non-current			-				73,596
Deferred government grant, non-current			36,708				59,527
Total non - current liabilities			36,708				133,123
TOTAL LIABILITIES		$	21,478,115			$	30,491,986

 

 

Note 11 - DISCONTINUED OPERATION (Continued)

 

In accordance with the provisions of ASC 205-20, the Company has not included in the results of continuing operations the results of operations of the discontinued operations in the Condensed Consolidated Statements of Operations and Comprehensive (Loss)/Income. The results of operations for Nanjing Lucun, AGM Tianjing, AGM Beijing and Beijing Keen Sense for the six months ended June 30, 2024 and 2023 have been reflected as discontinued operations in the Condensed Consolidated Statements of Operations and Comprehensive (Loss)/Income and consist of the following:

 

		Six months ended				Six months ended
		June 30, 2024				June 30, 2023
Net revenues		$	23,287,088			$	4,851,551
Cost of revenues			(22,785,394	)			(4,621,665	)
Gross profit			501,694				229,886
Operating expenses			5,582,294				969,378
Other income/(expenses).net			48,541				16,562
Loss before income tax		$	(5,032,059	)		$	(722,930	)
Income tax expense			729,740				180,733
Loss from discontinued operation, net of income tax		$	(4,302,319	)		$	(542,197	)

 

Note 12 - 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.

  

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 six months ended June 30, 2024 and the year ended December 31, 2023,the Company has evaluated this uncertain tax position and recorded a tax liability on the Condensed Consolidated Balance Sheet.

 

 

Note 12 - INCOME TAX (Continued)

 

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, Beijing Keen Sense, and AGM Bixin are subject to 25% China statutory tax rate. AGM Beijing, AGM Tianjin, Nanjing Lucun, Beijing Keen Sense, AGM Bixin, AGM Holdings, AGM Software, and AGM Defi Tech incurred net loss for the six months ended June 30, 2024 .

  

The provision for income taxes consisted of the following:

 

		For The Six Months Ended June 30,
		2024				2023
Current		$	(307,348	)		$	(254,549	)
Deferred			3,703,105				(5,486,218	)
Total		$	3,395,757			$	(5,740,767	)

 

The reconciliations of the statutory income tax rate and the Company’s effective income tax rate are as follows:

 

		For The Six Months Ended June 30,
		2024				2023
Statutory income tax rate			25	%			25	%
Tax effect of different tax rates in other jurisdictions			(1	)%			1	%
Tax effect of non-deductible expenses			0	%			0	%
Changes in valuation allowance			0	%			0	%
Effective tax rate			24	%			26	%

  

The summary of cumulative net operating losses carried forward for the Company’s subsidiaries in different regions is as follows:

  

		For The Six Months Ended June 30,
		2024				2023
PRC Region		$	28,757			$	-
HK Region			2,569				1,934
Singapore Region			6,440				6,444
Total cumulative net operating loss carry-forward		$	37,766			$	8,378

  

Components of the Company’s net deferred tax assets are set forth below:

 

		June 30,				December 31,
		2024				2023
Deferred tax assets:
Net operating loss carry-forwards		$	8,476			$	1,121
Allowance for credit losses			2,152,715				2,142,711
Provision of advances to suppliers			8,699,189				5,012,179
Lease liability			-				-
Total of deferred tax assets		$	10,860,380			$	7,156,011
Less: valuation allowance			(1,286	)			-
Net deferred tax assets		$	10,859,094			$	7,156,011
Defer tax liabilities:			-				-
Right-of-use assets		$	-			$	-
Total deferred tax liabilities			-				-
Deferred tax assets, net		$	10,859,094			$	7,156,011

 

 

Note 12 - INCOME TAX (Continued)

 

As of June 30,2024 and December 31, 2023, net deferred tax assets, net of the Company were of $10,859,094 and $7,156,011, respectively, which was consisted of allowance for credit losses, provision of advances to suppliers and operating loss carry-forwards. As of June 30, 2024, the Management believes that the Company’s cumulative losses arising from recurring business of strading ubsidiaries constituted significant strong evidence that most of the deferred tax assets would be realizable, and therefore, no valuation allowance was accrued accordingly over those subsidiaries. Valuation allowance was fully accrued for subsidiaries not generating income apart from AGM Bixin for the six months ended June 30, 2024. As of June 30, 2024 and December 31, 2023, valuation allowance was $1,286 and nil.

 

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 six months ended June 30, 2024 and he 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 Condensed Consolidated Balance Sheets as of June 30,2024 and December 31, 2023.

  

The activity of the unrecognized tax positions related to the Company’s uncertain tax positions is summarized as follows:

 

		June 30,				December 31,
		2024				2023
Gross beginning balance			6,961,166				6,567,028
Gross increase to tax positions in the current period			307,348				394,138
Gross ending balance			7,268,514				6,961,166

 

There were no interests and penalties in relation to the Company uncertain tax positions for June 30, 2024, December 31, 2023 and 2022. 

 

Note 13 - 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 June 30, 2024 and December 31, 2023, the Company had $55 and $400 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 $70,000). As a result, cash held in China financial institutions of nil and nil were not insured as of June 30,2024 and December 31, 2023, respectively. The Company have not experienced any losses in such accounts through June 30, 2024.

  

  

Note 13 - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS (Continued)

  

The Company’s cash position by geographic area was as follows: 

  

		June 30, 2024								December 31, 2023
Country:
Singapore		$	234,823				19	%		$	234,897				15	%
China (Hongkong)			976,695				81	%			1,310,551				85	%
China (Mainland)			55				-	%			400				-	%
Total cash and cash equivalents, and restricted cash		$	1,211,573				100	%		$	1,545,848				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

 

As of June 30,2024, one customer accounted for 99% of the Company’s revenues. As of June 30,2023, three customers accounted for 39%, 23% and 21% of the Company’s revenues, respectively.

  

Suppliers

  

As of June 30,2024, one supplier accounted for 100% of the Company’s cost of revenues. As of June 30,2023, three suppliers accounted for 32%, 30% and 23% of the Company’s cost of revenues, respectively.

 

As of June 30, 2024, the Company entered into lease agreements as lessee with third parties for the operation. The Company has total future lease payment of $0 from continuing operations and of $8,840 from discontinued operation, respectively. As of June 30, 2024, the Group did not have any purchase commitments or capital commitments.

  

Note 14 - SUBSEQUENT EVENTS

  

The Company filed F-1 Registration Statement to raise capital on September 30, 2024. The company is authorized to issue a miximum of 400,000,000 shares with a par value of $0.001 each, being a dual class structure consiting of 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.

  

On October 10, 2024 AGM Holdings announced AGM Canada entered into a partnership agreement Nowlit Solutions Corp. (“Nowlit”), a high performnce computing and data center supplier, in Canada on October 2, 2024 to establish a joint venture name AGM Energy Corp. (“AGM Energy”).

  

Pursuant to the Agreement, AGM Energy plans to invest in and operate clean energy including oil fields, natural gas fields, and hydropower plants in Canada. AGM Energy intends to actively promote two aspects of business:

  

(1) Acquiring high-quality energy assets in North America, such as oil fields, natural gas, and hydropower plants, through investment or merger and acquisition, and the business income is the proceeds from energy sales.

  

(2) Providing electricity and operation capabilities to customers in the AI and cryptocurrency industries through the construction of IDC data centers and cryptocurrency mining farms, and its business income is electricity charges and hosting operation management service fees.

  

On October 10, 2024, Nanjing Lucun Semiconductor Co., Ltd. Beijing Branch was deregistered.

  

The Company has performed an evaluation of subsequent events through November 18, 2024, which was the date of the condensed consolidated financial statements were issued, and determined that no other events that would have required adjustment or disclosure in the condensed consolidated financial statements except for the events mentioned below.

  

 

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

 

 

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.

 

 

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

 

 

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

 

 

AGM GROUP HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in US$, except for number of shares)

 

		December 31,				December 31,
		2023				2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	1,599,906			$	4,073,440
Restricted cash			1,573				-
Accounts receivable, net			4,860,571				92,755,701
Inventories			5,502,404				3,915,456
Advances to suppliers, net			71,303,444				13,139,128
Prepayment and other current assets, net			3,851,247				2,935,644
Total current assets			87,119,145				116,819,369
NON - CURRENT ASSETS:
Property and equipment, net			379,678				689,361
Intangible assets, net			44,007				55,486
Operating lease right-of-use assets			270,248				492,984
Deferred tax assets			9,734,267				7,172,814
Total non - current assets			10,428,200				8,410,645
TOTAL ASSETS		$	97,547,345			$	125,230,014
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	21,812,072			$	64,500,197
Accrued expenses and other payables			1,983,145				2,874,126
Advances from customers			30,131,748				4,572,765
Due to related parties			9,427,332				8,087,981
Deferred government grant, current			37,610				36,529
Operating lease liabilities, current			79,736				162,576
Income tax payable			14,510,079				14,285,918
Total current liabilities			77,981,722				94,520,092
NON - CURRENT LIABILITIES:
Operating lease liabilities, non-current			73,596				167,428
Deferred government grant, non-current			59,527				98,784
Total non - current liabilities			133,123				266,212
TOTAL LIABILITIES		$	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)			2,100				2,100
Additional paid-in capital			26,502,856				26,502,856
Statutory reserves			335,696				335,696
Retained earnings			2,304,543				9,743,823
Accumulated other comprehensive loss			(9,736,950	)			(6,165,020	)
Total shareholders’ equity			19,432,500				30,443,710
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	97,547,345			$	125,230,014

  

The accompanying notes are an integral part of these consolidated financial statements

 

 

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,
		2023				2022				2021
Revenues		$	92,907,172			$	242,395,556			$	36,709,931
Cost of revenues			(88,278,140	)			(195,807,066	)			(30,112,363	)
Gross profit			4,629,032				46,588,490				6,597,568
Operating expenses
Selling, general & administrative expenses			13,870,634				30,395,048				1,607,393
Research and development expenses			-				-				36,317
Total operating expenses			13,870,634				30,395,048				1,643,710
(Loss)/Income from operations			(9,241,602	)			16,193,442				4,953,858
Other income/(expenses)
Other income			106,202				118,265				47,167
Other expenses			(487,919	)			(491,299	)			(43,171	)
Total other (expenses)/income			(381,717	)			(373,034	)			3,996
(Loss)/Income before provision of income taxes			(9,623,319	)			15,820,408				4,957,854
Provision for income taxes benefit/(expenses)			2,184,039				(4,344,769	)			(1,406,159	)
Net (loss)/income		$	(7,439,280	)		$	11,475,639			$	3,551,695
Other comprehensive (loss)/income
Foreign currency translation adjustment			(3,571,930	)			(6,578,195	)			169,472
Total comprehensive (loss)/income		$	(11,011,210	)		$	4,897,444			$	3,721,167
(Loss)/Earnings per common share
Basic		$	(0.31	)		$	0.47			$	0.17
Diluted			(0.31	)			0.47				0.17
Weighted average Class A ordinary shares outstanding, basic			24,254,842				24,254,842				21,491,291
Weighted average Class A ordinary shares outstanding, diluted			24,254,842				24,254,842				21,511,469

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

AGM GROUP HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 

		Number of Class A Ordinary Share				Number of Class B Ordinary Share				Class A Ordinary Share				Class B Ordinary Share				Additional paid-in capital				Statutory Reserves				(Accumulated loss)/ Retained earnings				Accumulated other comprehensive income/(loss)				Total
Balance, December 31, 2020			21,356,290				7,100,000			$	21,356			$	7,100			$	8,368,266			$	-			$	(4,947,815	)		$	243,703			$	3,692,610
Net income			-				-				-				-				-				-				3,551,695				-				3,551,695
Issuance of common shares			2,898,552				-				2,899				-				17,637,100				-				-				-				17,639,999
Appropriation to statutory reserve			-				-				-				-				-				63,659				(63,659	)			-				-
Cancellation of Class B ordinary shares			-				(5,000,000	)			-				(5,000	)			5,000				-				-				-				-
Foreign currency translation adjustment			-				-				-				-				-				-				-				169,472				169,472
Balance, December 31, 2021			24,254,842				2,100,000			$	24,255			$	2,100			$	26,010,366			$	63,659			$	(1,459,779	)		$	413,175			$	25,053,776
Net income			-				-				-				-				-				-				11,475,639				-				11,475,639
Appropriation to statutory reserve			-				-				-				-				-				272,037				(272,037	)			-				-
Deposit received on issuance of common shares			-				-				-				-				492,490				-				-				-				492,490
Foreign currency translation adjustment			-				-				-				-				-				-				-				(6,578,195	)			(6,578,195	)
Balance, December 31, 2022			24,254,842				2,100,000			$	24,255			$	2,100			$	26,502,856			$	335,696			$	9,743,823			$	(6,165,020	)		$	30,443,710
Net loss			-				-				-				-				-				-				(7,439,280	)			-				(7,439,280	)
Appropriation to statutory reserve			-				-				-				-				-				-				-				-				-
Foreign currency translation adjustment			-				-				-				-				-				-				-				(3,571,930	)			(3,571,930	)
Balance December 31, 2023			24,254,842				2,100,000			$	24,255			$	2,100			$	26,502,856			$	335,696			$	2,304,543			$	(9,736,950	)		$	19,432,500

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

AGM GROUP HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in US$)

 

		For The Year Ended December 31,
		2023				2022				2021
Cash flows from operating activities
Net (loss) income		$	(7,439,280	)		$	11,475,639			$	3,551,695
Adjustment to reconcile net income to net cash used in operating activities
Depreciation and amortization			321,102				201,944				38,363
Amortization of operating lease right-of-use asset			152,619				138,709				63,347
(Reversal)/allowance for credit losses			(18,898,441	)			27,469,288				-
Provision of advances to suppliers			28,605,502				-				-
Other income			(40,501	)			(42,431	)			(22,119	)
Deferred tax benefits			(2,578,177	)			(7,061,293	)			(129,034	)
Changes in operating assets and liabilities:
Accounts receivable			107,537,272				(119,006,660	)			(2,608,325	)
Inventories			(1,660,677	)			17,210,179				(22,433,140	)
Advances to suppliers			(88,065,195	)			23,795,007				(40,485,521	)
Prepayment and other current assets			(2,085,340	)			198,990				2,094,491
Accounts payable			(42,676,557	)			50,070,180				14,111,595
Accrued expenses and other payables			(802,793	)			1,713,032				272,411
Income tax payable			237,378				12,509,424				1,505,485
Advances from customers			25,999,451				(35,891,398	)			42,231,914
Deferred government grant			-				-				3,454
Operating lease liabilities			(298,081	)			(122,878	)			(49,074	)
Net cash used in operating activities			(1,691,718	)			(17,342,268	)			(1,854,458	)
Cash flows from investing activities
Purchase of property and equipment			(10,708	)			(282,308	)			(339,657	)
Purchase of intangible asset			-				(50,000	)			-
Net cash used in investing activities			(10,708	)			(332,308	)			(339,657	)
Cash flows from financing activities
Proceeds from issuance of ordinary shares			-				-				17,639,999
Proceeds from related parties			4,482,819				10,000,000				907,135
Proceeds from short-term borrowings			-				-				1,568,455
Receipt of financing deposit			-				492,490				-
Repayments of loans and borrowings			-				(1,486,746	)			-
Borrowings to related parties			-				-				(39,238	)
Repayments to related parties			(3,160,000	)			(2,000,000	)			(517,670	)
Net cash provided by financing activities			1,322,819				7,005,744				19,558,681
Effect of exchange rate changes on cash and cash equivalents			(2,092,354	)			(3,684,350	)			397,451
Net change in cash and cash equivalents and restricted cash			(2,471,961	)			(14,353,182	)			17,762,017
Cash and cash equivalents, beginning of the year			4,073,440				18,426,622				664,605
Cash and cash equivalents and restricted cash, end of the year			1,601,479				4,073,440				18,426,622
Supplemental cash flow information
Interest paid		$	-			$	6,938			$	34,721
Income taxes paid		$	156,842			$	218,121			$	-
Supplemental disclosures of non-cash activities:
Free operating lease due to government grant		$	-			$	-			$	204,588
Additions of ROU Assets		$	136,598			$	416,013			$	100,313
Cancelled common stocks issued		$	-			$	-			$	5,000

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

 

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.

  

 

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		Date of Incorporation		Place of Incorporation		Percentage of Effective Ownership				Principal Activities
AGM Technology Limited (“AGM Technology “)		May 21, 2015		Hong Kong			100	%		Sale of cryptocurrency mining machines and standardized computing equipment
AGM Tianjin Construction Development Co., Ltd. (“AGM Tianjin”) formerly Shenzhen AnGaoMeng Financial Technology Service Co., Ltd.		October 13, 2015		China			100	%		Holding entity
Beijing AnGaoMeng Technology Service Co., Ltd. (“AGM Beijing”)		November 13, 2015		China			100	%		Software development and provider
AGM Software Service LTD (“AGM Software”)		June 14, 2017		BVI			100	%		Core technology service provider
Nanjing Lucun Semiconductor Co., Ltd. (“Nanjing Lucun”)		June 17, 2021		China			100	%		Sale of cryptocurrency mining machines and standardized computing equipment
AGM Defi Lab Ptd Limited (“AGM Defi Lab”)		July 30, 2021		Singapore			100	%		Software development and provider
AGM Defi Tech Limited (“AGM Defi Tech”)		August 8, 2021		Hong Kong			100	%		Software development and provider
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.

  

  

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.

  

  

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.

  

  

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		Residual value rate				Useful life
Electronic equipment			5	%		3 years
Office equipment			5	%		5 years
Leasehold improvement			0	%		Shorter of the lease term or the estimated useful life of the assets

 

Intangible Assets

 

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		Residual value rate				Useful life
AGM domain name			0	%		10 years
Software			0	%		5 years

 

Revenue Recognition

 

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.

  

  

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.

  

  

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.

  

 

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.

 

 

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.

  

  

AGM GROUP HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

  

Note 3 - ACCOUNTS RECEIVABLE, NET

 

Accounts receivable consisted of the following:

 

		December 31,				December 31,
		2023				2022
Accounts receivable			12,275,650				120,224,989
Allowance for credit losses			(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:

 

		December 31,				December 31,
		2023				2022
Advances to suppliers			99,908,946				13,139,128
Provision for impairment			(28,605,502	)			-
		$	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:

 

		December 31,				December 31,
		2023				2022
Finished goods			5,502,404			$	3,915,456

 

No inventory write-down was recorded for the years ended December 31, 2023, 2022 and 2021.

  

Note 6 - Prepayment and OTHER CURRENT ASSETS

 

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:

  

		December 31,				December 31,
		2023				2022
Loan receivable (1)		$	3,776,608			$	1,605,000
Prepaid input VAT			14,318				1,106,489
Deposits and others			1,216,089				224,155
Subtotal			5,007,015				2,935,644
Allowance for credit losses (2)			(1,155,768	)			-
Total prepayment and other current assets		$	3,851,247			$	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:

 

		December 31,				December 31,
		2023				2022
Electronic equipment		$	542,755			$	541,931
Office equipment			13,547				13,777
Leasehold improvement			502,396				510,915
Total property and equipment			1,058,698				1,066,623
Less: accumulated depreciation			(679,020	)			(377,262	)
Total property and equipment, net		$	379,678			$	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:

 

		December 31,				December 31,
		2023				2022
AGM domain name		$	14,800			$	14,800
Software			50,000				50,000
Total intangible assets			64,800				64,800
Less: accumulated amortization			(20,793	)			(9,314	)
Total intangible assets, net			44,007				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			11,480
2025			11,480
2026			11,480
2027			9,567
Total			44,007

 

 

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		Nature of Relationship
Yufeng Mi		Chief Technical Officer (“CTO”) and shareholder
Yang Cao		Director of Nanjing Lucun
HongKong Kisen Co., Limited (“HongKong Kisen”)		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:

  

		December 31,												Interest				Exchange Rate				December 31,
		2022				Received				Repayment				Expenses				Translation				2023
Yufeng Mi			1,831				2,770				-				-				(30	)			4,571
Yang Cao			86,150				97,844				-				-				(1,436	)			182,558
HongKong Kisen (1)			8,000,000				4,384,975				(3,160,000	)			15,228				-				9,240,203
Total due to related parties			8,087,981				4,485,589				(3,160,000	)			15,228				(1,466	)			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.

 

 

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:

  

		December 31,				December 31,
		2023				2022
Right-of-use assets		$	270,248			$	492,984
Operating lease liabilities, current		$	79,736			$	162,576
Operating lease liabilities, non-current			73,596				167,428
Total operating lease liabilities		$	153,332			$	330,004

  

Supplemental information related to operating leases for the years ended December 31, 2023 and 2022:

  

		For the Year Ended December 31,
		2023		2022
Weighted-average remaining lease term of operating leases		2.26 years		2.33 years
Weighted-average discount rate of operating leases		4.43%		4.62%

  

The following table summarizes the maturity of the operating lease liabilities as of December 31, 2023:

 

		Operating Leases
Year of 2024		$	79,596
Year of 2025			48,372
Year of 2026			8,062
Total lease payments		$	136,030
Less: imputed interest			(17,302	)
Present value of operating lease liabilities			153,332
Less: current obligation			79,736
Non-current obligation on December 31, 2023		$	73,596

 

Note 11 - SHAREHOLDERS’ EQUITY

 

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.

  

  

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)			3.5
Risk-free interest rate			1.01	%
Expected volatility			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				Weighted Average Exercise Price
Warrants outstanding, as of December 31, 2021						$
Issued			1,652,175				8.3
Exercised			-				-
Expired			-				-
Warrants outstanding, as of December 31, 2022			1,652,175			$	8.3
Issued			-				-
Exercised			-				-
Expired			-				-
Warrants outstanding, as of December 31, 2023			1,652,175			$	8.3
Warrants exercisable, as of December 31, 2023			1,652,175			$	8.3

 

 

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.

  

  

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:

 

		For The Year Ended December 31,
		2023				2022				2021
Current		$	(394,138	)		$	(11,406,062	)		$	(1,535,193	)
Deferred			2,578,177				7,061,293				129,034
Total		$	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:

 

		For The Year Ended December 31,
		2023				2022				2021
Statutory income tax rate			25	%			25	%			25	%
Tax effect of different tax rates in other jurisdictions			-2	%			2	%			3	%
Tax effect of non-deductible expenses			0	%			1	%			-	%
Changes in valuation allowance			0	%			-	%			-	%
Effective tax rate			23	%			28	%			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:

  

		For The Year Ended December 31,
		2023				2022				2021
PRC Region		$	2,666,264			$	1,262,629			$	508,737
HK Region			1,908				-				-
Singapore Region			6,440				6,444				3,385
Total cumulative net operating loss carry-forward		$	2,674,612			$	1,269,073			$	512,122

  

Components of the Company’s net deferred tax assets are set forth below:

 

		December 31,				December 31,
		2023				2022
Deferred tax assets:
Net operating loss carry-forwards		$	469,409			$	305,492
Allowance for credit losses			2,142,711				6,867,322
Provision of advances to suppliers			7,151,376				-
Lease liability			38,333				-
Total of deferred tax assets		$	9,801,829			$	7,172,814
Less: valuation allowance			-				-
Net deferred tax assets		$	9,801,829			$	7,172,814
Defer tax liabilities:
Right-of-use assets		$	(67,562	)		$	-
Total deferred tax liabilities			(67,562	)			-
Deferred tax assets, net		$	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.

 

 

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:

 

		As of December 31,
		2023				2022				2021
Gross beginning balance		$	6,567,028			$	2,960,155			$	1,638,673
Gross increase to tax positions in the current period			394,138				3,606,873				1,321,482
Gross ending balance		$	6,961,166			$	6,567,028			$	2,960,155

 

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: 

 

		December 31, 2023								December 31, 2022
Country:
Singapore		$	234,897				15	%		$	240,204				6	%
China (Hongkong)			1,310,551				82	%			3,678,925				90	%
China (Mainland)			56,031				3	%			154,311				4	%
Total cash and cash equivalents, and restricted cash		$	1,601,479				100	%		$	4,073,440				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.

 

Up to 16,390,000 Class A Ordinary Shares
Warrants to Purchase up to 65,559,999 Class A Ordinary Shares and
Up to 65,559,999 Class A Ordinary Shares issuable upon the exercise of the Warrants

 

 

 

 

AGM Group Holdings Inc.

 

 

 

––––––––––––––––––––––––––––––

 

PROSPECTUS

 

______________________________
 

 

 

 

March 2, 2025

 

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