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Mercurity Fintech (MFH) - 2021 Q4 - Annual Report
MFHMercurity Fintech (MFH)2022-06-14 16:00

Financial Performance - Total revenues for 2021 were 670,000,adecreaseof52670,000, a decrease of 52% from 1,402,000 in 2020[20] - Gross loss for 2021 was (33,000),comparedtoagrossprofitof(33,000), compared to a gross profit of 1,323,000 in 2020[20] - Net loss for 2021 was (20,746,000),significantlyhigherthanthenetlossof(20,746,000), significantly higher than the net loss of (1,651,000) in 2020[20] - Total current assets decreased to 1,742,000in2021from1,742,000 in 2021 from 2,471,000 in 2020[23] - Total liabilities increased to 1,372,000in2021from1,372,000 in 2021 from 708,000 in 2020[23] - The company recognized an impairment of intangible assets of (2,124,000)in2021,comparedto(2,124,000) in 2021, compared to (835,000) in 2020[20] - The company recognized an impairment loss of 8,107,014forgoodwillin2021duetothediscontinuationofoperationsinmainlandChina[47]BusinessOperationsandStrategy−ThecompanydivesteditsPRCcompaniesrelatedtodigitalcurrencybusiness,completedonJanuary15,2022[22]−Thecompanycommencedcryptocurrencyminingoperationsin2021andplanstoexpandthislineofbusinessintheU.S.[44]−RegulatorychangesinChinahaveforcedthecompanytoshiftitsbusinessfocusoutsideofthePRC,impactingitsoperationalstrategy[61]−ThecompanyacquiredMercurityLimitedinMay2019andNBpayInvestmentLimitedinMarch2020tostrengthenitsblockchaincapabilities[45]−ThecompanyacquiredJoinMeGroup(HK)InvestmentCompanyLimitedinJune2015anddivesteditsB2CbusinessinSeptember2015,indicatingafocusonstrategicacquisitionsanddivestitures[146]RisksandChallenges−Thecompanyfacessignificantrisksduetolimitedoperatinghistoryandalimitedcustomerbase[25]−Thecompanymayencounterunforeseencostsanddifficultiesduringbusinessrestructuringandacquisitions[26]−RegulatorychangesinChinaregardingblockchainanddigitalassetsmayadverselyaffectthecompany′soperations[27]−Thecompanyhasalimitedoperatinghistoryintheblockchainindustry,makingitdifficulttoevaluatefutureprospectsandincreasingrisksoffailure[43]−Thecompanyfacesinherentrisksintheblockchainindustry,includingreliability,security,andregulatoryrisksthatmayaffectserviceprovision[50]−Thecompanymayencountersignificantfinancialcostsandoperationalriskswhenmanagingacquisitionsordisposalsofbusinesslines[57]−Thecompanyfacesintensecompetitionintheblockchainindustry,withcompetitorspotentiallyintroducingsuperiortradingplatformsandsolutions[71]−Thecompanyisexperiencingaworldwideshortageofhigh−endcomputercomponentsnecessaryforcryptocurrencymining,whichcouldimpactitsminingoperations[85]−ThecompanyhaslimitedabilitytoprotectitsintellectualpropertyrightsinthePRC,whichcouldleadtopotentialinfringementissuesandassociatedcosts[90]−Thecompanymayfaceallegationsofintellectualpropertyrightsinfringement,whichcouldresultincostlylegaldisputesandlossofrights[93]−Thecompanymayfaceinfringementclaimsrelatedtoitstechnologies,products,andservices,whichcouldleadtocostlydisputesandlawsuits[94]−Thecompanyfacesrisksfromnaturaldisastersandhealthepidemicsthatcoulddisruptoperationsandimpactresults[102]RegulatoryandComplianceIssues−ThecompanyissubjecttoevolvingPRCregulationsregardinginternetbusinesses,whichcouldimposeadditionalcompliancecostsandoperationalchallenges[104]−ThePRClegalsystempresentsuncertaintiesthatcouldaffectthecompany′sabilitytoenforcerightsandcomplywithregulations,potentiallyincreasingoperatingcosts[109]−ThecompanymustcomplywithSAFEregulationsregardingoffshoreinvestments,whichcouldrestrictitsabilitytodistributeprofitsandconductcross−borderactivities[133]−Non−compliancewithPRCregulationsonshareoptionscouldleadtofinesandlegalsanctionsforthecompanyanditsemployees[139]−TheheightenedscrutinyoveracquisitiontransactionsbyPRCtaxauthoritiesmaynegativelyimpactthecompany′soperationsandinvestmentvalue[140]−ThecompanymayincurpenaltiesifitsinternetcontentisdeemedtoviolatePRClaws,whichcouldadverselyaffectitsbusinessoperations[115]−ThecompanyanticipatescontinuedcostsandmanagementtimededicatedtocompliancewiththeSarbanes−OxleyActandotherregulatoryrequirements[100]−ThecompanyissubjecttoevolvingcybersecurityanddataprivacyregulationsinthePRC,whichcouldresultingovernmentenforcementactionsandoperationaldisruptionsifcomplianceisnotmet[151]−Thenewlyenacted"HoldingForeignCompaniesAccountableAct"mayimposeadditionalcriteriaonthecompany′sauditors,affectingthecompany′scomplianceandreporting[159]−Thecompany′sauditorsarenotinspectedbythePCAOB,whichmaydepriveinvestorsofthebenefitsofsuchinspectionsandraiseconcernsaboutauditquality[161]−ThecompanymayexperienceoperationaldisruptionsifrequiredtoundergoacybersecurityreviewbytheCAC,whichcouldnegativelyimpactsharetradingprices[152]ShareholderandMarketConsiderations−Thecompanyhasnotestablishedemploymentagreementswithseniormanagement,whichcouldleadtodisruptionsifkeypersonnelleaveorjoincompetitors[88]−Thecompanyhasincurredsignificantlegal,accounting,andcompliancecostsasapublicentity,whichareexpectedtoincreaseduetothelossofemerginggrowthcompanystatus[210]−ThecompanyfacespotentialdelistingfromNasdaqifitcannotmeetPCAOBinspectionrequirementsforitsauditreports[166]−TheChinesegovernmenthassignificantcontroloverbusinessoperations,whichcouldimpactthecompany′sabilitytolistonNasdaqinthefuture[167]−ThecompanyreceivedadeficiencynoticefromNasdaqonMay13,2022,forfailingtofileForm20−F,riskingdelistingifcomplianceisnotregained[183]−ThecompanyregainedcompliancewithNasdaq′sminimumbidrequirementasofJune5,2020,butfuturecomplianceisuncertain[181]−Ifthemarketvalueofpubliclyheldsharesfallsbelow8,107,014 for goodwill in 2021 due to the discontinuation of operations in mainland China[47] Business Operations and Strategy - The company divested its PRC companies related to digital currency business, completed on January 15, 2022[22] - The company commenced cryptocurrency mining operations in 2021 and plans to expand this line of business in the U.S.[44] - Regulatory changes in China have forced the company to shift its business focus outside of the PRC, impacting its operational strategy[61] - The company acquired Mercurity Limited in May 2019 and NBpay Investment Limited in March 2020 to strengthen its blockchain capabilities[45] - The company acquired Join Me Group (HK) Investment Company Limited in June 2015 and divested its B2C business in September 2015, indicating a focus on strategic acquisitions and divestitures[146] Risks and Challenges - The company faces significant risks due to limited operating history and a limited customer base[25] - The company may encounter unforeseen costs and difficulties during business restructuring and acquisitions[26] - Regulatory changes in China regarding blockchain and digital assets may adversely affect the company's operations[27] - The company has a limited operating history in the blockchain industry, making it difficult to evaluate future prospects and increasing risks of failure[43] - The company faces inherent risks in the blockchain industry, including reliability, security, and regulatory risks that may affect service provision[50] - The company may encounter significant financial costs and operational risks when managing acquisitions or disposals of business lines[57] - The company faces intense competition in the blockchain industry, with competitors potentially introducing superior trading platforms and solutions[71] - The company is experiencing a worldwide shortage of high-end computer components necessary for cryptocurrency mining, which could impact its mining operations[85] - The company has limited ability to protect its intellectual property rights in the PRC, which could lead to potential infringement issues and associated costs[90] - The company may face allegations of intellectual property rights infringement, which could result in costly legal disputes and loss of rights[93] - The company may face infringement claims related to its technologies, products, and services, which could lead to costly disputes and lawsuits[94] - The company faces risks from natural disasters and health epidemics that could disrupt operations and impact results[102] Regulatory and Compliance Issues - The company is subject to evolving PRC regulations regarding internet businesses, which could impose additional compliance costs and operational challenges[104] - The PRC legal system presents uncertainties that could affect the company's ability to enforce rights and comply with regulations, potentially increasing operating costs[109] - The company must comply with SAFE regulations regarding offshore investments, which could restrict its ability to distribute profits and conduct cross-border activities[133] - Non-compliance with PRC regulations on share options could lead to fines and legal sanctions for the company and its employees[139] - The heightened scrutiny over acquisition transactions by PRC tax authorities may negatively impact the company's operations and investment value[140] - The company may incur penalties if its internet content is deemed to violate PRC laws, which could adversely affect its business operations[115] - The company anticipates continued costs and management time dedicated to compliance with the Sarbanes-Oxley Act and other regulatory requirements[100] - The company is subject to evolving cybersecurity and data privacy regulations in the PRC, which could result in government enforcement actions and operational disruptions if compliance is not met[151] - The newly enacted "Holding Foreign Companies Accountable Act" may impose additional criteria on the company's auditors, affecting the company's compliance and reporting[159] - The company's auditors are not inspected by the PCAOB, which may deprive investors of the benefits of such inspections and raise concerns about audit quality[161] - The company may experience operational disruptions if required to undergo a cybersecurity review by the CAC, which could negatively impact share trading prices[152] Shareholder and Market Considerations - The company has not established employment agreements with senior management, which could lead to disruptions if key personnel leave or join competitors[88] - The company has incurred significant legal, accounting, and compliance costs as a public entity, which are expected to increase due to the loss of emerging growth company status[210] - The company faces potential delisting from Nasdaq if it cannot meet PCAOB inspection requirements for its audit reports[166] - The Chinese government has significant control over business operations, which could impact the company's ability to list on Nasdaq in the future[167] - The company received a deficiency notice from Nasdaq on May 13, 2022, for failing to file Form 20-F, risking delisting if compliance is not regained[183] - The company regained compliance with Nasdaq's minimum bid requirement as of June 5, 2020, but future compliance is uncertain[181] - If the market value of publicly held shares falls below 1 million for 30 consecutive business days, the company may face delisting[178] - The company is exempt from certain Nasdaq corporate governance standards due to its status as a foreign private issuer[184] - The voting rights of ADS holders are limited, requiring them to provide instructions to the depositary, which may not always be timely or effective[204][205] - Shareholders have limited rights under Cayman Islands law to inspect corporate records and accounts, which may hinder their ability to gather necessary information for shareholder motions[202] - The depositary of the company's ADSs may decide not to distribute certain dividends or distributions if deemed impractical or unlawful, potentially affecting shareholder returns[195][206] Operational Developments - The company changed its name to "Mercurity Fintech Holding Inc." in April 2020 to align with its blockchain-based business[215] - In October 2021, the company incorporated Golden Nation Ltd. to develop a cryptocurrency mining business[216] - The company entered into a cloud computing power purchase agreement with Carpenter Creek LLC for bitcoin mining[217] - The Board of the company underwent reorganization in 2022, with key resignations due to personal reasons and criminal investigations unrelated to their roles[218]