As
filed with the Securities and Exchange Commission on June 14, 2019
Registration
Statement No. 333-230609
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
AMENDMENT
NO. 2
TO
FORM
F-3
ON
FORM
F-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
HUNTER
MARITIME ACQUISITION CORP.
(Exact
name of registrant as specified in its charter)
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The
Republic of the Marshall Islands
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N/A
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(State
or other jurisdiction of
incorporation or organization)
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(I.R.S.
Employer
Identification No.)
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|
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|
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Hunter
Maritime Acquisition Corp.
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Puglisi
& Associates
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Tower
A, WangXin Building
28 Xiaoyun Rd
Chaoyang
District, Beijing, 100027
646-308-0546
(Address
and telephone number of
Registrant’s principal executive offices)
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Puglisi
& Associates
850
Library Avenue, Suite 204
Newark,
Delaware 19711
302-738-6680
(Name,
address and telephone number of
agent for service)
|
Copies
to:
Mitchell
S. Nussbaum
Giovanni Caruso
Loeb & Loeb LLP
345 Park Avenue
New
York, New York 10154
Tel: (212) 574-1200
Fax:
(212) 480-8421
Approximate
date of commencement of proposed sale to the public:
From time to time after this registration statement becomes effective
as determined by market conditions and other factors.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box. ☒
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If
this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.C. filed to register
additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following
box. ☐
Indicate
by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933. ☒
If
an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards†
provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION
OF REGISTRATION FEE
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Title
of Each Class of Securities to be Registered
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Amount
to be Registered
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Price
per share
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Proposed
Maximum Aggregate Offering
Price
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Amount
of Registration Fee
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Class A common shares, par value $0.0001
per share, to be offered by the Selling Shareholder
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1,745,648
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(1)
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$
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6.78
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$
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11,835,493.44
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(2)
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$
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1,434.46
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Class A common shares, par value $0.0001 per share, To be issued on
exercise of warrants
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7,586,550
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(1)
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$
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11.50
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$
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87,245,325
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$
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10,574.13
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Total:
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12,008.59
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(3)
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(1)
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Pursuant to Rule
416 under the Securities Act of 1933, as amended, the Class A common shares being registered hereunder include such indeterminate
amount of shares as may be issuable as a result of stock splits, stock dividends or similar transactions.
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(2)
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Estimated solely
for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
based on the average of the high and low prices per share of the registrant’s Class A common shares as reported on the
over the counter market on May 15, 2019.
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(3)
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$11,856.35 previously
paid.
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The
Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
THE
INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND
IT IS NOT SOLICITING AN OFFER TO BUY OR SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.
PROSPECTUS
Subject
to completion, dated June 14, 2019
Up
to 1,745,648 Class A Common Shares
Offered by the Selling Shareholder
HUNTER
MARITIME ACQUISITION CORP.
This
prospectus relates to the public offering of up to 1,745,648 Class A common shares, par value $0.0001 per share, by the Selling Shareholder.
This
prospectus also relates to the issuance of 7,586,550 Class A common shares, par value $0.0001 per share, underlying outstanding
warrants issued in our initial public offering pursuant to a prospectus dated November 18, 2016.
The
Selling Shareholder named in this prospectus, or its respective donees, pledgees, transferees, distributees, designees or other
successors in interest may sell, in one or more offerings pursuant to this registration statement, up to 1,745,648 of our Class
A common shares, par value $0.0001 per share, that were previously acquired by the Selling Shareholder. The Selling Shareholder
or its respective donees, pledgees, transferees, distributees, designees or other successors in interest may sell any or all of
these Class A common shares from time to time on or off the Nasdaq Capital Market, or Nasdaq, in regular brokerage transactions,
in transactions directly with market makers or in privately negotiated transactions. Information on the Selling Shareholder and
the times and manners in which it may offer and sell the Class A common shares are described under the sections entitled “Selling
Shareholder” and “Plan of Distribution” in this prospectus.
We
will not receive any of the proceeds from the sale of Class A common shares. However, we could receive up to $87,245,325 from
the exercise of the warrants for up to 7,586,550 Class A common shares that are presently offered under this prospectus if the
warrants are exercised by the holders thereof. We intend to use any proceeds received from the exercise of these securities for
working capital and other general corporate purposes. We, however, cannot assure you that any of the securities will be exercised.
Our
Class A common shares are currently suspended from trading on the Nasdaq Capital Market and are currently quoted on the over the
counter market under the symbol “HUNTF.”
An
investment in these securities involves risks. See the section entitled “Risk Factors” on page 5 of this
prospectus, and other risk factors contained in any applicable prospectus supplement and in the documents incorporated by
reference herein and therein.
Neither
the U.S. Securities and Exchange Commission, or the Commission, nor any state securities commission has approved or disapproved
of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal
offense.
This
prospectus is not an offer to sell any securities other than the shares offered hereby. This prospectus is not an offer to sell
securities in any circumstances in which such an offer is unlawful.
You
should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different
information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume
that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.
We
obtained statistical data, market data and other industry data and forecasts used throughout this prospectus from publicly available
information.
SERVICE
OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES
We
are incorporated under the laws of the Republic of the Marshall Islands. Our corporate affairs are governed by our Amended and
Restated Articles of Incorporation and Amended and Restated Bylaws and the Marshall Islands Business Corporations Act, or the
BCA. We are also be subject to the federal securities laws of the United States. The Marshall Islands has a less developed body
of securities laws as compared to the United States and provides protections for investors to a lesser extent.
All
of our directors and officers are residents of countries other than the United States. Substantially all of our assets and a substantial
portion of the assets of our directors and officers and the directors and officers of our subsidiaries are located outside the
United States. As a result, it may be difficult or impossible for United States investors to effect service of process within
the United States upon us or our directors or officers or to realize against us or them 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 in
the United States. The Trust Company of the Marshall Islands, Inc., Trust Company Complex, Ajeltake Island, Ajeltake Road, Majuro,
Marshall Islands MH96960, as our registered agent, can accept service of process on our behalf in any such action.
In
addition, there is uncertainty as to whether the courts of the Marshall Islands would (i) recognize or enforce against us or our
directors or officers judgments of courts of the United States based on civil liability provisions of applicable U.S. federal
and state securities laws; or (ii) impose liabilities against us or our directors and officers in original actions brought in
the Marshall Islands, based on these laws.
ABOUT
THIS PROSPECTUS
On
March 21, 2019, NCF Wealth Holdings Limited (“NCF”), a British Virgin Islands company, merged with and into Hunter
Maritime (BVI) Limited, a British Virgin Islands company and a wholly-owned subsidiary of the registrant, Hunter Maritime Acquisition
Corp. (“Hunter Maritime”), with NCF continuing as the surviving company and becoming a wholly-owned subsidiary of
Hunter Maritime. We refer to this transaction throughout this prospectus as the “Merger” or “Business Combination.”
Upon closing of the Merger, Hunter Maritime issued an aggregate of 200,000,000 of its Class A common shares to the shareholders
of NCF plus earnout payments consisting of up to an additional 50,000,000 Class A common shares if Hunter Maritime (and its subsidiaries
on a consolidated basis) meets certain financial performance targets for the 2019 and 2020 fiscal years as merger consideration
(the “Closing Payment Shares”). In addition, Hunter Maritime issued 3,793,275 Class A common shares to CMB NV, its
Sponsor, upon conversion of the Sponsor’s Class B common shares immediately following the closing of the Merger (the “Conversion
Shares”) and warrants to purchase 933,333 shares of Class A common stock in consideration of the extinguishment of $1,400,000
of debts owed to CMB NV.
This
prospectus is part of a registration statement that we filed with the Commission using a shelf registration process. The Selling
Shareholder may sell in one or more offerings pursuant to this registration statement up to 1,745,648 Class A common shares owned
by the Selling Shareholder. This prospectus provides you with a general description of the Class A common shares the Selling Shareholder
may offer. We may provide you with a prospectus supplement to this prospectus that will provide updated information if required
whenever the Selling Shareholder offers our Class A common shares pursuant to this prospectus. This may include a prospectus supplement
that will describe the specific amounts, prices and terms of the offered securities. The prospectus supplement may also add, update
or change the information contained in this prospectus. If there is any inconsistency between the information in this prospectus
and any prospectus supplement, you should rely on the prospectus supplement. Before purchasing any securities, you should read
carefully both this prospectus and any prospectus supplement, together with the additional information described below.
This
prospectus does not contain all the information provided in the registration statement that we filed with the Commission. For
further information about us or the securities offered hereby, you should refer to the registration statement, which you can obtain
from the Commission as described below under “Where You Can Find Additional Information.”
You
should rely only on the information contained or incorporated by reference in this prospectus and in any prospectus supplement.
Neither we nor the Selling Shareholder has authorized any other person to provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely on it. The Selling Shareholder will not make any offer to
sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing
in this prospectus and the applicable supplement to this prospectus is accurate as of the date on its respective cover, and that
any information incorporated by reference is accurate only as of the date of the document incorporated by reference, unless we
indicate otherwise. Our business, financial condition, results of operations and prospects may have changed since those dates.
FREQUENTLY
USED TERMS
Unless
otherwise stated or where the context otherwise requires, references in this prospectus to:
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●
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“Commission”
are to the U.S. Securities and Exchange Commission.
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●
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“Merger
Agreement” are to the Merger Agreement, dated as of October 5, 2018, by and among Hunter Maritime, Hunter Maritime (BVI)
Limited, NCF and Zhenxin Zhang, as representative of the NCF Stockholders;
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●
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“NCF”
are to NCF Wealth Holdings Limited, a British Virgin Islands company, or NCF Wealth Group, as the context requires;
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●
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“NCF Stockholders”
are to the shareholders of NCF prior to the Business Combination;
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●
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“Selling
Shareholder” is to China Hui Yuan Juice Holdings Co. Ltd.
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PROSPECTUS
SUMMARY
This
summary highlights information that appears later in this prospectus and is qualified in its entirety by the more detailed information
and financial statements included or incorporated by reference elsewhere in this prospectus. This summary may not contain all
of the information that may be important to you. As an investor or prospective investor, you should carefully review the entire
prospectus, including the section of this prospectus entitled “Risk Factors” beginning on page 5 and the more detailed
information that appears later in this prospectus or is contained in the documents that we incorporate by reference into this
prospectus before making an investment in our securities
.
Our
Company
Hunter
Maritime Acquisition Corp. was formed as a blank check company on June 24, 2016 under the laws of the Republic of the Marshall
Islands for the purpose of acquiring, through a merger, capital stock exchange, asset acquisition, debt acquisition, stock purchase,
reorganization or other similar business combination, assets or one or more operating businesses or assets. On March 21, 2019,
pursuant to the terms of the Merger Agreement, NCF Wealth Holdings Limited, a British Virgin Islands company, merged with and
into Hunter Maritime (BVI) Limited, a British Virgin Islands company and a wholly- owned subsidiary of Hunter Maritime, with NCF
continuing as the surviving company and becoming a wholly-owned subsidiary of Hunter Maritime. Upon closing of the Merger, Hunter
Maritime issued an aggregate of 200,000,000 of its Class A common shares to the shareholders of NCF plus earnout payments consisting
of up to an additional 50,000,000 Class A common shares if Hunter Maritime (and its subsidiaries on a consolidated basis) meets
certain financial performance targets for the 2019 and 2020 fiscal years as merger consideration (the “Closing Payment Shares”).
In addition, Hunter Maritime issued 3,793,275 Class A common shares to CMB NV, its Sponsor, upon conversion of the Sponsor’s
Class B common shares immediately following the closing of the Merger (the “Conversion Shares”) and warrants to purchase
933,333 shares of Class A common stock in consideration of the extinguishment of $1,400,000 of debts owed to CMB NV.
As
a result of the Merger, we operate, through our wholly-owned subsidiary, NCF, a fintech company in China, primarily focused on
connecting investors and borrowers, providing multi-scenario investment analysis to platform users to meet their diversified investment
needs, and building a closed-loop ecosystem in the field of internet finance. We also provide financing advisory and technical
support for borrowers when they announce their financing needs. We aim to provide simplified, convenient and flexible financing
solutions to both small and medium enterprises, and individual borrowers. We generate revenues primarily from fees charged to
borrowers for matching them with lenders through the facilities of our online platform and for providing financing advisory services
to them. Our platform does not pool funds from investors or grant loans to any customer or provide any credit services; that is,
we do not finance the loans offered on its platform with our own funds.
Nasdaq
Our
securities are listed on the Nasdaq Capital Market, although they are currently suspended from trading. On July 23, 2018, we received
a written notice from the Listing Qualifications Department of Nasdaq indicating that we are not in compliance with Listing Rule
5550(a)(3), which requires us to have at least of 300 shareholders for continued listing on the exchange (the “Minimum Shareholders
Rule”). On September 13, 2018, we submitted to Nasdaq a plan to maintain our Nasdaq listing. Nasdaq accepted our plan and
granted us an extension of 180 calendar days from the date of the notice, or until January 22, 2019, to evidence compliance with
this rule. On January 24, 2019, we received a letter from Nasdaq stating that the Company had failed to demonstrate compliance
with the Minimum Shareholders Rule within the required time period and that, accordingly, the Nasdaq staff had initiated procedures
to delist our Class A common shares, units and warrants from Nasdaq. We subsequently appealed the delisting determination, and,
subsequent to a February 28, 2019 hearing and subject to certain conditions, we were granted until June 15, 2019 to meet the Minimum
Shareholders Rule. In addition, on March 27, 2019, Nasdaq halted trading in our securities due to the significant volatility in
our common stock subsequent to the Business Combination.
Subsequently,
on April 24, 2019, we received notification from the Nasdaq Hearings Panel (the “Panel”) that the Panel determined
to suspend trading in our securities effective at the open of business on Friday, April 26, 2019 and to formally delist the securities
on May 9, 2019 unless we appealed the decision, which we timely appealed. Although we intend to take all action that we can to
remain listed, we cannot assure you that we will be able to remain listed. In the event that we fail to remain listed, our stock
will experience reduced liquidity than if we were able to remain on Nasdaq.
As
a result, our Class A common stock is currently traded on the over the counter market under the symbol “HUNTF”.
As
a result of Nasdaq’s suspension or delisting of our securities, we could face significant material adverse consequences,
including:
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●
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a limited availability
of market quotations for our securities;
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reduced liquidity
for our securities;
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●
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a determination
that our Class A common shares are a “penny stock” which will require brokers trading in our Class A common shares
to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market
for our securities;
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●
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a limited amount
of news and analyst coverage; and
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●
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a decreased ability
to issue additional securities or obtain additional financing in the future.
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Corporate
Structure
Hunter
Maritime was incorporated under the laws of the Republic of the Marshall Islands on June 24, 2016. On March 21, 2019, NCF merged
with and into
Hunter Maritime (BVI) Limited
,
with NCF continuing as a wholly-owned subsidiary of Hunter Maritime. We conduct our operations through our direct and indirect
subsidiaries and variable interest entities.
Our
principal offices are located at Tower A, WangXin Building, 28 Xiaoyun Rd, Chaoyang District, Beijing, 100027, and our telephone
number is (646) 308-0546.
The
Securities the Selling Shareholder May Offer
The
Selling Shareholder may sell, in one or more offerings pursuant to this registration statement, up to 1,745,648 of our Class A
common shares that were previously acquired by the Selling Shareholder in the Merger. We will not receive any of the proceeds
from the sale of our Class A common shares by the Selling Shareholder.
THE
OFFERING
The following
summary of the offering contains basic information about the offering and our Class A common shares and is not intended to be
complete. It does not contain all the information that is important to you. For a more complete understanding of our Class A common
shares, please refer to the section of this prospectus entitled “Description of Securities.”
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Maximum
number of Class A common shares Offered by the Selling Shareholder
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1,745,648
Class A common shares
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Class A Common Shares
Issued and Outstanding
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204,041,004 Class
A common shares
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Shares issuable
upon exercise or conversion of warrants issued in our initial public offering
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7,586,550 Class
A common shares underlying warrants
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Use of Proceeds
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All Class A common
shares sold pursuant to this prospectus will be sold by the Selling Shareholder. We will not receive any of the proceeds from
such sales. However, we could receive up to $87,245,325 from the exercise of the warrants for up to 7,586,550 Class A common
shares that are presently offered under this prospectus if the warrants are exercised by the holders thereof. We intend to
use any proceeds received from the exercise of these securities for working capital and other general corporate purposes.
We, however, cannot assure you that any of the securities will be exercised.
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OTC Trading Symbol
Class A common Shares
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HUNTF
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Warrants
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HNTWF
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Risk Factors
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An investment
in our Class A common shares involves certain risks. You should carefully consider the risks described under “Risk Factors”
on page 5 of this prospectus, and other risk factors contained in any applicable prospectus supplement, before making an investment
decision.
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SUMMARY
FINANCIAL INFORMATION
Our
Selected Consolidated Financial Data
The
following selected consolidated statements of operations data for the years ended December 31, 2016, 2017 and 2018 and the selected
consolidated balance sheet data as of December 31, 2017 and 2018 are derived from NCF’s audited consolidated financial statements
included elsewhere in this prospectus. The selected consolidated financial data should be read in conjunction with, and are qualified
in their entirety by reference to, NCF’s audited consolidated financial statements and related notes and Management’s
Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this prospectus. NCF’s consolidated
financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States
of America, or U.S. GAAP. The historical results are not necessarily indicative of results to be expected in any future periods.
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2018
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2017
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Cash and cash equivalents
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25,057,905
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|
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35,067,737
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Total assets
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182,885,053
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124,841,872
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Total Current liabilities:
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36,847,590
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|
|
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29,486,419
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Total liabilities
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36,847,590
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33,563,419
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Total shareholders’ equity
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146,037,463
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|
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91,278,453
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For the Years Ended December
31,
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2018
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2017
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2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
Transaction and service fee
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|
$
|
234,972,184
|
|
|
$
|
208,166,308
|
|
|
$
|
99,056,931
|
|
|
Transaction and service fee - related parties
|
|
|
6,273,413
|
|
|
|
87,660
|
|
|
|
1,176,104
|
|
|
Commission fee
|
|
|
8,751,657
|
|
|
|
4,334,526
|
|
|
|
10,080,180
|
|
|
Commission fee - related parties
|
|
|
1,626,942
|
|
|
|
3,628,848
|
|
|
|
1,197,575
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|
|
Other revenue
|
|
|
13,787,535
|
|
|
|
5,541,601
|
|
|
|
2,755,364
|
|
|
Other revenue – related
parties
|
|
|
7,039
|
|
|
|
149,701
|
|
|
|
33,935
|
|
|
Total net revenue
|
|
|
265,418,770
|
|
|
|
221,908,644
|
|
|
|
114,300,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Operating cost and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
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Sales and marketing expenses
|
|
|
156,329,090
|
|
|
|
150,411,453
|
|
|
|
103,619,248
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|
|
Product development expenses
|
|
|
17,198,056
|
|
|
|
15,323,516
|
|
|
|
13,656,817
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|
|
Loan facilitation and servicing expenses
|
|
|
3,919,555
|
|
|
|
3,334,719
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|
|
|
2,973,370
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|
|
General and administrative
expenses
|
|
|
15,433,707
|
|
|
|
11,981,156
|
|
|
|
9,274,374
|
|
|
Total operating
cost and expenses
|
|
|
192,880,408
|
|
|
|
181,050,844
|
|
|
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129,523,809
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Operating
income (loss)
|
|
|
72,538,362
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|
|
|
40,857,800
|
|
|
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(15,223,720
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income – related parties
|
|
|
7,176,876
|
|
|
|
4,773,013
|
|
|
|
1,802,979
|
|
|
Interest expense – related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
(282,276
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)
|
|
Interest (expense) income
|
|
|
(36,829
|
)
|
|
|
(157,640
|
)
|
|
|
126,616
|
|
|
Foreign currency transaction (loss) gain
|
|
|
(1,171,933
|
)
|
|
|
2,246,572
|
|
|
|
(2,324,618
|
)
|
|
Loss in equity method investment
|
|
|
(199,908
|
)
|
|
|
(22,777
|
)
|
|
|
(110,494
|
)
|
|
Gain on sale of equity method investment
|
|
|
-
|
|
|
|
-
|
|
|
|
110,494
|
|
|
Gain on sale of equity interest in a subsidiary
|
|
|
94,104
|
|
|
|
-
|
|
|
|
-
|
|
|
Income from short-term investment
|
|
|
506,590
|
|
|
|
494,252
|
|
|
|
-
|
|
|
Other miscellaneous income
(expense)
|
|
|
361,743
|
|
|
|
1,473
|
|
|
|
(159,090
|
)
|
|
Total other
income (expenses)
|
|
|
6,730,643
|
|
|
|
7,334,893
|
|
|
|
(836,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
|
79,269,005
|
|
|
|
48,192,693
|
|
|
|
(16,060,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
|
|
(19,260,548
|
)
|
|
|
(12,348,395
|
)
|
|
|
2,806,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
60,008,457
|
|
|
|
35,844,298
|
|
|
|
(13,253,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to non-controlling
interest
|
|
|
(276,514
|
)
|
|
|
(143,333
|
)
|
|
|
(96,262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable
to NCF Wealth Holdings Limited
|
|
$
|
60,284,971
|
|
|
$
|
35,987,631
|
|
|
$
|
(13,157,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income allocated to participating
securities
|
|
|
2,848,612
|
|
|
|
1,700,503
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to ordinary shareholders
of NCF Wealth Holdings Limited
|
|
$
|
57,436,359
|
|
|
$
|
34,287,128
|
|
|
$
|
(13,157,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per ordinary share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per ordinary
share attributable to NCF Wealth Holdings
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
|
$
|
(0.01
|
)
|
|
Weighted-average number of ordinary
shares used in computing basic net income (loss) per share
|
|
|
1,091,569,209
|
|
|
|
1,091,569,209
|
|
|
|
1,088,230,612
|
|
|
Diluted earnings (loss) per ordinary
share attributable to NCF Wealth Holdings
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
|
$
|
(0.01
|
)
|
|
Weighted-average number of ordinary
shares used in computing diluted net income (loss) per share
|
|
|
1,145,706,634
|
|
|
|
1,145,706,634
|
|
|
|
1,088,230,612
|
|
RISK
FACTORS
An
investment in our securities involves a high degree of risk. You should consider carefully all of the risks described below, together
with the other information contained in this prospectus before making a decision to invest in our securities. If any of the following
events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the
trading price of our securities could decline and you could lose all or part of your investment.
Risks
Relating to our Business and Industry
The
regulatory regime governing the online lending platform in China is developing and subject to changes in applicable laws and regulations.
If Beijing Oriental Union Investment Management Limited Liability Company (“Beijing Oriental”), one of our consolidated
Variable Interest Entities (“VIEs”), which operates the peer-to-peer online lending platform, fails to comply with
existing and future applicable laws or regulations or requirements of local regulatory authorities, our business, financial condition
and results of operations of P2P business would be materially and adversely affected.
Due
to the relatively short history of the online lending industry in China, a comprehensive regulatory framework governing Beijing
Oriental’s industry is under development by the People’s Republic of China, or PRC. Before any industry-specific regulations
were introduced in mid-2015, the PRC government relied on general and basic laws and regulations for governing the online lending
industry, including the PRC Contract Law, the General Principles of the Civil Law of the PRC, and related judicial interpretations
promulgated by the Supreme People’s Court. Since mid-2015, the PRC government and relevant regulatory authorities have issued
various laws and regulations governing the online lending industry, including, among others, the Guidelines on Promoting the Healthy
Development of Online Finance Industry, or the Guidelines, the Interim Measures on Administration of Business Activities of Online
Lending Information Intermediaries, or the Interim Measures, the Guidelines on Online Lending Funds Custodian Business, or the
Custodian Guidelines, and the Guidelines on Information Disclosure of the Business Activities of Online Lending Information Intermediaries,
or the Disclosure Guidelines, the Notice on Rectification of Cash Loan Business, or Circular 141, the Notice on the Special Rectification
and Inspection of Risk of Online Lending Intermediaries, or Circular 57, the Notice on Conducting Compliance Inspections of Online
Lending Intermediaries, or the Inspection Notice, and the Compliance Checklist of Online Lending Information Intermediaries, or
the Compliance Checklist.
Pursuant
to the Interim Measures, online lending information intermediaries are required to register with their local financial regulatory
authority, update their business scope in their business license to include a description of being an online lending information
intermediary and obtain a telecommunication business license from the relevant telecommunication regulatory authority after registering
with their local financial regulatory authority. Furthermore, according to the Interim Measures, the local financial regulatory
authorities may conduct onsite inspections or inquiries from time to time and instruct Beijing Oriental to rectify its business
operations that are deemed non-compliant with the Guidelines or the Interim Measures. On February 20, 2017, the Beijing Office
of the Leading Group for Special Rectification of Internet Financial Risks (the “Office on Internet Financial Risks”)
completed its review of Beijing Oriental’s operations and issued a Notice on the Fact-finding Rectification of Network-based
Lending Information Intermediary Agencies (the “Notice of Rectification”), in which it advised Beijing Oriental that
there were 34 items that needed to be rectified.
On
March 9, 2017, Beijing Oriental submitted its Specification on Submitting ‘NCF Pu Hui Rectification Plan’ to the Office
on Internet Financial Risks, with a proposal of the rectification plan and estimated time of completion on the basis of rectification
requirements under the Notice of Rectification (Jing Zheng Zhi Ban Tong No. 004) (the “Initial Rectification Plan”).
On August 4, 2017, Beijing Oriental further submitted a rectification plan to the Office on Internet Financial Risks, undertaking
to: (i) during the rectification period, manage the scale of its platform business to ensure that the entire business adheres
to limits imposed by the authorities; and withdraw any overstock business prior to August 24, 2017, (ii) rectify its business
one by one according to the Notice of Rectification and Interim Measures, and (iii) submit the required regular and temporary
information required by the Beijing CBRC Office and Beijing Municipal Bureau of Financial Work. To Beijing Oriental’s knowledge,
the local financial regulatory authority, as of the date of this prospectus, has not approved any application for the peer-to-peer
(“P2P”) registration.
Beijing
Oriental has already met 29 rectification requirements according to the Notice of Rectification. The remaining five rectification
requirements have to be completed after the regulatory authorities clarify what they would like us to do. The details of the remaining
five rectification requirements are as follows: (i) Beijing Oriental must wait for the Department of Industrial and Commercial
Registration to issue specific measures for the modification of business scope before Beijing Oriental can amend its business
scope; (ii) Beijing Oriental must apply for the Telecom Business Operation License in a timely manner according to the new requirements
issued by the relevant regulatory authorities for the online lending platform; and Beijing Oriental must apply for the corresponding
Telecom Business Operation License after it has registered and recorded its online platform; (iii) Beijing Oriental must submit
the required regular information, after the Beijing Municipal Bureau of Financial Work and Beijing CBRC Office has specified such
specific requirements; (iv) after the Beijing Municipal Bureau of Financial Work and Beijing CBRC Office have specified the specific
requirements, Beijing Oriental must submit the required temporary information; and (v) after the foresaid financial regulatory
authorities specified reporting channels, Beijing Oriental must submit the required suspicious transactions.
As
of the date of this prospectus, Beijing Oriental has not received any further notification from its local financial regulatory
authority in response to its Initial Rectification Plan. Beijing Oriental cannot assure you whether it will be required to submit
any additional application materials and whether it will be recognized by the local and national Internet Finance Associations
and local financial regulatory authorities as having fulfilled the requirements under applicable rules and regulations and be
registered as an online lending information intermediary. If Beijing Oriental is required to make further rectifications, its
business and financial condition could be adversely affected. Also, failure to register as an online lending information intermediary,
if deemed a violation of the Interim Measures or any other relevant regulations or rules, may result in, among others, regulatory
warning, correction order, condemnation, fines or criminal liability to Beijing Oriental, and its business, financial condition,
results of operations and prospects could be materially and adversely affected. Moreover, in accordance with the relevant provisions
of the competent communications authorities, Beijing Oriental shall apply for a value-added telecommunications business license,
but the regulatory authorities have not made clear provisions on what types of value-added telecom business operation licenses
should be applied for by P2P online platforms. If such a specific value-added telecommunications business licensing regime were
introduced, we cannot assure you that Beijing Oriental would be able to obtain the newly required license in a timely manner,
or at all, which could materially and adversely affect our business and impede our ability to continue operations through Beijing
Oriental.
Pursuant to Circular
57, as prerequisites to complete registration with the local financial regulatory authority, an online lending information intermediary
is required to, among other things, (i) cease conducting any prohibited actions under the Interim Measures (see “Business
—Regulation—Regulations on Consumer Lending Service Provider” for details) after August 24, 2016 and cease offering
any loan of which the amount exceeds the upper limit under the Interim Measures after August 24, 2016, and shall have fully eliminated
the outstanding balance of such non-compliance products that were offered before August 24, 2016; (ii) suspend offering campus
loans, cash loans and down payment loans for purchasing real estate property, and gradually reduce the outstanding balance of
the aforementioned loans; (iii) set up custody accounts with qualified banks to hold consumer funds, (iv) cease setting aside
funds as risk reserve funds, and gradually reduce the existing scale of risk reserve funds, and (v) cease any illegal transfer
of creditor’s rights as specified under Circular 57. The registration is required to be completed by most of the online
lending information intermediaries by April 30, 2018, and shall in no case be later than June 30, 2018. In the event that any
company conducts online lending information services without completing the registration with the relevant local financial regulatory
authority, such company may be required to shut down its websites, cease operation of its entire business, have its operation
license for telecommunication service revoked, and be forbidden to obtain financial service from financial institutions.
Notice
on Rectification of Cash Loan Business, or Circular 141, promulgated by the Head Office for Special Rectification of Online Finance
Risk and Head Office for Special Rectification of Peer-to-Peer Online Lending on December 1, 2017 further specifies that any cash
loan which is characterized by a lack of specific scenes, designated purposes, targeted users and mortgage may be subject to inspection
and rectification, and the online lending information intermediary shall not facilitate loans without designated purposes. It
is stipulated in Circular 57 that an online lending information intermediary shall cease providing cash loans after the issuance
of Circular 141 and shall gradually reduce its outstanding balance of cash loan within scheduled timetable in order to complete
registration with the local financial regulatory authority. Beijing Oriental does not believe any of the loan products it facilitates
is prohibited under Circular 141 and Circular 57, as none of its products has all of the four characteristics of cash loans as
defined under Circular 141. However, in the absence of any authoritative interpretation of the key requirements or characteristics
of cash loans, especially whether the definition of cash loan requires all of the four characteristics or any of the four characteristics,
we cannot assure you that our existing practices would not be deemed to violate any relevant laws, rules and regulations that
are applicable to our business practices. Beijing Oriental may be required to cease or modify any such “cash loans”
to comply with Circular 141, otherwise, it may be ineligible for registration with the local financial regulatory authority, which
may materially and adversely affect our business and prospects. While we are closely monitoring the regulatory development, as
of the date of this prospectus, we have not been informed by any regulatory authorities to cease or modify any of our current
products due to the violation of any rules with respect to cash loans under Circular 141 or Circular 57.
Opinions
on Operating Well in Classified Disposition and Risk Prevention of Online Credit Institutions” or Circular 175, was promulgated
by the Head Office for Special Rectification of Online Finance Risk and Head Office for Special Rectification of Peer-to-Peer
Online Lending on December 19, 2018. Circular 175 is a restatement of the previous various online lending institutions’
regulatory policies, but this document emphasizes that the institutions for different situations should be guided and classified.
Wangxin Puhui platform has strictly followed the interim measures for online loan management and various regulatory policies,
and compliance inspection work is steadily advancing. The introduction of clearer regulatory policies by government departments
is conducive to the completion of archival filings by qualified normal operating agencies and the promotion of legal and compliant
online lending platforms in a positive and orderly manner. Wangxin Puhui platform did not receive any new influence due to the
release of Circular 175.
The
Inspection Notice and the Compliance Checklist promulgated by the Head Office for Special Rectification of Peer-to-Peer Online
Lending in August 2018, (“Inspection Notice and Compliance Checklist”) further provides that the online lending information
intermediaries shall complete self-inspection, inspection conducted by local and national Internet Finance Associations, and verification
conducted by the local online lending rectification office by the end of December 2018. According to the requirements of the Inspection
Notice and Compliance Checklist, Beijing Oriental has already submitted its self-inspection report and related materials of “Check
List” for self-discipline inspection and administrative inspection to the Office of the Leading Group for Special Rectification
on Risks in P2P Lending through the Jin-Guan-Tong System on October 14, 2018. Also, Beijing Oriental has already submitted its
self-inspection report, self-correction report and related materials to the National Internet Finance Association of China through
the System of National Internet Finance Association of China on October 19, 2018. As of the date of this prospectus, the specific
requirements and detailed implementation rules of such registration and licensing regime in Beijing are still pending further
clarification. Although Beijing Oriental has proceeded to rectify its business model pursuant to Circular 57 and the Compliance
Checklist, there may still be an outstanding balance of the non-compliance products as mentioned in Circular 57 and the Compliance
Checklist.
The
“three reductions” require online lending information intermediaries to ensure that their loan balance, number of
borrowers and number of lenders do not increase and will gradually decrease during the compliance inspection period. Beijing Oriental
received the Notice on Further Strict Implementation of ‘Three Reductions’ Goal from the Head Office of Chaoyang District,
Beijing City for Special Rectification of Finance and Societal Risk on the date of April 24th, 2019. The Notice stated that business
scale of Beijing Oriental continued to grow, according to recent statistic data. The Head Office expected Beijing Oriental to
rectify and meet the requirement of ‘three reductions’ on loan balance, borrowers and lenders in accordance with the
newest policy. If Beijing Oriental cannot meet the requirement of ‘three reductions’, its rectification shall not
be accepted and shall not pass administrative inspection. The Notice required Beijing Oriental to provide comprehensive and feasible
action plans via email by April 25, 2019. Beijing Oriental provided its detailed plan to the designated email address before the deadline.
As a result, the short-term business scale and growth of our P2P business has been adversely affected. However, as the P2P business
only accounts for a relatively small portion of our overall business (contributing 8.8% of our total transaction and service fees
in 2018), these new regulations and policies have not had, and are not expected to have, any material adverse impact on our overall
business.
To
the extent that Beijing Oriental is not able to fully comply with these requirements, the financial condition and results of
operations of our P2P business may be materially and adversely affected. We are unable to predict with certainty the impact,
if any, that future legislation, or regulations relating to the online consumer finance industry will have on the
financial condition and results of operations of our P2P business.
In
addition, the overall regulatory conditions in China could affect our business and financial condition. For example, in 2018,
the PRC government authorities issued a series of banking policies to control the leverage ratio of financial institutions, which
has adversely affected the liquidity of capital in the market. Under such circumstances, the financial condition and repayment
capability of some small and medium-size enterprises, was adversely affected, which may affect our cooperation with financial
institutions.
If
our operations are deemed to violate any rules, laws or regulations, we may face injunctions, including orders to cease
illegal activities, correction orders, condemnation, fines, and criminal liability, and may be exposed to other penalties as
determined by the relevant government authorities. If such situations occur, our business, financial condition, and prospects
of P2P business would be materially and adversely affected.
We
have a limited operating history in a new and evolving market, which makes it difficult to evaluate our future prospects.
We
commenced our online fintech marketplace business in July 2013 and thus have a limited operating history. We have limited experience
in most aspects of our business operations, such as loan product offerings, data-driven credit assessment, and the development
of long-term relationships with borrowers, investors and institutional funding partners. We seek to expand the base of prospective
borrowers that we serve, which may result in higher delinquency rates of transactions we facilitate. As our business develops
or in response to competition, we may continue to introduce new products and services, make adjustments to our existing products
and our business model. Any significant change to our business model not achieving expected results may have a material adverse
impact on our financial condition and results of operations.
You
should consider our business and prospects in light of the risks and challenges we encounter or may encounter given the rapidly
evolving market in which we operate and our limited operating history. These risks and challenges include, among other things,
our ability to:
|
|
●
|
offer personalized
and competitive products and services;
|
|
|
●
|
increase the
utilization of its products and services by existing borrowers and investors as well as new borrowers and investors;
|
|
|
●
|
offer relatively low
service fee rates while driving growth in size and profitability of its business; maintain low delinquency rates of loans
facilitated by it;
|
|
|
●
|
develop sufficient,
diversified, cost-efficient and reputable funding sources;
|
|
|
●
|
maintain and
enhance its relationships with its other business partners;
|
|
|
●
|
broaden its prospective
borrower and investor base;
|
|
|
●
|
navigate a complex
and evolving regulatory environment;
|
|
|
●
|
improve its operational
efficiency;
|
|
|
●
|
attract, retain
and motivate talented employees to support its business growth;
|
|
|
●
|
enhance its technology
infrastructure to support the growth of its business and maintain the security of its system and the confidentiality of the
information provided and utilized across its system;
|
|
|
●
|
navigate economic
condition and fluctuation;
|
|
|
●
|
compete profitably
within our industry; and
|
|
|
●
|
defend itself
against legal and regulatory actions, such as actions involving intellectual property or privacy claims.
|
Failure
of other online lending platforms or damage to the reputation of the online consumer finance industry may materially and adversely
affect our business and results of operations.
We
operate in the fintech industry, a new and evolving industry. Any negative development in the online consumer finance industry,
such as bankruptcies or failures of other consumer finance service providers, and especially a large number of such bankruptcies
or failures, or negative perception of the industry as a whole, such as that which arises from any failure of other consumer finance
platforms to detect or prevent money laundering or other illegal activities, even if factually incorrect or based on isolated
incidents, could compromise our image, undermine the trust and credibility we have established, and impose a negative impact on
our ability to attract new borrowers and investors. If any of the foregoing takes place, our business and results of operations
could be materially and adversely affected and potentially for a prolonged period of time. For example, certain troubled online
lending platforms in China ceased operations in mid-2018. Although these online platforms are not related to us, their failures
adversely affected investors’ confidence in the online consumer finance industry, resulting in a reduction in the availability
of funding from individual investors.
Negative
developments in our industry, such as widespread borrower defaults, fraudulent behavior and/or the closure of other online consumer
finance service providers, may also lead to tightened regulatory scrutiny of the sector and limit the scope of permissible business
activities that may be conducted, which may adversely affect our business and results of operations.
The
service fees we charge borrowers and investors may decline in the future due to factors beyond our control and any material decrease
in such service fees could harm our business, financial condition and results of operations.
We
generate a substantial majority of our revenues from the transaction and other service fees we charge borrowers and investors.
In 2016, 2017 and 2018, transaction and other service fees accounted for 94%, 87%, and 91% of our net revenues, respectively.
In the event that the number and amount of service fees we collect from borrowers for loans we facilitate decreases significantly
in the future due to regulatory or competitive factors and we are not able to reduce the funding cost of the loans we facilitate
or adopt any cost control initiatives, our business, financial condition and results of operations will be harmed.
In
addition, our service fees are sensitive to many macroeconomic factors that are beyond our control, such as inflation, recession,
the performance of credit markets, global economic disruptions, unemployment, and fiscal and monetary policies. If the service
fees we collect from borrowers decrease significantly due to factors beyond our control, our business, financial condition and
results of operations may be materially and adversely affected.
Our
service fees charged to the borrowers, to the extent they may be fully or partially deemed as loan interest, may also be subject
to the restrictions on interest rates as specified in applicable rules on private lending. Pursuant to the Provisions on Several
Issues Concerning Laws Applicable to Trials of Private Lending Cases issued by the Supreme People’s Court on August 6, 2015,
or the Private Lending Judicial Interpretations, if the service fees that we charge borrowers are considered as loan interest,
and if the sum of the annual interest that lenders charge and our service fees exceed 36%, the portion of the overall annual interest
that exceed the 36% limit will be deemed invalid, and even if the borrower has paid the portion of the service fees that exceed
the 36% limit, such borrower may request that we refund the portion of the service fees that exceed the 36% limit and the PRC
courts will uphold such request. In accordance with Circular 141, the overall cost of loans, including the loan interest and other
forms of fees charged by the institutions shall be included in an overall annualized interest rate and conform to the restrictions
on interest rates as specified in applicable rules on private lending. The Compliance Checklist further specifies that interest
and fees collected by any third party collaborator or charged offline shall form part of an overall annualized interest rate.
In addition, the online lending information intermediary is also prohibited to deduct loan interest, service fees, administrative
fee and deposit from a loan principal in advance.
In
April 2017, the Head Office for Special Rectification of Peer-to-Peer Online Lending issued the Notice on Rectification of Carrying
out “Cash Loan” Business, or the Notice, which requires local counterparts of the National Rectification Office to
conduct a full-scale and comprehensive inspection of cash loan business conducted by online platforms and require such platforms
to conduct necessary rectification measures within a designated period to comply with relevant requirements specified in the Notice.
The Notice focuses on preventing malicious fraudulent activities, loans that are offered at extortionate interest rates and violent
loan collection practices in the cash loan business operation of online platforms.
The
annualized fee rates of all new loans that we facilitated since 2018 are below 36%. As a result, we do not believe that our current
service fees and various other fees charged from our borrowers violate these provisions. However, if our current fee level is
deemed to be excessive or constitutes usurious loans under any existing or future relevant PRC laws, regulations and rules, parts
or all of the fees we collected may be ruled as invalid by the PRC courts, and we may face, among others, regulatory warnings,
correction orders, or be required to reduce the fees and annual interest rate it charges our borrowers. In addition, any future
changes on the annual percentage rate, or APR, ceiling may affect our profitability. If such situations were to occur, its business,
financial condition, results of operations and prospects would be materially and adversely affected.
There
is no clear regulatory guidance on APR calculation methodology we calculate the APRs of our loan products based on total borrowing
costs and the original amount of loan principal on an annualized basis. If regulatory authorities unify the APR calculation to
a method that is different from ours, the APRs of our current loan products might represent a risk of breaching the regulatory
APR ceiling. As a result, we may be requested to lower our APRs by the regulators and our profitability might be negatively impacted.
Our
asset cooperative institutions and funding cooperative institutions have a large proportion of related parties and a high degree
of concentration, which may adversely affect our future business.
Our
business relies mainly on asset cooperative institutions (the companies who introduce us to qualified borrowers) and funding cooperative
institutions (the companies who introduce us to funding sources or investors) to bring assets and funds. As of December 31, 2018,
we worked with 28 asset cooperative institutions and 74 funding cooperative institutions, among which 11 asset cooperative institutions
and 14 funding cooperative institutions are related parties. Because a large part of our business and capital comes from our related
parties, we are dependent on these important associated asset cooperative institutions and funding cooperative institutions. There
were three (one from a related party), four (two from related parties), and two (one from a related party) asset cooperative institutions
that accounted for 55% (17% from a related party), 57% (26% from a related party), and 43% (20% from a related party) of the total
loan facilitated as of December 31, 2018, 2017 and 2016, respectively. There were two (two from related parties), two (two from
related parties), and one (one from a related party) funding cooperative institutions that accounted for 64% (64% from related
parties), 39% (39% from related parties) and 39% (39% from related parties), of the total loan facilitated as of December 31,
2018, 2017 and 2016, respectively. The loss of support from related parties will adversely affect our core business.
We
face competition in the fintech industry, and, if we do not compete effectively, our results of operations could be harmed.
The
fintech industry in China is highly competitive, and we compete with other sizable online marketplaces. We also compete with other
financial products and companies that may attract borrowers, investors, and institutional funding partners. Our competitors may
operate different business models, have different cost structures or selectively participate in different market segments. They
may ultimately be proven more successful or more adaptable to consumer demand and new regulatory, technological and other developments.
Some of our current and potential competitors have significantly more financial, technological, marketing and other resources
than we do and may be able to devote greater resources to the development, promotion, sale and support of their products and services
offerings. Our competitors may also have longer operating histories, more extensive user bases, greater brand recognition and
brand loyalty and broader relationships with business partners. Additionally, a current or potential competitor may acquire, or
form strategic alliances with, one or more of its competitors. If we are unable to compete with such companies and meet the need
for innovation in our industry, the demand for our products or services could stagnate or substantially decline, which could harm
our business and results of operations.
With
respect to investors, we compete with other online consumer finance marketplaces offering multiple investment products, wealth
management centers and traditional banks in China. If a substantial number of our investors switch to other investment alternatives,
our business, financial condition and results of operations could be materially and adversely affected.
If
we are unable to maintain or increase the amount of loans we facilitate or if we are unable to retain existing borrowers or attract
new borrowers, our business and results of operations will be adversely affected.
The
amount of loans facilitated through NCF’s platform was approximately RMB 77 billion (US$ 11 billion) in 2016, approximately
RMB 95 billion (US$ 15 billion) in 2017 and approximately RMB 71 billion (US$ 10 billion) in 2018. To maintain and increase the
amount of loans we facilitate, we must continue to engage our existing borrowers and attract new borrowers.
If
we are unable to attract borrowers or if borrowers do not continue to use our products and services, we may be unable to increase
the amount of loans we facilitate and corresponding revenues, and our business and results of operations may be materially and
adversely affected.
Failure
in our proprietary credit analysis and risk management system may materially and adversely affect our products and service.
We
offer our products and services based on the risk assessment conducted by our proprietary credit analysis and risk management
system. Our system uses machine learning and modeling techniques to analyze transaction and repayment data from loans that we
facilitated and data from applicants and other third-party sources. Even though we have accumulated a large amount of applicant
data and extensive credit analysis experience to perform risk management analysis in our system, our credit analysis and risk
management system may not provide an accurate risk assessment for borrowers. If our credit analysis model contains inaccurate
assumptions or inefficiencies through model updates, or if the credit data and analysis we obtain is inaccurate or outdated, our
credit analysis could result in us making loans we should not be making. If we are unable to effectively and accurately assess
the credit profiles of applicants based on their credit profiles, we may be unable to offer relatively low service fee rates and products
and services to borrowers, be unable to maintain low delinquency rates for loans we facilitate, or be unable to maintain satisfactory
annualized investment returns for investors. If our proprietary credit analysis and risk management system fails to perform effectively,
our business, liquidity and results of operations may be materially and adversely affected.
If
we are unable to maintain low borrower’s delinquency rates, our business and results of operations may be materially and
adversely affected. Further, historical delinquency rates may not be indicative of future results.
Investments
in our Wangxin platform and Wangxin Puhui platform involve inherent risks as the return of the principal on an investment made
through our platforms is guaranteed by guarantors. If widespread defaults were to occur, regardless of whether such defaults resulted
from a failure of our risk management system, our investors may lose confidence in our platforms and our business and results
of operations may be materially and adversely affected.
The
data that we collect may be inaccurate due to inadvertent error or fraud. If we fail to detect inaccurate and false information,
the performance of our credit analysis will be compromised, and our business, results of operations and brand and reputation will
likely be negatively impacted.
Our
risk management system is dependent on accurate data being provided by applicants or, with their authorization, third parties.
The data we receive may not accurately reflect an applicant’s creditworthiness because such data may be based on outdated,
incomplete or inaccurate information due to inadvertent error or fraud. In addition, the completeness and reliability of credit
history information in the PRC are relatively limited.
In
addition, a significant increase in fraudulent activity by our borrowers could negatively impact our brand name and reputation,
discourage investors from investing in loans on our platform, reduce the amount of loans facilitated to borrowers and make it
necessary to take additional steps to reduce fraud risk, which could increase its costs. High profile fraudulent activities could
even lead to regulatory intervention, and may divert its management’s attention and cause us to incur additional expenses
and costs.
If
the local financial assets exchanges which we cooperate with fail to comply with existing and future applicable laws or regulations
or requirements of local regulatory authorities, our business, financial condition and results of operations would be materially
and adversely affected.
Since
March 2017, we have been working with financial exchanges (comprehensive financial assets trading service platform approved and
established by the local governments in the PRC). As the issuer for the products of financial exchanges, the financing party,
mainly SMEs, strikes a financing deal with investors of financial exchanges through the intermediary information service of financial
exchanges. We provide registration services include advising companies on the selection of local financial assets trading service
platforms, review registration application documentation and assists with due diligence conducted by the local financial assets
trading service platform. We charge registration holders (usually are borrowers) for the E-APP product registration services.
If
the government regulatory authorities impose stricter regulatory requirements for service providers participating in financial
exchanges, or financial exchanges cooperating with us are no longer able to work with us due to regulatory violations or otherwise,
our business operation, profitability and financial position would be materially and adversely affected.
If
we fail to comply with existing and future applicable laws or regulations or requirements relating to our fund sales business,
there may be a risk that the fund sales business is terminated.
Our
wholly-owned subsidiary, Shenzhen Yingxin Fund Sales Co., Ltd., or Yingxin Fund, is mainly engaged in the fund sales business.
If Yingxin Fund violates applicable rules related to fund sales, or the information management platform established by Yingxin
Fund does not meet the requirements of relevant laws, Yingxin Fund may face administrative punishments from the China Securities
Regulatory Commission, or the CSRC. If the violation is significant enough, Yingxin Fund may even face the risk of suspension
or termination of its license and associated business activities.
We
may not acquire or maintain the qualifications and permissions for conducting third party wealth management business.
Beijing
Yinghua Wealth Investment Management Co., Limited, or Yinghua Wealth, is a subsidiary of oursthat is mainly engaged in third-party
wealth management. Currently there is no mandatory regulatory qualification or license required for Yinghua Wealth to conduct
third-party wealth management business. The third-party wealth management business conducted by Yinghua Wealth may be restricted
by specific regulations and policies issued by regulators in the future, and may need to obtain appropriate qualifications and
permissions in accordance with regulatory requirements. We cannot guarantee that Yinghua Wealth will obtain the necessary qualifications
or permissions in a timely fashion in the future, which could result in the wealth management business being terminated. If the
wealth management business were terminated, our business, financial condition and prospects would be materially and adversely
affected.
The
laws and regulations governing wealth management, asset management and other financial industries in China are developing and
subject to further changes.
As
of the date of this prospectus, the relevant regulatory authorities and the Asset Management Association of China, or AMAC, have
released many laws and regulations governing the wealth management, asset management and other financial industries in China,
including regulations over private equity products, private securities investment funds, asset management plans managed by securities
companies or mutual fund management companies, trust products, and insurance products. However, these laws and regulations are
subject to further changes and the PRC government has not yet adopted a unified regulatory framework. As we develop our business,
the products we manage or distribute might be subject to detailed regulations and policies in the future, and we cannot assure
you that our asset management or wealth management business will not be materially and adversely affected if any supervisory authority
enhances its regulation over asset management plans.
The
financial products that we distribute or manage involve various risks and any failure to identify or fully appreciate such risks
may negatively affect our reputation, client relationships, operations and prospects
.
We
distribute and manage a broad variety of financial products, including fixed income products, private equity products, secondary
market equity products and insurance products. These products often have complex structures and involve various risks, including
default risks, interest risks, liquidity risks, market risks, counterparty risks, fraud risks and other risks.
Our
success in distributing, managing and offering our products and services depends, in part, on our ability to successfully identify
the risks associated with such products and services, and failure to identify or fully appreciate such risks may negatively affect
our reputation, client relationships, operations, and prospects.
In
addition, we must accurately describe the products and services to, and evaluate them for, our clients. Although we enforce and
implement strict risk management policies and procedures, such risk management policies and procedures may not be fully effective
in mitigating the risk exposure of all of our clients in all market environments or against all types of risks.
If
we fail to identify and fully appreciate the risks associated with the products and services we distribute, manage and offer,
or fail to disclose such risks to our clients, and our clients suffer financial loss or other damages resulting from their purchase
of the financial products we distribute or manage, our reputation, client relationships, business, and prospects will be materially
and adversely affected.
Because
a significant portion of the one-time commissions and fees we earn on the distribution of financial products are based on commission
and fee rates negotiated with financial product providers, any decrease in these commission and fee rates may have an adverse
effect on our revenues, cash flow and results of operations.
We
derive a significant portion of revenues from fees and commissions paid by financial product providers. These fees and commission
rates are negotiated, and vary from product to product. Fees and commission rates fluctuate based on the prevailing political,
economic, regulatory, taxation and competitive factors that affect the product providers. These factors, which are not within
our control, include the capacity of product providers to place new business, profits of product providers, client demand and
preference for financial products, the availability of comparable products from other product providers at a lower cost, the availability
of alternative financial products to clients and the tax deductibility of commissions and fees. In addition, the historical volume
of financial products that we distributed or managed may have significant impact on our bargaining power with product providers
in relation to the commission and fee rates for future products. Since we can neither determine, nor predict, the timing or extent
of commission and fee rate changes with respect to the financial products, it is difficult for us to assess the effect of any
of these changes on our operations. Therefore, any decrease in commission and fee rates would adversely affect our revenues, cash
flow and results of operations.
Beijing
Oriental may be required to obtain additional value-added telecommunication business licenses.
PRC
regulations impose sanctions on entities for engaging in the provision of telecommunication business of a commercial nature without
having obtained a value-added telecommunication business license. If Beijing Oriental fails to obtain licenses required for its
business, Beijing Oriental could be subject to sanctions including corrective orders and warnings from the PRC telecommunication
administration authority, fines and confiscation of illegal gains and, in the case of significant infringements, Beijing Oriental’s
websites and mobile applications may be ordered to cease operation.
Pursuant
to the Interim Measures, Beijing Oriental is required to apply for the appropriate telecommunication business operation permit
(which is the value-added telecommunication business license) in accordance with relevant provisions of competent communication
departments after Beijing Oriental has completed the required registration of online lending intermediaries with its local financial
regulatory authority. The local government authority has not yet issued the relevant implementation rules regarding such filing
and therefore Beijing Oriental cannot assure you Beijing Oriental will be able to make the necessary filing or apply for the value-added
telecommunication business license. Even if Beijing Oriental has obtained the telecommunication business license, Beijing Oriental
may also be subject to monetary penalty or suspension of operation and rectification by the telecommunication administrations
if Beijing Oriental fails to operate the business as prescribed in the telecommunication operating licenses, or fails to operate
the business as regulated by the telecommunications administration or other regulatory authorities.
Nevertheless,
the interpretation and the enforcement of such regulations in the context of the online lending industry remains uncertain, and
therefore, it remains unclear what kind of value-added telecommunication business licenses Beijing Oriental should obtain. Given
the evolving regulatory environment of the consumer finance industry and value-added telecommunication business, Beijing Oriental
cannot rule out the possibility that the PRC communication administration authority or other government authorities will explicitly
require any of its consolidated VIEs or subsidiaries of its consolidated VIEs to obtain Internet content provider licenses, or
ICP licenses, online data processing and transaction processing licenses, or ODPTP licenses or other value-added telecommunication
business licenses, or issue new regulatory requirements to institute a new licensing regime for its industry. If such value-added
telecommunication business licenses are clearly required in the future, or a new license regime is introduced or new regulatory
rules are promulgated, Beijing Oriental cannot assure you that Beijing Oriental would be able to obtain any required license or
other regulatory approvals in a timely manner, or at all, which would subject Beijing Oriental to the sanctions described above
or other sanctions as stipulated in the new regulatory rules, and materially and adversely affect its business and impede its
ability to continue its operations.
If
our products and services do not achieve sufficient market acceptance, our financial condition, results of operations and competitive
position will be materially and adversely affected.
We
facilitate various loan products to our borrowers. While we intend to broaden the scope of products and services that we offer,
we may not be successful in doing so. New products and services must achieve a certain level of market acceptance in order for
them to be economically feasible for us to bear the default risks associated with the product(s) and to recoup our investment
costs in developing and bringing such products to market. Our existing or new products and services could fail to attain sufficient
market acceptance for many reasons, including:
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its failure to
predict market demand accurately and supply relatively low and increasingly personalized products and services at appropriate
prices and in amount that meet this demand in a timely fashion;
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its existing
products and services may cease to be popular among current borrowers and investors or prove to be unattractive to prospective
borrowers and investors;
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its failure to
assess risk associated with new products and services and to properly price such products and services;
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negative publicity
about its products and services or mobile applications’ performance or effectiveness;
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critical assessment
taken by regulatory authorities that the launch of new products and services and changes to its existing products and services
do not comply with PRC laws, regulations or rules applicable to us; and
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the introduction
or anticipated introduction of competing offerings by competitors.
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Increases
in market interest rates could negatively affect the amount of loans we facilitate and cost of funds provided to borrowers.
All
loans we have facilitated have fixed service fee rates charged by it and interest rates
.
If prevailing market interest
rates rise, the service fee rates and interest rates of loans we facilitate may rise accordingly, and borrowers may be less likely
to accept such adjusted terms. If borrowers decide not to use ours products because of such an increase in market interest rates,
our ability to retain existing borrowers and engage prospective borrowers as well as our competitive position may be severely
impaired. If we are unable to effectively manage such market interest rate risk, our business, profitability, results of operations
and financial condition could be materially and adversely affected.
Wangxin
Puhui platform is obligated to verify information relating to borrowers and to detect fraud. If Wangxin Puhui platform fails to
perform such obligations to meet the requirements of relevant laws and regulations, Wangxin Puhui platform may be subject to liabilities.
Wangxin
Puhui platform’s business of connecting investors and individual borrowers constitutes an intermediary service, and its
contracts with investors and borrowers are intermediation contracts under the PRC Contract Law. Under the PRC Contract Law, an
intermediary that intentionally conceals any material information or provides false information in connection with the conclusion
of an intermediation contract, which results in harm to the client’s interests may not claim for any service fee for its
intermediary services, and is liable for any damage incurred by the client. Therefore, if Wangxin Puhui platform fails to provide
material information to investors and are found to be at fault for failure or deemed the failure to exercise proper care, or to
conduct adequate information verification or supervision, Wangxin Puhui platform could be subject to liabilities as an intermediary
under the PRC Contract Law. In addition, the Interim Measures and the Inspection Notice have imposed on online lending information
intermediaries, including us, additional obligations to verify the truthfulness of the information provided by or in relation
to loan applicants and to actively detect fraud, conduct risk evaluation of lenders, categorize lenders and disclose the risk
information on borrowers to the lenders. Wangxin Puhui platform leverages a large database of past fraud accounts information
and sophisticated rule-based detection technology in detecting fraudulent behaviors. Based on new data collected and fraudulent
behaviors detected during its daily business operations, Wangxin Puhui platform updates its database on a monthly basis. As the
Interim Measures are relatively new, it is still unclear to what extent online lending information intermediaries should exercise
care in detecting fraud. Although Wangxin Puhui platform believe that as an information intermediary, Wangxin Puhui platform should
not bear the credit risk for investors as long as Wangxin Puhui platform takes reasonable measures to detect fraudulent behaviors,
Wangxin Puhui platform cannot assure you that Wangxin Puhui platform would not be subject to any liabilities under the Interim
Measures if Wangxin Puhui platform fails to detect any fraudulent behavior. If that were to occur, its results of operations and
financial condition could be materially and adversely affected
We
may need additional capital to accomplish business objectives, pursue business opportunities, and respond to challenges or unforeseen
circumstances, and financing may not be available on terms acceptable to us, or at all
.
Historically,
NCF has issued equity shares to support the growth of its business. As we intend to continue to make investments to support the
growth of our business, the combined company may require additional capital to accomplish our business objectives and pursue business
opportunities, and respond to challenges or unforeseen circumstances, including developing new products and services, further
enhancing our risk management capabilities, increasing our marketing expenditures to improve brand awareness and enhancing our
operating infrastructure. Accordingly, the combined company may need to engage in equity or debt financings to secure additional
funds. However, additional funds may not be available when the combined company needs them, on terms acceptable to it, or at all.
In the event that the combined company obtains debt financing, repayment of debt may divert a substantial portion of cash flow,
which would reduce funds available for expenses and payment pursuant to other general corporate purposes.
Volatility
in the credit markets may also have an adverse effect on its ability to obtain debt financing. If the combined company raises
additional funds through further issuances of equity or convertible debt securities, its existing stockholders could suffer significant
dilution, and any new equity securities the combined company issues could have rights, preferences, and privileges superior to
those of holders its common shares. If the combined company is unable to obtain adequate financing or financing on terms satisfactory
to it when it is needed, its ability to continue to accomplish its business objectives and pursue business opportunities, and
respond to challenges or unforeseen circumstances could be significantly limited, and its business, operating results, financial
condition and prospects could be adversely affected.
Undetected
errors or significant disruption in our IT system, including events beyond its control, could prevent us from offering our products
and services, thereby reducing the attractiveness of our products and services and resulting in a loss of borrowers or investors.
Our
business and internal systems rely on software and processes that are highly technical and complex. In addition, our business
depends on the abilities of these software and processes to store, retrieve, process and manage large amounts of data. The software
and processes on which we rely have contained, and may now or in the future contain, errors or bugs. Some errors may only be discovered
after the code has been released for external or internal use.
In
addition, in the event of a system outage and physical data loss, our ability to provide products and services would be materially
and adversely affected. Any interruptions or delays in our service, whether as a result of third-party error, our error, natural
disasters or security breaches, whether willful or not, could harm our reputation and our relationships with borrowers and investors.
Additionally, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that
we may incur. We also may not have sufficient capacity to recover all data and services in the event of an outage. These factors
could prevent us from processing loan applications and other business operations, damage our brand name and reputation, divert
our employees’ attention, reduce our revenue, subject us to liability and discourage users from using our products and services,
any of which could adversely affect our business, financial condition and results of operations.
If
we are unable to protect the confidential information of our users and adapt to the relevant regulatory framework regarding protection
of such information, our business and operations may be adversely affected.
We
have access to, stores and processes certain personal information and other sensitive data from our users and our business partners,
which makes us a target and potentially vulnerable to cyber-attacks, computer viruses, physical or electronic break-ins
or similar disruptions. While we have taken steps to protect confidential information that we have access to, our security measures
could be compromised. Because techniques used to sabotage or obtain unauthorized access to systems change frequently and generally
are not recognized until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate
preventative measures. Any accidental or willful security breaches or other unauthorized access to our system could cause confidential
user information to be stolen and be used for criminal purposes.
We
also face indirect technology, cybersecurity and operational risk relating to the third parties upon whom we rely on to facilitate
or enable our business activities, including, among others, custodian banks and third-party online payment service providers who
manage accounts for certain borrower and investor funds. Any cyber-attack, computer viruses, physical or electronic break-ins
or similar disruptions of such custodian banks and third-party payment service providers could, among other things, adversely
affect our ability to serve our users, and could even result in misappropriation of funds of our borrowers and investors. If that
were to occur, both us and third-party payment service providers could be held liable to borrowers and investors who suffer losses
from the misappropriation.
Security
breaches or unauthorized access to confidential information could expose us to liability related to the loss of information, time-consuming
and expensive litigation and negative publicity. If security measures are breached because of third-party action, employee error,
malfeasance or otherwise, or if design flaws in our technology infrastructure are exposed and exploited, its relationships with
users could be severely damaged, we could incur significant liability and our business and operations could be adversely affected.
In
addition, PRC government authorities have enacted a series of laws and regulations with respect to the protection of personal
information, under which internet service providers and other network operators are required to comply with the principles of
legality, justification and necessity, to clearly indicate the purposes, methods and scope of any information collection and usage,
and to obtain the consent of users, as well as to establish a user information protection system with appropriate remedial measures.
We have obtained consent from our users to use their personal information within the scope of authorization and we have taken
technical measures to ensure the security of such personal information and to prevent any loss or divergence of personal information
from our users. However, there is uncertainty as to the interpretation and application of such laws. If such laws or regulations
are to be interpreted and applied in a manner inconsistent with its current policies and practices, changes to the features of
its system may be required and additional costs incurred. We cannot assure you that our existing user information protection system
and technical measures will be considered sufficient under applicable laws and regulations. If we are unable to address any information
protection concerns, or to comply with the then applicable laws and regulations, we may incur additional costs and liability and
our reputation, business and operations might be adversely affected.
On
June 1, 2017, the PRC Cybersecurity Law became effective. The law requires network products and services providers, such as us,
among other things, to strictly preserve the secrecy of user information they collect and to store within mainland China data
that is gathered or produced by such network products and services provider in the country. If we are deemed to have violated
the law, potential penalties include, depending on the nature of violation, regulatory warning, correction order, forced shut
down of its websites, suspension of operation revocation of business licenses, confiscation of illegal gains. The fines imposed
on the company ranging from approximately RMB10,000 (approximately $1,457) to RMB1 million (approximately $145,705) or management
personnel ranging from approximately RMB5,000 (approximately $729) to RMB1 million (approximately $145,705 based on the exchange
rate of 0.145705 as of December 31, 2018).
Due
to the relatively new nature of the PRC Cybersecurity Law and the lack of clarification in the statutory law itself as to the
circumstances and standard under which the law should apply and violations be found, there are great uncertainties as to the interpretation
and application of the law. The law’s vagueness in its own statutory language also indicates that the CAC, the designated
government enforcement agency, will have broad latitude to direct how the law is interpreted and enforced, thus creating greater
uncertainties with regard to the interpretation and application of the law since the government enforcement agency has yet to
provide further guidance on the enforcement mechanism of the law. If we are found to have violated the PRC Cybersecurity Law in
a government enforcement action, we may face severe penalties that may result in monetary losses, losses of access to assets essential
for daily operation of our business or for the continuance of service provision, and temporary or total disruption of our business
for an extended period of time. In addition, the finding of a violation of the PRC Cybersecurity Law, even if later repealed,
may cause damages to our reputation and our brand name, causing users to lose confidence in our service and to refrain from choosing
or continuing to use our products and services. All of these consequences may have a material adverse impact on our business,
financial condition and results of operations.
Furthermore,
the stringent reporting obligation imposed by the PRC Cybersecurity Law itself, without a finding of violation, may have a material
adverse impact on our business and results of operations. As we are obligated by the law to inform our users of any security flaw
or vulnerability as they are discovered, users may become wary of the existence or frequency of such reports and lose confidence
in the security of our system, and thus, become discouraged from choosing or continuing to use our products and services, even
though the security flaws or vulnerabilities are quickly fixed and overcome.
If
we
fail to implement and maintain an effective system of internal controls over financial reporting, we may be unable to accurately
report their results of operations, meet their reporting obligations or prevent fraud.
NCF
was a private company and its internal controls and procedures, especially over financial reporting, may not be able to sufficiently
identify any material weaknesses and control deficiencies that could lead to inaccuracies in our financial statements. NCF’s
independent registered public accounting firm has not conducted an attestation of its internal control over financial reporting.
However, in connection with the audits of its consolidated financial statements as of and for the fiscal years ended December
31, 2018, NCF and its independent registered public accounting firm identified three “material weaknesses,” and other
control deficiencies including significant deficiencies in its internal control over financial reporting. As defined in the standards
established by the Public Company Accounting Oversight Board of the United States, or PCAOB, a “material weakness”
is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a
timely basis.
The
material weaknesses identified related to (i) a lack of accounting staff and resources with appropriate knowledge of U.S. GAAP
and SEC reporting and compliance requirements; (ii) a lack of sufficient documented financial closing policies and procedures;
and (iii) a lack of written policy to identify related party and related party transactions. Subsequent testing by us or our independent
registered public accounting firm may reveal deficiencies in our internal control over financial reporting that are deemed to
be material weaknesses.
NCF
has merged with a wholly owned subsidiary of Hunter Maritime, a public company in the United States and the combined company will
be subject to the Sarbanes-Oxley Act of 2002. Section 404 of this Act will require that the combined company include a report
of management on its internal control over financial reporting in its annual report on Form 20-F. However, as an “emerging
growth company” as defined in the JOBS Act, the combined company may choose to not comply with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act of 2002 as to the effectiveness of its internal controls over financial reporting until
such time that it ceases to be an “emerging growth company,” although it will still be required to implement and maintain
internal control over financial reporting and include the management assessment in its annual reports under Section 404. To comply
with Section 404, the combined company may incur substantial costs, expend significant management time on compliance-related issues
and hire additional accounting, financial and internal audit staff with appropriate public company experience and technical accounting
knowledge. Moreover, if the combined company is not able to comply with the requirements of Section 404 in a timely manner or
if it or its independent registered public accounting firm identifies deficiencies in its internal control over financial reporting
that are deemed to be material weaknesses, the combined company could be subject to sanctions or investigations by the U.S. Securities
and Exchange Commission or other regulatory authorities, which would require additional financial and management resources. Any
failure to maintain effective disclosure controls and procedures or internal control over financial reporting could have a material
adverse effect on the combined company’s business and operating results.
We
may not be able to prevent unauthorized use of our intellectual property, which could harm our business and competitive position.
We regard our trademarks,
domain names, copyrights, know-how, proprietary technologies and similar intellectual property as critical to our success, and
we rely on trademark and trade secret law, confidentiality agreement, invention assignment and non-compete agreements with our
employees and others to protect our proprietary rights. See “Business—Intellectual Property” and Regulation—Regulations
on Intellectual Property Rights.” However, we cannot assure you that any of our intellectual property rights would not be
challenged, invalidated, circumvented or misappropriated, or that such intellectual property will be sufficient to provide us
with competitive advantages. Because of the rapid pace of technological development, we cannot assure you that all of our proprietary
technologies and similar intellectual property will be patented in a timely or cost-effective manner, or at all. Furthermore,
parts of our business rely on technologies developed or licensed by other parties, or co-developed with other parties, and we
may not be able to obtain or continue to obtain licenses and technologies from these other parties on reasonable terms, or at
all.
It
is often difficult to register, maintain and enforce intellectual property rights in China. Statutory laws and regulations are
subject to judicial interpretation and enforcement and may not be applied consistently due to the lack of clear guidance on statutory
interpretation. The confidentiality agreement, 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 its 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
litigation 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,
copyrights, know-how, proprietary technologies or other intellectual property rights held by other parties. We may unknowingly
infringe on other parties’ trademarks, copyrights, know-how, proprietary technologies or other intellectual property rights
through our products and services or other aspects of our business. As a result, we may be subject to legal proceedings and claims
relating to the intellectual property rights of others from time to time in the future. 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 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 interpretation and application of China’s intellectual property right laws and the procedures and standards for protecting
trademarks, copyrights, know-how, proprietary technologies or other intellectual property rights in China are uncertain and still
evolving, and we cannot assure you that PRC courts or regulatory authorities would agree with its analysis. If we were found to
have violated the intellectual property rights of others, we may be subject to liability for our infringement 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.
Any
failure by us, institutional funding partners, payment service providers or funds custody banks to comply with applicable anti-money
laundering and anti-terrorist financing laws and regulations could damage our reputation, or expose us to significant penalties,
and decrease our revenues and profitability.
We
have adopted and implemented various policies and procedures including internal controls and “know-your-customer”
procedures, for preventing money laundering and terrorist financing. In addition, we rely on our institutional funding partners,
payment service providers and funds custody banks, in particular, funds custody banks that handle the transfer of funds from lenders
to borrowers, to have their own appropriate anti-money laundering policies and procedures. Our institutional funding partners
may be subject to anti-money laundering obligations under applicable anti-money laundering laws and regulations and are regulated
in that respect by the People’s Bank of China, or the PBOC. We have adopted commercially reasonable procedures for monitoring
our institutional investors and payment processors.
We
have not been subject to fines or other penalties, or suffered business or other reputational harm, as a result of actual or alleged
money laundering or terrorist financing activities in the past. However, our policies and procedures may not be completely effective
in preventing other parties from using us, any of our institutional funding partners, or payment service providers as a conduit
for money laundering (including illegal cash operations) or terrorist financing without our knowledge. If we were to be associated
with money laundering (including illegal cash operations) or terrorist financing activities, our reputation could suffer and we
could become subject to regulatory fines, sanctions, or legal enforcement, including being added to any “blacklists”
that would prohibit certain parties from engaging in transactions with us, all of which could have a material adverse effect on
our financial condition and results of operations. Even if we, our institutional funding partners and payment service providers
comply with the applicable anti-money laundering laws and regulations, we, our institutional funding partners and payment service
providers may not be able to fully eliminate money laundering and other illegal or improper activities in light of the complexity
and the secrecy of these activities. Any negative perception of the industry, such as that which might arise from any failure
of other online consumer finance platforms to detect or prevent money laundering activities, even if factually incorrect or based
on isolated incidents, could tarnish our image, undermine the trust and credibility we have established, and negatively impact
our financial condition and results of operations.
The
Guidelines purport to require, among other things, Internet finance service providers to comply with certain anti-money laundering
requirements, including the establishment of a user identification program, the monitoring and reporting of suspicious transactions,
the preservation of user information and transaction records, and the provision of assistance to the public security department
and judicial authority in investigations and proceedings in relation to anti-money laundering matters. The PBOC will formulate
implementing rules to further specify the anti-money laundering obligations of Internet finance service providers. The Interim
Measures require online lending intermediaries to comply with certain anti-money laundering obligations, including verifying user
identity, reporting suspicious transactions and keeping identity data and transaction records. The Custodian Guidelines require
the anti-money laundering obligation to be included in the fund custodian agreements between an online lending intermediary and
custody banks, and the online lending intermediary shall cooperate with funds custody banks to fulfill anti-money laundering obligations.
We cannot assure you that the anti-money laundering policies and procedures we have adopted will be deemed to be in compliance
with applicable anti-money laundering implementation rules if and when adopted.
Our
business depends on the continued efforts of our senior management and key technology development personnel. If one or more of
its key executives or key technology development personnel 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 and key technology development personnel. In particular,
Ms. Huanxiang Li, its President, Mr. Jia Sheng, its Chief Executive Officer, Ms. Xin Li, its Chief Operating Officer, Mrs. Li
Wei, its Chief Financial Officer, Mr. Ruoshi Zhang, its Chief Technology Officer are critical to the management of our business
and operations and the development of our strategic direction. While we have provided different incentives to our management and
key technology development personnel, we cannot assure you that we can continue to retain their services. If one or more of our
key executives or key technology development personnel 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, while we have entered into confidentiality and non-competition
agreements with our management, there is no assurance that any member of our management team and technology development team will
not join our competitors or form a competing business. If any dispute arises between us and our current or former officers or
key technology development personnel, 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.
If
we grant employees stock options or other equity incentives in the future, our net income could be adversely affected.
NCF
granted incentives and rewards to employees and executives under our share incentive plan. We are required to account for share-based
compensation in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock
Compensation, which generally requires a company to recognize, as an expense, the fair value of stock options and other equity
incentives to employees based on the fair value of equity awards on the date of the grant, with the compensation expense recognized
over the period in which the recipient is required to provide service in exchange for the equity award. NCF also granted RSUs
to non-employees, which is subject to ASC 505-50 Equity-Based Payments to Non-Employee. All transactions in which services are
received in exchange for share-based awards are accounted for based on the fair value of the consideration received or the fair
value of the awards issued, whichever is more reliably measurable. Share-based compensation is measured at fair value at the earlier
of the commitment date or the date the services are completed. NCF re-measured the awards using the then-current fair value at
each reporting date until the measurement date, generally when the services are completed, and awards are vested and attribute
the changes in those fair values over the service period by the straight-line method. As of December 31, 2018, the outstanding
option shares were 35,000,000. As a result, NCF incurred an accumulated share-based compensation expense for the stock options
of $1,320,312 as of December 31, 2018. As of December 31, 2018, the outstanding restricted stock units granted to employees were
52,753,394 and the outstanding restricted stock units granted to non-employees were 3,990,950. As a result, an accumulated share-based
compensation expense for the restricted stock units of $ 19,891,188 was incurred by NCF as of December 31, 2018. If we grant more
options or other equity incentives in the future, we could incur significant compensation charges and our results of operations
could be adversely affected.
Increase
in labor costs in the PRC may adversely affect our business and results of operations.
In
recent years, the Chinese economy has experienced inflationary and labor costs increases. Average wages are projected to continue
to increase. Further, under PRC law we are required to pay various statutory employee benefits, including pension, housing fund,
medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies
for the benefit of its employees. The relevant government agencies may examine whether an employer has made adequate payments
to the statutory employee benefits, and those employers who fail to make adequate payments may be subject to late payment fees,
fines and/or other penalties. We expect that our labor costs, including wages and employee benefits, will continue to increase.
If we are unable to control our labor costs or pass such increased labor costs on to our users by increasing the fees of our services,
our financial condition and results of operations may be adversely affected.
We
do not have any business insurance coverage.
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 ensuring 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 substantial costs and
the diversion of resources, which could have an adverse effect on our results of operations and financial condition.
We
are subject to the risk of a severe or prolonged downturn in the Chinese or global economy and deterioration of credit profiles
of borrowers, which may materially and adversely affect our business and financial condition.
Any
prolonged slowdown in the Chinese or global economy may have a negative impact on our business, results of operations and financial
condition. In particular, general economic factors and conditions in China or worldwide, including the general interest rate environment
and unemployment rates, may affect borrowers’ willingness to seek credit and investors’ ability and desire to invest
in loans. If economic conditions deteriorate, we may face an increased risk of default or delinquency of borrowers, which will
result in lower returns or losses. In the event that the creditworthiness of our borrowers deteriorates or we cannot track the
deterioration of our creditworthiness, the criteria we use for the analysis of borrower credit profiles may be rendered inaccurate,
and our risk management system may be subsequently rendered ineffective. This, in turn, may lead to higher default rates and adverse
impacts on our reputation, business, results of operations and financial positions.
The
offering of our products and services depends on effective use of mobile operating systems and distribution through mobile application
stores, which we do not control.
Our
loan products and loan facilitation services are offered through mobile applications. We may need to devote significant resources
to support and maintain such applications. The mobile applications are dependent on the interoperability of popular mobile operating
systems that we do not control, such as Android and iOS. Any changes in such systems that degrade the accessibility of our mobile
applications or give preferential treatment to competing products and services could adversely affect the usability of our mobile
applications. In addition, we rely upon third-party mobile application stores for users to download our mobile applications. As
such, the distribution, operation and maintenance of our mobile applications are subject to application stores’ standard
terms and policies for application developers.
Our
future growth and results of operations could suffer if we experience difficulties in the future in offering our products and
services through our mobile applications, or if we face increased costs to distribute our mobile applications. If it becomes increasingly
difficult for our users to access and utilize our products and services on their mobile devices, or if the prevailing mobile operating
systems do not support our mobile applications, our business and financial condition and operating results may be adversely affected.
Our
operations depend on the performance of the Internet infrastructure and fixed telecommunications networks in China.
Almost
all access to the Internet in China is maintained through state-owned telecommunication operators under the administrative control
and regulatory supervision of the Ministry of Industry and Information Technology, or MIIT. We primarily rely on a limited number
of telecommunication service providers to provide us with data communications capacity through local telecommunications lines
and Internet data centers to host our servers. We may have limited access to alternative networks or services in the event of
disruptions, failures or other problems with China’s Internet infrastructure or the fixed telecommunications networks provided
by telecommunication service providers. With the expansion of our business, we may be required to upgrade our technology and infrastructure
to keep up with increasing traffic. We cannot assure you that our cloud computing service provider and the underlying Internet
infrastructure and the fixed telecommunications networks in China will be able to support the demand associated with the continued
growth in Internet usage. In addition, we have no control over the costs of the services provided by telecommunication service
providers which in turn, may affect our costs of using customized cloud computing services. If the prices we pay for customized
cloud computing services rise significantly, our results of operations may be adversely affected. Furthermore, if Internet access
fees or other charges to Internet users increase, our user traffic may decline and our business may be harmed.
Risks
Relating to our Corporate Structure
If
the PRC government deems that the contractual arrangements in relation to its consolidated VIEs do not comply with PRC regulatory
restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations
change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.
The
PRC government regulates telecommunications-related businesses through strict business licensing requirements and other government
regulations. These laws and regulations also include limitations on foreign ownership of PRC companies that engage in telecommunications-related
businesses. Specifically, foreign investors are not allowed to own more than 50% equity interest in any PRC company engaging in
value-added telecommunications businesses, with certain exceptions relating to e-commerce which do not apply to us. The primary
foreign investor must also have operating experience and a good track record in providing value-added telecommunications services,
or VATS, overseas.
Because we are
a company incorporated with limited liability in the British Virgin Islands, we are classified as a foreign enterprise under PRC
laws and regulations, and our wholly-owned PRC subsidiaries, Beijing NCF Cloud Service Information Technology Co. Limited and
Beijing NCF Financial Services Information Technology Co. Limited, or Beijing WFOEs, are foreign-invested enterprises, or FIEs.
To comply with PRC laws and regulations, we conduct our business in China through our consolidated VIEs and affiliates. The Beijing
WFOEs have entered into a series of contractual arrangements with the consolidated VIEs and their shareholders. For a description
of these contractual arrangements, see “Business —Contractual Arrangements with Beijing Jing Xun Shi Dai Technology
Limited Liability Company (“Jing Xun Shi Dai”) and Beijing Oriental Union Investment Management Limited Liability
Company (“Beijing Oriental”).”
We
believe that our corporate structure and contractual arrangements comply with the current applicable PRC laws and regulations.
Our PRC legal counsel, Grandall Law Firm is of the opinion that our current ownership structure, the ownership structure of our
PRC subsidiaries, our consolidated VIEs and subsidiaries, and the contractual arrangements among them are not in violation of
existing PRC laws, rules and regulations; and these contractual arrangements are valid, binding and enforceable in accordance
with their terms and applicable PRC laws and regulations currently in effect. However, as there are substantial uncertainties
regarding the interpretation and application of PRC laws and regulations, including the Regulations on Mergers and Acquisitions
of Domestic Enterprises by Foreign Investors, or the M&A Rules, and the Telecommunications Regulations and the relevant regulatory
measures concerning the telecommunications industry, there can be no assurance that the PRC government authorities, such as the
Ministry of Commerce, or the MOFCOM, the MIIT, or other authorities that regulate online consumer finance platforms and other
participants in the telecommunications industry, would ultimately take a view that is consistent with the opinion of its PRC legal
counsel or agree that our corporate structure or any of the above contractual arrangements comply with PRC licensing, registration
or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future. PRC
laws and regulations governing the validity of these contractual arrangements are uncertain and the relevant government authorities
have broad discretion in interpreting these laws and regulations.
If
our corporate structure and contractual arrangements are deemed by the MIIT or the MOFCOM or other regulators having competent
authority to be illegal, either in whole or in part, we may lose control of our consolidated VIEs and may have to modify such
structure to comply with regulatory requirements. However, there can be no assurance that we can achieve this without material
disruption to our business. Further, if our corporate structure and contractual arrangements are found to be in violation of any
existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such
violations, including:
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revoking its
business and operating licenses;
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confiscating
any of its income that they deem to be obtained through illegal operations;
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shutting down
its services;
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discontinuing
or restricting its operations in China;
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imposing conditions
or requirements with which we may not be able to comply;
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requiring us
to change its corporate structure and contractual arrangements;
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restricting or
prohibiting its use of the proceeds from overseas offerings to finance its PRC consolidated VIEs’ business and operations;
and
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taking other
regulatory or enforcement actions that could be harmful to its business.
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Furthermore, new
PRC laws, rules and regulations may be introduced to impose additional requirements that may be applicable to its corporate structure
and contractual arrangements. See “Risks Relating to our Corporate Structure”. The enactment of the PRC Foreign Investment
Law may materially and adversely affect our business and financial condition. The occurrence of any of these events could materially
and adversely affect our business and financial condition and results of operations. In addition, if the imposition of any of
these penalties or requirements to restructure our corporate structure causes us to lose the right to direct the activities of
our consolidated VIEs or our right to receive their economic benefits, we would no longer be able to consolidate the financial
results of such VIEs in our consolidated financial statements. If our corporate structure and contractual arrangements are deemed
to be illegal by relevant regulators, our business and results of operations would be materially and adversely affected. However,
we do not believe that such actions would result in the liquidation or dissolution of its company, our wholly-owned subsidiaries
in China or our consolidated VIEs or their subsidiaries. See “Business —Contractual Arrangements with Beijing Jing
Xun Shi Dai Technology Limited Liability Company (“Jing Xun Shi Dai”) and Beijing Oriental Union Investment Management
Limited Liability Company (“Beijing Oriental”)”.
Our
contractual arrangements with our consolidated VIEs may result in adverse tax consequences.
We
could face material and adverse tax consequences if the PRC tax authorities determine that our contractual arrangements with its
consolidated VIEs were not made on an arm’s length basis and adjust our income and expenses for PRC tax purposes by requiring
a transfer pricing adjustment. A transfer pricing adjustment could adversely affect us by (i) increasing the tax liabilities of
our consolidated VIEs without reducing the tax liability of our subsidiaries, which could further result in late payment fees
and other penalties to its consolidated VIEs for underpaid taxes; or (ii) limiting the ability of our consolidated VIEs to obtain
or maintain preferential tax treatments and other financial incentives.
If
NCF Cloud Services would not be granted Hi-Tech Enterprise status and the Certification of Software Company, our financial condition
would be materially and adversely affected.
NCF
Cloud Services holds the Certification of High-tech Enterprise (No. GR201711004462) issued by Beijing Municipal Science and Technology
Commission, Beijing Local Taxation Bureau, Beijing Municipal Finance Bureau, Beijing Municipal State Taxation Bureau and Beijing
Local Taxation Bureau on October 25, 2017, and the term of validity of the certificate is three years. According to the Corporate
Income Tax Law of the People’s Republic of China, corporate income tax for key advanced and new technology enterprises supported
by the State shall be at a reduced tax rate of 15%.
NCF
Cloud Services holds the Certification of Software Company (Jing RQ-2018-1107) issued by Beijing Software and Information Service
Industry Association on November 30, 2018, and the term of validity of the certificate is one year. According to Promulgation
of Several Policies for Further Encouraging the Development of Software and Integrated Circuit Industries, any eligible software
enterprise that has been determined is entitled to the preferential CIT policy of “exemption for two years and 50% reduction
for three years” from the year when it starts to make profits. In the case of co-existence of the preferential CIT policy
for eligible software and IC enterprises and other preferential CIT policies, the enterprise concerned may choose the most preferential
policy only and shall not enjoy all preferential CIT policies concurrently.
If
the above-mentioned policies would change or NCF Cloud Services would not be granted High-tech Enterprise or Eligible Software
Enterprise status as defined in Administration of Taxation on Revising and Issuing the Measures for the Administration of the
Certification of High-tech Enterprises and Promulgation of Several Policies for Further Encouraging the Development of Software
and Integrated Circuit Industries, NCF Cloud Services would not enjoy the benefits of enterprise income tax reduction and exemption,
and our financial condition may be materially and adversely affected.
We
rely on contractual arrangements with our consolidated VIEs and their shareholders to operate our business, which may not be as
effective as direct ownership in providing operational control and may have potential conflicts of interests with us, which may
have a material adverse effect on our business and financial condition.
We rely on contractual
arrangements with our consolidated VIEs and their shareholders to operate our business. For a description of these contractual
arrangements, see “Business —Contractual Arrangements with Beijing Jing Xun Shi Dai Technology Limited Liability Company
(“Jing Xun Shi Dai”) and Beijing Oriental Union Investment Management Limited Liability Company (“Beijing Oriental”).”
All of our revenue is attributed to its consolidated VIEs. These contractual arrangements may not be as effective as direct ownership
in providing us with control over our consolidated VIEs. If our consolidated VIEs or their shareholders fail to perform their
respective obligations under these contractual arrangements, our recourse to the assets held by our consolidated VIEs is indirect
and we may have to incur substantial costs and expend significant resources to enforce such arrangements in reliance on legal
remedies under PRC law. These remedies may not always be effective, particularly in light of uncertainties in the PRC legal system.
Furthermore, in connection with litigation, arbitration or other judicial or dispute resolution proceedings, assets under the
name of any of the record holders of the equity interest in our consolidated VIEs, including such equity interest, may be put
under court custody. As a consequence, we cannot be certain that the equity interest will be disposed of pursuant to the contractual
arrangement or ownership by the record holder of the equity interest.
All
of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the
PRC. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance
with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United
States. As a result, uncertainties in the PRC legal system could limit its ability to enforce these contractual arrangements.
In the event that we are unable to enforce these contractual arrangements, or if we suffer significant time delays or other obstacles
in the process of enforcing these contractual arrangements, it would be very difficult to exert effective control over our consolidated
VIEs, and our ability to conduct our business and our financial condition and results of operations may be materially and adversely
affected. See “Risks Relating to Doing Business in China —There are uncertainties regarding the interpretation and
enforcement of PRC laws, rules and regulations.”
In
connection with its operations in China, we rely on Mr. Zhenxin Zhang and Ms. Huanxiang Li, the shareholders of our consolidated
VIEs, to fulfill the obligations under such contractual arrangements. The interests of these shareholders in their individual
capacities as shareholders of our consolidated VIEs may differ from the interests of the company as a whole. There can be no assurance
that when conflicts of interest arise, any or all of these individuals or entities will act in our best interest or that those
conflicts of interest will be resolved in our favor. In addition, these individuals and entities may breach or cause the consolidated
VIEs and their subsidiaries to breach or refuse to renew their existing contractual arrangements with us.
Currently,
we do not have arrangements that address potential conflicts of interest shareholders of our consolidated VIEs may encounter due
to their dual roles as shareholders of consolidated VIEs and as beneficial owners of its company. However, we could, at all times,
exercise our option under the exclusive call option agreement to cause them to transfer all of their equity ownership in our consolidated
VIEs to a PRC entity or individual designated by it as permitted by the then applicable PRC laws. In addition, if such conflicts
of interest arise, we could also, in the capacity of the attorney-in-fact of the then existing shareholders of our consolidated
VIEs as provided under the powers of attorney, directly appoint new directors of our consolidated VIEs. We rely on the shareholders
of our consolidated VIEs to comply with PRC laws and regulations, which protect contracts, and to provide that directors and executive
officers owe a duty of loyalty to its company and require them to avoid conflicts of interest and not to take advantage of their
positions for personal gain, and with the laws of the British Virgin Islands, which provide that directors have a duty of care
and a duty of loyalty to act honestly in good faith with a view to its best interests. However, the legal frameworks of China
and the British Virgin Islands do not provide guidance on resolving conflicts in the event of a conflict with another corporate
governance regime. If there is a dispute between us and the shareholders of our consolidated VIEs, we might have to initiate a
lawsuit to protect our rights, which could result in disruption of our business and subject us to substantial uncertainty as to
the outcome of any such legal proceedings.
If
the custodians or authorized users of its controlling nontangible assets, including chops and seals, fail to fulfill their responsibilities,
misappropriate or misuse these assets, its business and operations may be materially and adversely affected.
Under
PRC law, legal documents for corporate transactions, including agreements and contracts such as the leases and sales contracts
that its business relies on, are executed using the chop or seal of the signing entity or with the signature of a legal representative
whose designation is registered and filed with the relevant local branch of the State Administration of Taxation, or the SAIC.
We generally execute legal documents by affixing chops or seals, rather than having the designated legal representatives sign
the documents.
We
have six major types of chops (similar to a corporate seal in the United States)—corporate chops, contract chops and finance
chops, invoice chops, human resources chops and legal person chops. We us corporate chops generally for documents to be submitted
to government agencies, such as applications for changing business scope, directors or company name, and for legal letters. We
use contract chops for executing leases and commercial contracts. We use finance chops generally for making and collecting payments,
including issuing invoices. Use of corporate chops and contract chops must be approved by our legal department and administrative
department, and use of finance chops must be approved by our finance department. The chops of our subsidiaries and consolidated
VIEs are generally held by the relevant entities so that documents can be executed locally. Although we usually utilize chops
to execute contracts, the registered legal representatives of our subsidiaries and consolidated VIEs have the apparent authority
to enter into contracts on behalf of such entities without chops, unless such contracts set forth otherwise.
In
order to maintain the physical security of our chops, we generally have them stored in secured locations accessible only to the
designated key employees of our legal, administrative or finance departments. Our designated legal representatives generally do
not have access to the chops. Although we have approval procedures in place and mechanisms to monitor our key employees, including
the designated legal representatives of our subsidiaries and consolidated VIEs, the procedures may not be sufficient to prevent
all instances of abuse or negligence. There is a risk that our key employees or designated legal representatives could abuse their
authority, for example, by binding our subsidiaries and consolidated VIEs with contracts against our interests, as we would be
obligated to honor these contracts if the other contracting party acts in good faith in reliance on the apparent authority of
our chops or signatures of our legal representatives. If any designated legal representative obtains misappropriates the chop
in an effort to obtain control over the relevant entity, we would need to have a shareholder or board resolution to designate
a new legal representative and to take legal actions to seek the return of the chop, apply for a new chop with the relevant authorities,
or otherwise seek legal remedies for the legal representative’s misconduct. If any of the designated legal representatives
obtain, misuses or misappropriates its chops and seals or other controlling intangible assets for whatever reason, we could experience
disruption to our normal business operations. We may have to take corporate or legal action, which could involve significant time
and resources expenses while distracting management from our operations, and our business and operations may be materially and
adversely affected.
The
enactment of the Foreign Investment Law may materially and adversely affect its business and financial condition.
The
Ministry of Commerce (“MOFCOM”) published a discussion draft of the proposed Foreign Investment Law (the “2015
Draft Foreign Investment Law”) in January 2015 aiming to, upon its enactment, replace the major existing laws and regulations
governing foreign investment in China.
Among
other things, the 2015 Draft Foreign Investment Law purports to introduce the principle of “actual control” in determining
whether a company is considered a foreign invested enterprise, or an FIE. The 2015 Draft Foreign Investment Law specifically provides
that entities established in China but “controlled” by foreign investors will be treated as FIEs, whereas an entity
organized in a foreign jurisdiction, but cleared by MOFCOM as “controlled” by PRC entities and/or citizens, would
nonetheless be treated as a PRC domestic entity for investment in the “restriction category” that could appear on
“negative list.” In this connection, “control” is broadly defined in the draft law to cover any of the
following summarized categories:
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holding 50% or
more of the voting rights or similar rights and interests of the subject entity;
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holding less
than 50% of the voting rights or similar rights and interests of the subject entity but having the power to directly or indirectly
appoint or otherwise secure at least 50% of the seats on the board or other equivalent decision making bodies, or having the
voting power to materially influence the board, the shareholders’ meeting or other equivalent decision making bodies;
or
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having the power
to exert decisive influence, via contractual or trust arrangements, over the subject entity’s operational, financial,
staffing and technological matters.
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Under
the 2015 Draft Foreign Investment Law, VIEs that are controlled via contractual arrangements would also be deemed as FIEs, if
they are ultimately “controlled” by foreign investors. For any companies with a VIE structure in an industry category
that is in the “restriction category” that could appear on any such “negative list,” the existing VIE
structure may be deemed legitimate only if the ultimate controlling person(s) is/are of PRC nationality (either PRC state-owned
enterprises or agencies, or PRC citizens). Conversely, if the actual controlling person(s) is/are of foreign nationalities, then
the VIEs will be treated as FIEs, in which case, the existing VIE structures will likely be scrutinized and subject to foreign
investment restrictions and approval from MOFCOM and other supervising authorities such as MIIT. Any operation in the industry
category on the “negative list” without market entry clearance may be considered as illegal.
On
December 26, 2018, the National People’s Congress published the Foreign Investment Law of the People’s Republic of
China (the “2018 Draft Foreign Investment Law”) on its official website aiming to solicit public opinions. The 2018
Draft Foreign Investment Law is a widely regarded to be a revision of the 2015 Draft Foreign Investment Law.
On
March 15, 2019, the Foreign Investment Law was adopted by the NPC and will come into effect on January 1, 2020. The Foreign Investment
Law will replace the Law on Sino-Foreign Equity Joint Ventures, the Law on Sino-Foreign Contractual Joint Ventures and the Law
on Foreign-Capital Enterprises to become the legal foundation for foreign investment in the PRC. Moreover, as the interpretation
and implementation of the Foreign Investment Law has not been officially promulgated, there are uncertainties as to whether it
will impact the viability of our current corporate structure, corporate governance and business operations.
Conducting
operations through contractual arrangements (VIE agreements) has been adopted by many PRC-based companies, including us, to obtain
and maintain necessary licenses and permits in the industries that are currently subject to foreign investment restrictions or
prohibitions in China. The 2018 Draft Foreign Investment Law and the Foreign Investment Law deletes not only the concept of “actual
controller” introduced by the 2015 Draft Foreign Investment Law, but also all terms of “protocol control”. There
is no clear stipulation on whether the control of domestic enterprises or the holding of rights and interests of domestic enterprises
through contractual arrangements or other means belongs to the category of foreign investment. Under the new Foreign Investment
Law that is adopted on March 15, 2019 and will become effective on January 1, 2020, the operation mode for us to control our subsidiaries
in China through VIE structure will not be affected.
Although
the Foreign Investment Law did not mention the principle of “actual control” (including VIE structures) as stipulated
in the Draft Foreign Investment Law 2015, according to the fourth category of foreign investment activities mentioned in the Foreign
Investment Law, namely, “investing in any other ways as stipulated under laws, administrative regulations or provisions
of the State Council”, the “actual control” principle (including VIE structures) may be proposed in form of
other laws, administrative regulations or means as stipulated by the State Council. Under these circumstances, if the actual controller
has foreign nationality, the VIE will be regarded as a foreign invested enterprise. Once an entity is designated as a foreign-invested
company, its investment in the PRC will be limited to the scope stated in the Negative List. As advised by our PRC Legal Advisers,
if there are no other newly issued or revised laws and regulations about regulating the “control of domestic enterprises
through contractual arrangements”, the Foreign Investment Law will not have a significant impact on the effectiveness of
our existing Contractual Arrangements.
At
the same time, the Foreign Investment Law stipulates that the Negative List for the access of foreign investment is divided into
“prohibited investment areas” and “restricted investment areas”. However, the Foreign Investment Law does
not specify the scope of business which are included in the fields of restricted investment and prohibited investment. It is unclear
whether any business areas of companies that currently controlled by us through the VIEs agreements will be listed on the negative
list in the future.
Thus,
if the PRC entities currently controlled by us through VIE agreements are identified as a foreign-invested enterprise in the future
under the enacted and enforced foreign investment law, and their business areas are listed as restricted or prohibited area according
to the negative list for foreign investment access, the competent authority may require those PRC entities to go through further
approval procedures. And if those PRC entities do not obtain the necessary approval procedures in time, our business and financial
condition and operating results may be materially and adversely affected.
Risks
Relating to Doing Business in China
Changes
in the political and economic policies of the PRC government may materially and adversely affect our business, financial condition
and results of operations and may result in our inability to sustain its growth and expansion strategies.
After
the merger, all of the combined company’s operations will be entirely conducted in the PRC and all of its revenue will be
sourced from the PRC. Accordingly, the combined company’s financial condition and results of operations are affected to
a significant extent by economic, political and legal developments in the PRC.
The
PRC economy differs from the economies of most developed countries in many respects, including the extent of government involvement,
level of development, growth rate, and control of foreign exchange and allocation of resources. Although the PRC government has
implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive
assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets
in China is still owned by the government. In addition, the PRC government continues to play a significant role in regulating
industry development by imposing industrial policies. The PRC government also exercises significant control over China’s
economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy,
regulating financial services and institutions and providing preferential treatment to particular industries or companies.
While
the PRC economy has experienced significant growth in the past three decades, growth has been uneven, both geographically and
among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and to
guide the allocation of resources. Some of these measures may benefit the overall PRC economy, but may also have a negative effect
on the combined company. Its financial condition and results of operations could be materially and adversely affected by government
control over capital investments or changes in tax regulations that are applicable to the combined company. In addition, the PRC
government has implemented in the past certain measures to control the pace of economic growth. These measures may cause decreased
economic activity, which in turn could lead to a reduction in demand for its services and consequently have a material adverse
effect on its businesses, financial condition and results of operations.
There
are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations.
Substantially
all of our operations are conducted in the PRC, and are governed by PRC laws, rules and regulations. Our PRC subsidiary and consolidated
VIEs 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 three 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. In particular, because these laws, rules and regulations, especially
those relating to the Internet consumer finance industry, are relatively new, and because of the limited number of published decisions
and the nonbinding nature of such decisions, and because the laws, rules and regulations often give the relevant regulator significant
discretion in how to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties
and can be inconsistent and unpredictable. In addition, 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 these policies and rules until after the occurrence of the violation.
Any
administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and
management attention. Since PRC administrative authorities and courts have significant discretion in interpreting and implementing
statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and
the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede its ability to enforce
the contracts we have entered into and could materially and adversely affect our business, financial condition and results of
operations.
The
approval of the China Securities Regulatory Commission, or the CSRC, may be required in connection with the Merger under a PRC
regulation. The regulation also establishes more complex procedures for acquisitions conducted by foreign investors that could
make it more difficult for us to grow through acquisitions.
On
August 8, 2006, six PRC regulatory agencies, including the MOFCOM, the State-Owned Assets Supervision and Administration Commission,
or the SASAC, the SAIC, the CSRC, and the State Administration of Foreign Exchange, or the SAFE, jointly adopted the Regulations
on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which came into effect on September
8, 2006 and were amended on June 22, 2009. The M&A Rules 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 of a PRC company 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, the CSRC published on its official website procedures regarding its approval of overseas listings through
special purpose vehicles. However, substantial uncertainty remains regarding the scope and applicability of the M&A Rules
to offshore special purpose vehicles.
While
the application of the M&A Rules remains unclear, we believe, based on the advice of our PRC counsel, Grandall Law Firm, that
CSRC approval is not required in the context of the Business Combination given that (i) the Beijing WFOE was established by means
of direct investment rather than by a merger with or an acquisition of any PRC domestic companies as defined under the M&A
Rules, (ii) no explicit provision in the M&A Rules classifies the respective contractual arrangements among Beijing WFOE,
the VIEs and their shareholders as a type of acquisition transaction falling under the M&A Rules and (iii) the CSRC currently
has not issued any definitive rule or interpretation concerning whether the Business Combination is subject to the M&A Rules.
There can be no assurance that the relevant PRC government agencies, including the CSRC, would reach the same conclusion as our
PRC counsel. If the CSRC or other PRC regulatory body subsequently determines that we need to obtain the CSRC’s approval
for the Business Combination or if the CSRC or any other PRC government authorities publish any interpretation or implements rules
before its listing that would require us to obtain CSRC or other governmental approvals for the Business Combination, we may face
adverse actions or sanctions by the CSRC or other PRC regulatory agencies. In any such event, these regulatory agencies may impose
fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict the repatriation of
the proceeds from the Business Combination into the PRC or take other actions that could have a material adverse effect on our
business, financial condition, results of operations, reputation and prospects.
The
new regulations also established additional procedures and requirements that are expected to make merger and acquisition activities
in China by foreign investors more time consuming and complex, including requirements in some instances that the MOFCOM be notified
in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, or that
the approval from the MOFCOM be obtained in circumstances where overseas companies established or controlled by PRC enterprises
or residents acquire affiliated domestic companies. We may grow our business in part by acquiring other companies operating in
our industry. Compliance with the requirements of the new regulations to complete such transactions could be time-consuming, and
any required approval processes, including approval from the MOFCOM, may delay or inhibit our ability to complete such transactions,
which could affect our ability to expand our business or maintain our market share. See “Regulations—Regulations on
Overseas Listing.”
PRC
regulations relating to investments in offshore companies by PRC residents may subject its PRC-resident beneficial owners or its
PRC subsidiary to liability or penalties, limit its ability to inject capital into its PRC subsidiary or limit its PRC subsidiary’s
ability to increase their registered capital or distribute profits.
The
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 the SAFE on October 21, 2005. SAFE Circular
37 requires PRC residents to register with local branches of the 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 the amendment to the registration in the event of any significant changes
with respect to the special purpose vehicle, such as an increase or decrease of capital contributed by PRC individuals, share
transfer or exchange, merger, division or other material events. 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. Moreover,
failure to comply with the various SAFE registration requirements described above 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 released on February 13, 2015 by the 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.
Mr.
Zhang Zhenxin completed the SAFE Circular 37 registration in relation to his investment in Great Reap Ventures Limited, First
P2P Limited (currently known as NCF Wealth Holdings Limited) and UCF Huarong Investment (HK) Co., Limited on September 25, 2014.
The registration also recorded the roundtrip investment into Beijing Hua Rong Ju Hui Investment Consultation Co., Limited (currently
known as Beijing NCF Financial Service Information Technology Co., Ltd) made indirectly through the aforesaid offshore special
vehicle companies. Mr. Zhang Zhenxin completed the SAFE Circular 37 registration in relation to his investment in Nimble Ring
Limited, a company established in the British Virgin Islands in September 2014, on July 22, 2015. Neither the two registrations
in the abovementioned reflect the domestic interest held by Zhenxin Zhang in Jing Xun Shi Dai and the roundtrip investment of
Beijing NCF Cloud Service Information Technology Co., Ltd.
According
to the SAFE Circular 37 and the Guidance on Direct Investment Foreign Exchange Affairs, PRC residents are only required to register
the first level of the offshore special vehicle directly owned by them and update their SAFE Circular 37 registration in the event
of certain material changes at such first-level offshore special vehicle. PRC law does not explicitly require a change of registration
to be made in relation to any new roundtrip investment or any changes of the domestic interest held by the PRC resident. Therefore
Mr. Zhang Zhenxin is not required to file for new registration or change of registration to reflect the domestic interest in Jing
Xun Shi Dai and the roundtrip investment of Beijing NCF Cloud Service Information Technology Co., Ltd., and that the existing
two SAFE Circular 37 registrations made by Mr. Zhang Zhenxin are sufficient and in compliance with the PRC law.
We
have notified substantial beneficial owners of Class A common shares who we know are PRC residents of their filing obligations.
Nevertheless, we may not be aware of the identities of all of our beneficial owners who are PRC residents. We do not have control
over our beneficial owners and there can be no assurance that all of our PRC-resident beneficial owners will comply with SAFE
Circular 37 and subsequent implementation rules, and there is no assurance that the registration under SAFE Circular 37 and any
amendment will be completed in a timely manner, or will be completed at all. The failure of its beneficial owners who are PRC
residents to register or amend their foreign exchange registrations in a timely manner pursuant to SAFE Circular 37 and subsequent
implementation rules, or the failure of future beneficial owners of its 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 subsidiary
to fines and legal sanctions. Such failure to register or comply with relevant requirements may also limit our ability to contribute
additional capital to our PRC subsidiary and limit our PRC subsidiary’s ability to distribute dividends to its company.
These risks may have a material adverse effect on our business, financial condition and results of operations.
PRC
regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency
conversion may restrict or prevent us from using the proceeds of future offerings to make loans to our PRC subsidiary and consolidated
VIE, or to make additional capital contributions to our PRC subsidiary.
After
the Merger, as an offshore holding company with PRC subsidiaries, Hunter Maritime may transfer funds to its PRC subsidiaries by
means of loans or capital contributions, which are treated as foreign-invested enterprises under PRC laws. However, loans by Hunter
Maritime to its PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local
counterpart of SAFE and capital contributions to its PRC subsidiary are subject to the requirement of making necessary filings
in the Foreign Investment Comprehensive Management Information System, and registration with other governmental authorities in
China.
SAFE
promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement
of Capital of Foreign-invested Enterprises, or Circular 19, effective on June 1, 2015, in replacement of the Circular on the Relevant
Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of
Foreign- Invested Enterprises, or SAFE Circular 142, the Notice from the State Administration of Foreign Exchange on Relevant
Issues Concerning Strengthening the Administration of Foreign Exchange Businesses, or Circular 59, and the Circular on Further
Clarification and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses,
or Circular 45. According to Circular 19, the flow and use of the RMB capital converted from the foreign currency-denominated
registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted
loans, the repayment of inter-enterprise loans or the repayment of bank loans that have been transferred to a third party. Although
Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign invested enterprise
to be used for equity investments within the PRC, it also reiterates the principle that RMB converted from the foreign currency-denominated
capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. Thus, it
is unclear whether SAFE will permit such capital to be used for equity investments in the PRC in actual practice. SAFE promulgated
the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management
Policy of Capital Account, or Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in Circular
19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a
foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to grant loans to non-associated
enterprises. Violations of SAFE Circular 19 and Circular 16 could result in administrative penalties. Circular 19 and Circular
16 may significantly limit its ability to transfer any foreign currency we hold, including the net proceeds from future offerings,
to our PRC subsidiary, which may adversely affect our liquidity and our ability to fund and expand our business in the PRC.
Due
to the restrictions imposed on loans in foreign currencies extended to any PRC domestic companies, we are not likely to make such
loans to any of our consolidated VIEs and their subsidiaries, each a PRC domestic company. Meanwhile, we are not likely to finance
the activities of our consolidated VIEs and their subsidiaries by means of capital contributions given the restrictions on foreign
investment in the businesses that are currently conducted by its consolidated VIEs and their subsidiaries.
In
light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding
companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary
government approvals on a timely basis, if at all, with respect to future loans to our PRC subsidiary or any consolidated variable
interest entity or future capital contributions by us to its PRC subsidiary. As a result, uncertainties exist as to our ability
to provide prompt financial support to its PRC subsidiary or consolidated VIEs and their subsidiaries when needed. If we fail
to complete such registrations or obtain such approvals, our ability to use foreign currency, and to capitalize or otherwise fund
its PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund
and expand our business.
Any
failure to comply with PRC regulations regarding employee share incentive plans may subject the PRC plan participants or us to
fines and other legal or administrative sanctions.
Pursuant
to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies due to their
positions as director, senior management or employees of the PRC subsidiaries of the overseas companies may submit applications
to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. Its directors,
executive officers and other employees who are PRC residents and who have been granted options may follow SAFE Circular 37 to
apply for the foreign exchange registration before its company becomes an overseas listed company. After our company becomes an
overseas listed company, us and our directors, executive officers and other employees who are PRC residents and who have been
granted options will be subject to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals
Participating in Stock Incentive Plan of Overseas Publicly Listed Company, issued by SAFE in February 2012, according to which,
employees, directors, supervisors and other management members who are PRC residents participating in any stock incentive plan
of an overseas publicly listed company are required to register with SAFE through a domestic qualified agent, which could be a
PRC subsidiary of such overseas listed company, and complete certain other procedures. Subsequent to the completion of the Business
Combination, we are making efforts to comply with these requirements. However, there can be no assurance that we can successfully
register with SAFE in full compliance with the rules. Failure to complete the SAFE registrations may subject us to fines and legal
sanctions and may also limit the ability to make payment under our share incentive plans or receive dividends or sales proceeds
related thereto, or our ability to contribute additional capital into its wholly-foreign owned enterprises in China and limit
our wholly-foreign owned enterprises’ ability to distribute dividends. We also face regulatory uncertainties that could
restrict our ability to adopt additional share incentive plans for our directors and employees under PRC law.
NCF
relies to a significant extent on dividends and other distributions on equity paid by its principal operating subsidiaries to
fund offshore cash and financing requirements.
NCF
is a holding company and relies to a significant extent on dividends and other distributions on equity paid by its principal operating
subsidiaries, including its wholly-owned PRC subsidiaries and the subsidiaries of each VIE and on remittances from the consolidated
VIEs, for its offshore cash and financing requirements, including the funds necessary to pay dividends and other cash distributions
to its shareholders, fund intercompany loans, service any debt NCF may incur outside of China and pay its expenses. When its principal
operating subsidiaries or the consolidated VIEs incur additional debt, the instruments governing the debt may restrict their ability
to pay dividends or make other distributions or remittances to us. Furthermore, the laws, rules and regulations applicable to
its PRC subsidiary and certain other subsidiaries permit payments of dividends only from part of their retained earnings, if any,
determined in accordance with applicable PRC accounting standards and regulations.
Under
PRC laws, rules and regulations, each of its subsidiaries incorporated in China is required to set aside at least 10% of its net
income each year to fund certain statutory reserves until the cumulative amount of such reserves reaches 50% of its registered
capital. These reserves, together with the registered capital, are not included in the retained earnings distributable as cash
dividends. Furthermore, under PRC law, its wholly-owned PRC subsidiary, which is a wholly foreign-owned enterprise under PRC law,
cannot distribute any profits until all of its losses from prior fiscal years have been offset. In accordance with the articles
of association of its wholly-owned PRC subsidiary, profit distributions also need to be approved by its executive directors and
shareholders before any distribution plan becomes effective. As a result, its subsidiaries incorporated in China are restricted
in their ability to transfer a portion of their respective net assets to their shareholders as dividends, loans or advances. In
addition, registered share capital and statutory reserve accounts are also restricted from withdrawal in the PRC, up to the amount
of net assets held in each operating subsidiary.
Limitations
on the ability of its consolidated VIEs to make remittance to the wholly-foreign owned enterprise and on the ability of its subsidiaries
to pay dividends to us could limit its ability to access cash generated by the operations of those entities, including to make
investments or acquisitions that could be beneficial to its businesses, pay dividends to its shareholders or otherwise fund and
conduct its business.
We
may be treated as a resident enterprise for PRC tax purposes under the PRC Enterprise Income Tax Law, and we may, therefore, be
subject to PRC income tax on our global income.
Under
the PRC Enterprise Income Tax Law and its implementing rules, enterprises established under the laws of jurisdictions outside
of China with “de facto management bodies” located in China may be considered PRC tax resident enterprises for tax
purposes and may be subject to the PRC enterprise income tax at the rate of 25% on their global income. “De facto management
body” refers to a managing body that exercises substantive and overall management and control over the production, personnel,
accounting books and assets of an enterprise. The State Administration of Taxation issued the Notice Regarding the Determination
of Chinese- Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies,
or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria for determining whether the “de facto
management body” of a Chinese-controlled offshore-incorporated enterprise is located in China. Although Circular 82 only
applies to offshore enterprises controlled by PRC enterprises, not those controlled by foreign enterprises or individuals, the
determining criteria set forth in Circular 82 may reflect the State Administration of Taxation’s general position on how
the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises,
regardless of whether they are controlled by PRC enterprises. If we were to be considered a PRC resident enterprise, we would
be subject to PRC enterprise income tax at the rate of 25% on its global income. In such a case, our profitability and cash flow
may be materially reduced as a result of its global income being taxed under the Enterprise Income Tax Law. We believe that none
of our entities outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident 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.”
Dividends
paid to our foreign investors and gains on the sale of its common shares by its foreign investors may be subject to PRC tax.
Under
the Enterprise Income Tax Law and its implementation regulations issued by the State Council, a 10% PRC withholding tax is applicable
to dividends paid 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. In addition, any gain realized on
the transfer of shares by such investors is also subject to PRC tax at a rate of 10%, if such gain is regarded as income derived
from sources within the PRC. If the combined company is deemed a PRC resident enterprise, dividends paid on its common shares,
and any gain realized from the transfer of its common shares, may be treated as income derived from sources within the PRC and
may as a result be subject to PRC taxation. Furthermore, if the combined company is deemed a PRC resident enterprise, dividends
paid to individual investors who are non-PRC residents and any gain realized on the transfer of common shares by such investors
may be subject to PRC tax at a current rate of 20% (which in the case of dividends may be withheld at source). Any PRC tax liability
may be reduced under applicable tax treaties or tax arrangements between China and other jurisdictions. If the combined company
or any of its subsidiaries established outside China are considered a PRC resident enterprise, it is unclear whether holders of
its common 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 paid to its non-PRC investors, or gains from the transfer of its common shares by such investors,
are deemed as income derived from sources within the PRC and thus are subject to PRC tax, the value of your investment in its
common shares may decline significantly.
We
and our existing shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises
or other assets attributed to a Chinese establishment of a non-Chinese company, or immovable properties located in China owned
by non-Chinese companies.
In
October 2017, the State Administration of Taxation issued the Bulletin on Issues Concerning the Withholding of Non-PRC Resident
Enterprise Income Tax at Source, or Bulletin 37, which replaced the Notice on Strengthening Administration of Enterprise Income
Tax for Share Transfers by Non-PRC Resident Enterprises, or Circular 698, issued by the State Administration of Taxation, on December
10, 2009, and partially replaced and supplemented rules under the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers
of Assets by Non-PRC Resident Enterprises or Bulletin 7, issued by the State Administration of Taxation, on February 3, 2015.
Pursuant to Bulletin 7, an “indirect transfer” of PRC assets, including a transfer of equity interests in an unlisted
non-PRC holding company of a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a
direct transfer of the underlying PRC assets, if such arrangement does not have a reasonable commercial purpose and was established
for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be
subject to PRC enterprise income tax. According to Bulletin 7, “PRC taxable assets” include assets attributed to an
establishment in China, immovable properties located in China, and equity investments in PRC resident enterprises and any gains
from the transfer of such asset by a direct holder, who is a non-PRC resident enterprise, would be subject to PRC enterprise income
taxes. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, features
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. In the case
of an indirect offshore transfer of assets of a PRC establishment, the resulting gain is to be included with the enterprise income
tax filing of the PRC establishment or place of business being transferred, and may consequently be subject to PRC enterprise
income tax at a rate of 25%. Where the underlying transfer relates to immovable properties located in China or to equity investments
in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident enterprise, a
PRC enterprise income tax of 10% would apply, subject to available preferential tax treatment under applicable tax treaties or
similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation. Pursuant to
Bulletin 37, the withholding agent shall declare and pay the withheld tax to the competent tax authority in the place where such
withholding agent is located within 7 days from the date of occurrence of the withholding obligation, while the transferor is
required to declare and pay such tax to the competent tax authority within the statutory time limit according to Bulletin 7. Late
payment of applicable tax will subject the transferor to default interest. Both Bulletin 37 and Bulletin 7 do not apply to transactions
of sale of shares by investors through a public stock exchange where such shares were acquired from a transaction through a public
stock exchange.
There
is uncertainty as to the application of Bulletin 37 or previous rules under Bulletin 7. We face uncertainties as to the reporting
and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring,
sale of the shares in its offshore subsidiaries or investments. We may be subject to filing obligations or taxes if our company
is transferor in such transactions, and may be subject to withholding obligations if our company is transferee in such transactions,
under Bulletin 37 and Bulletin 7. For transfer of shares in our company by investors that are non-PRC resident enterprises, its
PRC subsidiary may be requested to assist in the filing under Bulletin 37 and Bulletin 7. As a result, we may be required to expend
valuable resources to comply with Bulletin 37 and Bulletin 7 or to request the relevant transferors from whom we purchase taxable
assets to comply with these circulars, or to establish that our company should not be taxed under these circulars, which may have
a material adverse effect on our financial condition and results of operations.
We
are subject to restrictions on currency exchange.
All
of our net income is denominated in Renminbi. The Renminbi is currently convertible under the “current account,” which
includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,”
which includes foreign direct investment and loans, including loans we may secure from our onshore subsidiaries or consolidated
VIE. Currently, certain of its PRC subsidiaries, may purchase foreign currency for settlement of “current account transactions,”
including payment of dividends to us, without the approval of the SAFE by complying with certain procedural requirements. However,
the relevant PRC governmental authorities may limit or eliminate its ability to purchase foreign currencies in the future for
current account transactions. Foreign exchange transactions under the capital account remain subject to limitations and require
approvals from, or registration with, the SAFE and other relevant PRC governmental authorities. Since a significant amount of
our future net income and cash flow will be denominated in Renminbi, any existing and future restrictions on currency exchange
may limit its ability to utilize cash generated in Renminbi to fund our business activities outside of the PRC or pay dividends
in foreign currencies to our shareholders, including holders of our common shares, and may limit its ability to obtain foreign
currency through debt or equity financing for our subsidiaries and consolidated VIEs.
Fluctuations
in exchange rates could result in foreign currency exchange losses and could materially reduce the value of your investment.
The
value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes
in political and economic conditions and the foreign exchange policy adopted by the PRC government. On July 21, 2005, the PRC
government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Following the removal of the U.S. dollar
peg, the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June
2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since
June 2010, the Renminbi has started to appreciate slowly against the U.S. dollar, though there have been periods when the U.S.
dollar has appreciated against the RMB. On August 11, 2015, the PBOC allowed the Renminbi to depreciate by approximately 2% against
the U.S. dollar. Since then and until the end of 2016, the Renminbi has depreciated against the U.S. dollar by approximately 10%.
It is difficult to predict how long such depreciation of RMB against the U.S. dollar may last and when and how the relationship
between the RMB and the U.S. dollar may change again.
All
of our revenue and substantially all of our costs are denominated in Renminbi. We are a holding company and rely on dividends
paid by our operating subsidiaries in China for our cash needs. Any significant revaluation of Renminbi may materially and adversely
affect our results of operations and financial position reported in Renminbi when translated into U.S. dollars, and the value
of, and any dividends payable on, the common shares in U.S. dollars. To the extent that we need to convert U.S. dollars into Renminbi
for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we
would receive. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends
on our common shares or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative
effect on the U.S. dollar amount.
Risks
relating to our Securities
We
may redeem the Warrants at a time that is not beneficial to Warrant holders.
We
may call the Warrants for redemption at any time after the redemption criteria described elsewhere in this prospectus have been
satisfied. If we call the Warrants for redemption, Warrant holders may be forced to accept a nominal redemption price or sell
or exercise the Warrants when they may not wish to do so.
There
is no guarantee that the Public Warrants will ever be in the money at a time that they are exercisable and they may expire worthless.
The
exercise price for our Public Warrants is $11.50 per share. There is no guarantee that the Public Warrants will ever be in the
money when they are exercisable, and as such, the Public Warrants may expire worthless.
Certain
security holders have registration rights, the future exercise of which may adversely affect the market price of the Class A common
shares.
We
have granted the former stockholders of NCF and our pre-IPO security holders the right to demand that we register their unregistered
Class A common shares and Warrants. We will bear the cost of registering these securities. The registration and availability of
such a significant number of securities for trading in the public market may have an adverse effect on the market price of the
Class A common shares.
A
market for our securities may not fully develop, which would adversely affect the liquidity and price of our securities.
An
active trading market for our securities may never fully develop or, if developed, it may not be sustained. In addition, the price
of the securities after the offering can vary due to general economic conditions and forecasts, our general business condition
and the release of our financial reports. Additionally, if our securities are not listed on, or become delisted from, Nasdaq for
any reason, and are quoted on the Over the Counter Bulletin Board, a FINRA-sponsored and operated inter-dealer automated quotation
system for equity securities not included in a securities exchange, the liquidity and price of our securities may be more limited
than if we were quoted or listed on Nasdaq or another national exchange. You may be unable to sell your securities unless a market
can be established or sustained.
Our
ability to request indemnification from the former NCF Stockholders for damages arising out of the merger is limited to those
claims where damages exceed $10,000,000 and is also limited to our Class A common shares placed in escrow.
To
provide a fund to secure the indemnification obligations of the former NCF Stockholders to us against losses that we may sustain
as a result of or in connection with any breach, inaccuracy or nonfulfillment or the alleged breach, inaccuracy or nonfulfillment
of any of the representations, warranties and covenants of NCF contained in the Merger Agreement or any certificate or other writing
delivered to us pursuant to the Merger Agreement, a portion of the Closing Payment Shares, in the aggregate of 15,000,000 Class
A common shares, were placed in escrow, valued at $10.00 per share, which will be returned for cancellation to the extent that
we have damages for which we are entitled to indemnification.
The
vast majority of our publicly trading Class A common shares were redeemed in connection with the Business Combination and our
Class A common shares have limited liquidity.
The
vast majority of our publicly trading Class A common shares were redeemed in connection with the Business Combination and our
Class A common shares have limited liquidity. As a result, there was significant volatility in our trading price immediately after
the closing of the Business Combination and our Nasdaq halted trading in our shares on March 27, 2019 due to such trading volatility.
In addition, on April 24, 2019, we received notification from the Nasdaq Hearings Panel (the “Panel”) that the Panel
determined to suspend trading in our securities effective at the open of business on Friday, April 26, 2019 and to formally delist
the securities on May 9, 2019 unless we appealed the decision, which we timely appealed. Although we intend to take all action
that we can to remain listed, we cannot assure you that we will be able to remain listed. In the event that we fail to remain
listed, our stock will experience reduced liquidity than if we were able to remain on Nasdaq.
Our
stockholders will only be able to exercise a Warrant if the issuance of Class A common shares upon such exercise has been registered
or qualified or is deemed exempt under the securities laws of the state of residence of the holder of the Warrants.
No
Warrants will be exercisable on a cash basis and we will not be obligated to issue registered Class A common shares unless the
Class A common shares issuable upon such exercise has been registered or qualified or deemed to be exempt under the securities
laws of the state of residence of the holder of the Warrants. Because the exemptions from qualification in certain states for
re-sales of Warrants and for issuances of Class A common shares by the issuer upon exercise of a Warrant may be different, a Warrant
may be held by a holder in a state where an exemption is not available for issuance of Class A common shares upon exercise of
the Warrants and the holder will be precluded from exercising the Warrant. As a result, the Warrants may be deprived of any value,
the market for the Warrants may be limited and the holders of Warrants may not be able to exercise their Warrants if the Common
Stock issuable upon such exercise is not qualified or exempt from qualification in the jurisdictions in which the holders of the
Warrants reside.
Because
we are incorporated under the laws of the Marshall Islands, you may face difficulty protecting your interests, and your ability
to protect your rights through the U.S. federal courts may be limited.
We
are a corporation incorporated under the laws of the Marshall Islands, and certain of our assets may in the future be located
outside the United States. In addition, all of our directors and officers, and their assets, are located outside of the United
States. As a result, you may have difficulty serving legal process within the United States upon us or any of these persons. You
may also have difficulty enforcing, both in and outside the United States, judgments you may obtain in U.S. courts against us
or these persons in any action, including actions based upon the civil liability provisions of U.S. federal or state securities
laws. You may also have difficulty bringing an original action in the appropriate court of the Marshall Islands to enforce liabilities
against us or any person based upon the U.S. federal securities laws.
Nasdaq
could delist our Class A common shares, which could limit investors’ ability to transact in our securities and subject us
to additional trading restrictions.
Our
securities are listed on the Nasdaq Capital Market, although they are currently suspended from trading. On July 23, 2018, we received
a written notice from the Listing Qualifications Department of Nasdaq indicating that we are not in compliance with Listing Rule
5550(a)(3), which requires us to have at least of 300 shareholders for continued listing on the exchange (the “Minimum Shareholders
Rule”). On September 13, 2018, we submitted to Nasdaq a plan to maintain our Nasdaq listing. Nasdaq accepted our plan and
granted us an extension of 180 calendar days from the date of the notice, or until January 22, 2019, to evidence compliance with
this rule. On January 24, 2019, we received a letter from Nasdaq stating that the Company had failed to demonstrate compliance
with the Minimum Shareholders Rule within the required time period and that, accordingly, the Nasdaq staff had initiated procedures
to delist our Class A common shares, units and warrants from Nasdaq. We subsequently appealed the delisting determination, and,
subsequent to a February 28, 2019 hearing and subject to certain conditions, we were granted until June 15, 2019 to meet the Minimum
Shareholders Rule. In addition, on March 27, 2019, Nasdaq suspended trading in our securities due to the significant volatility
in our common stock subsequent to the Business Combination.
Subsequently,
on April 24, 2019, we received notification from the Nasdaq Hearings Panel (the “Panel”) that the Panel determined
to suspend trading in our securities effective at the open of business on Friday, April 26, 2019 and to formally delist the securities
on May 9, 2019 unless we appealed the decision, which we timely appealed. Although we intend to take all action that we can to
remain listed, we cannot assure you that we will be able to remain listed. In the event that we fail to remain listed, our stock
will experience reduced liquidity than if we were able to remain on Nasdaq.
As
a result of Nasdaq’s suspension or delisting of our securities, we could face significant material adverse consequences,
including:
|
|
●
|
a limited availability
of market quotations for our securities;
|
|
|
●
|
reduced liquidity
for our securities;
|
|
|
●
|
a determination
that our Class A common shares are a “penny stock” which will require brokers trading in our Class A common shares
to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market
for our securities;
|
|
|
●
|
a limited amount
of news and analyst coverage; and
|
|
|
●
|
a decreased ability
to issue additional securities or obtain additional financing in the future.
|
If
our common shares become subject to the SEC’s penny stock rules, broker-dealers may experience difficulty in completing
customer transactions, and trading activity in our securities may be adversely affected.
If
at any time we have net tangible assets of $5,000,001 or less and our common shares have a market price per share of less than
$5.00, transactions in our common shares may be subject to the “penny stock” rules promulgated under the Exchange
Act. Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors
must:
|
|
●
|
make a special
written suitability determination for the purchaser;
|
|
|
●
|
receive the purchaser’s
written agreement to the transaction prior to sale;
|
|
|
●
|
provide the purchaser
with risk disclosure documents which identify certain risks associated with investing in “penny stocks” and which
describe the market for these “penny stocks” as well as a purchaser’s legal remedies; and
|
|
|
●
|
obtain a signed
and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure
document before a transaction in a “penny stock” can be completed.
|
If
our common shares become subject to these rules, broker-dealers may find it difficult to effectuate customer transactions and
trading activity in our securities may be adversely affected. As a result, the market price of our securities may be depressed,
and you may find it more difficult to sell our securities.
CAPITALIZATION
The
following table sets forth our unaudited capitalization as of March 31, 2019 on an actual basis. You should read this table in
conjunction with our financial statements and related notes and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” included elsewhere in this prospectus.
|
|
|
Actual
|
|
|
|
|
(unaudited)
|
|
|
Total liabilities
|
|
$
|
61,390,176
|
|
|
Shareholders’ Equity
|
|
|
|
|
|
Common Stock:
|
|
$
|
20,404
|
|
|
Shares in Employee Benefit Trust
|
|
|
(4,077,600
|
)
|
|
Statutory reserve
|
|
|
6,838,628
|
|
|
Additional paid-in capital
|
|
|
136,196,313
|
|
|
Retained Earnings
|
|
|
22,672,850
|
|
|
Accumulated other comprehensive income
|
|
|
3,233,333
|
|
|
Non-controlling interest
|
|
|
(287,004
|
)
|
|
Total shareholders’ equity
|
|
|
164,596,924
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
225,987,100
|
|
pER
SHARE MARKET INFORMATION
Our
Class A common shares, warrants and units were traded on NASDAQ under the symbols “HUNT,” “HUNTW” and
“HUNTU,” respectively. Each of our units consists of one Class A common share and one-half warrant,
each whole warrant entitling the holder thereof to purchase one Class A common share. Our units commenced trading on NASDAQ on
November 18, 2016. Our Class A common shares and warrants commenced trading separately from our units on January 9, 2017.
On
July 23, 2018, we received a written notice from the Listing Qualifications Department of Nasdaq indicating that we are not in
compliance with Listing Rule 5550(a)(3), which requires us to have at least of 300 shareholders for continued listing on the exchange
(the “Minimum Shareholders Rule”). On September 13, 2018, we submitted to Nasdaq a plan to maintain our Nasdaq listing.
Nasdaq accepted our plan and granted us an extension of 180 calendar days from the date of the notice, or until January 22, 2019,
to evidence compliance with this rule. On January 24, 2019, we received a letter from Nasdaq stating that the Company had failed
to demonstrate compliance with the Minimum Shareholders Rule within the required time period and that, accordingly, the Nasdaq
staff had initiated procedures to delist our Class A common shares, units and warrants from Nasdaq. We subsequently appealed the
delisting determination, and, subsequent to a February 28, 2019 hearing and subject to certain conditions, we were granted until
June 15, 2019 to meet the Minimum Shareholders Rule. In addition, on March 27, 2019, Nasdaq suspended trading in our securities
due to the significant volatility in our common stock subsequent to the business combination.
Subsequently,
on April 24, 2019, we received notification from the Nasdaq Hearings Panel (the “Panel”) that the Panel determined
to suspend trading in our securities effective at the open of business on Friday, April 26, 2019 and to formally delist the securities
on May 9, 2019 unless we appealed the decision, which we timely appealed. Although we intend to take all action that we can to
remain listed, we cannot assure you that we will be able to remain listed. In the event that we fail to remain listed, our stock
will experience reduced liquidity than if we were able to remain on Nasdaq.
As
a result of the suspension of trading from the Nasdaq Stock Market, our securities are now tradable on the over the counter market.
As
a result of Nasdaq’s suspension or delisting of our securities, we could face significant material adverse consequences,
including:
|
|
●
|
a limited availability
of market quotations for our securities;
|
|
|
●
|
reduced liquidity
for our securities;
|
|
|
●
|
a
determination that our Class A common shares are a “penny stock” which will require brokers trading in our
Class A common shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in
the secondary trading market for our securities;
|
|
|
●
|
a limited amount
of news and analyst coverage; and
|
|
|
●
|
a decreased ability
to issue additional securities or obtain additional financing in the future.
|
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
The
statements contained in this prospectus that are not purely historical are forward-looking statements. Our forward-looking statements
include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions or
strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of
future events or circumstances, including any underlying assumptions, are forward- looking statements. The words “anticipates,”
“believe,” “continue,” “could,” “estimate,” “expect,” “intends,”
“may,” “might,” “plan,” “possible,” “potential,” “predicts,”
“project,” “should,” “would” and similar expressions may identify forward-looking statements,
but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this prospectus
may include, for example, statements about:
The
forward-looking statements contained in this prospectus are based on our current expectations and beliefs concerning future developments
and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have
anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control)
or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by
these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under
the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions
prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake
no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise,
except as may be required under applicable securities laws and/or if and when management knows or has a reasonable basis on which
to conclude that previously disclosed projections are no longer reasonably attainable.
These
statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could
cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance
or achievements described in or implied by such statements. Actual results may differ materially from expected results described
in our forward-looking statements, including with respect to correct measurement and identification of factors affecting our business
or the extent of their likely impact, the accuracy and completeness of the publicly available information with respect to the
factors upon which our business strategy is based or the success of our business.
USE
OF PROCEEDS
We
will not receive any proceeds from sales of our common shares by the Selling Shareholder. However, we could receive up to $87,245,325
from the exercise of the warrants for up to 7,586,550 Class A common shares that are presently offered under this prospectus if
the warrants are exercised by the holders thereof. We intend to use any proceeds received from the exercise of these securities
for working capital and other general corporate purposes. We, however, cannot assure you that any of the securities will be exercised.
EXPENSES
RELATED TO THIS OFFERING
Set
forth below is an itemization of the approximate amount of expenses that we expect to incur in connection with this offering.
|
SEC registration fee
|
|
$
|
12,008.59
|
|
|
Legal fees and expenses
|
|
$
|
|
|
|
Accounting fees and expenses
|
|
$
|
|
|
|
Miscellaneous
|
|
$
|
|
|
|
Total
|
|
$
|
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
On
March 21, 2019, NCF merged with and into Hunter Maritime (BVI) Limited, a British Virgin Islands company and a wholly-owned subsidiary
of the registrant, Hunter Maritime Acquisition Corp. (“Hunter Maritime”), with NCF continuing as the surviving company
and becoming a wholly-owned subsidiary of Hunter Maritime. Upon closing of the Merger, Hunter Maritime issued an aggregate of
200,000,000 of its Class A common shares to the shareholders of NCF plus earn out payments consisting of up to an additional 50,000,000
Class A common shares if NCF (and its subsidiaries on a consolidated basis) meets certain financial performance targets for the
2019 and 2020 fiscal years.
The
merger is being accounted for, in accordance with GAAP, as a “reverse merger” and recapitalization at the date of
the consummation of the transaction since the former stockholders of NCF own at least 50.1% of the outstanding common stock of
Hunter Maritime immediately following the completion of the merger, NCF’s officers assumed all corporate and day-to-day
management offices of Hunter Maritime, including chief executive officer and chief financial officer, and board members appointed
by NCF constitute a majority of the board of the combined company after the Business Combination. Accordingly, NCF is deemed to
be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of NCF. Accordingly,
the consolidated assets, liabilities, and results of operations of NCF Wealth Group will become the historical financial statement.
Hunter Maritime’s assets, liabilities and results of operations are consolidated with the assets, liabilities and results
of operations of NCF.
We
are a leading fintech company in China, primarily focused on connecting investors and borrowers, providing multi-scenario investment
analysis to platform users to meet their diversified investment needs, and building an ecosystem in the field of internet finance.
We aim to provide simplified, convenient and flexible financing solutions to both small and medium enterprises (“SME”)
and individual borrowers. We facilitated over RMB 321 billion (approximately $47 billion based on the exchange rate of 0.145705
as of December 31, 2018) in transactions from our inception in July 2013 through December 2018. In 2018 and 2017, we facilitated
transactions over RMB 71 billion and RMB 95 billion, respectively (approximately $10 billion and $15 billion based on the average
exchange rate of 0.145237 and 0.148014 for 2018 and 2017). Many P2P platforms ceased their operations because of a series of defaults
in the middle of 2018, but the demand for financing remains strong. Although we had a decline in the annualized transaction volume
facilitated through our marketplace, our transaction volume began to increase at the end of 2018. The increase in the aggregate
transaction and service revenue was attributable to the increase of the average transaction/service fee rate. The average transaction
fee rate for P2P services increased by 28% from 4.3% in 2017 to 5.5% in 2018. The average service fee rate for non-P2P services
increased by 32% from 4.3% in 2017 to 5.7% in 2018.
Since
2013, we operate an online marketplace under the brand of ‘Wangxin Puhui’ through our consolidated VIE, Beijing Oriental
Union Investment Management Limited Liability Company (“Beijing Oriental”). This is an online Peer-to-peer, (“P2P”)
platform matching borrowers with investors and facilitating transactions. Wangxin Puhui offers qualified borrowers quick and convenient
access to affordable credit at competitive prices. To provide a transparent marketplace, the interest rates, transaction fees,
and other charges are all clearly disclosed to borrowers upfront. Its borrowers and investors mainly come from online sources,
such as the internet and its mobile applications or from referrals of assets cooperative institutions (entities that introduce
qualified borrowers) and funding cooperative institutions (entities that introduce investors and other funding sources).
Since
2016, we also operate an internet platform with a brand of ‘Wangxin’ which is positioned as an open platform for financial
technology, providing information publishing, information display, information exchange, and online user diversion services for
a variety of organizations including insurance sales, securities, fund sales. We also provide Premier Wealth Management (“PWM”)
services to investors and borrowers to facilitate the matching of investors with various registered Wealth Management Products.
Since
March 2017, we launched a new program to cooperate with financial exchanges and promote exchange administered product program
(“E-APP”). The E-APP includes (I) product registration services, (II) promotion services on best efforts basis and
(III) Data Processing Technical Services.
We offer a variety
of fintech products and services and are therefore subject to a wide range of laws and regulations. See “Regulation”
for more details. The Chinese government has recently adopted a series of regulations and policies that are expected to temporarily
restrain the business scale and growth of online lending information intermediaries, including (i) the Interim Measures, which
provide that local financial regulatory authorities may conduct onsite inspections or inquiries and instruct online lending information
intermediaries to rectify its business operations that are deemed non-compliant with the Guidelines or the Interim Measures, (ii)
the Inspection Notice and Compliance Checklist, which require online lending information intermediaries to complete a series of
compliance inspections, and (iii) the “three reductions”, which require online lending information intermediaries,
including us, to ensure that their loan balance, number of borrowers and number of lenders do not increase and will gradually
decrease during the compliance inspection period. As a result, the short-term business scale and growth of our P2P business has
been limited. However, as the P2P business only accounts for a relatively small portion of our overall business (contributing
8.8% of our total transaction and service fees in 2018), these new regulations and policies have not had, and are not expected
to have, any material adverse impact on our overall business. We plan to continue to broaden our product and service offerings
and revenue streams in order to diversify regulatory risks and minimize the impact of any single business may have on our overall
results of operations.
We provide our
investors with attractive investment solutions in terms of investment experience, minimum investment threshold and rate of return.
The minimum investment threshold of P2P product is RMB 100 (approximately $15 based on the exchange rate of 0.145705 as of December
31, 2018). The minimum investment threshold of E-APP investment is calculated by dividing the borrower’s loan amount by
200 which represents maximum investors allowed in a particular E-APP product. Depending on the tenure and type of products, the
annualized rate of return we provided our investors in 2018 ranged between 5% and 9.3%, which was equal to or higher than those
offered by most traditional financing channels such as banks. For example, the annualized rate of return offered by insurance
companies, banks and asset management companies and trust companies
are
generally around 3.5%-5.5%, 4%-5% and 8%-10%, respectively.
We
also operate a wealth management business. With macro and microanalysis of financial markets coupled with independent and objective
screening criteria, we provide high-quality investment products and other comprehensive asset management services to high net
worth clients, family businesses and institutional investors.
Currently,
we generate revenues primarily from the transaction and service fees, and commission fees charged for the above- mentioned services.
We also charges investor service fees for using our smart matching tool or investment reservation tool. As an information intermediary
for borrowers and investors, we act as an agent and do not have any legal obligations to the loans or securities facilities.
Key
Factors Affecting Results of Operations
We
believe the key factors affecting our financial condition and results of operations include the following:
Economic
Environment and Credit Demand in China
The
success of the online platform, to a large extent, depends on the overall credit demand in China especially that of personal consumption
loans and business loans for small and medium-sized enterprises, and the overall credit demand depends on the overall economic
situation in China. Any slowdown in China’s economic growth could cause a negative impact on borrowers’ demand for
loans, as the uncertainty of economics could affect the level of individuals’ disposable income and corporate profits thus
leading to a decline in the demand for loans for individuals and businesses. The economic downturn could also affect borrowers’
ability to repay negatively and lead to an increase in default rates. If the actual or expected default rate in Chinese online
loan market increases generally, investors may delay or reduce related investments in general loan products, including the willingness
to borrow on our platform.
The
regulatory environment in China
The
regulatory environment for the online lending information intermediary service industry in China is developing and evolving, creating
both challenges and opportunities that could affect our financial performance. Due to the relatively short history of the online
lending information intermediary service industry in China, although PRC government has issued certain guidelines, regulations,
and rules to regulate and support the development of, the online lending information intermediary service industry in China, the
PRC government has yet to establish a comprehensive regulatory framework governing the industry. We will continue to make efforts
to ensure that we are in compliance with the existing laws, regulations and governmental policies relating to our industry and
to comply with new laws and regulations or changes under existing laws and regulations that may arise in the future. While new
laws and regulations or changes to existing laws and regulations could make loans more difficult to be accepted by investors or
borrowers on terms favorable to us, or at all, these events could also provide new product and market opportunities.
The
Product mix and the Pricing
The
ability to maintain profitability, to a large extent, depends on the ability to continuously optimize product portfolios and provide
a wide range of products and services with accurate pricing through the platform. At present, the platforms mainly provide transaction
facilitation services, including P2P loan and Non-P2P financing, and wealth management.
Transaction
facilitation services are the main source of income at present, mainly including personal loans and loans to small and medium-sized
enterprises (SMEs).
Currently,
personal loans are mainly from P2P, and the majority of personal loans are consumer loans, with terms of 14 days to 36 months
and loan cost rates of 9%-30% (of which the platform charge rate is 2.36%-8.2%). SME borrowings are divided into premier wealth
management borrowings, E-APP, and P2P business loans. The terms of premier wealth management borrowings and E-APP are the same,
which range from15 days to 12 months with loan cost rates of 8.2% -21% (of which the platform charge rate is 3.5%-7.75%); the
terms of P2P business loans are 15 days to 24 months with loan cost rates of 6.5%-31% (of which the platform charge rate is 3%-8%).
E-APP is currently our major product and is expected to be one of our major products in the near future.
Loan
cost rate is comprised of (i) investor return, (ii) our platform charges, and (iii) fees charged by asset cooperative institutions.
We determine investor return rates primarily by taking into consideration the prevalent market rates of similar products, demand
and supply of the relevant loan products and tenure of the loan products. Fee rates charged by our asset cooperative institutions
are determined primarily by considering the cost of borrower acquisition (acquisition cost for personal loans are generally higher
than that of SME loans) and maintenance. Our platform charge rates are determined by considering the operational costs, and the
supply and demand of the relevant loan products. As such, a loan product with higher borrower acquisition cost, longer tenure,
lower investment interest and higher prevalent market prices generally have higher total cost of borrowing. We and our asset cooperative
institutions set our fee rates for different products taking into consideration of these factors, together with the industry’s
macroeconomic environment.
In
addition, we charge investors service fees for using our automated investing tool or self-directed investing tool.
Starting in 2018,
our platforms display products such as mutual funds, private funds, securities, and insurance, as well as providing financial
technology support to investors. We also have a wealth management team, Yinghua Wealth, a professional wealth management agency
covering major cities across the country with a comprehensive wealth management product portfolio providing professional wealth
structure analysis, asset allocation planning and financial product selection advice and other quality financial services. Yinghua
Wealth generates commissions from (i) the provision of information consulting services to fund managers of private funds, and
(ii) the sale of private funds, through its subsidiary which holds a fund sales license. These commission fees are calculated
based on a certain percentage of the funds invested by investors, and are charged in one lump sum upon the completion of fund
subscription (i.e. non-recurring). In 2016, 2017 and 2018, the average fee rate for information consulting services was 3.4%,
3.0% and 2.7%, respectively. In 2017 and 2018, the average commission fee rate for the sale of private funds was 0.8% and 1.2%,
respectively. We believe that such commission fee rates are consistent with industry practice and are not recurring in nature
.
Ability
to effectively acquire and maintain borrowers and investors
Our
ability to facilitate transactions, to a large extent, depends on the ability to attract potential borrowers and investors through
sales and marketing. We intend to continue to invest significant resources in sales and marketing and to improve our effectiveness,
particularly in terms of the maintenance of qualified borrowers and investors.
At
present, we rely on asset cooperative institutions and online channels to acquire borrowers. Asset cooperative institutions are
the companies who introduce us to qualified borrowers. They are financial advisory institutions operating in specific areas or
specific types of business.
Our
investors are mainly obtained through our sales and marketing initiatives (such as existing customer referrals and issuance of
vouchers to new customers) and funding cooperative institutions. Leveraging our brand name and large investor base, we believe
these sales and marketing initiatives are efficient and cost-effective in attracting investors. To a lesser extent, we obtain
investors through our online cooperative channels, including major search engines and five mainstream Android market channels
and APP promotions (application solution Application Treasure, OPPO, VIVO, Xiaomi, 360 Mobile Phone Assistant). We closely monitor
the cost-effectiveness of these supplemental channels, and as a result, we have been able to maintain our investor acquisition
cost at a relatively low level. Our average investor acquisition cost (which is calculated by dividing (i) the relevant sales
and marketing expenses incurred for investor acquisition during a specific period, which primarily include the costs of vouchers
we offer to new investors and referrers and channel fees paid to our abovementioned online cooperative channels, by (ii) the number
of new investors acquired during the period) was approximately US$29, US$20, US$24 and US$46 (RMB320) for 2016, 2017, 2018 and
the four months ended April 30, 2019, respectively, which is at a relatively low level in the industry. Based on our experience
and publicly available media publications (including articles from Yibencaijing, P2P Eye, Securities Daily and Beijing Business
Today) and research reports, the industry average is between US$44 and US$296.
Through
funding cooperative institutions, we provide high-net-worth investors with professional financial advisors. Traditional wealth
management institutions rely more on the offline personal relationship between the financial advisor and the investor, which leads
to low efficiency. In comparison, our teams are equipped with the systematic customer management tool, such as NCF Butler, a mobile
APP for wealth management, which our financial advisors use to maintain investor relationship, to identify investors’ need,
and to provide necessary financial services.
In
order to maintain investors, we use advanced systems such as the user’s lifecycle system and the precision marketing system
with the combination of artificial intelligence and big data, in addition to various online marketing activities.
Efficient
risk management
For
risk control on individual borrowers from transaction facilitation services, we have developed the Tianyuan Intellectual Risk
Control System or Tianyuan. Tianyuan is a four-dimensional risk control system managing credit risk, operational risk, compliance
risk, and information security risk. Relying on its exclusive technologies, we implement multi-step credit valuation and risk
control system to ensure the quality and authenticity of borrowers. For more information about our risk management system, please
see “Business-Our technologies and risk management system.”
For
risk control on corporate borrowers from transaction facilitation services, we have developed a risk control procedure combining
big data from big data systems and expert models to process risk control procedures, including data collection, loan limit monitoring,
approval, and post-loan management. Our risk control on corporate borrowers combines our own and third party’s big data
with the experience of the risk control experts to increase the efficiency and accuracy of risk control.
We
intend to continue optimizing our risk control systems and improving the accuracy of our risk assessment models through the combination
of our big-data analytical capabilities and the increasing amount of data we accumulate through our operations.
Critical
Accounting Policies, Judgments and Estimates
An
accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that
are highly uncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been
used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the combined
and consolidated financial statements.
The
preparation of combined and consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities including allowance for doubtful accounts, and disclosures
of contingent assets and liabilities as of the date of the combined and consolidated financial statements and the reported amounts
of revenues and expenses during the periods presented. Actual results could differ from these estimates. Significant accounting
estimates reflected in our combined and consolidated financial statements include: our ability to realize deferred tax assets,
determinations of the useful lives of long-lived assets, estimates of allowance for doubtful accounts and valuation assumptions
in share-based compensation.
The
following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our combined
and consolidated financial statements and other disclosures included in this report. When reviewing our financial statements,
you should consider (i) our selection of critical accounting policies, (ii) the judgments and other uncertainties affecting the
application of such policies and (iii) the sensitivity of reported results to changes in conditions and assumptions.
|
(a)
|
Principal
of consolidation
|
The
combined and consolidated financial statements include the financial statements of the Group, its wholly-owned subsidiaries, and
consolidated VIEs. All significant intercompany transactions and balances have been eliminated upon consolidation.
We
have an employee benefit trust to facilitate share transactions pursuant to certain equity incentive plans. The trust is a separate
legal entity under our control, for which we are the primary beneficiary using variable interest entities model criteria under
Accounting Standards Codification (“ASC”) 810,
Consolidations
. Consequently, we have consolidated and classified
the trust shares within our combined and consolidated balance sheets.
Variable
Interest Entities (“VIE”) arrangements
To
be in compliance with PRC regulations for information intermediary companies, we entered into VIE arrangements with the following
entities:
|
|
(i)
|
On September
28, 2014 (“Effective Date”), NCF Financial and Beijing Oriental signed the VIE agreements. Beijing Oriental is
the principal operating entity of the P2P business of the Group. The VIE agreements enable NCF Financial to (1) have the power
to direct the activities that most significantly affect the economic performance of Beijing Oriental , and (2) receive the
economic benefits and of Beijing Oriental that could be significant to Beijing Oriental. Accordingly, NCF Financial is considered
the primary beneficiary of Beijing Oriental and has consolidated Beijing Oriental’s assets, liabilities, results of
operations, and cash flows in the accompanying combined and consolidated financial statements.
|
|
|
(ii)
|
On
January 22, 2018 (“Effective Date”), Cloud Services, a wholly owned subsidiary of the Group, entered into
a series of VIE agreements with Jing Xun Shi Dai’s shareholders, Mr. Zhang Zhenxin and Ms. Li Huanxiang, who acquired
Jing Xun Shi Dai from Bejing Oriental on January 4, 2018.
The
VIE agreements enable Cloud Services to (1) have the power to direct the activities that most significantly affect the
economic performance of Jing Xun Shi Dai, and (2) receive the economic benefits of Jing Xun Shi Dai that could be significant
to Jing Xun Shi Dai. Accordingly, Cloud Services is considered the primary beneficiary of Jing Xun Shi Dai and has consolidated
Jing Xun Shi Dai’s assets, liabilities, results of operations, and cash flows in the accompanying audited combined
and consolidated financial statements.
|
We
engage primarily in operating an online consumer finance marketplace and match borrowers with investors. The transaction fees
are not earned until a borrower and investor are matched and enter into a transaction. We earn revenue through transaction and
service fees, commission fees, and various other types of revenue.
As
an information intermediary in the introduction between borrowers and investors, we act as an agent and do not have any legal
obligations to the loans or securities facilities. Therefore, we do not record loans receivable and payable arising from the loans
between lending investors and borrowers on our combined and consolidated balance sheets.
Revenue
is recognized when each of the following criteria is met under ASC Topic 605:
|
|
1)
|
Persuasive evidence
of an arrangement exists;
|
|
|
2)
|
Services have been rendered;
|
|
|
3)
|
Pricing is fixed or determinable; and,
|
|
|
4)
|
Collectability is reasonably assured.
|
Transaction
and service fees
Transaction
and service fees include the following products:
|
|
●
|
Online P2P loan
facilitation services: matching services to connect borrowers with investors and setting up automated repayment schedule upon
loan origination. The Group charges borrowers a transaction fee for the service;
|
|
|
●
|
Premier wealth
management services (“PWM”): services provided to borrowers to facilitate the matching of investors with various
registered wealth management products. The Group charges borrowers a transaction fee for the PWM services.
|
|
|
●
|
Exchange administered
product program (E-APP) – product registration services include advising registration holders (usually borrowers) on
the selection of local financial assets trading service platforms, review registration application documentation and assists
with due diligence conducted by the local financial assets trading service platform. We charge registration holders for registration
services to connect borrowers with investors.
|
Transaction
fees are usually non-refundable and recognized upon loan origination or upon funding received by registration holders for E-APP
or when the price is considered fixed. At this point, we have completed all performance obligations to the borrowers and collectability
is reasonably assured.
Incentives
to investors
We
occasionally provide incentives to potential investors at our sole discretion. The voucher incentives are offered to all investors
who invest through the Wangxin Puhui platform and Wangxin platform.
We
provide the following types of incentive:
|
Cash
incentive types
|
|
Description
|
|
Awarded
to
|
|
Benefit
|
|
|
|
|
|
|
|
|
|
Event
reward/sign up voucher
|
|
Earned upon sign-up
for platform events and applied upon investment
|
|
Potential investor
|
|
One-time
fee deduction
|
|
Investment
reward voucher
|
|
Earned upon making
an investment and applied in the next investment
|
|
Investor
|
|
One-time
fee deduction or Additional interest
|
When
an investor makes an investment through us, the investor can redeem the vouchers, either upfront as a one-time contribution to
the investment amount or on a monthly basis over the term of the investment as additional interest. If the investor chooses to
redeem the voucher upfront, their investment is reduced by the voucher value, and the investor still entitled to full repayment
of the stated principal value.
We
consider both investors and borrowers as customers. The event reward and sign up voucher can be applied to the initial investment
only. The cost of the awarded vouchers is treated as a direct reduction of revenue upon initial investment by the investor in
accordance with ASC 605-50-25-7.
The
investment reward voucher can be applied after the initial investment. We consider the investment reward voucher as an obligation
to investors for future investment. As the amount of the investment reward is relatively insignificant as compared to the financial
statements taken as a whole, we do not record a deferred revenue.
Commission
fee
Yinghua
Wealth, one of our subsidiaries, engages in the businesses of introducing potential investors to purchase contractual funds from
other financial institutions. The commission fee is calculated based on a certain percentage of the funds invested by investors
that are recommended by Yinghua Wealth and is recognized as revenue when the funds are fully subscribed.
We
provided E-APP product promotion services to promote financial products registered at local financial assets exchange trading
service platform. The commission fee is calculated based on a certain percentage of the funds invested by investors and we recognize
revenue when registration holders of the financial instruments received funding.
Other
revenues
Other
revenues mainly include advisory income and technology service fees, such as E-APP data processing technology services, etc.
Advisory
income is charged to a borrower for assistance with the credit assessment before the borrower qualifies for their financing. We
earn a fee based on the percentage between 0.5%-1% of the loan.
E-APP
data processing technology services include data transmission and storage to E-APP borrowers to facilitate the preparation of
registration application.
Other
revenues are recognized upon loan origination or upon funding received by registration holders for E-APP.
|
(c)
|
Foreign currency and foreign currency
translation
|
Our
reporting currency is the US dollar. The functional currency of the BVI and HK entities is the Hong Kong dollar (“HK$”).
The functional currency of our PRC subsidiaries, VIEs and the subsidiaries of the VIEs is RMB based on the criteria of ASC 830,
Foreign Currency Matters.
The
combined and consolidated financial statements are translated to U.S. dollars using the period-end rates of exchange for assets
and liabilities, equity is translated at historical exchange rates, and average rates of exchange (for the period) are used for
revenues and expenses and cash flows. As a result, amounts relating to assets and liabilities reported on the statements of cash
flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments
resulting from the process of translating the functional currency financial statements into U.S. dollars are included in determining
comprehensive income / loss. Transactions denominated in foreign currencies are translated into the functional currency at the
exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into
the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains and losses that
arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included
in the results of operations as incurred.
Short-term
investments
Short-term
investments consist of certificates of deposit and available for sale debt securities with original maturities of greater than 90
days and not more than one year.
We
intend to hold the certificates of deposit until maturity. Investment in certificates of deposit are valued at amortized cost,
which approximates fair value.
The
Group classifies the debt securities as available for sale in accordance with FASB ASC Topic 320 “
Investments —
Debt and Equity Securities
.” The debt securities not classified as held to maturity or trading shall be classified as
available for sale and are reported at fair value. Unrealized gains and losses on available for sale securities are excluded from
earnings and reported as accumulated other comprehensive income or loss (a separate component of equity), net of related income
taxes. Realized gains or losses are included in earnings during the period in which the gain or loss is realized. The unrealized
gain for the available-for-sale financial assets as of December 31, 2017 is immaterial as compared to the combined and consolidated
financial statements taken as a whole.
As
of December 31, 2017, the Group only holds debt securities which are the loan products listed on the online marketplace platform.
The average term of most of loan products the Group purchased were 21 days. As a result, the Group classified such investments
as available-for-sale and carry them at fair value. As of December 31, 2018, the Group redeemed all of the available-for-sale
financial assets and the short term investment only consists held-to-maturity financial assets.
We
review our held to maturity and available-for-sale financial assets for other-than-temporary impairment (“OTTI”) based
on the specific identification method. The Group considers available quantitative and qualitative evidence in evaluating potential
impairment of its investments. If the cost of an investment exceeds the investment’s fair value, the Group considers, among
other factors, general market conditions, expected future performance of the investees, the duration and the extent to which the
fair value of the investment is less than the cost, and the Group’s intent and ability to hold the investment.
Share-based
compensation
We
apply ASC 718,
Compensation-Stock Compensation
(“ASC 718”), to account for our employee share-based payments.
In accordance with ASC 718, we determine whether an award should be classified and accounted for as a liability award or an equity
award. All of our share-based awards to employees were classified as equity awards. The awards granted are only subject to a service
condition and contain graded vesting features. We measure the employee share-based compensation based on the grant date fair value
of the equity instrument issued and recognized as compensation expense net of an estimated forfeiture rate using graded vesting
method, over the requisite service period, with a corresponding amount reflected in additional paid-in capital. The amount of
accumulated compensation costs recognized at any date is at least equal to the portion of the grant date fair value of the vested
awards on that date.
The
estimated forfeiture rate will be adjusted over the requisite service period to the extent that actual forfeiture rate differs,
or is expected to differ, from such estimates. Changes in the estimated forfeiture rate are recognized through a cumulative catch-up
adjustment in the period of change.
Share-based
awards granted to non-employees are accounted for in accordance with ASC 505-50
Equity-Based Payments to Non-Employee
.
All transactions in which services are received in exchange for share-based awards are accounted for based on the fair value of
the consideration received or the fair value of the awards issued, whichever is more reliably measurable. Share-based compensation
is measured at fair value at the earlier of the commitment date or the date the services are completed. We remeasured the awards
using the then-current fair value at each reporting date until the measurement date, generally when the services are completed,
and awards are vested and attribute the changes in those fair values over the service period by the straight-line method.
Deferred
income tax
We
account for income taxes using the asset/liability method prescribed by ASC 740, “
Accounting for Income Taxes
.”
Deferred income taxes are recognized with net operating loss carryforwards and credits are applied using enacted statutory tax
rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,
it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized.
An
uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would
be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount
of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more
likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax
are classified as income tax expense in the period incurred. PRC tax returns filed in 2017, 2016, and 2015 are subject to examination
by any applicable tax authorities. We had no uncertain tax position for the years ended December 31, 2018, 2017 and 2016.
Deferred
income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current
tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority
on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Key
Operational Metrics
We
regularly review a number of metrics to evaluate our business, measure our performance, identify trends, formulate financial projections
and make strategic decisions. The main metrics we consider are set forth in the following tables:
|
|
|
For the Years Ended December
31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction volume facilitated (1)
|
|
|
|
|
|
|
|
|
|
|
P2P
|
|
|
|
|
|
|
|
|
|
|
P2P - individual
|
|
$
|
506,271,476
|
|
|
$
|
2,174,485,366
|
|
|
$
|
2,665,829,684
|
|
|
P2P - business
|
|
|
544,035,660
|
|
|
|
25,782,134
|
|
|
|
5,889,302,383
|
|
|
Non-P2P
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange administered product program – business
|
|
|
7,728,254,236
|
|
|
|
40,440,154
|
|
|
|
-
|
|
|
Premier Wealth Management - business
|
|
|
1,558,943,901
|
|
|
|
12,392,274,787
|
|
|
|
2,467,937,133
|
|
|
Total
|
|
$
|
10,337,505,273
|
|
|
$
|
14,632,982,441
|
|
|
$
|
11,023,069,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annualized transaction volume facilitated (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P2P
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P2P - individual
|
|
$
|
383,970,929
|
|
|
$
|
937,642,641
|
|
|
$
|
1,135,493,732
|
|
|
P2P - business
|
|
|
172,426,261
|
|
|
|
19,248,104
|
|
|
|
1,651,197,687
|
|
|
Non-P2P
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange administered product program - business
|
|
|
4,728,226,047
|
|
|
|
22,063,853
|
|
|
|
-
|
|
|
Premier Wealth Management - business
|
|
|
894,059,540
|
|
|
|
5,905,582,907
|
|
|
|
911,034,537
|
|
|
Total
|
|
$
|
6,178,682,777
|
|
|
$
|
6,884,537,505
|
|
|
$
|
3,697,725,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of transactions facilitated (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P2P
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P2P - individual
|
|
|
183,316
|
|
|
|
5,152,068
|
|
|
|
83,897
|
|
|
P2P - business
|
|
|
3,769
|
|
|
|
186
|
|
|
|
28,420
|
|
|
Non-P2P
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange administered product program - business
|
|
|
7,696
|
|
|
|
17
|
|
|
|
-
|
|
|
Premier Wealth Management - business
|
|
|
469
|
|
|
|
34,045
|
|
|
|
11,195
|
|
|
Total
|
|
|
195,250
|
|
|
|
5,186,316
|
|
|
|
123,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of borrowers (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P2P
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P2P - individual
|
|
|
154,157
|
|
|
|
1,793,058
|
|
|
|
64,949
|
|
|
P2P - business
|
|
|
2,476
|
|
|
|
171
|
|
|
|
228
|
|
|
Non-P2P
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange administered product program - business
|
|
|
504
|
|
|
|
7
|
|
|
|
-
|
|
|
Premier Wealth Management - business
|
|
|
196
|
|
|
|
624
|
|
|
|
222
|
|
|
Total
|
|
|
157,333
|
|
|
|
1,793,860
|
|
|
|
65,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of investors (5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual
|
|
|
448,308
|
|
|
|
900,618
|
|
|
|
1,495,403
|
|
|
Business
|
|
|
72
|
|
|
|
152
|
|
|
|
57
|
|
|
Total
|
|
|
448,380
|
|
|
|
900,770
|
|
|
|
1,495,460
|
|
|
Average
fee rate
(6)(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P2P
|
|
|
|
|
|
|
|
|
|
|
P2P - individual
|
|
|
3.1
|
%
|
|
|
5.9
|
%
|
|
|
3.7
|
%
|
|
P2P - business
|
|
|
7.3
|
%
|
|
|
4.0
|
%
|
|
|
3.6
|
%
|
|
Non-P2P
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange administered product program - business
|
|
|
6.5
|
%
|
|
|
4.8
|
%
|
|
|
-
|
|
|
Premier Wealth Management - business
|
|
|
4.9
|
%
|
|
|
4.5
|
%
|
|
|
3.7
|
%
|
|
Average
borrower amount
(8)
(in $1,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P2P
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P2P - individual
|
|
|
3
|
|
|
|
1
|
|
|
|
41
|
|
|
P2P - business
|
|
|
220
|
|
|
|
151
|
|
|
|
25,830
|
|
|
Non-P2P
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange administered product program - business
|
|
|
15,334
|
|
|
|
5,777
|
|
|
|
-
|
|
|
Premier Wealth Management - business
|
|
|
7,954
|
|
|
|
19,859
|
|
|
|
11,117
|
|
|
Compensation
rate
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P2P
|
|
|
1.04
|
%
|
|
|
0.34
|
%
|
|
|
0.03
|
%
|
|
Average Investor Amount
(in $1,000)
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual
|
|
|
23
|
|
|
|
15
|
|
|
|
7
|
|
|
Business
|
|
|
1,401
|
|
|
|
5,089
|
|
|
|
6,152
|
|
|
|
(1)
|
Transaction volume
refers to the total principal amount of transactions facilitated on our marketplace during the relevant period.
|
|
|
|
|
|
|
(2)
|
Annualized transaction
volume refers to the total principal amount of loans facilitated on our marketplace during the relevant period multiply by the
ratio of the number of months of data available divided by 12 months. Our management uses annualized transaction volume, as opposed
to transaction volume, as one of the key metrics in evaluating our business and results of operations, as we believe that such
metric is more directly correlated with our revenue and better reflects our overall operating performance. Our revenue from transaction
and service fees equals to the annualized transaction volume multiplied by the transaction and service fee rate.
|
|
|
|
|
|
|
(3)
|
Number of transactions
facilitated refers to the total number of loans facilitated on our marketplace during the relevant period.
|
|
|
|
|
|
|
(4)
|
Number of borrowers
refers to the number of borrowers who recorded successful borrowing activity on our marketplace during the relevant period.
|
|
|
(5)
|
Number of investors
refers to the number of investors who recorded successful investment activity on our marketplace during the relevant period.
|
|
|
|
|
|
|
(6)
|
The average fee
rate is a VAT-inclusive charge rate and has not netted-off sales incentives.
|
|
|
(7)
|
Average fee rate =
∑
(
transaction volume of each loan
×
fee rate of
each loan) /
∑ (
transaction volume of each
loan).
|
|
|
|
|
|
|
(8)
|
Average
borrower amount is calculated by dividing (i) the aggregate amount of loan principal
extended to borrowers during a particular year (as the tenure of our products is generally
less than 12 months, a borrower may borrower a second or third time on our platform during
the same year after repayment of the previous loan) by the number of borrower during
that year.
|
|
|
|
|
|
|
(9)
|
The
compensation rate equals the total amount of compensation made by the guarantors divided
by the total loan amount * 100%.
|
|
|
|
|
|
|
(10)
|
Average investor
amount = transaction volume / numbers of investors.
|
The
majority of the loans facilitated on our marketplace have terms of less than 1 year. Therefore, the annualized total principal
amount of loans facilitated is smaller than the actual facilitated amount during the relevant period. Management uses annualized
data as the basis to evaluate operating performance.
Currently,
we generate revenues primarily from the transaction and service fees, which includes the following products:
|
|
●
|
Online P2P loan
facilitation services: matching services to connect borrowers with investors and setting up automated repayment schedule upon
loan origination. The Group charges borrowers a transaction fee for the service;
|
|
|
●
|
Premier wealth
management services (“PWM”): services provided to borrowers to facilitate the matching of investors with various
registered wealth management products. The Group charges borrowers a transaction fee for the PWM services.
|
|
|
●
|
Exchange administered
product program (E-APP) – product registration services include advising registration holders (usually borrowers) on
the selection of local financial assets trading service platforms, review registration application documentation and assists
with due diligence conducted by the local financial assets trading service platform. We charge registration holders for services to
connect borrowers with investors.
|
In
the middle of 2018, a wave of defaults was sweeping across China’s peer-to-peer lending industry and caused a decline in
the P2P-individual transaction volume and annualized transaction volume annualized transaction volume, and caused some of our
competitors to cease operations. Transaction volume and annualized transaction volume for PWM also decreased from 2017 to 2018
due to the shift of our business focus to E-APP. The decrease in total transaction volume and annualized transaction volume was
partially offset by an increase in transaction volume and annualized transaction volume of E-APP. Our transaction volume and annualized
transaction volume began to improve in late 2018. Our total transaction volume in 2018 was $10.3 billion, representing a 29% decrease
from 2017; and our total annualized transaction volume was $6.2 billion, representing a 10% decrease from 2017. The decrease in
total transaction volume from 2017 to 2018 was faster than the decrease in total annualized transaction volume, which was mainly
due to an increase in the average tenure of our products from 169 days in 2017 to 215 days in 2018, as we proactively reduced
offering products with shorter terms and offered more products with longer terms. As the term of our products became longer, we
experienced a corresponding decrease in the number of transactions from 2017 to 2018. In addition, we optimized our product mix
and offered more P2P products with larger transaction sizes in 2018. As a result, the average transaction size for P2P increased
from $427 in 2017 to $5,614 in 2018.
We
acquire borrowers through various online channels as well as referrals from asset cooperative institutions. Asset cooperative
institutions are the companies who introduce us to qualified borrowers. The total number of borrowers who successfully completed
borrowings on our marketplace during the year ended December 31, 2018 was 157,333, as compared to 1,793,860 and 65,399 during
the year ended December 31, 2017, and 2016, respectively. Currently, we focus more on attracting business borrowers, and approximately
94% of our annualized transaction volume for the year ended December 31, 2018 was contributed by our business borrowers.
We
utilize online channels and funding cooperative institutions to obtain investors. Funding cooperative institutions are companies
who introduce investors. While the number of new investors has been decreasing over the years presented, the average investment
amount of new investors has been increasing steadily throughout the same period. This is the result of our efforts to focus on
acquiring creditworthy investors who are able and willing to invest more on our platform. Currently, we focus more on attracting
individual investors, and 97% of our investment amount for the year ended December 31, 2018 was contributed by individual investors.
Many
P2P platforms ceased their operations because of a series of defaults in the middle of 2018, but the demand for financing remains
strong. Although we had a decline in the annualized transaction volume facilitated through our marketplace, our transaction volume
began to increase at the end of 2018. We will attract more business and individual borrowers through the development of innovative
financial technology or through the acquisition of other P2P related business. We expect the annualized transaction volume to
steadily grow in 2019.
With
the strengthening of industry supervision by Chinese government, investors are more inclined to make investment through companies
that regulatory compliance and financially strong. We expect the number of investors to increase, especially for high-net-worth
customers.
Results
of Operations for the Years Ended December 31, 2018, 2017, and 2016
The
following table sets forth a summary of our combined and consolidated results of operations for the years indicated, both in amount
and as a percentage of our net revenues. This information should be read together with our combined and consolidated financial
statements and related notes included elsewhere in this prospectus.
|
|
|
For the Years Ended December
31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction and service fee
|
|
$
|
234,972,184
|
|
|
|
89
|
%
|
|
$
|
208,166,308
|
|
|
|
94
|
%
|
|
$
|
99,056,931
|
|
|
|
87
|
%
|
|
Transaction and service fee - related parties
|
|
|
6,273,413
|
|
|
|
2
|
%
|
|
|
87,660
|
|
|
|
0
|
%
|
|
|
1,176,104
|
|
|
|
1
|
%
|
|
Commission fee
|
|
|
8,751,657
|
|
|
|
3
|
%
|
|
|
4,334,526
|
|
|
|
2
|
%
|
|
|
10,080,180
|
|
|
|
9
|
%
|
|
Commission fee - related parties
|
|
|
1,626,942
|
|
|
|
1
|
%
|
|
|
3,628,848
|
|
|
|
2
|
%
|
|
|
1,197,575
|
|
|
|
1
|
%
|
|
Other revenue
|
|
|
13,787,535
|
|
|
|
5
|
%
|
|
|
5,541,601
|
|
|
|
2
|
%
|
|
|
2,755,364
|
|
|
|
2
|
%
|
|
Other revenue - related parties
|
|
|
7,039
|
|
|
|
0
|
%
|
|
|
149,701
|
|
|
|
0
|
%
|
|
|
33,935
|
|
|
|
0
|
%
|
|
Total net revenue
|
|
|
265,418,770
|
|
|
|
100
|
%
|
|
|
221,908,644
|
|
|
|
100
|
%
|
|
|
114,300,089
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cost and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
156,329,090
|
|
|
|
59
|
%
|
|
|
150,411,453
|
|
|
|
68
|
%
|
|
|
103,619,248
|
|
|
|
91
|
%
|
|
Product development expenses
|
|
|
17,198,056
|
|
|
|
6
|
%
|
|
|
15,323,516
|
|
|
|
7
|
%
|
|
|
13,656,817
|
|
|
|
12
|
%
|
|
Loan facilitation and servicing expenses
|
|
|
3,919,555
|
|
|
|
1
|
%
|
|
|
3,334,719
|
|
|
|
2
|
%
|
|
|
2,973,370
|
|
|
|
3
|
%
|
|
General and administrative
expenses
|
|
|
15,433,707
|
|
|
|
6
|
%
|
|
|
11,981,156
|
|
|
|
5
|
%
|
|
|
9,274,374
|
|
|
|
8
|
%
|
|
Total operating
cost and expenses
|
|
|
192,880,408
|
|
|
|
73
|
%
|
|
|
181,050,844
|
|
|
|
82
|
%
|
|
|
129,523,809
|
|
|
|
113
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
72,538,362
|
|
|
|
27
|
%
|
|
|
40,857,800
|
|
|
|
18
|
%
|
|
|
(15,223,720
|
)
|
|
|
-13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income – related parties
|
|
|
7,176,876
|
|
|
|
3
|
%
|
|
|
4,773,013
|
|
|
|
2
|
%
|
|
|
1,802,979
|
|
|
|
2
|
%
|
|
Interest expense – related parties
|
|
|
-
|
|
|
|
0
|
%
|
|
|
-
|
|
|
|
0
|
%
|
|
|
(282,276
|
)
|
|
|
0
|
%
|
|
Interest income (expense)
|
|
|
(36,829
|
)
|
|
|
0
|
%
|
|
|
(157,640
|
)
|
|
|
0
|
%
|
|
|
126,616
|
|
|
|
0
|
%
|
|
Foreign currency transaction (loss) gain
|
|
|
(1,171,933
|
)
|
|
|
0
|
%
|
|
|
2,246,572
|
|
|
|
1
|
%
|
|
|
(2,324,618
|
)
|
|
|
-2
|
%
|
|
Loss in equity method investment
|
|
|
(199,908
|
)
|
|
|
0
|
%
|
|
|
(22,777
|
)
|
|
|
0
|
%
|
|
|
(110,494
|
)
|
|
|
0
|
%
|
|
Gain on sale of equity method investment
|
|
|
-
|
|
|
|
0
|
%
|
|
|
-
|
|
|
|
0
|
%
|
|
|
110,494
|
|
|
|
0
|
%
|
|
Gain on sale of equity interest in a subsidiary
|
|
|
94,104
|
|
|
|
0
|
%
|
|
|
-
|
|
|
|
0
|
%
|
|
|
-
|
|
|
|
0
|
%
|
|
Income from short-term investment
|
|
|
506,590
|
|
|
|
0
|
%
|
|
|
494,252
|
|
|
|
0
|
%
|
|
|
-
|
|
|
|
0
|
%
|
|
Other miscellaneous income
(expense)
|
|
|
361,743
|
|
|
|
0
|
%
|
|
|
1,473
|
|
|
|
0
|
%
|
|
|
(159,090
|
)
|
|
|
0
|
%
|
|
Total other
income (expenses)
|
|
|
6,730,643
|
|
|
|
3
|
%
|
|
|
7,334,893
|
|
|
|
3
|
%
|
|
|
(836,389
|
)
|
|
|
-1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
|
79,269,005
|
|
|
|
30
|
%
|
|
|
48,192,693
|
|
|
|
22
|
%
|
|
|
(16,060,109
|
)
|
|
|
-14
|
%
|
|
Income tax (expense) benefit
|
|
|
(19,260,548
|
)
|
|
|
-7
|
%
|
|
|
(12,348,395
|
)
|
|
|
-6
|
%
|
|
|
2,806,686
|
|
|
|
2
|
%
|
|
Net income
(loss)
|
|
$
|
60,008,457
|
|
|
|
23
|
%
|
|
$
|
35,844,298
|
|
|
|
16
|
%
|
|
$
|
(13,253,423
|
)
|
|
|
-12
|
%
|
Year
Ended December 31, 2018, Compared to Year Ended December 31, 2017
Operating
Revenues
The
following table sets forth the breakdown of our operating revenues for the years indicated:
|
|
|
For the Years Ended December
31
|
|
|
|
|
2018
|
|
|
2017
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction and service fee
|
|
$
|
234,972,184
|
|
|
$
|
208,166,308
|
|
|
$
|
26,805,876
|
|
|
|
13
|
%
|
|
Transaction and service fee - related parties
|
|
|
6,273,413
|
|
|
|
87,660
|
|
|
|
6,185,753
|
|
|
|
7057
|
%
|
|
Commission fee
|
|
|
8,751,657
|
|
|
|
4,334,526
|
|
|
|
4,417,131
|
|
|
|
102
|
%
|
|
Commission fee - related parties
|
|
|
1,626,942
|
|
|
|
3,628,848
|
|
|
|
(2,001,906
|
)
|
|
|
-55
|
%
|
|
Other revenue
|
|
|
13,787,535
|
|
|
|
5,541,601
|
|
|
|
8,245,934
|
|
|
|
149
|
%
|
|
Other revenue - related parties
|
|
|
7,039
|
|
|
|
149,701
|
|
|
|
(142,662
|
)
|
|
|
-95
|
%
|
|
Total net revenue
|
|
$
|
265,418,770
|
|
|
$
|
221,908,644
|
|
|
$
|
43,510,126
|
|
|
|
20
|
%
|
The
total net revenue for the year ended December 31, 2018, was $265.4 million, an increase of $43.5 million, or 20%, from $221.9
million for the year ended December 31, 2017. The increase was mainly caused by a significant increase of $33.0 million in transaction
and service fee, generated from our non-P2P services. The PWM services have been slowing down during 2018 as we switched our focus
on E-APP since early 2018, and we expect E-APP to continue to be our major product in 2019.
Transaction
and service fee
The
increase in the aggregate transaction and service fee was attributable to an increase in the average transaction fee rate. In
light of the volatile environment and increasing funding costs, we increased our transaction and service fee rates for borrowers
for both P2P and non-P2P businesses. The average transaction fee rate for P2P services increased by 28% from 4.3% in 2017 to 5.5%
in 2018. The average transaction fee rate for non-P2P services increased by 32% from 4.3% in 2017 to 5.7% in 2018. We expect the
transaction fee rate for 2019 to remain stable when compared with 2018. As a result, revenue from transaction and service fee
in 2018 increased from 2017 despite the decrease in annualized transaction volume. Our total annualized transaction volume was
$6.2 billion, representing a 10% decrease from 2017.
Many
P2P platforms ceased their operations because of a series of defaults in the middle of 2018, but the demand for financing remains
strong. Although we had a decline in the annualized transaction volume facilitated through our marketplace, our transaction volume
began to increase at the end of 2018. We plan to attract more business and individual borrowers through the development of innovative
financial technology or through the acquisition of other P2P related business. We expect the annualized transaction volume for
our non-P2P business to steadily grow, and the annualized transaction for our P2P business to remain relatively stable, in 2019.
Commission
fee
Apart
from our primary business of loan facilitation, we also engage in the business of introducing potential investors to purchase
contractual funds from other financial institutions and earn commission fees. Commission fee increased by $2.4 million, or 30%,
from $8.0 million for the year ended December 31, 2017, to $10.4 million for the year ended December 31, 2018. The increase was
primarily caused by the new E-APP product promotion services in 2018. The commission fee generated by E-APP promotion services
during 2018 was $3.2 million which is 31% of the commission fee.
Other
revenue
Other
revenue includes mainly advisory income and fees from E-APP-data processing technical services. Advisory income increased by $4.3
million, from $1.8 million for the year ended December 31, 2017, to $6.1 million for the year ended December 31, 2018. We started
to engage in E-APP data processing technical services in 2018, which contributed to $2.9 million of the increase in other revenue.
E-APP data processing technology services include data transmission and storage services provided to E-APP borrowers to facilitate
the preparation of registration application.
Sales
and Marketing Expenses
Sales
and marketing expenses consist primarily of commission paid to financial advisors, funding cooperative institutions, advertising
and marketing promotion expenses, salaries and benefits and other expenses incurred by our sales and marketing personnel.
Our
major selling and marketing expenses comprised of the following items during the respective years as follows:
|
|
|
For the Years Ended December
31
|
|
|
|
|
2018
|
|
|
2017
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Promotion expenses (a)
|
|
$
|
27,905,762
|
|
|
$
|
33,696,880
|
|
|
$
|
(5,791,118
|
)
|
|
|
-17
|
%
|
|
Commission expenses (b)
|
|
|
111,100,398
|
|
|
|
95,395,925
|
|
|
|
15,704,473
|
|
|
|
16
|
%
|
|
Salaries and benefits
|
|
|
13,125,380
|
|
|
|
17,595,964
|
|
|
|
(4,470,584
|
)
|
|
|
-25
|
%
|
|
Rental expenses
|
|
|
1,885,120
|
|
|
|
1,734,731
|
|
|
|
150,389
|
|
|
|
9
|
%
|
|
Business tax
|
|
|
1,515,561
|
|
|
|
1,121,159
|
|
|
|
394,402
|
|
|
|
35
|
%
|
|
Others
|
|
|
796,869
|
|
|
|
866,794
|
|
|
|
(69,925
|
)
|
|
|
-8
|
%
|
|
Total sales and marketing expenses
|
|
$
|
156,329,090
|
|
|
$
|
150,411,453
|
|
|
$
|
5,917,637
|
|
|
|
4
|
%
|
|
(a)
|
Promotion
expenses are expenses incurred mainly for brand promotion and online marketing activities
|
|
(b)
|
Commission
expenses are payments to funding cooperative institutions and third-party financial advisors for their referrals to our services
and products
|
The
total sales and marketing expenses for the year ended December 31, 2018, were $156.3 million, an increase of $5.9 million, or
4%, from $150.4 million for the year ended December 31, 2017. The increase was mainly caused by a significant increase in commission
expenses, partially offset by a decrease in promotion expenses and salaries and benefits expenses.
Commission
expenses increased by $15.7 million, or 16%, from $95.4 million for the year ended December 31, 2017, to $111.1 million for the
year ended December 31, 2018. The increase of our commission expenses was mainly due to the execution of new sales incentive policies,
which increased the commission fee rate by 0.7% starting from July 2018.
Promotion
expenses decreased by $5.8 million, or 17%, to $27.9 million for the year ended December 31, 2018, from $33.7 million for the
year ended December 31, 2017. The decrease was mainly due to reduced marketing activities as a result of the tighten regulation
for P2P industry which allows limited online activities to promote P2P brand. To comply with the regulation, we reviewed our past
marketing efforts and implemented a more cost-effective marketing strategy.
Salaries
and benefits expenses decreased by $4.5 million, or 25%, from $17.6 million for the year ended December 31, 2017, to $13.1 million
for the year ended December 31, 2018. The decrease was primarily due to the closure of certain sales offices and the dismissal
of 378 employees in late 2017, as we outsourced the services provided by these offices to third parties in an effort to increase
our overall operating efficiency. Those expense incurred to outsource to third parties were recorded as commission expenses in
Sales and Marketing Expenses. The closures did not have, and are not expected to have any other material impact on our results
of operations.
Product
Development Expenses
Product
development expenses include expenses we incurred to facilitate the transaction facilitation business, to gather historical data
and borrowing behaviors, as well as to maintain, monitor, and manage our transaction and service platform.
Our
major product development expenses are comprised of the following items during the respective years:
|
|
|
For the Years Ended December
31
|
|
|
|
|
2018
|
|
|
2017
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
$
|
9,700,036
|
|
|
$
|
9,206,372
|
|
|
$
|
493,664
|
|
|
|
5
|
%
|
|
Rental expenses
|
|
|
679,097
|
|
|
|
786,496
|
|
|
|
(107,399
|
)
|
|
|
-14
|
%
|
|
Depreciation
|
|
|
145,339
|
|
|
|
114,662
|
|
|
|
30,677
|
|
|
|
27
|
%
|
|
Service and consulting expenses
|
|
|
2,299,325
|
|
|
|
1,070,318
|
|
|
|
1,229,007
|
|
|
|
115
|
%
|
|
Maintenance expenses
|
|
|
4,057,045
|
|
|
|
3,980,726
|
|
|
|
76,319
|
|
|
|
2
|
%
|
|
Others
|
|
|
317,214
|
|
|
|
164,942
|
|
|
|
152,272
|
|
|
|
92
|
%
|
|
Total product development expenses
|
|
$
|
17,198,056
|
|
|
$
|
15,323,516
|
|
|
$
|
1,874,540
|
|
|
|
12
|
%
|
The
total product development expenses increased by $1.9 million, or 12%, to $17.2 million for the year ended December 31, 2018, from
$15.3 million for the year ended December 31, 2017. The increase was mainly attributable to the significant increase in service
and consulting expenses and salaries and benefits expenses.
Service
and consulting expenses increased by $1.2 million, or 115%, from $1.1 million for the year ended December 31, 2017, to $2.3 million
for the year ended December 31, 2018, which was mainly caused by our increased expenses on IT services due to our increased need
for technology development performed by external software developers.
Salaries
and benefits increased by $0.5 million, or 5%, from $9.2 million for the year ended December 31, 2017, to $9.7 million for the
year ended December 31, 2018, which was mainly due to the increased number of technical employees hired during 2018 to support
the increased need for technology development.
We
expect our product development expenses to continue to increase in the foreseeable future, as our business continues to grow and
we develop and introduce new products and services on our marketplace.
Loan
Facilitation and Servicing Expenses
Loan
facilitation and servicing expenses consist primarily of costs related to credit assessment and customer and system support. Our
major loan facilitation and servicing expenses are comprised of the following items during the respective years:
|
|
|
For the Years Ended December
31
|
|
|
|
|
2018
|
|
|
2017
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan facilitation and servicing expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
$
|
2,389,865
|
|
|
$
|
1,895,503
|
|
|
$
|
494,362
|
|
|
|
26
|
%
|
|
Rental expenses
|
|
|
428,873
|
|
|
|
422,981
|
|
|
|
5,892
|
|
|
|
1
|
%
|
|
Depreciation
|
|
|
209,314
|
|
|
|
156,066
|
|
|
|
53,248
|
|
|
|
34
|
%
|
|
Service and consulting expenses
|
|
|
690,528
|
|
|
|
671,541
|
|
|
|
18,987
|
|
|
|
3
|
%
|
|
Others
|
|
|
200,975
|
|
|
|
188,628
|
|
|
|
12,347
|
|
|
|
7
|
%
|
|
Total loan facilitation and servicing expenses
|
|
$
|
3,919,555
|
|
|
$
|
3,334,719
|
|
|
$
|
584,836
|
|
|
|
18
|
%
|
The
total loan facilitation and servicing expenses increased by $0.6 million, or 18%, to $3.9 million for the year ended December
31, 2018, from $3.3 million for the year ended December 31, 2017. The increase was mainly attributable to the increase in salaries
and benefits expenses as we hired more employees in 2018. Salaries and benefits expenses increased by $0.5 million, or 26%, from
$1.9 million for the year ended December 31, 2017 to $2.4 million for the year ended December 31, 2018.
General
and Administrative Expenses
General
and administrative expenses consist primarily of salaries and benefits (including share-based compensation) for general management,
finance, and administrative personnel, rental, professional service fees, and other expenses.
Our
major general and administrative expenses comprised the following items during the respective periods:
|
|
|
For the Years Ended December
31
|
|
|
|
|
2018
|
|
|
2017
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
$
|
8,010,525
|
|
|
$
|
7,708,959
|
|
|
$
|
301,566
|
|
|
|
4
|
%
|
|
Rental expenses
|
|
|
1,171,582
|
|
|
|
1,022,539
|
|
|
|
149,043
|
|
|
|
15
|
%
|
|
Bad debt expense
|
|
|
710,790
|
|
|
|
1,303,739
|
|
|
|
(592,949
|
)
|
|
|
-45
|
%
|
|
Depreciation
|
|
|
156,313
|
|
|
|
153,125
|
|
|
|
3,188
|
|
|
|
2
|
%
|
|
Service and consulting expenses
|
|
|
3,782,561
|
|
|
|
663,889
|
|
|
|
3,118,672
|
|
|
|
470
|
%
|
|
Others
|
|
|
1,601,936
|
|
|
|
1,128,905
|
|
|
|
473,031
|
|
|
|
42
|
%
|
|
Total general and administrative expenses
|
|
$
|
15,433,707
|
|
|
$
|
11,981,156
|
|
|
$
|
3,452,551
|
|
|
|
29
|
%
|
The
total general and administrative expenses increased by $3.4 million, or 29%, to $15.4 million for the year ended December 31,
2018, from $12.0 million for the year ended December 31, 2017. The increase was mainly attributable to the increase in service
and consulting expenses and other general and administrative expenses, partially offset by the decrease in bad debt expenses.
Service
and consulting expenses increased by $3.1 million, or 470%, to $3.8 million for the year ended December 31, 2018, from $0.7 million
for the year ended December 31, 2017, which was mainly due to higher professional services incurred during the year ended December
31, 2018 in connection with the reverse merger with Hunter Maritime Acquisition Corp.
Other
general and administrative expenses mainly consist of travel expenses and meal and entertainment expenses, which increased by
$0.5 million, or 42%, to $1.6 million for the year ended December 31, 2018, from $1.1 million for the year ended December 31,
2017. The increase was mainly due to higher travel expenses incurred during the year ended December 31, 2018 in connection with
the reverse merger with Hunter Maritime Acquisition Corp.
We
recorded a bad debt provision for accounts receivable with the amount of $0.7 million during the year ended December 31, 2018
based on our assessment of the collectability of these accounts receivable while no bad debt provision was made to other receivables
in 2018. We recorded a provision for other receivables with the amount of $1.3 million during the year ended December 31, 2017
based upon our assessment of the collectability of these other receivables due from third parties while no bad debt provision
was made to accounts receivable in year 2017.
Other
income (expense)
Other
income or expense consists of primarily interest income from related parties, interest income or expense from third parties, foreign
currency transaction gain or loss, loss in equity method investment, gain on sale of equity method investee, realized gain from
available-for-sale financial assets and interest income from certificate of deposits, and other miscellaneous income or expense.
The
following table sets forth a breakdown of other income or expense:
|
|
|
For the Years Ended December
31
|
|
|
|
|
2018
|
|
|
2017
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income - related parties
|
|
$
|
7,176,876
|
|
|
$
|
4,773,013
|
|
|
$
|
2,403,863
|
|
|
|
50
|
%
|
|
Interest income (expense)
|
|
|
(36,829
|
)
|
|
|
(157,640
|
)
|
|
|
120,811
|
|
|
|
77
|
%
|
|
Foreign currency transaction (loss) gain
|
|
|
(1,171,933
|
)
|
|
|
2,246,572
|
|
|
|
(3,418,505
|
)
|
|
|
-152
|
%
|
|
Loss in equity method investment
|
|
|
(199,908
|
)
|
|
|
(22,777
|
)
|
|
|
(177,131
|
)
|
|
|
778
|
%
|
|
Gain on sale of equity interest in a subsidiary
|
|
|
94,104
|
|
|
|
-
|
|
|
|
94,104
|
|
|
|
100
|
%
|
|
Income from short-term investment
|
|
|
506,590
|
|
|
|
494,252
|
|
|
|
12,338
|
|
|
|
2
|
%
|
|
Other miscellaneous income (expense)
|
|
|
361,743
|
|
|
|
1,473
|
|
|
|
360,270
|
|
|
|
24458
|
%
|
|
Total other income (expense)
|
|
$
|
6,730,643
|
|
|
$
|
7,334,893
|
|
|
$
|
(604,250
|
)
|
|
|
-8
|
%
|
Interest
income from related parties was $7.2 million for the year ended December 31, 2018, an increase of $2.4 million, or 50%, from $4.8
million for the year ended December 31, 2017. The increase was mainly due to an increase of $3.0 million in interest earned from
loan receivable from related parties, partially offset by a decrease of $0.6 million in interest earned on our customers’
deposits at Haikou United Rural Commercial Bank Co., Ltd, which is our custodian bank.
We
incurred a $1.2 million foreign currency transaction loss during the year ended December 31, 2018, compared to the $2.2 million
foreign currency transaction gain during the year ended December 31, 2017, which was mainly due to the fluctuations on the exchange
rate arising from our loans and cash account denominated in foreign currency.
Loss
in equity method investment in 2018 was from Linggui Technology (Beijing) Co., Ltd (“Linggui”), an entity that we
acquired in November 2017.
The
gain on sale of equity interest in a subsidiary in 2018 is related to Zhonghui Investment Management Co., Ltd (“Zhonghui”),
an entity we acquired in 2016, and Tianjin Yuanrong Asset Management Co., Ltd (“Tianjin Yuanrong”), an entity we acquired
in 2016.
Income
tax expense
Income
tax expense increased by 56% from $12.3 million in 2017 to $19.3 million in 2018, mainly due to the increase in taxable income
in 2018 and offset by the impact of tax benefits received by NCF Cloud Services. In 2017, NCF Cloud was granted Hi-Tech Enterprise
status and was entitled to a reduced rate of 15%. In 2018, NCF Cloud Services was granted the Certification of Software Company
and was entitled to a reduced tax rate of 0% for the year ended December 31, 2018.
Net
income (loss)
We
incurred a net income of $60.0 million for the year ended December 31, 2018, compared to a net income of $35.8 million for the
year ended December 31, 2017. The increase in net income was driven by an increase of $43.5 million in net revenues, partially
offset by an increase in total operating expenses of $11.8 million during the year ended December 31, 2018, as compared to the
year ended December 31, 2017.
Year
Ended December 31, 2017, Compared to Year Ended December 31, 2016
Operating
Revenues
The
following table sets forth the breakdown of our operating revenues for the years indicated:
|
|
|
For the Years Ended December
31
|
|
|
|
|
2017
|
|
|
2016
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction and service fee
|
|
$
|
208,166,308
|
|
|
$
|
99,056,931
|
|
|
$
|
109,109,377
|
|
|
|
110
|
%
|
|
Transaction and service fee - related parties
|
|
|
87,660
|
|
|
|
1,176,104
|
|
|
|
(1,088,444
|
)
|
|
|
-93
|
%
|
|
Commission fee
|
|
|
4,334,526
|
|
|
|
10,080,180
|
|
|
|
(5,745,654
|
)
|
|
|
-57
|
%
|
|
Commission fee - related parties
|
|
|
3,628,848
|
|
|
|
1,197,575
|
|
|
|
2,431,273
|
|
|
|
203
|
%
|
|
Other revenue
|
|
|
5,541,601
|
|
|
|
2,755,364
|
|
|
|
2,786,237
|
|
|
|
101
|
%
|
|
Other revenue - related parties
|
|
|
149,701
|
|
|
|
33,935
|
|
|
|
115,766
|
|
|
|
341
|
%
|
|
Total net revenue
|
|
$
|
221,908,644
|
|
|
$
|
114,300,089
|
|
|
$
|
107,608,555
|
|
|
|
94
|
%
|
The
total net revenue for the year ended December 31, 2017, was $221.9 million, an increase of $107.6 million, or 94%, from $114.3
million for the year ended December 31, 2016. The increase was mainly caused by a significant increase of $108.0 million in transaction
and service fee, generated from our P2P services and non-P2P services. The increase in transaction and service fees was partially
offset by a decrease of $3.3 million in commission fees.
Transaction
and Service Fees
As
shown in our key operational metrics, the increase in transaction and service fee was mainly attributable to the substantial increase
in the annualized volume of transactions facilitated through our marketplace, which was $6.9 billion for the year ended December
31, 2017, an increase of $3.2 billion as compared to $3.7 billion for the year ended December 31, 2016. The increase in annualized
transaction volume was primarily due to an increase in the average term of our products, from 121 days in 2016 to 169 days in
2017. Of the $3.2 billion increase, the annualized transaction volume of non-P2P services increased by $5.0 billion, offset by
a decrease of $1.8 billion in the annualized transaction volume of P2P services. The annualized transaction volume of our non-P2P
services increased due to the increased financing needs of SMEs, while the annualized transaction volume of our P2P services decreased
as we are focusing more on our non-P2P services.
The
increase in transaction and service fee was also, to a lesser extent, attributable to an increase in the average transaction fee
rate. The average transaction fee rate for P2P services increased by 10% from 3.9% in 2016 to 4.3% in 2017. The average transaction
fee rate for Non-P2P services increased by 50% from 2.9% in 2016 to 4.3% in 2017.
Our
actual transaction and service fees generated from third parties was $208.2 million for the year ended December 31, 2017, an increase
of $109.1 million, or 110%, from $99.1 million for the year ended December 31, 2016. Our transaction and service fee generated
from related parties were $0.1 million for the year ended December 31, 2017, a decrease of $1.1 million, or 93%, from $1.2 million
for the year ended December 31, 2016.
Commission
Fees
Apart
from our primary business of loan facilitation, our subsidiary, Yinghua Wealth Investment Management Holdings Co., Ltd (“Yinghua
Wealth”), engages in the business of introducing potential investors to purchase contractual funds from other financial
institutions. Commission fee generated from third parties was $4.4 million for the year ended December 31, 2017, a decrease of
$5.7 million, or 57%, from $10.1 million for the year ended December 31, 2016. Our commission fee generated from related parties
was $3.6 million for the year ended December 31, 2017, an increase of $2.4 million, or 203%, from $1.2 million for the year ended
December 31, 2016. The decrease in commission fees was mainly due to lower commission fee rates from third parties.
Other
Revenue
Other
revenue includes diversion income, advisory income, and technology service fees. We started to engage in diversion services in
2017, which contributed to $2.9 million, or 104%, increase in other revenue from $2.8 million for the year ended December 31,
2016, to $5.7 million for the year ended December 31, 2017. However, diversion services have been slowing down during 2018
as we switched our focus on data processing services in early 2018.
Sales
and Marketing Expenses
Sales
and marketing expenses consist primarily of commission paid to cooperative institutions, financial advisors, advertising and marketing
promotion expenses, salaries and benefits and other expenses incurred by our sales and marketing personnel.
Our
major selling and marketing expenses comprised of the following items during the respective years as follows:
|
|
|
For the Years Ended December
31
|
|
|
|
|
2017
|
|
|
2016
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Promotion expenses (a)
|
|
$
|
33,696,880
|
|
|
$
|
27,726,211
|
|
|
$
|
5,970,669
|
|
|
|
22
|
%
|
|
Commission expenses (b)
|
|
|
95,395,925
|
|
|
|
57,631,771
|
|
|
|
37,764,154
|
|
|
|
66
|
%
|
|
Salaries and benefits
|
|
|
17,595,964
|
|
|
|
14,060,829
|
|
|
|
3,535,135
|
|
|
|
25
|
%
|
|
Rental expenses
|
|
|
1,734,731
|
|
|
|
2,970,248
|
|
|
|
(1,235,517
|
)
|
|
|
-42
|
%
|
|
Business tax
|
|
|
1,121,159
|
|
|
|
328,112
|
|
|
|
793,047
|
|
|
|
242
|
%
|
|
Others
|
|
|
866,794
|
|
|
|
902,077
|
|
|
|
(35,283
|
)
|
|
|
-4
|
%
|
|
Total sales and marketing expenses
|
|
$
|
150,411,453
|
|
|
$
|
103,619,248
|
|
|
$
|
46,792,205
|
|
|
|
45
|
%
|
|
(a)
|
Promotion
expenses are expenses incurred mainly for brand promotion and online marketing activities
|
|
(b)
|
Commission
expenses are payments to funding cooperative institutions and third-party financial advisors for their referrals to our services
and products
|
The
total sales and marketing expenses for the year ended December 31, 2017, were $150.4 million, an increase of $46.8 million, or
45%, from $103.6 million for the year ended December 31, 2016. The increase was mainly caused by a significant increase in promotion
expenses and commission expenses.
Promotion
expenses increased by $6.0 million, or 22%, to $33.7 million for the year ended December 31, 2017, from $27.7 million for the
year ended December 31, 2016. The increase was mainly due to our efforts on online marketing to expand our borrower and investor
base through online channels.
Commission
expenses increased by $37.8 million, or 66%, from $57.6 million for the year ended December 31, 2016, to $95.4 million for the
year ended December 31, 2017. The increase of our commission expenses was mainly due to our reliance on the use of funding cooperative
institutions and third-party financial advisors for investor referral.
Salaries
and benefits expenses increased by $3.5 million, or 25%, from $14.1 million for the year ended December 31, 2016, to $17.6 million
for the year ended December 31, 2017. The increase was mainly attributable to the increased number of employees. We hired more
employees in 2017 to support the rapid growth of the business.
Rental
expenses decreased by $1.3 million, or 42%, from $3.0 million for the year ended December 31, 2016, to $1.7 million for the year
ended December 31, 2017. Yinghua Wealth closed most of the branch offices in 2017, resulting in a reduction in leased space and
a decrease in rental expenses. However, we expect our rental expenses to increase in the foreseeable future as our base rent will
continue to increase.
Business
tax was $1.1 million for the year ended December 31, 2017, an increase of $0.8 million, or 242%, from $0.3 million for the year
ended December 31, 2016, which was mainly due to our large increase in the number of transactions facilitated through our marketplace
from 123,512 in 2016 to 5,186,316 in 2017.
We
are exploring options to reduce our sales and marketing expense, especially the commission expenses as they accounted for more
than 80% of the total increase. We plan to slowly phase out our reliance on funding cooperative institutions as a referral source.
Product
Development Expenses
Product
development expenses include expenses we incurred to facilitate the transaction facilitation business, to gather historical data
and borrowing behaviors, as well as to maintain, monitor, and manage our transaction and service platform.
Our
major product development expenses are comprised of the following items during the respective years:
|
|
|
For the Years Ended December
31
|
|
|
|
|
2017
|
|
|
2016
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
$
|
9,206,372
|
|
|
$
|
7,773,650
|
|
|
$
|
1,432,722
|
|
|
|
18
|
%
|
|
Rental expenses
|
|
|
786,496
|
|
|
|
762,036
|
|
|
|
24,460
|
|
|
|
3
|
%
|
|
Depreciation
|
|
|
114,662
|
|
|
|
122,457
|
|
|
|
(7,795
|
)
|
|
|
-6
|
%
|
|
Service and consulting expenses
|
|
|
1,070,318
|
|
|
|
457,467
|
|
|
|
612,851
|
|
|
|
134
|
%
|
|
Maintenance expenses
|
|
|
3,980,726
|
|
|
|
4,428,354
|
|
|
|
(447,628
|
)
|
|
|
-10
|
%
|
|
Others
|
|
|
164,942
|
|
|
|
112,853
|
|
|
|
52,089
|
|
|
|
46
|
%
|
|
Total product development expenses
|
|
$
|
15,323,516
|
|
|
$
|
13,656,817
|
|
|
$
|
1,666,699
|
|
|
|
12
|
%
|
The
total product development expenses increased by $1.6 million, or 12%, to $15.3 million for the year ended December 31, 2017, from
$13.7 million for the year ended December 31, 2016. The increase was mainly attributable to an increase of $1.4 million in salaries
and benefits expenses as we hired more employees during 2017 to support the rapid growth of the business.
Service
and consulting expenses increased by $0.6 million, or 134%, from $0.5 million for the year ended December 31, 2016, to $1.1 million
for the year ended December 31, 2017, which was caused by the increased user authentication expenses and system security testing
expenses in 2017 as we continued to improve our risk control system.
Maintenance
expenses decreased by $0.4 million, or 10%, from $4.4 million for the year ended December 31, 2016, to $4.0 million for the year
ended December 31, 2017. In 2016, we engaged a professional firm that is a related party to provide technical infrastructure maintenance
services, including storage, security, daily maintenance, for transaction system, risk control system and other administrative
systems. The decrease in maintenance expenses was due to a one-time setup fee incurred during the year ended December 31, 2016.
We
expect our product development expenses to continue to increase in the foreseeable future, as our business continues to grow and
we develop and introduce new products and services on our marketplace.
Loan
Facilitation and Servicing Expenses
Loan
facilitation and servicing expenses consist primarily of costs related to credit assessment and customer and system support.
Our
major loan facilitation and servicing expenses are comprised of the following items during the respective years:
|
|
|
For the Years Ended December
31
|
|
|
|
|
2017
|
|
|
2016
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan facilitation and servicing expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
$
|
1,895,503
|
|
|
$
|
1,523,886
|
|
|
$
|
371,617
|
|
|
|
24
|
%
|
|
Rental expenses
|
|
|
422,981
|
|
|
|
485,844
|
|
|
|
(62,863
|
)
|
|
|
-13
|
%
|
|
Depreciation
|
|
|
156,066
|
|
|
|
113,028
|
|
|
|
43,038
|
|
|
|
38
|
%
|
|
Service and consulting expenses
|
|
|
671,541
|
|
|
|
715,506
|
|
|
|
(43,965
|
)
|
|
|
-6
|
%
|
|
Others
|
|
|
188,628
|
|
|
|
135,106
|
|
|
|
53,522
|
|
|
|
40
|
%
|
|
Total loan facilitation and servicing expenses
|
|
$
|
3,334,719
|
|
|
$
|
2,973,370
|
|
|
$
|
361,349
|
|
|
|
12
|
%
|
The
total loan facilitation and servicing expenses increased by $0.3 million, or 12%, to $3.3 million for the year ended December
31, 2017, from $3.0 million for the year ended December 31, 2016. The increase was mainly attributable to the increase in salaries
and benefits expenses as we hired more employees during 2017. Salaries and benefits expenses increased by $0.4 million, or 24%,
from $1.5 million for the year ended December 31, 2016 to $1.9 million for the year ended December 31, 2017.
General
and Administrative Expenses
General
and administrative expenses consist primarily of salaries and benefits (including share-based compensation) for general management,
finance, and administrative personnel, rental, professional service fees, and other expenses.
Our
major general and administrative expenses comprised the following items during the respective periods:
|
|
|
For the Years Ended December
31
|
|
|
|
|
2017
|
|
|
2016
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits
|
|
$
|
7,708,959
|
|
|
$
|
6,415,011
|
|
|
$
|
1,293,948
|
|
|
|
20
|
%
|
|
Rental expenses
|
|
|
1,022,539
|
|
|
|
1,189,333
|
|
|
|
(166,794
|
)
|
|
|
-14
|
%
|
|
Bad debt expense
|
|
|
1,303,739
|
|
|
|
-
|
|
|
|
1,303,739
|
|
|
|
100
|
%
|
|
Depreciation
|
|
|
153,125
|
|
|
|
149,282
|
|
|
|
3,843
|
|
|
|
3
|
%
|
|
Service and consulting expenses
|
|
|
663,889
|
|
|
|
394,556
|
|
|
|
269,333
|
|
|
|
68
|
%
|
|
Others
|
|
|
1,128,905
|
|
|
|
1,126,192
|
|
|
|
2,713
|
|
|
|
0
|
%
|
|
Total general and administrative expenses
|
|
$
|
11,981,156
|
|
|
$
|
9,274,374
|
|
|
$
|
2,706,782
|
|
|
|
29
|
%
|
Our
total general and administrative expenses increased by $2.7 million, or 29%, to $12.0 million for the year ended December 31,
2017, from $9.3 million for the year ended December 31, 2016. The increase was mainly driven by an increase in salaries and benefits
expenses and the provision for doubtful accounts.
Salaries
and benefits increased by $1.3 million, or 20%, from $6.4 million for the year ended December 31, 2016, to $7.7 million for the
year ended December 31, 2017, which was mainly due to the increased number of employees hired during 2017 to support the rapid
growth of the business.
We
recorded a provision for doubtful accounts in the amount of $1.3 million during the year ended December 31, 2017 based upon an
assessment of our balance of other receivables. No provision was recorded during the year ended December 31, 2016 as we had been
receiving payments and no indications of uncollectability were identified in 2016.
Other
income (expense)
Other
income or expense consists of primarily interest income or expense from related parties, interest income or expense from third
parties, foreign currency transaction gain or loss, loss in equity method investment, gain on sale of equity method investee,
income from available-for-sale financial assets investment, and other miscellaneous income or expense.
The
following table sets forth a breakdown of other income or expense:
|
|
|
For the Years Ended December
31
|
|
|
|
|
2017
|
|
|
2016
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income - related parties
|
|
$
|
4,773,013
|
|
|
$
|
1,802,979
|
|
|
$
|
2,970,034
|
|
|
|
165
|
%
|
|
Interest expense - related parties
|
|
|
-
|
|
|
|
(282,276
|
)
|
|
|
282,276
|
|
|
|
-100
|
%
|
|
Interest income (expense)
|
|
|
(157,640
|
)
|
|
|
126,616
|
|
|
|
(284,256
|
)
|
|
|
-225
|
%
|
|
Foreign currency transaction gain (loss)
|
|
|
2,246,572
|
|
|
|
(2,324,618
|
)
|
|
|
4,571,190
|
|
|
|
-197
|
%
|
|
Loss in equity method investment
|
|
|
(22,777
|
)
|
|
|
(110,494
|
)
|
|
|
87,717
|
|
|
|
-79
|
%
|
|
Gain on sale of equity method investee
|
|
|
-
|
|
|
|
110,494
|
|
|
|
(110,494
|
)
|
|
|
-100
|
%
|
|
Realized gain available-for-sale financial assets investment
|
|
|
494,252
|
|
|
|
-
|
|
|
|
494,252
|
|
|
|
100
|
%
|
|
Other miscellaneous income (expense)
|
|
|
1,473
|
|
|
|
(159,090
|
)
|
|
|
160,563
|
|
|
|
-101
|
%
|
|
Total other income (expense)
|
|
$
|
7,334,893
|
|
|
$
|
(836,389
|
)
|
|
$
|
8,171,282
|
|
|
|
-977
|
%
|
Interest
income from related parties was $4.8 million for the year ended December 31, 2017, an increase of $3.0 million, or 165%, from
$1.8 million for the year ended December 31, 2016. The increase was mainly due to an increase of $2.7 million in interest earned
from our customers’ deposits at Haikou United Rural Commercial Bank Co., Ltd, and an increase of $0.3 million in interest
earned from loan receivable from related parties. Interest expense from related parties was $0.0 million for the year ended December
31, 2017, a decrease of 0.3 million, or 100%, from $0.3 million for the year ended December 31, 2016. Interest expense from third
parties was $0.2 million for the year ended December 31, 2017, compared to $0.1 million of interest income for the year ended
December 31, 2016.
We
incurred a $2.2 million foreign currency transaction gain during the year ended December 31, 2017, compared to the $2.3 million
foreign currency transaction loss during the year ended December 31, 2016, which was mainly due to the fluctuations on the exchange
rate between the Hong Kong Dollar and RMB. The foreign currency transaction gain or loss arose from the RMB denominated bank account
in Hong Kong.
Loss
in equity method investment in 2017 was solely from Linggui Technology (Beijing) Co., Ltd. (“Linggui”), an entity
that we acquired in November 2017. Loss in equity method investment for 2016 and the gain on sale of equity method investee are
related to Shanghai Zisheng Network Technology Co., Ltd. (“Zisheng”), an entity we acquired in 2016 and sold in 2016.
We
incurred $0.5 million of realized gain from available-for-sale financial assets investment during the year ended December 31,
2017, compared to $0 for the year ended December 31, 2016. The income was the result of our participation in our own P2P marketplace
platform and monetary fund as a lender in 2017. We sold the P2P investment in 2018.
Income
tax expense
We
incurred $12.3 million of income tax expense during the year ended December 31, 2017, compared to $2.8 million of income tax benefit
during the year ended December 31, 2016. The increase in income tax expense in 2017 was mainly due to the increase in taxable
income offset by the impact of tax benefits received by NCF Cloud Services. In 2017, NCF Cloud Services was granted Hi-Tech Enterprise
status and was entitled to a reduced rate of 15%.
Net
income (loss)
We
incurred a net income of $35.8 million for the year ended December 31, 2017, compared to a net loss of $13.3 million for the year
ended December 31, 2016. The increase in net income was driven by an increase of $107.6 million in net revenues, partially offset
by an increase in total operating expenses of $51.5 million during the year ended December 31, 2017, as compared to the year ended
December 31, 2016.
Liquidity
and Capital Resources
In
2015 and 2016, our principal sources of liquidity were proceeds from the sales of its ordinary and preferred shares. In 2015,
we received $19.9 million of proceeds from the issuance of Series B preferred shares, net of issuance cost, and $16.3 million
of proceeds from the issuance of ordinary shares. In 2016, we raised $41.9 million through issuance of Series C-1 preferred shares
and received the proceeds, net of issuance cost of $4.6 million in 2015 and $37.3 million in 2016, respectively, and $13.2 million
of proceeds from the issuance of ordinary shares.
Since
2017, our principal source of liquidity has been cash generated from operating activities. We generated positive cash flow from
operating activities of $43.8 million in 2017. As of December 31, 2017, we Group had cash and cash equivalents of $35.1 million
(RMB 228.2 million), as compared to cash and cash equivalents of $10.1 million (RMB 70.1 million) as of December 31, 2016.
For
the year ended December 31, 2018, we generated positive cash flows from operating activities of $76.1 million. As of December
31, 2018, we had cash and cash equivalents of $25.1 million (RMB 172.0 million).
In
February 2019, we took out a bank loan in the amount of $13.6 million for working capital. In connection with the Consummation
of the Merger with Hunter Maritime on March 21, 2019, we were obligated to pay certain fees to the investment banks, lawyers and
other professional service providers. We’ve generated positive operating cash flows in 2017 and 2018 and expect to increase
operating cash flows in 2019; thus, we will have enough cash to settle these obligations.
Unlike
financial institutions, we are not subject to any capital adequacy requirement that are applicable to financial institutions in
China. We believe that our anticipated cash flows from operating activities will be sufficient to meet our anticipated working
capital requirements and capital expenditures in the ordinary course of business for the next 12 months. We may, however, need
additional cash resources in the future if we experience changes in business conditions or other developments, or if we find and
wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions. If we determine that our cash
requirements exceed the amount of cash and cash equivalents we have on hand at the time, we Wealth Group may seek to issue equity
or debt securities or obtain credit facilities. The issuance and sale of additional equity would result in further dilution to
our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants
that would restrict our operations. We cannot assure that financing will be available in amounts or on terms acceptable to us,
if at all.
Although we consolidate
the results of our VIEs, we only have access to cash balances or future earnings of our VIEs through our contractual arrangements
with them. See “Business —Contractual Arrangements with Beijing Jing Xun Shi Dai Technology Limited Liability Company
(“Jing Xun Shi Dai”) and Beijing Oriental Union Investment Management Limited Liability Company (“Beijing Oriental”).”
For restrictions and limitations on liquidity and capital resources as a result of our corporate structure, see “Holding
Company Structure.”
Our
ability to manage our working capital may materially affect our financial position and results of operations.
The
following table sets forth a summary of our working capital (deficit) for the periods indicated:
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
169,174,457
|
|
|
$
|
109,965,050
|
|
|
Current liabilities
|
|
|
36,847,590
|
|
|
|
29,486,419
|
|
|
Net working capital
|
|
$
|
132,326,867
|
|
|
$
|
80,478,631
|
|
On
December 31, 2018, we had working capital of $132.3 million compared to working capital of $80.5 million on December 31, 2017.
The increase in working capital was primarily related to an increase in current assets of $59.2 million, offset by an increase
in current liabilities of $7.4 million on December 31, 2018, compared to December 31, 2017.
The
increase in current assets of $59.2 million is mainly attributable to an increase of $129.2 million in short-term investment,
partially offset by (i) a decrease of $43.8 million in loan receivable from related parties, (ii) a decrease of $10.0 million
in cash and cash equivalents, and (iii) a decrease of $9.3 million in other receivables.
The
increase in current liabilities of $7.4 million is primarily related to (i) an increase of $5.1 million in taxes payable, (ii)
an increase of $4.6 million in accruals and other liabilities, (iii) an increase of $4.2 million in accrued marketing and channel
fees from related parties, and (iv) an increase of $4.1 million in note payable to Great Reap, partially offset by a decrease
of $14.3 million in accruals and other liabilities from related parties.
For
the Years Ended December 31, 2018, 2017, and 2016
A
summary of our cash flow activities is as follows:
|
|
|
For the Years Ended December
31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
76,143,750
|
|
|
$
|
43,789,995
|
|
|
$
|
(31,103,672
|
)
|
|
Net cash (used in) investing activities
|
|
$
|
(88,575,296
|
)
|
|
$
|
(17,072,876
|
)
|
|
$
|
(23,839,186
|
)
|
|
Net cash provided by (used in) financing activities
|
|
$
|
2,587,688
|
|
|
$
|
(15,273,959
|
)
|
|
$
|
67,463,408
|
|
Operating
Activities
For
the year ended December 31, 2018, we had cash provided by operating activities of $76.1 million. This was primarily the result
of (i) $60.0 million of net income, adding back (ii) non-cash adjustments to net income of $2.1 million, and the effect of changes
in:
(iii)
an increase of $5.2 million in taxes payable, (iv) an increase of $2.9 million in accruals and other liabilities, (v) an increase
of $4.4 million in accrued marketing and channel fees from related parties, and (vi) a decrease of $3.5 million in advances to
suppliers, partially offset by (vii) a decrease of $13.5 million in accruals and other liabilities from related parties.
(iii)
The increase in taxes payable was primarily due to an increase in our net income that led to higher estimated tax after offsetting
prior accumulated loss carryforwards.
(iv)
The increase in accruals and other liabilities was primarily due to the reclassification of the bank custodian fees to Haikou
United Rural Commercial Bank, which was a related party in 2017 but ceased to be a related party beginning October 26, 2018, and
an increase of approximately $0.8 million in professional expenses in connection with SEC filings requirements.
(v)
The increase in accrued marketing and channel fees from related parties was mainly due to an increase of approximately $3.1 million
in the marketing and channel fees from Shenzhen Lianhe Currency Wealth Management Co., Ltd and $1.8 million from Shanghai Jinmao
Asset Management Co., Ltd.
(vi)
The decrease in advances to suppliers was primarily due to a decrease of approximately $3.2 million in advances for sale and marketing
suppliers.
(vii)
The decrease in accruals and other liabilities from related parties was primarily due to the reclassification of the bank custodian
fees to Haikou United Rural Commercial Bank, which was a related party in 2017 but ceased to be a related party beginning October
26, 2018, and a decrease of approximately $4.4 million in the service fees to Xianfeng Payment.
For
the year ended December 31, 2017, we had cash provided by operating activities of $43.8 million. This was primarily the result
of (i) $35.8 million of net income, adding back (ii) non-cash adjustments to net income of $5.4 million, and the effect of changes
in: (iii) a decrease of $14.4 million in advances to suppliers who are related parties and (iv) a decrease of $11.2 million in
deferred tax assets, partially offset by (v) an increase in other receivables of $8.1 million, (vi) an increase in other non-current
assets of $4.4 million, and (vii) an increase in other current assets of $4.0 million.
(iii)
The decrease in advances to suppliers and other receivables-related parties who are related parties was mainly due to the
collection of approximately $13.4 million from Xianfeng Payment Co., Ltd (“Xianfeng Payment”), a related party, because
we switched to Haikou United Rural Commercial Bank in January 2017 as our custodian bank. Haikou United Rural Commercial
Bank was a related party in 2017 and beginning October 26, 2018, it ceased to be a related party as the Haikou’s director,
Mr. Nan Xiao, resigned from Yinghua Weath. Xianfeng Payment was the payment platform we used to facilitate the fund transfers
between investors and borrowers prior to Haikou United Rural Commercial Bank.
(iv)
The decrease in deferred tax assets was primarily due to approximately $11.2 million being used to offset against in 2017.
(v)
The increase in other receivables was primarily due to approximately $8.5 million payment for the investment in Xianfeng Daily
Profiting Monetary Market Fund, a third party, that was completed in 2018.
(vi)
The increase in other non-current assets was primarily due to the approximately $4.4 million cash investment in Beijing Kunyuan
Hengtong Investment Center L.P, a third party, that was completed in 2018.
(vii)
The increase in other current assets was primarily due to an increase of approximately $4.0 million in net input VAT.
For
the year ended December 31, 2016, cash used in operating activities of $31.1 million. This was primarily the result of (i) $13.3
million of net loss, adding back (ii) non-cash adjustments of $3.6 million, and the effect of changes in: (iii) an increase of
$8.8 million in advances to suppliers who are related parties, (iv) a decrease of $4.5 million in amounts due to related parties,
and (v) a decrease of $3.1 million in accrued marketing and channel fees.
(iii)
The increase in advances to suppliers who are related parties was primarily due to an increase of approximately $8.3 million in
advances to Xianfeng Payment.
(iv)
The decrease in amounts due to related parties was primarily due to a decrease of approximately $4.5 million in the payable to
Net Credit Group Inc.
Investing
activities
Net
cash used in investing activities was $88.6 million in 2018, which was primarily attributable to our $144.9 million of loans to
related parties and $128.8 million purchase of certificates of deposit, partially offset by the $182.4 million of collection of
related parties’ loans.
Net
cash used in investing activities was $17.1 million in 2017, which was primarily attributable to our $39.1 million of investment
in available-for-sale financial assets and $23.3 million of loans to related parties, partially offset by the $39.1 million cash
received from redemption of available-for-sale financial assets and $7.3 million of collection of related parties’ loans.
Net
cash used in investing activities was $23.8 million in 2016, which was primarily attributable to our $22.4 million of loans to
related parties and $1.2 million of investment in Zisheng.
Financing
activities
Net
cash provided by financing activities was $2.6 million in 2018, which was mainly attributable the $13.5 million of cash received
from bank loan and the $4.6million of cash received from related parties’ loans, partially offset by the repayments of $13.5
million on bank loan and the repayments of $2.1 million on related parties’ loans.
Net
cash used in financing activities was $15.3 million in 2017, which was mainly attributable to repayments of $13.8 million on bank
loan.
Net
cash provided by financing activities was $67.5 million in 2016, which was mainly attributable to the $37.3 million of proceeds
from issuance of Series C-1 preferred shares, $14.0 million of cash received from bank loan, $13.2 million of proceeds from issuance
of ordinary shares, and $7.5 million capital injection from shareholders, partially offset by the repayment of $6.0 million of
borrowings of related parties.
Contractual
Obligations and Commitments
|
(a)
|
Operating
lease commitments – us as lessee
|
We
were obligated under non-cancellable operating leases. The lease terms are three years, and renewable at the end of the lease
period at the market rate. Rent expense were $4,019,641, $4,133,541, and $5,400,809 for the years ended December 31, 2018, 2017
and 2016 respectively.
The
future aggregate minimum lease payments under non-cancellable operating leases are as follows:
|
Years ending December 31,
|
|
Amount
|
|
|
2019
|
|
$
|
4,008,358
|
|
|
2020
|
|
|
1,167,009
|
|
|
2021
|
|
|
550,786
|
|
|
|
|
$
|
5,726,153
|
|
|
(b)
|
Service
contracts commitments
|
In
August 2018, we entered into a finder agreement with EarlyBirdCapital, Inc. to introduce us to a potential special purpose acquisition
corporation (“SPAC”) in connection with consummating a merger. The total fee of $3,000,000 is expected to be
paid in May 2019.
Off-Balance
Sheet Commitments and Obligations
We
did not have any off-balance sheet arrangements as of December 31, 2018 and 2017, respectively.
Quantitative
and Qualitative Disclosures about Market Risk
Foreign
Currency Risk
RMB
is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People’s
Bank of China, controls the conversion of RMB into foreign currencies. The value of RMB is subject to changes in central government
policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading
System market.
Interest
Rate Risk
We
have not been exposed to material risks due to changes in market interest rates, and we have not used any derivative financial
instruments to manage our interest risk exposure. However, we cannot provide assurance that we will not be exposed to material
risks due to changes in market interest rates in the future. Our future interest income may fall short of expectations due to
changes in market interest rates.
The
fluctuation of interest rates may also affect the demand for our marketplace lending business. For example, a decrease in the
interest rate may cause potential borrowers to seek loans from other channels and higher returns offered by comparable or substitute
products may damper investor desire to invest in our marketplace. However, we do not expect that the fluctuation of interest rates
will have a material impact on our financial condition.
Holding
Company Structure
NCF
Wealth Holdings, Ltd. is a holding company with no material operations of its own. We conducts our operations primarily through
our subsidiaries and consolidated variable interest entities in China. As a result, our ability to pay dividends depends upon
dividends paid by its PRC subsidiaries and its consolidated variable interest entities. If our existing PRC subsidiaries or any
newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability
to pay us dividends. In addition, each of our wholly foreign-owned subsidiaries in China is permitted to pay dividends to us only
out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law,
each of our subsidiaries and consolidated variable interest entities in China is required to set aside at least 10% of its after-tax
profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital.
In addition, each of our wholly foreign-owned subsidiaries in China may allocate a portion of its after-tax profits based on PRC
accounting standards to enterprise expansion funds and staff bonus and welfare funds at its discretion, and each of our consolidated
variable interest entities may allocate a portion of its after-tax profits based on PRC accounting standards to a discretionary
surplus fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends.
Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by State
Administration of Foreign Exchange. Our PRC subsidiaries have not paid dividends and will not be able to pay dividends until they
generate accumulated profits and meet the requirements for statutory reserve funds.
The following diagram
illustrates our corporate structure, including our subsidiaries and consolidated variable interest entities, as of the date of
this prospectus:
Recently
Issued Accounting Pronouncements
See
Note 2 to the Notes to the Audited Combined and Consolidated Financial Statements in this prospectus for a discussion regarding
recent accounting pronouncements.
BUSINESS
History
of Hunter Maritime Acquisition Corp.
Hunter
Maritime Acquisition Corp. was formed on June 24, 2016 under the laws of the Republic of the Marshall Islands for the purpose
of acquiring through a merger, capital stock exchange, asset acquisition, debt acquisition, stock purchase, reorganization or
other similar business combination, an operating businesses or assets. Our subsidiary, NCF Wealth Holdings, does business under
the NCF name.
Description
of the Business Combination
On
October 5, 2018, we entered into the Merger Agreement with NCF and Zhenxin Zhang, as representative of the NCF Stockholders, pursuant
to which NCF merged with and into our subsidiary, with NCF continuing as the surviving company and as our wholly-owned subsidiary
(the “Merger”).
On
November 6, 2018, we completed a tender offer, funded with the proceeds then held in the Trust Account, in connection with an
amendment to our Amended and Restated Articles of Incorporation to extend the deadline (the “Extension Amendment”)
by which a business combination must be consummated to April 23, 2019 (the “Extended Date”), pursuant to which we
purchased 12,999,350 Class A common shares at $10.125 per share, for an aggregate purchase price of approximately $131.6 million
(the “Extension Tender Offer”). In connection with the Extension Tender Offer, we deposited into the Trust Account
an additional $1,896,637.50 to make the total amount on deposit in the Trust Account equal to $10.125 per Class A common share
(the “First Tender Contribution”). The First Tender Contribution was funded by a combination of cash on hand held
outside the Trust Account and a loan to us from our Sponsor in the principal amount of $500,000 and which bears interest at LIBOR
plus 0.60%.
On
March 19, 2019, we completed a tender offer in connection with the Business Combination. Based upon information provided by Continental
Stock Transfer & Trust Company, the depositary for the Offer, as of the expiration date, a total of 1,926,021 Class A common
shares were validly tendered and not properly withdrawn. All such Class A common shares were accepted for purchase. Accordingly,
the Company purchased all such Class A common shares at the purchase price of $10.215 per Class A common share, for a total purchase
price of $19,674,304.52, excluding fees and expenses related to the Offer.
On
March 21, 2019, the Merger closed. The aggregate consideration provided by us to the NCF Stockholders pursuant to the Merger Agreement
consists of: (i) 200,000,000 Class A common shares (the “Closing Payment Shares”), of which 15,000,000 Class A common
shares were deposited into escrow to secure certain indemnification obligations of NCF and the NCF Stockholders (the “Escrow
Shares”), plus (ii) earnout payments consisting of up to an additional 50,000,000 Class A common shares if we (and its subsidiaries
on a consolidated basis) meet certain financial performance targets for the 2019 and 2020 fiscal years.
History
of NCF
NCF
Wealth Group commenced its online finance marketplace business in China in July 2013. NCF Wealth Holdings Limited was incorporated
in the British Virgin Islands, or the BVI, as the holding company in December 2011.
Mr.
Zhang Zhenxin established Frontier Financial Rental Co., Ltd. In December 2011, which was renamed to First P2P Limited in August
2014, and renamed again to NCF Wealth Holdings Limited in November 2015.
NCF
Wealth Holdings Limited established State Ace Limited, Zhan Yang Limited and Tall Lead Limited in the BVI in October 2015. State
Ace Limited and Zhan Yang Limited established NCF International Limited and NCF Development (HK) Co., Limited, respectively, in
Hong Kong in November 2015 for overseas business. NCF International Limited acquired Shanghai NCF Puhui Business Consulting Co.,
Ltd. in October 2018.
In
addition, NCF Wealth Holdings Limited established UCF Huarong Investment (HK) Co., Limited in December 2011, which further established
two wholly owned subsidiaries, namely Beijing NCF Financial Service Information Technology Co., Ltd. and Beijing NCF Cloud Service
Information Technology Co., Ltd. in April 2014 and January 2016, respectively, for business within China.
Beijing
NCF Financial Service Information Technology Co., Ltd. acquired Shenzhen Yifang Yurong Financial Information Science and Technology
Co., Ltd. in August 2018. Beijing NCF Cloud Service Information Technology Co., Ltd. acquired Beijing Yinghua Wealth Investment
Management Holdings Co., Ltd. in May 2018. Beijing Yinghua Wealth Investment Management Holdings Co., Ltd. has two subsidiaries,
which are Shenzhen Yingxin Fund Sales Co., Ltd. established in December 2015, and Shanghai Cenmu Business Information Consulting
Co., Ltd. established in January 2017.
Beijing
NCF Financial Service Information Technology Co., Ltd. and Beijing Oriental Union Investment Management Limited Liability Company
signed the VIE agreements in September 2014. Beijing Oriental Union Investment Management Limited Liability Company is the principal
operating entity of the P2P business of NCF Wealth Group. Beijing Jing Xun Shi Dai Technology Co., Ltd. was acquired in 2016 and
stays in the NCF group from then. Beijing NCF Cloud Service Information Technology Co., Ltd. and Beijing Jing Xun Shi Dai Technology
Co., Ltd signed the VIE agreements in January 2018. Beijing Jing Xun Shi Dai Technology Co., Ltd. is the principal operating entity
of the online platform of NCF Wealth Group. Beijing Jing Xun Shi Dai Technology Co., Ltd. acquired Xin Zu (Beijing) Technology
Co., Ltd. in February 2018.
Beijing
Jing Xun Shi Dai Technology Limited Liability Company operates the website www.ncfwx.com, and Beijing Oriental Union Investment
Management Limited Liability Company operates the website www.firstp2p.cn. Each of Beijing Oriental Union Investment Management
Limited Liability Company, Beijing Jing Xun Shi Dai Technology Co., Ltd., Xin Zu (Beijing) Science and Technology Co., Ltd. has
obtained an ICP license as an internet information provider.
Nasdaq
Compliance
Our
securities were listed on the Nasdaq Capital Market, although they are currently suspended from trading. On July 23, 2018, we
received a written notice from the Listing Qualifications Department of Nasdaq indicating that we are not in compliance with Listing
Rule 5550(a)(3), which requires us to have at least of 300 shareholders for continued listing on the exchange (the “Minimum
Shareholders Rule”). On September 13, 2018, we submitted to Nasdaq a plan to maintain our Nasdaq listing. Nasdaq accepted
our plan and granted us an extension of 180 calendar days from the date of the notice, or until January 22, 2019, to evidence
compliance with this rule. On January 24, 2019, we received a letter from Nasdaq stating that the Company had failed to demonstrate
compliance with the Minimum Shareholders Rule within the required time period and that, accordingly, the Nasdaq staff had initiated
procedures to delist our Class A common shares, units and warrants from Nasdaq. We subsequently appealed the delisting determination,
and, subsequent to a February 28, 2019 hearing and subject to certain conditions, we were granted until June 15, 2019 to meet
the Minimum Shareholders Rule.
Subsequently,
on April 24, 2019, we received notification from the Nasdaq Hearings Panel (the “Panel”) that the Panel determined
to suspend trading in our securities effective at the open of business on Friday, April 26, 2019 and to formally delist the securities
on May 9, 2019 unless we appealed the decision, which we timely appealed. Although we intend to take all action that we can to
remain listed, we cannot assure you that we will be able to remain listed. In the event that we fail to remain listed, our stock
will experience reduced liquidity than if we were able to remain on Nasdaq.
As
a result of Nasdaq’s suspension or delisting of our securities, we could face significant material adverse consequences,
including:
|
|
●
|
a
limited availability of market quotations for our securities;
|
|
|
●
|
reduced
liquidity for our securities;
|
|
|
●
|
a
determination that our Class A common shares are a “penny stock” which will require brokers trading in our Class
A common shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary
trading market for our securities;
|
|
|
●
|
a
limited amount of news and analyst coverage; and
|
|
|
●
|
a
decreased ability to issue additional securities or obtain additional financing in the future.
|
Business
Overview
Subsequent
to the Business Combination, our operations are conducted through our wholly-owned subsidiary, NCF. We are a leading fintech company
in China, primarily focused on connecting investors and borrowers, providing multi-scenario investment analysis to platform users
to meet their diversified investment needs, and building an ecosystem in the field of internet finance. We also provide technical
support for borrowers when they announce their financing needs. We aim to provide simplified, convenient and flexible financing
solutions to both small and medium enterprises (“SME”) and individual borrowers. Over RMB 321 billion was facilitated
(approximately $47 billion based on the exchange rate of 0.145705 as of December 31, 2018) in transactions from its inception
in July 2013 through December 2018. In 2018 and 2017, NCF facilitated transactions over RMB 71 billion and RMB 95 billion, respectively
(approximately $10 billion and $15 billion based on the average exchange rate of 0.145237 and 0.148014 for 2018 and 2017).
We
operate an online marketplace under the brand name of ‘Wangxin Puhui’ through our subsidiary Beijing Oriental. This
is an online lending platform that matches borrowers with investors and executes transactions. At the same time, the platform
provides for contract execution, fund clearing and other services to facilitate the transaction. Wangxin Puhui offers borrowers
that successfully complete its online application and meet its borrower requirements quick and convenient access to capital at
competitive rates. To provide a transparent marketplace, the interest rates, transaction fees, and other charges are disclosed
to borrowers upfront. Its borrowers and investors mainly come from online sources, such as the internet and its mobile applications
or from referrals of asset cooperative institutions (entities that introduce qualified borrowers) and funding cooperative institutions
(entities that introduce investors and other funding sources).
We
also operate an internet platform under the brand name of ‘Wangxin’ which is positioned as an open platform for financial
technology, providing information publishing, information display, information exchange, and online user diversion services for
organizations in a variety of industries including insurance sales, securities and fund sales. At the same time, Wangxin provides
technical platforms and operational solutions for various cooperative organizations, and helps cooperative organizations to improve
the efficiency of customer management.
In
March 2017, we launched a new program to cooperate with financial exchanges and promote exchange administered product program
(“E-APP”). The E-APP includes (I) product registration services and (II) promotion services on best efforts basis
and (III) Data Processing Technical Services.
We offer a variety
of fintech products and services and are therefore subject to a wide range of laws and regulations. See “Business —Regulation”
for more details. The Chinese government has recently adopted a series of regulations and policies that are expected to temporarily
restrain the business scale and growth of online lending information intermediaries, including (i) the Interim Measures, which
provide that local financial regulatory authorities may conduct onsite inspections or inquiries and instruct online lending information
intermediaries to rectify its business operations that are deemed non-compliant with the Guidelines or the Interim Measures, (ii)
the Inspection Notice and Compliance Checklist, which require online lending information intermediaries to complete a series of
compliance inspections, and (iii) the “three reductions”, which require online lending information intermediaries,
including us, to ensure that their loan balance, number of borrowers and number of lenders do not increase and will gradually
decrease during the compliance inspection period. As a result, the short-term business scale and growth of our P2P business has
been limited. However, as the P2P business only accounts for a relatively small portion of our overall business (contributing
8.8% of our total transaction and service fees in 2018), these new regulations and policies have not had, and are not expected
to have, any material adverse impact on our overall business. We plan to continue to broaden our product and service offerings
and revenue streams in order to diversify regulatory risks and minimize the impact of any single business may have on our overall
results of operations.
We
provide our investors with attractive investment solutions in terms of investment experience, minimum investment threshold
and rate of return. The minimum investment threshold of P2P product is RMB 100 (approximately $15 based on the exchange rate
of 0.145705 as of December 31, 2018). The minimum investment threshold of E-APP investment is calculated by dividing the
borrower’s loan amount by 200 which represents maximum investors allowed in a particular E-APP product. Depending on
the tenure and type of products, the annualized rate of return we provided our investors in 2018 ranged between 5% and 9.3%,
which was equal to or higher than those offered by most traditional financing channels such as banks. For example, the
annualized rate of return offered by insurance companies, banks and asset management companies and trust companies are
generally around 3.5%-5.5%, 4%-5% and 8%-10%, respectively.
We
believe we have developed an industry-leading risk management system using our proprietary decision-making model of credit risk
and fraud detection modules. We accumulate data from our expanding borrower base and our proprietary risk management system enables
us to assess the creditworthiness of borrowers more effectively in a market where reliable credit scores and borrower databases
are still at an early stage of development. This system also enables us to appropriately price the risks associated with borrowers,
reduce delinquency rates, and offer credit investment opportunities to investors.
We
also operate a wealth management business. With macro and micro analysis of financial markets coupled with independent and objective
screening criteria, we provide high-quality investment products and other comprehensive asset management services to high net
worth clients, family businesses and institutional investors.
Currently,
we generate revenues primarily from transaction and service fees, and sales commission fees charged for the above-mentioned services.
We also charge investor service fees for using our smart matching tool or investment reservation tool. As an information intermediary
for borrowers and investors, we act as an agent and do not have any legal obligations for the loans or securities facilities.
During
the years ended December 31, 2017 and 2018, total transaction volume increased by 24% and decreased by 26%, respectively, and
annualized transaction volume (which annualizes loans of less than year) increased 74% and decreased by 5%, respectively. Based
on publicly available industry data (www.wdzj.com), due to the impact of economic conditions and deleveraging policies of
the Chinese government, the monthly transaction volume of the whole P2P industry in December 2018 decreased by 49% when compared
with the monthly transaction volume in January 2018 while the monthly transaction volume in December 2018 increased by 32% when
compared with the monthly transaction volume in January 2018. With the tightening of regulations, many non-compliant or poorly-operated
platforms in the industry have gradually ceased operations; however, we believes that our transaction volume increased due to
the trust our customers place in our platform.
There
is significant growth in the accumulated number of our registered users (who have registered on the platform) and investors (who
have registered on the platform and made an investment) which increased from 11.1 million and 3.9 million, respectively, as of
December 31, 2017 to 12.0 million and 4.3 million, respectively, as of December 31, 2018, and the respective growth rates are
8% and 9%.
Our
Competitive Strengths
We
believe that the following competitive strengths have contributed to our growth and helped us to take advantage of the substantial
market opportunity:
Large
pool of Potential Customers
Our
investing customers include affluent investors living in China with personal investable assets of less than RMB 7 million (approximately
$1 million based on the exchange rate of 0.145705 as of December 31, 2018) and who seek steady returns with diversified investments
but have limited investment options. A large number of investing customers in China fall in this category, and it is obviously
an attractive market opportunity for us.
Active
Investor Base
In
addition, as of December 31, 2018, over 40% of our initial investors have made a second investment through us and over 21% of
our initial investors have made a third investment through us.
Large
pool of Potential Borrowers
According
to the “2018 China Consumer Credit Market Research,” the scale of consumer finance has climbed from 679.8 billion
yuan in January 2010 to 8.45 trillion yuan in October 2018, and the proportion of domestic loans rose from 1.7% to 6.3%. However,
the domestic consumer finance industry’s consumer credit (excluding mortgages) accounted for only 20% of total consumer
spending in 2015, lower than South Korea’s 41% and the US’s 28%. This indicates that the development of China’s
consumer finance industry is lagging behind that of developed countries.
According
to Capital Gap Of Funding SMEs: Analysis Of The Disadvantages And The Opportunities In Funding SMEs In Emerging Market written
by Institute of Dongxing Securities, in China, the potential financing demand from SMEs has reached RMB 44 trillion while the
capital supply was only RMB 25 trillion, meaning 43% of the demand was underserved. Bank loans account for 60% of the capital
supplied but support only 15.5% of the total SMEs, which means most of the capital flows to only a small number of businesses.
As a result, at least 80% of the SMEs in China, especially the small and micro businesses, still face serious problems of tight
cash flow.
Active
Borrower Base
The
borrowers on our platform include both individual borrowers and corporate borrowers. The borrowers increased from approximately
65,000 in 2016 to approximately 1.8 million in 2017, and decreased from approximately 1.8 million in 2017 to approximately 160,000
in 2018. In terms of the amount of borrowing we facilitated, the proportion of SMEs’ borrowings to the total borrowings
was 76%, 85% and 95% respectively in 2016, 2017 and 2018.
Innovative
Wealth Management
Unlike
traditional wealth management companies, we combine our online and offline services in order to meet the demands of our customers.
The information obtained from the data online offers us an opportunity to analyze changes in demand of our users, allowing us
to adjust wealth management products in a timely fashion. The information obtained also supports our compliance and risk control
management.
We
use an innovative mobile customer relationship system for wealth management that provides real-time data tracking, high-quality
investment recommendations, label management to customers, performance comparisons and real-time settlement of commissions. The
system has the ability to manage every action a customer wishes to take, such as topping up, withdrawing and re-investing to realize
real-time data tracking. It can also analyze users’ investment preferences on term, interest rate, and product type, among
other variables. The system can also compare investment performance among different products or in different periods.
Big
Data-based Individual and SME Lending System
We
have an advanced and proprietary risk management system making use of online big data analysis. We have developed an advanced
individual system and an advanced enterprise system. Our system can detect multiple features of our users, including user authentication,
user behavior, borrowing history, fingerprinting devices, identity attributes and solvency. With over five years of experience
with the financial services of private enterprises and SMEs, we have accumulated abundant project resources and first-hand data.
A major risk in our business is information asymmetry on a borrower, and we combine know your client principles and information
cross-validation techniques, including risk valuation, fraud recognition, value exploration and loss forecast to reduce the risk
a loan being made to a borrower that will default.
Embracing
Regulation
We
are one of the Founding Members of the National Internet Finance Association of China, and are the Executive Vice President Institution
of the Beijing Internet Finance Industrial Association. We have strictly complied with the regulatory requirements in China and
have completed a self-examination and applied to receive a compliance inspection by the regulatory authorities.
Experienced
Management Team
We
have a strong management team with a long history in the consumer financial industry in China. Our President, Huanxiang Li, has
over 15 years of experience in the financial industry. Our CEO, Jia Sheng, has twelve years of experience in internet and finance.
Our COO, Xin Li, possesses a deep understanding of the industry with more than 10 years of experience in the financial industry
and many years of management experience. In addition, since its inception, we have adopted robust corporate governance policies
and practices and have engaged extensively with key regulators to ensure compliance with evolving PRC laws and regulations and
help to shape the best practices in Chinese marketplace.
Our
Growth Strategies
We
plan to implement the below key strategies to continue our development.
Offer
more diversified products
We
expect to expand our targeted investor base by offering a more comprehensive suite of investment products with a wider range of
risk-return profiles. We intend to attract more investors by providing them with diversified investment products tailored to their
characters. For example, we will offer a new product with higher yields associated with higher risks to investors with the appetite
for such risk and the ability to afford the potential losses.
Continue
to increase borrowers
We
plan to increase the number of borrowers by expanding our project resources to more private companies and SMEs under financing
pressure. We will focus on attracting borrowers with good credit records according to our risk management system. We will enhance
our relationship with borrowers by providing flexible financing services to meet borrowers’ needs.
Continue
to invest in our technology platform
We
plan to continue to develop our proprietary technologies and data sources to improve risk control and the speed of lending. We
plan to increase the efficiency of our lending and customer satisfaction by providing artificial intelligence advisory services
to both borrowers and investors. Investors can receive a brief and general introduction of diversified product offerings by communicating
with intelligent robots. Borrowers can receive their loans much more quickly by using the auto assessment on credit evaluation.
Accelerate
internationalization
We
plan to expand to Hong Kong and Singapore, and anticipate expanding to more countries such as the United Kingdom, Australia, New
Zealand and the United States in the future.
Our
Borrowers
Borrower
Profile
We
target both SMEs and individuals in China. Currently, approximately 94% of our annualized transaction volume for the year ended
December 31, 2018 was contributed by our business borrowers.
Borrower
Acquisition
We
mainly depend on the referrals of asset cooperative institutions with which we cooperate to obtain our borrowers. Asset cooperative
institutions are companies that introduce us to qualified borrowers. In addition, we utilize online channels, such as website,
mobile application, and social media (such as WeChat), to attract new borrowers.
Our
Customers
Investor
Profile
We
welcome customers domiciled in China with an appetite for investment opportunities with stable returns. Currently, we focus our
efforts on attracting individual customers and 97% of our customers are individuals, in terms of total borrowing amount.
We
believe that the large and rapidly growing sector of Chinese individual investors is currently underserved by traditional financial
institutions in China. We believe that the average investment returns on our marketplace, ranging from 5% to 12.5%, are generally
higher than those of traditional financial institutions.
Investor
Acquisition
We
have attracted a large number of investors to our marketplace through online channels, such as our website, mobile application
and social media (such as WeChat). We have also acquired many high net worth investors through our wealth management teams. Our
investor acquisition efforts are primarily directed towards enhancing our brand name and building investor trust.
Our
Products and Services
As
an internet information intermediary platform, we connect the investors and the borrowers efficiently and safely utilizing advanced
technology such as artificial intelligence, big data, and cloud computing. We have the ability to match the investment needs of
investors with the capital needs of the borrowers, and charges service fees as a result.
We
also cooperate with financial exchanges with a program to promote exchange administered financial instruments (“E-APP”) and
connect investors and borrowers. The E-APP includes (I) product registration services and (II) promotion services on best
efforts basis and (III) Data Processing Technical Services.
Products
Offered to Borrowers
Based
on the intended purpose of the capital, our online market place facilitates the following products to borrowers:
Products
Offered to Individual Borrowers
Our
online marketplace facilitates financing products to individual borrowers to meet their specific needs. Most of our products offered
to individual borrowers feature fixed monthly payments and offer terms from three to 24 months.
Products
Offered to Corporate Borrowers
Our
online marketplace facilitates financing products to corporate borrowers or the owners of companies to satisfy the capital needs
for the operations of those entities. Most of our products feature fixed monthly payments and offer terms within 12 months.
Products
Offered to Investors
Through
our marketplace, investors have the opportunity to invest in a wide range of products:
(1)
P2P products, which are loans that investors, individual borrowers and SME borrowers consummate directly through our platform;
(2)
Targeted financing products and income right transfer products of local financial asset exchanges. Targeted financing products
are for companies that have direct financing needs, and the source of repayment is mainly our future income. Income
right transfer products are for companies that have an income right and would like to transfer the income right for an immediate
cash payment.
(3)
Debt acquisition products by financial leasing/factoring companies of local financial asset exchanges. These products are
for companies that have cash flow or other asset income rights. We will recommend them to financial leasing companies or factoring
companies that have financial leasing or factoring demand, and the financial leasing company or factoring companies acquire the
rights held by the borrowers at a price agreed upon through negotiation.
We
have invented and developed the following investing tools to help investors match with the appropriate products more efficiently:
With
automatic matching and automatic transfer technology, the funds of an investor would be distributed based on the investor’s
authorization according to a certain proportion that matches different borrowing items, upon which the calculation of interest
would also begin automatically.
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investment
reservation tool
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Providing
investors with reservation and lending functions with different terms, the system automatically matches borrowers and investors,
and investors can reserve multiple projects with different terms at the same time.
Wealth
Management Products
We
also recommend certain investments to investors, such as the products of securities companies and insurance broker companies,
as well the agent products of publicly offered funds and private equity funds of its wholly-owned subsidiary Shenzhen Yingxin
Fund Sales Co., Ltd. During this process, we provide comprehensive asset management services with professional, independent and
objective screening criteria through macro and micro analysis of financial markets.
Our
Transaction Process
Our
Transaction Process for P2P online lending Borrowers
We
believe that our online marketplace offers a superior overall user experience with a fast loan application process based on an
advanced credit assessment procedure. Our platform enables borrowers to undertake the entire process from initial application
to repayment online. We set up different application procedures with decision-tree processes as well as management standards for
individual borrowers and corporate borrowers to achieve an efficient loan process.
Stage
1: Application
Our
borrower loan application process begins with the submission of a loan application by a prospective borrower.
In
the case of individual borrowers, they can complete the loan application process through online channels, such as website and
mobile application. After an individual borrower has finished registration online and filed the loan application, we will acquire
relevant personal details of the individual borrower with his or her permission. Typically, we will require the individual borrowers
to provide the following personal information:
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basic
information: including name, identification number, age, income and profession, etc.;
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relevant
device data: including information such as the identification and the Internet Protocol address of the device, the model of
the mobile phones and the device location, etc.;
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information
gathered by telecom carriers: including information such as telecom carrier’s name, duration of call, frequency of call,
number of persons contacted, etc.;
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credit
card information: including credit line, credit card statements, etc.;
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e-commerce
platform information: including amount of consumption and consumption details etc.;
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credit
information: including loan application status, overdue status, debts, etc.
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In
the case of corporate borrowers, the loan application process would be facilitated by our staff. After a corporate borrower has
filed a loan application, our staff would collect the following information:
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legal
person’s identification;
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financial
statements for the past three years;
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credit
report of the corporate and its legal person;
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articles
of association;
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board
resolutions and shareholders’ resolutions; and
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related
information of the guarantor.
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We
may acquire supplementary information for a corporate borrower through public channels which mainly includes:
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litigation
and/or arbitration that the corporate borrower is involved in;
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information
of the affiliated enterprise(s);
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information
of the industry that the corporate borrower is in;
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public
opinion of the corporate borrower and its legal person.
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Stage
2: Decision Making
After
the completion of the loan application, our risk control team will be involved in the decision making procedure to review the
information collected. We apply different decision making methods for individual borrowers and corporate borrowers.
For
individual borrowers, we have developed our own artificial intelligence risk control model to assess and approve or deny the individual
borrowers’ loan applications. Our artificial intelligence risk control model is primarily based on the following two types
of models:
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anti-fraud
model: We utilize an intelligent image recognition technology to identify the authenticity of the identity of the individual
borrowers. The anti-fraud model has the ability to discern group fraud activities such as fraud by intermediate agents;
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risk
assessment model: Our risk assessment model utilizes machine learning technology to process the applications of individual
borrowers.
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For
corporate borrowers, we apply the following steps:
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due
diligence: Our operation staff and risk management staff conduct field due diligence procedures, including management team
interviews and business operation site visits to verify the business operations, financial status and legal compliance status
of the corporate borrower;
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cross
check: After we obtain the due diligence data, industry data and the data submitted by the corporate borrower, we cross check
the information and come to a conclusion on the actual financial status of the corporate borrower;
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comprehensive
credit assessment: Our senior risk control staff then assess the industry risk, management ability, profitability and repayment
ability of the corporate borrowers before making a decision.
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Our
monthly loan rejection rates in 2018 ranged between 4.6% and 17.0%. Leveraging risk management and anti-fraud models and algorithms
and advanced technologies such as face recognition, human identification and cross-validation, our platform identifies fraudulent
activities and rejects applicants with a high risk of fraud. Our platform has detected fraudulent activities such as document
forgery, information falsification, identity theft and organized crimes. For example, we once rejected a new group of high-risk
loan applicants who shared the same domicile and provided similar personal information in their loan applications.
To avoid the recurrence of similar incidents, we have blacklisted these applicants, blocked their phone numbers and enhanced and
upgraded our risk management models to identify similar cases in the future. We have not previously identified any instances of
fraud after having made a loan.
Stage
3: Listing
After
the borrower’s loan application is approved, we would publish the borrower’s loan application on our online lending
platform with the borrower’s permission, and will reveal the borrower’s related information to the extent permitted
by law. Investors can then access the information to make their own investment decision.
Stage
4: Loan disbursement
If
the loan amount that the borrower has applied for is fully raised through our online lending platform within the prescribed period
(which refers to a certain period of time no longer than 20 calendar days, during which the loan application is listed on the
Wangxin Puhui platform for investors to subscribe; loans listed on the Wangxin Puhui platform are typically fully subscribed to
on the same day), funds will be transferred directly from the investor’s account to the borrower’s account (the investors’
funds are not transferred to us at any point), both of which are opened and managed by our cooperative bank (i.e. our custodian
bank).
If
the loan amount that the borrower has applied is not fully raised within the prescribed period, the fund raising procedure
is terminated.
If
the investor has received event reward, investment reward or sign up vouchers from our marketing partners, his or her investment
is reduced by the value of the voucher, and is contributed by us, and paid through our sales and marketing partners, who transfer
such amount from their account with our custodian bank to the investor’s account with our custodian bank. Those sales
and marketing partners charge service fees to us, and recorded as reduction of revenue. As a result, the borrower will receive
the principal amount of the loan in full and the investor will be repaid the principal and interest of the loan in full. See “Operating
and Financial Review and prospects—Operating Results—Critical Accounting Policies, Judgments and Estimates—Revenue
recognition—incentive to investors” for more details. If the investor chooses to redeem investment reward vouchers
to receive additional interest, he or she will contribute the investment amount in full and receive additional interest, which
will be paid by us and recorded as reduction of revenue, upon the completion of the investment.
We
generally charge our service fees in one lump sum and are paid by the borrowers when the loan is disbursed: once the loan proceeds
are disbursed to the borrower’s account with our custodian bank, the borrower authorizes our custodian bank to transfer
the service fees from his or her account to our account with the custodian bank.
Stage
5: Repayment
After
the borrower has received the loan, it repays the loan according to the pre-agreed repayment schedule. We assist investors to
manage the repayment process by, among other things:
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sending
repayment reminder messages to the borrower when the loan is due for repayment; and
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revealing
and sending post-loan check and post-loan information regarding the borrower to the investor.
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Stage
6: Collection
Each
loan has a guarantor who performs guarantee obligations when the borrower fails to repay the loan.
We send payment reminders
to the borrower, the assets cooperative institution and the guarantor seven, three and one day in advance of every payment due
date. The assets cooperative institution will follow up with the borrower and guarantor to monitor default risks. If there is
a likelihood that the borrower may fail to repay, the assets cooperative institution will notify us and request the guarantor
to deposit the repayment amount to its custody account by 18:00 p.m. on a repayment date.
When a borrower fails
to repay any installment of the outstanding principal and/or interest of the loan on a repayment date as specified in the loan
agreement, the guarantor will authorize us to transfer funds from its custody account to the borrower’s custody account
shortly after 18:00 p.m. on that day so that the borrower can make repayment to the investor on that day. As such, we have not
experienced any loan default (which occurs when a borrower/guarantor fails to repay any installment of the outstanding principle
and/or interest by 23:59 p.m. on a repayment date) as of the date of this annual report. Afterwards, the guarantor or the assets
co-operation institution (when the guarantor has not performed its guarantee obligation) is required to collect the loan from
the borrower. The collection methods include telephone collection, on-site collection and litigation collection. During the collection
procedure, we provide assistance and co-operation, and we supervise the collection institution to ensure the legality, compliance
and effectiveness of the collection activity to protect the legal rights of the investors and the borrowers. However, we do not
currently guarantee any such loan.
Our
Service Process for E-APP products
Stage
1: Application
The
process of E-APP begins with the submission of an application by a prospective borrower to one of our asset cooperative institutions.
The asset cooperative institution conducts preliminary screening and due diligence on the prospective borrower based on our standards
and specifications. If the borrower meets our requirements, it will be referred to us. We, as the E-APP administrator, design
an E-APP product according to the borrower’s financing needs and assist the borrower to prepare and submit registration
application to the relevant local financial assets exchange.
During
the application process, we also provide a series of technical support to the borrower, primarily including processing and storage
of the borrower’s data and transmission of such data to the assets cooperative institution.
Stage
2: Approval
The
exchange conducts comprehensive review of the borrower’s registration application, registers the E-APP product and issues
registration approval notice to the borrower.
Stage
3: Subscription and issuance
Once
the E-APP product is registered, we may act as promoter and provide promotion services to the borrower and promote the E-APP
product to investors on best effort basis. Investors subscribe to the E-APP product by entering into purchase or subscription
contracts with the borrower and deposit their investments into an account designated by the local financial asset
exchange (i.e. “exchange”). After the subscription period, the exchange releases the funds to the borrower, and
the borrower pays us (i) product design, registration and administration fees (in one lump sum either before the
exchange’s release of funds to the borrower or within 90 days from the release of funds), (ii) promotion service
fees (in one lump sum on the next business day after the subscription period) and (iii) technical service fees (in
one lump sum after the exchange’s release of funds to the borrower). The borrower generally pays us via bank transfer
(where the borrower wires the funds from its bank account to our bank account directly) or transfer between custody accounts
(where the borrower wires the funds to its custody account at the custodian bank and authorizes the custodian bank to
transfer the funds to our custody account).
If
the E-APP product is not fully subscribed within the subscription period, which is generally six months, the exchange will provide
the subscribed-for amount to the borrower and the offering of the product will end.
Stage
4: Repayment
In
advance of the product’s expiration, the exchange reminds the borrower of the repayment obligations, deadline and amount,
and the borrower repays the principal amount and interests of the E-APP product to the investors on the expiration date of the
E-APP product according to the subscription agreements.
Stage
5: Collection
Each
E-APP product has a guarantor. If the borrower fails to repay the principal and interest of the E-APP product on the repayment
date, the guarantor will be notified by the exchange to pay the principal and interest of the E-APP product to the investors for
the borrower.
Neither we nor our
subsidiaries provides any guarantee in relation to our E-APP business. All E-APP services are guaranteed by guarantors, a portion
of which are our related parties. In 2018, 31.0% of the E-APP products in terms of transaction volume were guaranteed by our related
parties. These related parties are either owned by our founder or by our key management, but are not our subsidiaries. Neither
we nor any of our subsidiaries absorbs losses or receives residual returns in those guarantors.
Our
Service Process for Investors
Our
Service Process for Loan Products
Through
our online marketplace, investors have the opportunity to invest in a wide range of loan products with relatively high
returns comparing with traditional financial institutions. An investor can complete its investment procedure on our platform, including registration, account opening, and
subscription and redemption of the investment.
Step
1: Registration
First
the investors register on our platform. They upload basic personal information to complete the registration.
Step
2: Account Opening
Investors
open an account on our platform. The investment account is administered by a bank or payment company selected by us.
Step
3: Pre-investment assessment
Investors
must complete the risk assessment evaluation to determine their respective risk preference levels before they are allowed
to invest on our platform. We assess investors’ risk preference taking into consideration their investment track record,
risk identification capabilities and risk tolerance levels, among others. Pursuant to the evaluation results, investors will be
categorized as risk averse, conservative, robust, strategic or aggressive. “Risk averse” investors are not allowed
to invest on our platform, whereas the remaining investors may invest on our platform according to their respective risk preference
levels.
Step
4: Subscription of the Investment
We
recommend investment products and investment amounts to investors based on their respective level of risk preference.
While
we may recommend suitable investment products and amounts based on investors’ risk assessment results, investors can choose
different investment products with different terms, interest rates and types of loans at their own will pursuant to the loan information
available on our platform, including but not limited to borrower information, borrowers’ credit scores, use of proceeds,
guarantee information and source and plan of repayment. However, investors are not allowed to invest in any product with risks
that exceed their risk tolerance level.
Step
5: Redemption of the investment
We assist investors
in managing the repayment process.
We send payment reminders
to the borrower and the guarantor seven, three and one day in advance of every payment due date and closely communicate with them
to monitor default risks. If we suspect that the borrower may fail to repay, we will request the guarantor to deposit the repayment
amount to its custody account in advance to the repayment date. When a loan is overdue a borrower fails to repay any installment
of the outstanding principle and/or interest of the loan on a repayment date as specified in the loan agreement, the guarantor
is required to transfer funds from its custody account to the borrower’s custody account by 18:00 p.m. on that day so that
the borrower can make repayment to the investor on that day. Afterwards, the guarantor or the assets co-operation institution
(when the guarantor has not performed its guarantee obligation) is obligated to collect the loan from the borrower.
Our
Service Process for Wealth Management Products
High
net worth individuals are our core resource. We provide consistent value-added services to customers from pre-investment product
selection and subscription, investment product information disclosure and delivery, and post-investment product repayment and
communication. As we are not subject to any third-party product supplier, we have the ability to provide our customers professional,
independent and objective finance management advice and we believe the core of our success is our comprehensive, consistent, sound,
individualized and professional service. We have specialized investment consultants to take charge of the communication with customers
and determine their investment target and risk exposure. We provide to the high net worth individuals the following services:
1、
Financial plan
We
allocate to each high net worth individual a specialized investment consultant who is responsible for daily financial management
and services. Our investment consultant provides individualized asset allocation strategy to customers, who are mainly high net
worth individual investors, through the communication with the customer based on the analysis and assessment on the customers’
financial status, past investment experience, investment risk exposure and investment target. Our investment consultant also provides
customers with consistent financial plan consultancy services with adjustments based on economy and market conditions.
2、Asset
allocation
We
assist customers in asset allocation based on the financial plan risk profile, introducing the customers to products and assisting
them in making purchasing decisions. Our customers are the ultimate decision makers when purchasing products. Our investment consultants
follow strict disclosure and compliance procedures to ensure that the customer subscribes for investment products based on full
knowledge of the product information. When a customer decides to purchase any of the investment products we recommend, we will
inform the relevant product management party of the investment purpose of the customer after verifying that the customer is eligible
for the subscription, and the customer shall complete the transaction directly with the product provider. We do not accept the
customer’s authorization or instructions to conduct transaction activities or execute transaction on behalf of the customer.
Because we are not involved in the transaction or its settlement, we avoids the risks associated with such services, including
human error in the execution of customer’s orders or technical system failures.
3、Post-investment
service
For
customers who purchase products throughus, we will disclose the latest information relating to the product and relevant information
of the management party to them through SMS and email. In addition, we provide our customers with various investor education services,
such as investment presentations, investment seminars and market analysis sessions.
Our
Technology and Risk Management System
The
credit infrastructure in China is still under development, and China currently lacks a reliable national credit information system.
To that end, we have developed our own risk management system for borrowers to identify credit risk effectively.
For
risk control on individual borrowers, we have developed Tianyuan Intellectual Risk Control System or Tianyuan. Tianyuan consists
of the following:
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big
data system: with the permission of the individual borrowers, we collect and store the individual borrowers’ personal
data relating to the whole loan period, including structural data (for example, individual borrower’s name, identification
number, age, income, profession, etc.), semi-structural data and non-structural data (for example, video, image, voice record,
etc.). The individual borrowers’ personal data forms the foundation for risk control and system development;
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intellectual
model laboratory: a visible model development and data analysis system, with direct access to the data in the big data system.
It employs multiple algorithms and algorithm frameworks to automatically develop Tianyuan on its own, and can also analyze
the big data using its statistical analysis tool. The intellectual model laboratory contains development tools for customized
intellectual models, and has the ability to assist our risk control staff to process advanced algorithm and advanced intellectual
models.
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intellectual
decision making engine: it is a visible and intellectual decision making tool with direct access to the intellectual model
laboratory to efficiently complete the risk management process.
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risk
monitoring and warning system: it monitors and supervises the entire loan period of the individual borrowers on the basis
of big data system, and can issue timely warning to our risk control staff by drawing their attention to any actions undertaken
by the individual borrowers and their asset portfolios.
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For
risk control on corporate borrowers, we have developed a risk control procedure combining big data from big data systems and a
model to process risk control procedure, including data collection, loan limit monitoring, approval and post-loan management.
Our risk control on corporate borrowers combines our own and third party’s big data with the experience of the risk control
experts to increase the efficiency and accuracy of risk control.
Contractual
Arrangements with Beijing Jing Xun Shi Dai Technology Limited Liability Company (“Jing Xun Shi Dai”) and Beijing Oriental
Union Investment Management Limited Liability Company (“Beijing Oriental”)
Due
to PRC legal restrictions on foreign ownership and investment in value-added telecommunications services, and Internet content
provision services in particular, we currently conduct our activities through Jing Xun Shi Dai and Beijing Oriental, which we
effectively control through a series of contractual arrangements. These contractual arrangements allow us to:
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exercise
effective control over Jing Xun Shi Dai and Beijing Oriental;
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receive
substantially all of the economic benefits of Jing Xun Shi Dai and Beijing Oriental; and
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have
an exclusive option to purchase all or part of the equity interests in Jing Xun Shi Dai and Beijing Oriental when and to the
extent permitted by PRC law.
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As
a result of these contractual arrangements, we have become the primary beneficiary of Jing Xun Shi Dai and Beijing Oriental, and
we treat Jing Xun Shi Dai and Beijing Oriental as our variable interest entities under U.S. GAAP.
Agreements
that Provide us with Effective Control over Jing Xun Shi Dai and Beijing Oriental
Equity
Interest Pledge Agreements
Pursuant to the equity interest pledge agreements, each of Mr. Zhenxin Zhang and Ms. Huanxiang
Li, as the respective 99% and 1% equity holders of both Jing Xun Shi Dai and Beijing Oriental, has pledged all of his/her equity
interest in Jing Xun Shi Dai and Beijing Oriental to guarantee the shareholders’ and Jing Xun Shi Dai and Beijing Orientals’
performance of their obligations under the exclusive business cooperation agreement, exclusive option agreement and power of attorney.
If Jing Xun Shi Dai and Beijing Oriental or any of its shareholders breaches their contractual obligations under these agreements,
Beijing NCF Cloud Service Information Technology Co., Limited (“NCF Cloud Service”), under the agreement with Jing
Xun Shi Dai, Beijing NCF Financial Service Information Technology Co., Limited, previously Beijing Huarong Ju Hui Investment Consulting
Co., Ltd., (“NCF Financial Service”) under the agreement with Beijing Oriental, as pledgee, will be entitled to certain
rights regarding the pledged equity interests, including being paid in priority based on the monetary valuation that the equity
interest is converted into or receiving proceeds from the auction or sale of the pledged equity interests of Jing Xun Shi Dai
and Beijing Oriental in accordance with the PRC law. Each of the shareholders of Jing Xun Shi Dai and Beijing Oriental agrees
that, during the term of the equity interest pledge agreements, he will not transfer the pledged equity interests or place or
permit the existence of any security interest or encumbrance on the pledged equity interests without the prior written consent
of each of NCF Cloud Service and NCF Financial Service. The equity interest pledge agreements remain effective until Jing Xun
Shi Dai and Beijing Oriental and their shareholders discharge all of their obligations under the contractual arrangements. We
have registered the equity pledge with the relevant office of the Administration for Industry and Commerce in accordance with
the PRC Property Rights Law.
Powers
of Attorney
Pursuant to the powers of attorney, each shareholder of Jing Xun Shi Dai and Beijing Oriental has irrevocably
appointed Mr. Zhang Zhenxin to act as such shareholder’s exclusive attorney-in-fact to exercise all shareholder rights,
including, but not limited to, voting on all matters of Jing Xun Shi Dai and Beijing Oriental requiring shareholder approval,
disposing of all or part of the shareholder’s equity interest in Jing Xun Shi Dai and Beijing Oriental, and appointing directors
and executive officers. Mr. Zhang Zhenxin is entitled to designate any person to act as such shareholder’s exclusive attorney-in-fact
without notifying or the approval of such shareholder, and if required by PRC law, Mr. Zhang Zhenxin shall designate a PRC citizen
to exercise such right. Each power of attorney will remain in force for so long as the shareholder remains a shareholder of Jing
Xun Shi Dai and Beijing Oriental. Each shareholder has waived all the rights which have been authorized to Mr. Zhang Zhenxin and
will not exercise such rights.
Agreement
that Allows us to Receive Economic Benefits from Jing Xun Shi Dai and Beijing Oriental
Exclusive
Business Cooperation Agreement
Under the exclusive business cooperation agreement between NCF Cloud Service and Jing Xun Shi
Dai, and the exclusive business cooperation agreement between NCF Financial Service and Beijing Oriental, each of NCF Cloud Service
and NCF Financial Service has the exclusive right to provide Jing Xun Shi Dai and Beijing Oriental with technical support, consulting
services and other services. Without each of NCF Cloud Service and NCF Financial Service’s prior written consent, Jing Xun
Shi Dai and Beijing Oriental agree not to accept the same or any similar services provided by any third party. Each of NCF Cloud
Service and NCF Financial Service may designate other parties to provide services to Jing Xun Shi Dai and Beijing Oriental. Jing
Xun Shi Dai and Beijing Oriental agree to pay service fees on a monthly basis and at an amount determined by each of NCF Cloud
Service and NCF Financial Service after taking into account multiple factors, such as the complexity and difficulty of the services,
respectively, provided, the time consumed, the content and commercial value of services provided and the market price of comparable
services. Each of NCF Cloud Service and NCF Financial Service owns the intellectual property rights arising out of the performance
of this agreement. In addition, Jing Xun Shi Dai and Beijing Oriental have granted NCF Cloud Service and NCF Financial Service
an irrevocable and exclusive option to purchase any or all of the assets and businesses of Jing Xun Shi Dai and Beijing Oriental
at the lowest price permitted under PRC law. Unless otherwise agreed by the parties or terminated by each of NCF Cloud Service
and NCF Financial Service unilaterally, this agreement will remain effective permanently.
Agreements
that Provide us with the Option to Purchase the Equity Interest in Jing Xun Shi Dai and Beijing Oriental
Exclusive
Option Agreements
Pursuant to the exclusive option agreements, each shareholder of Jing Xun Shi Dai and Beijing Oriental has
irrevocably granted NCF Cloud Service and NCF Financial Service, respectively, an exclusive option to purchase, or have its designated
person or persons to purchase, at its discretion, to the extent permitted under PRC law, all or part of the shareholder’s
equity interests in Jing Xun Shi Dai and Beijing Oriental. The purchase price is nominal price or the minimum price required by
PRC law. If each of NCF Cloud Service and NCF Financial Service exercises the option to purchase part of the equity interest held
by a shareholder, the purchase price shall be calculated proportionally. Jing Xun Shi Dai and Beijing Oriental and each of its
shareholders have agreed to appoint any persons designated by each of NCF Cloud Service and NCF Financial Service to act as Jing
Xun Shi Dai and Beijing Orientals’ directors. Without each of NCF Cloud Service and NCF Financial Service’s prior
written consent, Jing Xun Shi Dai and Beijing Oriental shall not amend its articles of association, increase or decrease the registered
capital, sell or otherwise dispose of its assets or beneficial interest, create or allow any encumbrance on its assets or other
beneficial interests, provide any loans to any third parties, enter into any material contract with a value of more than RMB 100,000
(approximately $14,571 based on the exchange rate of 0.145705 as of December 31, 2018) in the case of Beijing Oriental or RMB
50,000,000 (approximately $7 million based on the exchange rate of 0.145705 as of December 31, 2018) in the case of Jing Xun Shi
Dai (except those contracts entered into in the ordinary course of business), merge with or acquire any other persons or make
any investments, or distribute dividends to the shareholders. The shareholders of Jing Xun Shi Dai and Beijing Oriental have agreed
that, without each of NCF Cloud Service and NCF Financial Service’s prior written consent, they will not dispose of their
equity interests in Jing Xun Shi Dai and Beijing Oriental or create or allow any encumbrance on their equity interests. These
agreements will remain effective until all equity interests of Jing Xun Shi Dai and Beijing Oriental held by their shareholders
have been transferred or assigned to each of NCF Cloud Service and NCF Financial Service or its designated person(s).
However,
there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and
rules. In particular, in January 2015, the MOFCOM published a discussion draft of the proposed Foreign Investment Law for public
review and comments. Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces
the principle of “actual control” in determining whether a company is considered a foreign-invested enterprise (FIE).
Under the draft Foreign Investment Law, variable interest entities would also be deemed as FIEs, if they are ultimately “controlled”
by foreign investors, and be subject to restrictions on foreign investments. However, the draft law has not taken a position on
what actions will be taken with respect to the existing companies with the “variable interest entity” structure, whether
or not these companies are controlled by Chinese parties. On March 15,2019, the Foreign Investment Law was adopted by the NPC
and will come into effect on January 1,2020. The Foreign Investment Law stipulates that the Negative List for the access of foreign
investment is divided into “prohibited investment areas” and “restricted investment areas”. Although the
Foreign Investment Law did not mention the principle of “actual control” (including VIE structures) as stipulated
in the Draft Foreign Investment Law 2015, according to the fourth category of foreign investment activities mentioned in the Foreign
Investment Law, namely, “investing in any other ways as stipulated under laws, administrative regulations or provisions
of the State Council”, the “actual control” principle (including VIE structures) may be proposed in form of
other laws, administrative regulations or means as stipulated by the State Council. Under these circumstances, if the actual controller
has foreign nationality, the VIE will be regarded as a foreign invested enterprise. Once an entity is designated as a foreign-invested
company, its investment in the PRC will be limited to the scope stated in the Negative List. If the PRC government finds that
the agreements that establish the structure for operating our online consumer finance marketplace business do not comply with
PRC government restrictions on foreign investment in value-added telecommunications services businesses, such as internet content
provision services, we could be subject to severe penalties, including being prohibited from continuing operations.
Insurance
We
do not maintain property insurance policies covering equipment and other property against risks and unexpected events. We provide
social security insurance including pension insurance, unemployment insurance, work-related injury insurance and medical insurance
for our employees. We also maintain a director and officer liability insurance policy for our board directors, executives and
employees. We do not maintain business interruption insurance or general third-party liability insurance, nor do we maintain product
liability insurance or key-man insurance. We consider our insurance coverage to be sufficient for our business operations in China.
Competition
The
online consumer finance marketplace industry in China is intensely competitive and we compete with other consumer finance marketplaces.
In light of the low barriers to entry in the online consumer finance industry, more players may enter this market and increase
the level of competition. We anticipate that more established internet, technology and financial services companies that possess
large, existing user bases, substantial financial resources and established distribution channels may enter the market in the
future.
We
also compete with other financial products and companies that attract borrowers, investors or both. With respect to borrowers,
we compete with other consumer finance marketplaces and traditional financial institutions, such as consumer finance business
units in commercial banks, credit card issuers and other consumer finance companies. With respect to investors, we primarily compete
with other investment products and asset classes, such as equities, bonds, investment trust products, bank savings accounts and
real estate.
Intellectual
Property
We
use a combination of software copyrights, trademarks, patents, domain names and other rights to protect our intellectual property
and our brand.
In
mainland China, we have completed registration of 32 software copyrights with Copyright Protection Center of China as of December
31, 2018. We have registered 41 domain names, are applying for 35 pending patents with National Intellectual Property Administration
and have registered 102 trademarks with Trademark Office of The State Administration for Industry & Commerce of the People’s
Republic of China as of December 31, 2018.
Outside
China, we have registered 64 trademarks in Singapore, the United Kingdom, the European Union, Hong Kong, Australia, and the Philippines,
and are in the process of applying for 261 pending trademarks in the United States, Japan, Canada, South Korea, Australia, New
Zealand and other countries as of December 31, 2018.
In
addition to our intellectual property rights, we believe we maintain a competitive advantage over our peers through our in-depth
knowledge in China’s credit industry and its continuously evolving proprietary technology and know-how.
We
also enter into contracts with our employees and third-party partners to prevent any unauthorized dissemination of our technology.
To
date, we have not experienced any material misappropriation of our intellectual property. Despite our efforts to protect our proprietary
rights, third parties may attempt to use, copy or otherwise obtain and market or distribute our proprietary technology or develop
a similar platform. We cannot be certain that the steps we have taken or will take in the future will prevent misappropriations
of our technology and intellectual property rights.
Facilities
Our
headquarters are located in Beijing. We lease an aggregate of approximately 4,874 square meters (approximately 52,463 square
feet) of office space for our headquarters in Beijing.
Employees
As
of December 31, 2018, we had 902 employees. We cultivate a productive culture for our employees and aim to foster a strong sense
of loyalty and dedication with them. We strive to motivate our employees with a clear career path and opportunities to improve
their skillset. We provide mandatory training to our employees upon hiring and on an ongoing basis as appropriate for their assigned
duties and potential skillset enrichment. In particular, we provide regular training for all operation employees.
Compensation
for our employees typically comprises basic salaries and discretionary bonuses. We provide employees in China with benefits as
required under the relevant laws. We believe our relationship with our employees is good, and have not experienced any material
labor disputes or work stoppages.
As
required by PRC Laws and regulations, we participate in various government statutory employee benefit plans, including a pension
contribution plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan, a maternity
insurance plan and a housing provident fund. We are required under PRC law to contribute 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.
We
enter into standard labor contracts with our employees. We also enter into standard confidentiality and non-compete agreements
with our executive officers.
Legal
Proceedings
We
are currently not a party to any material legal or administrative proceedings. We may from time to time be subject to various
legal or administrative claims and proceedings arising in the ordinary course of business. Litigation or any other legal or administrative
proceeding, regardless of the outcome, may result in additional costs and diversion of our resources, including our management’s
time and attention.
REGULATION
This
section sets forth a summary of the most significant rules and regulations that affect our business activities in China.
As
a consumer lending marketplace connecting investors with private enterprises and individual borrowers, we are regulated by various
government authorities, including but not limited to:
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the
MIIT, which regulates telecommunications and telecommunications-related activities, including, but not limited to, the Internet
information services and other value-added telecommunication services;
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the
PBOC, as the central bank of China, which regulates the formation and implementation of monetary policy, issuing the currency,
supervising the commercial banks and assisting the administration of the financing;
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China
Banking Regulatory Commission (the “CBRC”), which regulates financial institutions and promulgating the regulations
related to the administration of financial institutions.
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Cyberspace
Administration of China (“the CAOC”), which implements the guidelines and policies of internet information communication
and promoting legal construction of internet information communication, guiding, coordinating and urging relevant departments
to strengthen the management of Internet information content and investigating illegal websites according to law.
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National
Internet Finance Association of China (“the NIFA”), which regulates the market behavior of P2P industry institutions,
protecting legitimate rights and interests of the industry, promoting institutions to serve social and economic development
better and guiding healthy operation of the industry through self-regulation and member services.
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Regulations
Relating to Online Consumer Lending
Online
consumer lending is regarded under PRC law as direct loans between parties through an Internet platform, and governed by the PRC
Contract Law, the General Principles of the Civil Law of the PRC, Interim Measures for the Administration of Business Activities
of Online Lending Information Intermediaries, the Guidelines for the Online Lending Fund Depository Business , the Guidelines
for the Administration of Recordation Registration of Online Lending Information Intermediary Institutions, the Guidelines for
the Disclosure of Information on the Business Activities of Online Lending Information Intermediary Institutions and related judicial
interpretations promulgated by the Supreme People’s Court.
Regulations
on Consumer Lending Service Provider
On
July 18, 2015, ten PRC regulatory agencies, including the PBOC, the MIIT and the CBRC, jointly issued the Guidelines on Promoting
the Healthy Development of Internet Finance, or the Guidelines. The Guidelines define online consumer lending as direct loans
between parties through an Internet platform, which is under the supervision of CBRC, and governed by the PRC Contract Law, the
General Principles of the Civil Law of the PRC, and related judicial interpretations promulgated by the Supreme People’s
Court. The Guidelines require that online consumer lending service providers must conduct the followings:
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i.
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act
as an intermediary platform to provide information exchange, matching, credit assessment and other intermediary services which
providing credit enhancement services and/or engage in illegal fund-raising is explicitly prohibited;
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ii.
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complete
registration with the relevant local counterpart of the MIIT in accordance with implementation regulations that may be promulgated
by the MIIT or/and the Office for Cyberspace Affairs pursuant to the Guidelines;
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iii.
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set
up a custody account with a qualified bank in order to deposit, manage and supervise borrower and investor funds, and separate
borrower and investor funds from the funds of the online consumer lending service provider, with that custody account being
subject to independent audits, the results of which must be disclosed to investors and borrowers, all in accordance with implementation
regulations that may be promulgated by the PBOC and other relevant regulatory agencies pursuant to the Guidelines;
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iv.
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fully
disclose all relevant information to customers, including but not limited to the online consumer lending service provider’s
financial status, transaction model, the rights and obligations of customers, and provide customers with reminders of the
risk of loss;
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v.
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not
disseminate any untrue information and conduct any bundle sales;
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vi.
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protect
the personal information of the online consumer lending service provider’s customers from any unauthorized disclosure
and must not sell and/or disclose such information illegally; and
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vii.
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establish
a customer identification program, monitor and report suspicious transactions, preserve customer information and transaction
records, and provide assistance to the public security department and judicial authorities in investigations and proceedings
in relation to anti-money laundering matters.
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On
August 17, 2016, CBRC, MIIT, PBOC and other relevant government authorities published Interim Measures for the Administration
of Business Activities of Online Lending Information Intermediaries, or the Online Lending Information Intermediaries Measures.
The Online Lending Information Intermediaries Measures defines the consumer lending as the direct lending among individuals via
Internet platforms. Individuals shall include natural persons, legal persons and other organizations. The Online Lending Information
Intermediaries Measures also defines the consumer lending information intermediaries as the financial information intermediaries
that specialized in consumer lending information intermediary business. Such intermediaries provide services including information
collection, information release, credit assessment, information exchange, and match of lending, on the Internet as the primary
channel to facilitate the direct lending between borrowers and lenders (creditors). The Online Lending Information Intermediaries
Measures requires that consumer lending information intermediaries must conduct the following concerning filing and registration:
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i.
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register
the record-filing with the local financial regulatory department at the place where it is registered with the industry and
commerce authority by presenting relevant materials within ten working days after obtaining the business license;
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ii.
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after
completing the record-filing with the local financial regulatory departments, apply for telecommunication business operating
licenses pursuant to the relevant provisions of the competent authorities of communications;
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iii.
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shall
be clearly identified as consumer lending information intermediaries in their business scope.
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The
Online Lending Information Intermediaries Measures requires that consumer lending information intermediaries shall not engage
in or be entrusted to engage in any of the following activities:
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i.
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financing
for themselves directly or in a disguised form;
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ii.
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accepting,
collecting or gathering funds of lenders directly or indirectly;
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iii.
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providing
security to lenders or promising break-even principals and interests directly or in a disguised form;
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iv.
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publicizing
or promoting financing projects on other physical premises other than such digital channels as the Internet, fixed-line telephone
or mobile phone by themselves or upon entrustment or authorization of any third party;
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v.
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making
loans, unless otherwise stipulated by laws and regulations;
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vi.
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splitting
the term of any financing project;
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vii.
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raising
funds by issuing such financial products on their own as wealth management products, or selling bank wealth management products,
assets management by securities traders, funds, insurance, trust products or other financial products on a commission basis;
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viii.
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carrying
out business similar to asset-backed securities or conducting the transfer of creditor’s rights in the form of packaged
assets, asset-backed securities, trust assets, and fund units;
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ix.
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engaging
in any form of mixture, bundling or agency with other institutions in investment, sale on a commission basis, brokerage etc.,
unless otherwise permitted by laws, regulations and relevant regulatory provisions on consumer lending;
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x.
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making
up or overstating the authenticity of financing projects and the prospect of profits, concealing flaws and risks in financing
projects, publicizing or promoting in biased language or by other fraudulent means in a false and one-sided way, fabricating
or spreading false or incomplete information to damage others’ business reputation, or misleading lenders or borrowers;
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xi.
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providing
information intermediary services for those highly risky financing projects whose purpose is the investment in stock market,
over-the-counter financing, futures contracts, structured products and other derivatives;
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xii.
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engaging
in equity-based crowd funding etc.; and
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xiii.
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undertaking
other activities prohibited by laws and regulations as well as relevant regulatory provisions on consumer lending.
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The
Online Lending Information Intermediaries Measures provides requirements for consumer lending information intermediaries, such
as business rules and risk management, protection of lenders and borrowers, information disclosure, etc. Consumer lending information
intermediaries shall manage their own funds and funds of lenders and borrowers separately, and select qualified banking financial
institutions as agencies to deposit lenders’ and borrowers’ funds. Local financial regulatory departments shall order
consumer lending information intermediaries to make rectification within a period of no more than 12 months, which may subject
to the adjustment from the relevant regulatory departments from time to time. Any violation of the Online Lending Information
Intermediaries Measures by a consumer lending information intermediary after they come into effect, may subject such consumer
lending information intermediary to certain penalties as determined by applicable laws, and regulations, or by relevant government
authorities if the applicable laws and regulations are silent on the penalties. The applicable penalties may include but not limited
to, criminal liabilities, warning, rectification, tainted integrity record and fines up to RMB30,000 (US$4,425).
On
October 28, 2016, the CBRC, the MIIT and the Industry and Commerce Administration Department, jointly issued the Guidance of Administration,
which provides the general filing rules for online lending intermediaries, and delegates the filing authority to local financial
authorities. Although the Guidance of Administration has not been officially promulgated or launched and also may not be found
from authorized source, it is generally accepted by the industry that it needs to be followed. The Guidance of Administration
sets forth that online lending intermediaries are approved locally. Under the general filing procedures for online lending intermediaries,
before a filing application is submitted to local financial regulators, the online lending intermediaries may be required to:
(i) rectify any breach of applicable regulations as required by local financial regulators; and (ii) apply to the Industry and
Commerce Administration Department to amend or register such entity’s the business scope.
On
February 22, 2017, the CBRC released the Guidelines to the Operation of Depositing Online Lending Funds, or the Guidelines of
Depositing Lending Funds, which provide detailed requirements for setting up a custody account with a qualified bank and depositing
online lending funds. The Guidelines of Depositing Lending Funds define online lending funds as the special lending funds and
related funds deposited by the custodian pursuant to the entrustment of online lending information intermediary (as the principal),
which are formed by borrowers, lenders and guarantors, etc. in their investment and financing activities. The Guidelines of Depositing
Lending Funds define a custodian as a commercial bank that provides custody services for the online lending business.
In
the online lending funds custody business, the principal should perform the following duties:
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i.
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to
be responsible for the continuous development and safe operation of the technical system of the online consumer lending platform;
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ii.
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to
organize the implementation of the information disclosure of the online lending information intermediary, including but not
limited to the basic information of the principal, the information of the lending project, the basic information and operation
of the borrower, the information of the participants, etc., which should be fully disclosed to the custodian;
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iii.
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to
check the accounts with the custodian on a daily basis to ensure the accuracy of the system data;
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iv.
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to
keep the records, account books, statements and other relevant materials of the online lending business, and the relevant
paper or electronic information shall be kept for more than five years after the expiration of the lending contract;
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v.
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to
organize an independent audit of the client’s fund custody account and to disclose the audit results to the client;
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vi.
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to
fulfill and cooperate with the custodian to perform the anti-money laundering obligations; and
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other
duties stipulated in laws, administrative regulations, rules, other regulatory documents and online lending funds deposit
contracts.
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Where
the principal and custodian that have carried out custodian business of online lending funds fail to comply with the requirements
of the Guidelines of Depositing Lending Funds in the business course, they shall effect rectification for a period of no more
than six months, which may subject to the adjustment from the relevant regulatory departments from time to time. Where they fail
to effect rectification within such period, they shall be treated in accordance with the Online Lending Information Intermediaries
Measures and other laws and regulations. In accordance with the Guidelines and the Online Lending Information Intermediaries Measures,
on August 23, 2017, the CBRC issued the Disclosure Guidelines, which stipulate that consumer lending information intermediary
platforms shall disclose relevant information on their websites and other Internet channels, and the Disclosure Guidelines have
provided detailed requirements for such information disclosure. According to the Disclosure Guidelines, to the extent that consumer
lending information intermediary platforms that have provided the services before the issuance of the Disclosure Guidelines are
not in full compliance with the requirements, they are required to make rectification within a six-month rectification period
starting from the date the Disclosure Guidelines was promulgated. For platforms that fail to make such rectification, sanctions
could be imposed by the relevant regulatory departments, including but not limited to, supervision interviews, warning letters,
rectification requests, tainted integrity records, fines of up to RMB30,000 (US$4,425), and criminal liabilities if the act constitutes
a criminal offense.
On
December 1, 2017, the Office of the Leading Group for the Special Campaign against Internet Financial Risks and the Office of
the Leading Group for the Special Campaign against Peer-to-peer Lending Risks issued the Notice on the Regulation and Rectification
of the “Cash Loan” Business (Circular No. 141). The notice comprehensively regulates the “cash loan” business,
including supervision of eligibility, business and the suitability of borrowers. The withdrawal of inventory was arranged as well.
The
Notice requires improvements to the business management of P2P lending information intermediary institutions including
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i.
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Loan
businesses that are not in compliance with the provisions of the law on interest rates shall not be matched directly or in
a disguised manner; it is forbidden to deduct interests, commission fees, management fees, margin from the loan principal
in advance or set high overdue interest, late fee and interest penalty, among others.
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ii.
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Clients’
information collection, selection, credit rating, account opening and other core work shall not be outsourced.
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iii.
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Participation
in P2P lending with the funds of banking financial institutions shall not be matched.
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iv.
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Loan
matching services shall not be provided for any student in school or any borrower without source of repayment or repayment
capacity. “Down payment loans,” real estate off-floor financing and other house purchase financing loans matching
services shall not be provided. Loan matching services without designated use shall not be provided.
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On
December 8, 2017, the Office of the Leading Group for Special Rectification on Risks in P2P Lending issued “Notice on the
Rectification, Remediation and Acceptance for Risks of P2P Online Lending” (Circular No. 57) to Local Joint Work Office
for P2P Rectification. The Notice requires that assignment of filing and registration of principal P2P institutions shall be mainly
accomplished by local authorities within their jurisdiction by the end of April in 2018 and shall be fully finished by the end
of June in 2018. Key issues include transfer of creditors’ rights, provisions for risks, depository of the funds shall be
explained further. On August 18, 2018, the Office of the Leading Group for Special Rectification on Risks in P2P Lending issued
“Notice on the Compliance Inspection for P2P Online Lending Institutions” and “Checklist of Compliance Inspection
of P2P” to Local Joint Work Office for P2P Rectification and IFAC and listed 108 detailed rules. It requires that compliance
inspection, like self-inspection, self-discipline inspection and administrative inspection shall be accomplished by the end of
December 2018. Local standards for rectification and acceptance shall be unified to resolve the problems of regulatory arbitrage
caused by different local standards.
According
to Opinions on Operating Well in Classified Disposition and Risk Prevention of Online Credit Institutions, or Circular 175, promulgated
by the Head Office for Special Rectification of Online Finance Risk and Head Office for Special Rectification of Peer-to-Peer
Online Lending on December 19th, 2018, P2P online lending intermediaries are classified as risk-emerged institutions, which include
registered and non-registered, and risk-emerging institutions, which include zombie institutions, small institutions and large
institutions. Within the category of large risk-emerging institutions, there are normal institutions and high-risk institutions.
Institution containing one of the five following factors would be deemed as a high-risk institution, five factors as follows:
(i) exist self-financing, fake tender or uncertain capital flow conditions; (ii) more than 10% of all loans are overdue; (iii)
generated many negative public opinions and petitions; (iv) refuse inspections or do not cooperate in inspections; (v) conduct
one vote veto in regulation compliance. Normal institutions are required to clean up all illegal businesses and leave no hidden
dangers and risks. Large risk-emerging institutions shall conduct market cleaning mechanism, and strive to achieve positive exits.
There are four prohibitions on actions of financing institutions stated in Circular 175. Financing institutions are prohibited
to (i) financing through Online Credit Institutions; (ii) provide guarantee for Online Credit Institutions; (iii) accept investments
from Online Credit Institutions; (iv) sell products of Online Credit Institutions.
Compliance
Status
Pursuant
to the requirements of the abovementioned Notice, Beijing Oriental already submitted self-inspection report and related materials
of “Checklist” for self-discipline inspection and administrative inspection to the Office of the Leading Group for
Special Rectification on Risks in P2P Lending through Jin-Guan-Tong System on October 14, 2018.
Pursuant
to the requirements of the abovementioned Notice, Beijing Oriental already submitted self-inspection report, self-correction report
and related materials to National Internet Finance Association of China through the System of National Internet Finance Association
of China on October 19, 2018.
Our
marketplace serves as an information intermediary between borrowers and lenders and we are not a party to the loans facilitated
through our marketplace. We believe that 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 the Online Lending Information Intermediaries
Measures, and avoid conducting any activities that may be deemed as illegal fund-raising under the current applicable laws and
regulations. However, due to the lack of detailed regulations and guidance in the area of consumer lending services and the possibility
that the PRC government authority may promulgate new laws and regulations regulating consumer lending services in the future,
we cannot assure you that our practice would not be deemed to violate any PRC laws or regulations, especially relating to illegal
fund-raising, credit enhancement services and/or information disclosure. If our practice is deemed to violate any PRC laws or
regulations, our business, financial conditions and results of operations would be materially and adversely affected.
Regulations
on Loans between Individuals
The
PRC Contract Law governs the formation, validity, performance, enforcement and assignment of contracts. The PRC Contract Law confirms
the validity of loan agreements between individuals and provides that the loan agreement becomes effective when the individual
lender provides the loan to the individual borrower. The PRC Contract Law requires that the interest rates charged under the loan
agreement must not violate the applicable provisions of the PRC laws and regulations. In accordance with the Provisions on Several
Issues Concerning Laws Applicable to Trials of Private Lending Cases issued by the Supreme People’s Court on August 6, 2015,
or the Private Lending Judicial Interpretations, which came into effect on September 1, 2015, private lending is defined as financing
between individuals, legal entities and other organizations. When private loans between individuals are paid by wire transfer,
through online consumer lending platforms or by other similar means, the loan contracts between individuals are deemed to be validated
upon the deposit of funds to the borrower’s account. In the event that the loans are made through an online consumer lending
platform and the platform only provides intermediary services, the courts shall dismiss the claims of the parties concerned against
the platform demanding the repayment of loans by the platform as guarantors. However, if the online consumer lending service provider
guarantees repayment of the loans as evidenced by its web page, advertisements or other media, or the court is provided with other
proof, the lender’s claim alleging that the consumer lending service provider shall assume the obligations of a guarantor
will be upheld by the courts. The Private Lending Judicial Interpretations also provide that agreements between the lender and
borrower on loans with interest rates (including penalty and other costs thereof) no more than 24% per annum are valid and enforceable.
As to loans with interest rates per annum over 24% but no more than 36%, if the interest on the loans has already been paid to
the lender, and so long as such payment has not damaged the interest of the state, the community and any third parties, the courts
will not find the merit in the borrower’s demand for the return of the interest payment on the ground of invalidity. If
the annual interest rate of a private loan is higher than 36%, the interest that in excess of 36% will not be upheld by the courts.
All the loan transactions facilitated over our marketplace are between individuals currently. The APRs for the term loans on our
marketplace currently range from 7% to 36%. The interest rate does not and is not expected to exceed the mandatory limit for loan
interest rates.
Pursuant
to the PRC Contract Law, a creditor may assign its rights under an agreement to a third party, provided that the debtor is notified.
Upon due assignment of the creditor’s rights, the assignee is entitled to the creditor’s rights and the debtor must
perform the relevant obligations under the agreement for the benefit of the assignee. We allow investors to transfer the loans
they hold to other investors before the loan reaches maturity. To facilitate the assignment of the loans, the template loan agreement
applicable to the lenders and borrowers on our platform specifically provides that a lender has the right to assign his/her rights
under the loan agreement to any third parties and the borrower agrees to such assignment.
In
addition, according to the PRC Contract Law, an intermediation contract is a contract whereby an intermediary presents to its
client an opportunity for entering into a contract or provides the client with other intermediary services in connection with
the conclusion of a contract, and the client pays the intermediary service fees. Our business of connecting investors with individual
borrowers may constitute intermediary service, and our service agreements with borrowers and investors may be deemed as intermediation
contracts under the PRC Contract Law. Pursuant to the PRC Contract Law, an intermediary must provide true information relating
to the proposed contract. If an intermediary conceals any material fact intentionally or provides false information in connection
with the conclusion of the proposed contract, which results in harm to the client’s interests, the intermediary may not
claim for service fees and is liable for the damages caused. The Interim Measures for the Administration of Business Activities
of Online Lending Information Intermediaries provides detailed requirements for Consumer Lending Information Intermediaries.
Regulations
on Illegal Fund-Raising
Raising
funds by entities or individuals from the general public must be conducted in strict compliance with applicable PRC laws and regulations
to avoid administrative and criminal liabilities. The Measures for the Banning of Illegal Financial Institutions and Illegal Financial
Business Operations promulgated by the State Council in July 1998, and the Notice on Relevant Issues Concerning the Penalty on
Illegal Fund-Raising issued by the General Office of the State Council in July 2007, explicitly prohibit illegal public fund-raising.
The main features of illegal public fund-raising include: (i) illegally soliciting and raising funds from the general public by
means of issuing stocks, bonds, lotteries or other securities without obtaining the approval of relevant authorities, (ii) promising
a return of interest or profits or investment returns in cash, properties or other forms within a specified period of time, and
(iii) using a legitimate form to disguise on unlawful purpose.
To
further clarify the criminal charges and punishments relating to illegal public fund-raising, the Supreme People’s Court
promulgated the Judicial Interpretations to Issues Concerning Applications of Laws for Trial of Criminal Cases on Illegal Fund-Raising,
or the Illegal Fund-Raising Judicial Interpretations, which came into force in January 2011. The Illegal Fund-Raising Judicial
Interpretations provide that a public fund-raising will constitute a criminal offense related to “illegally soliciting deposits
from the public” under the PRC Criminal Law, if it meets all the following four criteria: (i) the fund-raising has not been
approved by the relevant authorities or is concealed under the guise of legitimate acts; (ii) the fund-raising employs general
solicitation or advertising such as social media, promotion meetings, leafleting and SMS advertising; (iii) the fundraiser promises
to repay, after a specified period of time, the capital and interests, or investment returns in cash, properties in kind and other
forms; and (iv) the fund-raising targets the general public as opposed to specific individuals. An illegal fund-raising activity
can incur a fine or prosecution in the event it constitutes a criminal offense. Pursuant to the Illegal Fund-Raising Judicial
Interpretations, an offender that is an entity will be subject to criminal liabilities, if it illegally solicits deposits from
the general public or illegally solicits deposits in disguised form (i) with the amount of deposits involved exceeding RMB1,000,000
(US$147,507.9), (ii) with over 150 fund-raising targets involved, or (iii) with direct economic loss caused to fund-raising targets
exceeding RMB500,000 (US$73,753.9), or (iv) the illegal fund-raising activities have caused baneful influences to the public or
have led to other severe consequences. An individual offender is also subject to criminal liabilities but with lower thresholds.
In addition, an individual or an entity who has aided in illegal fund-raising from the general public and charges fees including
but not limited to agent fees, rewards, rebates and commission, may be considered an accomplice in the crime of illegal fund-raising.
In accordance with the Opinions of the Supreme People’s Court, the Supreme People’s Procurator and the Ministry of
Public Security on Several Issues concerning the Application of Law in the Illegal Fund-Raising Criminal Cases, the administrative
proceeding for determining the nature of illegal fund-raising activities is not a prerequisite procedure for the initiation of
criminal proceedings concerning the crime of illegal fund-raising, and the administrative departments’ failure in determining
the nature of illegal fund-raising activities does not affect the investigation, prosecution and trial of cases concerning the
crime of illegal fund-raising.
Regulations
Relating to Foreign Investment
The
PRC Foreign Investment Law
In
January 2015, the MOFCOM published a discussion draft of the proposed Foreign Investment Law for public review and comments (the
“2015 Draft Foreign Investment Law”). The 2015 Draft Foreign Investment Law purports to change the existing “case-by-case”
approval regime to a “filing or approval” procedure for foreign investments in China. The State Council will determine
a list of industry categories that are subject to special administrative measures, which is referred to as a “negative list,”
consisting of a list of industry categories where foreign investments are strictly prohibited, or the “prohibited list”
and a list of industry categories where foreign investments are subject to certain restrictions, or the “restricted list.”
Foreign investments in business sectors outside of the “negative list” will only be subject to a filing procedure,
in contrast to the existing prior approval requirements, whereas foreign investments in any industry categories that are on the
“restricted list” must apply for approval from the foreign investment administration authority.
The
2015 Draft Foreign Investment Law for the first time defines a foreign investor not only based on where it is incorporated or
organized, but also by using the standard of “actual control.” The 2015 Draft Foreign Investment Law specifically
provides that entities established in China, but “controlled” by foreign investors will be treated as FIEs. Once an
entity is considered to be an FIE, it may be subject to the foreign investment restrictions in the “restricted list”
or prohibitions set forth in the “prohibited list.” If an FIE proposes to conduct business in an industry subject
to foreign investment restrictions in the “restricted list,” the FIE must go through market entry clearance approvals
by the MOFCOM before it can be established. If an FIE proposes to conduct business in an industry subject to foreign investment
prohibitions in the “prohibited list,” it must not engage in the business. However, an FIE that conducts business
in an industry that is in the “restricted list,” upon market entry clearance, may apply in writing for being treated
as a PRC domestic investment if it is ultimately “controlled” by PRC government authorities and its affiliates and/or
PRC citizens. According to the 2015 Draft Foreign Investment Law, variable interest entities would also be deemed as FIEs, if
they are ultimately “controlled” by foreign investors, and be subject to restrictions on foreign investments. However,
the 2015 Draft Foreign Investment Law has not taken a position on what actions will be taken with respect to the existing companies
with the “variable interest entity” structure, whether or not these companies are controlled by Chinese parties.
The
2015 Draft Foreign Investment Law emphasizes on security review requirements, whereby all foreign investments that jeopardize
or may jeopardize national security must be reviewed and approved in accordance with the security review procedure. In addition,
the 2015 Draft Foreign Investment Law imposes stringent ad hoc and periodic information reporting requirements on foreign investors
and the applicable FIEs. Aside from the investment implementation report and the investment amendment report that are required
at each investment and alteration of specific investment terms, an annual report is mandatory, and large foreign investors meeting
certain criteria are required to report on a quarterly basis. Any company found to be non-compliant with these information reporting
obligations may potentially be subject to fines and/or administrative or criminal liabilities, and the persons directly responsible
may be subject to criminal liabilities.
On
September 3, 2016, the Standing Committee of the National People’s Congress published the Decision of the Standing Committee
of the National People’s Congress on Amending Four Laws including the Law of the People’s Republic of China on Wholly
Foreign-Owned Enterprises. The decision provides that wholly foreign-owned enterprises, Chinese-Foreign equity joint ventures
and Chinese-Foreign contractual joint ventures which formation do not involve the implementation of special access management
measures as prescribed by the state shall be subject to post-filing administration instead of prior approval administration.
On
December 26, 2018, National People’s Congress published the Foreign Investment Law of the People’s Republic of China
(the “2018 Draft Foreign Investment Law”) on its official website aiming to solicit public opinions.
On
March 15, 2019, the Foreign Investment Law was adopted by the NPC and will come into effect on January 1, 2020. The Foreign Investment
Law stipulates that the Negative List for the access of foreign investment is divided into “prohibited investment areas”
and “restricted investment areas”. However, the Foreign Investment Law does not specify the scope of business which
are included in the fields of restricted investment and prohibited investment. Although the Foreign Investment Law did not mention
the principle of “actual control” (including VIE structures) as stipulated in the Draft Foreign Investment Law 2015,
according to the fourth category of foreign investment activities mentioned in the Foreign Investment Law, namely, “investing
in any other ways as stipulated under laws, administrative regulations or provisions of the State Council”, the “actual
control” principle (including VIE structures) may be proposed in form of other laws, administrative regulations or means
as stipulated by the State Council. Under these circumstances, if the actual controller has foreign nationality, the VIE will
be regarded as a foreign invested enterprise. Once an entity is designated as a foreign-invested company, its investment in the
PRC will be limited to the scope stated in the Negative List.
When
the Foreign Investment Law becomes effective, the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign
Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested
Enterprise Law, together with their implementation rules and ancillary regulations, will be abolished. See “Risk Factors—Risks
Relating to Our Corporate Structure—The enactment of the Foreign Investment Law may materially and adversely affect our
business and financial condition.”
Industry
Catalog Relating to Foreign Investment
Investment
activities in the PRC by foreign investors are principally governed by the Guidance Catalog of Industries for Foreign Investment,
or the Catalog, which was promulgated and amended from time to time by the MOFCOM and the National Development and Reform Commission.
Industries listed in the Catalog are divided into three categories: encouraged, restricted and prohibited. Industries not listed
in the Catalog are generally deemed as constituting a fourth “permitted” category. Establishment of wholly foreign-owned
enterprises is generally allowed in encouraged and permitted industries. Some restricted industries are limited to equity or contractual
joint ventures, while in some cases Chinese partners are required to hold the majority interests in such joint ventures. In addition,
restricted category projects are subject to higher-level government approvals. Foreign investors are not allowed to invest in
industries in the prohibited category. Industries not listed in the Catalog are generally open to foreign investment unless specifically
restricted by other PRC regulations.
NCF’s
subsidiaries are mainly engaged in providing investment and financing consultations and technical services, which fall into the
“permitted” category under the Catalog. NCF believes that its PRC subsidiaries have obtained all material approvals
required for its business operations. However, industries such as value-added telecommunication services (except e-commerce),
including Internet information services, are restricted from foreign investment. We provide the value-added telecommunication
services that are in the “restricted” category.
On
June 28, 2017, the MOFCOM and the National Development and Reform Commission (“the NDRC”) promulgated Catalogue of
Industries for Guiding Foreign Investment, that came into effect on July 28, 2017, under which the investment and financing consultations
fall into the “permitted” category. On June 28, 2018, the MOFCOM and the NDRC promulgated Special Management Measures
for the Market Entry of Foreign Investment (Negative List), that came into effect on July 28, 2018), under which value-added telecommunication
services (except e-commerce) fall into “restricted” category.
Foreign
Investment in Value-Added Telecommunication Services
The
Provisions on Administration of Foreign Invested Telecommunications Enterprises promulgated by the State Council in December 2001
and subsequently amended in September 2008 prohibit a foreign investor from owning more than 50% of the total equity interest
in any value-added telecommunications service business in China and require the major foreign investor in any value-added telecommunications
service business in China to have a good and profitable record and operating experience in this industry. Catalogue of Industries
for Guiding Foreign Investment (2017 Revision) allows a foreign investor to own more than 50% of the total equity interest in
an E-Commerce business.
In
July 2006, the Ministry of Information Industry, the predecessor of the MIIT, issued the Circular on Strengthening the Administration
of Foreign Investment in the Operation of Value-added Telecommunications Business, pursuant to which a domestic PRC company that
holds an operating license for value-added telecommunications business, which we refer to as a VATS License, is prohibited from
leasing, transferring or selling the VATS License to foreign investors in any form and from providing any assistance, including
resources, sites or facilities, to foreign investors that conduct a value-added telecommunications business illegally in China.
Further, the domain names and registered trademarks used by an operating company providing value-added telecommunications services
must be legally owned by that company or its shareholders. In addition, the VATS License holder must have the necessary facilities
for its approved business operations and to maintain the facilities in the regions covered by its VATS License.
Anti-money
Laundering Regulations
The
PRC Anti-money Laundering Law, which became effective in January 2007, sets forth the principal anti-money laundering requirements
applicable to financial institutions as well as non-financial institutions with anti-money laundering obligations, including the
adoption of precautionary and supervisory measures, establishment of various systems for client identification, retention of clients’
identification information and transactions records, and reports on large transactions and suspicious transactions. According
to the PRC Anti-money Laundering Law, financial institutions subject to the PRC Anti-money Laundering Law include banks, credit
unions, trust investment companies, stock brokerage companies, futures brokerage companies, insurance companies and other financial
institutions as listed and published by the State Council, while the list of the non-financial institutions with anti-money laundering
obligations will be published by the State Council. The PBOC and other governmental authorities issued a series of administrative
rules and regulations to specify the anti-money laundering obligations of financial institutions and certain non-financial institutions,
such as payment institutions. However, the State Council has not promulgated the list of the non-financial institutions with anti-money
laundering obligations.
The
Guidelines, the Online Lending Information Intermediaries Measures and the Guidelines of Custodian Lending Funds require Internet
finance service providers, including online consumer lending platforms to comply with certain anti-money laundering requirements,
including the establishment of a customer identification program, the monitoring and reporting of suspicious transactions, the
preservation of customer information and transaction records, and the provision of assistance to the public security department
and judicial authority in investigations and proceedings in relation to anti-money laundering matters. The PBOC will formulate
implementing rules to further specify the anti-money laundering obligations of Internet finance service providers.
In
cooperation with our partnering custodian banks and payment companies, we have adopted various policies and procedures, such as
internal controls and “know-your-customer” procedures, for anti-money laundering purposes. However, as the detailed
anti-money laundering regulations of Internet finance service providers have not been published, there is uncertainty as to how
the anti-money laundering requirements will be interpreted and implemented, and whether online consumer lending service providers
like ourselves must abide by the rules and procedures set forth in the PRC Anti-money Laundering Law that are applicable to non-financial
institutions with anti-money laundering obligations. We cannot assure you that our existing anti-money laundering policies and
procedures will be deemed to be in full compliance with any anti-money laundering laws and regulations that may become applicable
to us in the future.
Regulations
on Value-Added Telecommunication Services
The
Telecommunications Regulations promulgated by the State Council and its related implementation rules, including the Catalog of
Classification of Telecommunications Business issued by the MIIT, categorize various types of telecommunications and telecommunications-related
activities into basic or value-added telecommunications services, and Internet information services, or ICP services, and on-line
data processing and transaction processing services, are classified as value-added telecommunications businesses. In 2009, the
MIIT promulgated the Administrative Measures on Telecommunications Business Operating Licenses, which set forth more specific
provisions regarding the types of licenses required to operate value-added telecommunications services, the qualifications and
procedures for obtaining such licenses and the administration and supervision of such licenses. Under these regulations, a commercial
operator of value-added telecommunications services must first obtain a license for value-added telecommunications business, or
VATS License, from the MIIT or its provincial level counterparts.
In
September 2000, the State Council also issued the Administrative Measures on Internet Information Services, which was amended
in January 2011. Pursuant to these measures, “Internet information services” refer to provision of Internet information
to online users, and are divided into “commercial Internet information services” and “non-commercial Internet
information services.” A commercial Internet information services operator must obtain a VATS License for Internet information
services, or ICP License, from the relevant government authorities before engaging in any commercial Internet information services
operations in China. The ICP License has a term of five years and application for renewal shall be submitted to the original license
issuing authority 90 days before expiration.
Online
Lending Information Intermediaries Measures requires consumer lending information intermediaries apply for telecommunication business
operating licenses pursuant to the relevant provisions of the competent authorities of communications. As the detailed provisions
for such telecommunication business operating licenses has not been published, there is uncertainty as to which type of license
is required for consumer lending information intermediaries.
Regulations
on Internet Information Security
Internet
information in China is also regulated and restricted from a national security standpoint. The National People’s Congress,
China’s national legislative body, has enacted the Decisions on Maintaining Internet Security, which may subject violators
to criminal punishment in China for any effort to: (i) gain improper entry into a computer or system of strategic importance;
(ii) disseminate politically disruptive information; (iii) leak state secrets; (iv) spread false commercial information; or (v)
infringe intellectual property rights. The Ministry of Public Security has promulgated measures that prohibit use of the Internet
in ways which, among other things, result in a leakage of state secrets or a spread of socially destabilizing content. If an Internet
information service provider violates these measures, the Ministry of Public Security and the local security bureaus may revoke
its operating license and shut down its websites. On November 7, 2016, Standing Committee of the National People’s Congress
published Cyber Security Law of the PRC (will be effective on June 1, 2017), which requires network operators to take technical
measures and other necessary measures to ensure the secure and stable operation of the network, effectively respond to cyber security
incidents, prevent illegal crimes committed on the network, and maintain the integrity, confidentiality and availability of cyber
data.
In
addition, the Guidelines require Internet finance service providers, including consumer lending platforms, among other things,
to improve technology security standards, and safeguard customer and transaction information. The PBOC and other relevant regulatory
authorities will jointly adopt the implementing rules and technology security standards. The Online Lending Information Intermediaries
Measures requires consumer lending information intermediaries to take the following measures:
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i.
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according
to the relevant national provisions on cyberspace security and the graded protection system for national information security,
carry out the grading record-filing and class testing for information system, have sophisticated cyberspace security facilities,
such as firewall, and those facilities for intrusion detect, data encryption, and disaster recovery, as well as relevant management
systems of such facilities, establish relevant systems with regard to information technology management, technology risk management,
and technology auditing, allocate sufficient resources, take thorough management and control measures and technological means
to ensure the safe and steady operation of the information system, and protect the security of the information of lenders
and borrowers;
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ii.
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record
and retain the Internet access logs of both parties involved in lending, information interaction and other data for a period
of five years after the expiration of loan contracts, and shall give a comprehensive security evaluation at least once every
two years, and accept the information security inspection and auditing of the state or competent authorities of the industry;
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iii.
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establish
or adopt application-level disaster recovery systems and facilities compatible with their business scales within two years
after their establishment.
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iv.
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enhance
the business cooperation with the operating organizations of financial credit information basic database and credit reporting
agencies, and provide, access and use the relevant financial credit information according to law;
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v.
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consumer
lending information intermediaries which use the digital authentication systems of third parties shall evaluate the third-party
digital authentication organizations regularly so as to ensure the safety, reliability and independence of the relevant authentications;
and
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vi.
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adopt
proper methods and technologies to record and safe keep data and materials on consumer lending activities and back up data
carefully. Such data and materials shall be kept for a certain period that meets the requirements of laws and regulations
as well as the relevant regulatory provisions on consumer lending. Loan contracts shall be kept for at least five years after
their expiry.
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Regulations
on Privacy Protection
In
recent years, PRC government authorities have enacted laws and regulations on Internet use to protect personal information from
any unauthorized disclosure. Under the Several Provisions on Regulating the Market Order of Internet Information Services issued
by the MIIT in December 2011, an ICP service operator may not collect any user personal information or provide any such information
to third parties without the consent of the user. An ICP service operator must expressly inform 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
the provision of its services. An ICP service operator is also required to properly maintain the user personal information, and
in case of any leak or likely leak of the user personal information, the ICP service operator must take immediate remedial measures
and, in severe circumstances, make an immediate report to the telecommunications regulatory authority. In addition, pursuant to
the Decision on Strengthening the Protection of Online Information issued by the Standing Committee of the National People’s
Congress in December 2012 and the Order for the Protection of Telecommunication and Internet User Personal Information issued
by the MIIT in July 2013, any collection and use of user personal information must be subject to the consent of the user, abide
by the principles of legality, rationality and necessity and be within the specified purposes, methods and scopes. An ICP service
operator must also keep such information strictly confidential, and is further prohibited from divulging, tampering or destroying
any such information, or selling or providing such information to other parties. An ICP service operator is required to take technical
and other measures to prevent the collected personal information from any unauthorized disclosure, damage or loss. Any violation
of these laws and regulations may subject the ICP service operator to warnings, fines, confiscation of illegal gains, revocation
of licenses, cancellation of filings, closedown of websites or even criminal liabilities. The Cyber Security Law of the PRC (effective
on June 1, 2017) requires that network operators shall strictly keep confidential users’ personal information that they
have collected, and establish and improve the users’ information protection system. The Guidelines also prohibit Internet
finance service providers, including online consumer lending platforms, from illegally selling or disclosing customers’
personal information. The PBOC and other relevant regulatory authorities will jointly adopt the implementing rules. Pursuant to
the Ninth Amendment to the Criminal Law issued by the Standing Committee of the National People’s Congress in August 2015
and becoming effective in November, 2015, any Internet service provider that fails to fulfill the obligations related to Internet
information security administration as required by applicable laws and refuses to rectify upon orders, shall be subject to criminal
penalty for the result of (i) any dissemination of illegal information in large scale; (ii) any severe effect due to the leakage
of the client’s information; (iii) any serious loss of criminal evidence; or (iv) other severe situation, and any individual
or entity that (i) sells or provides personal information to others in a way violating the applicable law, or (ii) steals or illegally
obtain any personal information, shall be subject to criminal penalty in severe situation. The Online Lending Information Intermediaries
Measures requires the consumer lending information intermediaries as well as the fund custodian agencies and other outsourcing
service providers to keep confidential the lenders’ and borrowers’ information collected in the course of their business,
and they shall not use such information for any other purpose except for services they provide without approval of lenders or
borrowers.
In
operating our online consumer finance marketplace, we collect certain personal information from borrowers and investors, and also
share the information with our business partners such as third-party online payment companies and loan collection service providers
for the purpose of facilitating loan transactions between borrowers and investors over our marketplace. We have obtained consent
from the borrowers and investors on our marketplace to collect and use their personal information, and have also established information
security systems to protect the user information and privacy. However, there is uncertainty as to how the requirements for protecting
customers’ personal information in the Guidelines and Online Lending Information Intermediaries Measures will be interpreted
and implemented. We cannot assure you that our existing policies and procedures will be deemed to be in full compliance with any
laws and regulations that may become applicable to us in the future.
Regulation
on Intellectual Property Rights
The
PRC has adopted comprehensive legislation governing intellectual property rights, including trademarks. The PRC Trademark Law
and its implementation rules protect registered trademarks. The PRC Trademark Law has adopted a “first-to-file” principle
with respect to trademark registration. The Trademark Office under the State Administration of Industry and Commerce is responsible
for the registration and administration of trademarks throughout the PRC, and grants a term of ten years to registered trademarks
and another ten years if requested upon expiry of the initial or extended term. Trademark license agreements must be filed with
the Trademark Office for record. As of the date of this report, we have 102 registered trademarks and no trademark application
pending registration of transfer with the Trademark Office under the State Administration for Industry and Commerce.
Regulations
Relating to Indirect Transfers and Dividend Withholding Tax
Pursuant
to the EIT Law and its implementation rules, if a non-resident enterprise has not set up an organization or establishment in the
PRC, or has set up an organization or establishment but the income derived has no actual connection with such organization or
establishment, it will be subject to a withholding tax on its PRC-sourced income at a rate of 10%. In connection with the EIT
Law, the SAT issued Circular 698, which became effective as of January 1, 2008 (and was abolished on December 1, 2017), Circular
59 on April 30, 2009, and the SAT Announcement 7, on February 3, 2015. By promulgating and implementing the above, the PRC tax
authorities have strengthened their scrutiny over the direct or indirect transfer of equity interest in a PRC resident enterprise
by a non-PRC resident enterprise. Pursuant to SAT Announcement 7, if a non-resident enterprise, or referred to as a transferor,
transfers its equity in an offshore enterprise which directly or indirectly owns PRC taxable assets, including ownership interest
in PRC resident companies or the Taxable Properties, without a “reasonable commercial purpose”, such transfer shall
be deemed as a direct transfer of such Taxable Properties. The payer, or referred as a transferee, in such transfer shall be the
withholding agent, and is obligated to withhold and remit the enterprise income tax to the relevant PRC tax authority. If a transferor
fails to declare for payment timely or in full of the tax due on proceeds from indirect transfer of PRC taxable assets and the
withholding agent also fails to withhold such tax, the tax authority shall, in addition to supplementary collection of such tax,
also charge for interest on a daily basis from the transferor according to the EIT Law and its implementation rules. Factors that
may be taken into consideration when determining whether there is a reasonable commercial purpose include, among other factors,
the value of the transferred equity, offshore taxable situation of the transaction, the offshore structure’s economic essence
and duration and trading fungibility. If an equity transfer transaction satisfies all the requirements mentioned above, such transaction
will be considered an arrangement with reasonable commercial purpose.
Pursuant
to the Double Taxation Avoidance Arrangement and the Prevention of Fiscal Evasion with Respect to Taxes on Income signed by State
Administration of Taxation and Government of the Hong Kong Special Administrative Region, the withholding tax rate in respect
to the payment of dividends by a PRC enterprise to a Hong Kong enterprise is reduced to 5% from a standard rate of 10% if the
Hong Kong enterprise directly holds at least 25% of the PRC enterprise. Pursuant to Circular 81, a Hong Kong resident enterprise
must meet the following conditions, among others, in order to enjoy the reduced withholding tax: (i) it must be the beneficial
owners of the relevant dividends; and (ii) it must have directly owned at least 25% of the PRC resident enterprise throughout
the 12 months prior to receiving the dividends. However, a transaction or arrangement entered into for the primary purpose of
enjoying a favorable tax treatment should not be a reason for the application of the favorable tax treatment under the Double
Taxation Avoidance Arrangement. If a taxpayer inappropriately is entitled to such favorable tax treatment, the competent tax authority
has the power to make appropriate adjustments. In August 2015, the State Administration of Taxation promulgated Circular 60, which
became effective on November 1, 2015. Circular 60 provides that non-resident enterprises are not required to obtain pre-approval
from the relevant tax authority in order to enjoy the reduced withholding tax rate. Instead, non-resident enterprises and their
withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are
met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings,
which will be subject to post-tax filing examinations by the relevant tax authorities. However, if a competent tax authority finds
out that it is necessary to apply the general anti-tax avoidance rules, it may start general investigation procedures for anti-tax
avoidance and adopt corresponding measures for subsequent administration.
Regulations
Relating to Foreign Exchange
Regulation
on Foreign Currency Exchange
The
principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, most recently
amended in August 2008. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions,
interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior
approval from SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate
government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital
account items, such as direct investments, repayment of foreign currency-denominated loans, repatriation of investments and investments
in securities outside of China. On February 28, 2015, the SAFE promulgated the Notice on Further Simplifying and Improving the
Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Notice 13. After SAFE Notice 13 became effective
on June 1, 2015, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas
direct investment from SAFE, entities and individuals will be required to apply such foreign exchange registrations with qualified
banks. The qualified banks, under the supervision of the SAFE, will directly examine the applications and conduct the registration.
In
August 2008, SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the
Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142, regulating the conversion
by a foreign-invested enterprise of foreign currency-registered capital into RMB by restricting how the converted RMB may be used.
SAFE Circular 142, provides that the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise
may only be used for purposes within the business scope approved by the applicable government authority and may not be used for
equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted
from foreign currency registered capital of foreign-invested enterprises. The use of such RMB capital may not be changed without
SAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have
not been used. Violations may result in severe monetary or other penalties.
In
November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign
Direct Investment, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular,
the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange
capital accounts and guarantee accounts, the reinvestment of RMB proceeds derived by foreign investors in the PRC, and remittance
of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval
or verification of SAFE; multiple capital accounts for the same entity may be opened in different provinces, which was not possible
previously. In addition, SAFE promulgated another circular in May 2013, which specifies that the administration by SAFE or its
local branches over direct investment by foreign investors in the PRC must be conducted by way of registration and banks must
process foreign exchange business relating to the direct investment in the PRC based on the registration information provided
by SAFE and its branches.
In
July 2014, SAFE issued SAFE Circular 36, which purports to reform the administration of settlement of the foreign exchange capitals
of foreign-invested enterprises in certain designated areas on a trial basis. Under the pilot program, some of the restrictions
under SAFE Circular 142 will not apply to the settlement of the foreign exchange capitals of the foreign-invested enterprises
established within the designated areas and the enterprises are allowed to use its RMB capital converted from foreign exchange
capitals to make equity investment. However, NCF’s PRC subsidiaries are not established within the designated areas. On
March 30, 2015, the SAFE promulgated Circular 19, to expand the reform nationwide. Circular 19 came into force and replaced both
Circular 142 and Circular 36 on June 1, 2015. Circular 19 allows foreign-invested enterprises to conduct equity investments by
using RMB fund converted from foreign exchange capital. However, Circular 19 continues to, prohibit foreign-invested enterprises
from, among other things, using RMB fund converted from its foreign exchange capitals for expenditure beyond its business scope,
providing entrusted loans or repaying loans between non-financial enterprises.
On
June 9, 2016, the SAFE promulgated Circular 16, which expands the application scope from only the capital of the foreign-invested
enterprises to the capital, the foreign debt fund and the fund from oversea public offering. Also, Circular 16 allows the enterprises
to use their foreign exchange capitals under capital account allowed by the relevant laws and regulations.
Regulations
on Foreign Exchange Registration of Overseas Investment by PRC Residents
SAFE
issued the SAFE Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment
through Special Purpose Vehicles, or SAFE Circular 37, that became effective in July 2014, replacing the previous SAFE Circular
75. SAFE Circular 37 regulates foreign exchange matters in relation to the use of special purpose vehicles, or SPVs, by PRC residents
or entities to seek offshore investment and financing or conduct round trip investment in China. Under SAFE Circular 37, a SPV
refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of
seeking offshore financing or making offshore investment, using legitimate onshore or offshore assets or interests, while “round
trip investment” refers to direct investment in China by PRC residents or entities through SPVs, namely, establishing foreign-invested
enterprises to obtain the ownership, control rights and management rights. SAFE Circular 37 provides that, before making contribution
into an SPV, PRC residents or entities are required to complete foreign exchange registration with SAFE or its local branch. SAFE
promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment
in February 2015, which took effect on June 1, 2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities
to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an
offshore entity established for the purpose of overseas investment or financing.
PRC
residents or entities who had contributed legitimate onshore or offshore interests or assets to SPVs but had not obtained registration
as required before the implementation of the SAFE Circular 37 must register their ownership interests or control in the SPVs with
qualified banks. An amendment to the registration is required if there is a material change with respect to the SPV registered,
such as any change of basic information (including change of the PRC residents, name and operation term), increases or decreases
in investment amount, transfers or exchanges of shares, and mergers or divisions. Failure to comply with the registration procedures
set forth in SAFE Circular 37 and the subsequent notice, or making misrepresentation on or failure to disclose controllers of
the foreign-invested enterprise that is established through round-trip investment, may result in restrictions being imposed on
the foreign exchange activities of the relevant foreign-invested enterprise, including payment of dividends and other distributions,
such as proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent or affiliate, and the capital
inflow from the offshore parent, and may also subject relevant PRC residents or entities to penalties under PRC foreign exchange
administration regulations.
Regulations
on Dividend Distribution
The
principal regulations governing distribution of dividends of foreign-invested enterprises include the Foreign-Invested Enterprise
Law, as amended in October 2016, and its implementation rules. Under these laws and regulations, wholly foreign-owned enterprises
in China may pay dividends only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting
standards and regulations. In addition, wholly foreign-owned enterprises in China are required to allocate at least 10% of their
respective accumulated profits each year, if any, to fund certain reserve funds until these reserves have reached 50% of the registered
capital of the enterprises. Wholly foreign-owned companies may, at their discretion, allocate a portion of their after-tax profits
based on PRC accounting standards to staff welfare and bonus funds. These reserves are not distributable as cash dividends.
Regulations
on Overseas Listings
Six
PRC regulatory agencies, including the CSRC, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises
by Foreign Investors, or the M&A Rules, which became effective in September 2006 and was amended on June 22, 2009 by Ministry
of Commerce of People’s Republic of China (“the MOFCOM”). The M&A Rules, among other things, require offshore
SPVs formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals,
to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange.
While
the application of the M&A Rules remains unclear, we believe, based on the advice of our PRC legal counsel, Grandall Law Firm,
that CSRC approval is not required in the context of the Business Combination because: (a) NCF established its PRC subsidiaries,
NCF Cloud Service and NCF Financial Service, by means of direct investment rather than by merger with or acquisition of PRC domestic
companies, and (b) no explicit provision in the M&A Rules classifies the respective contractual arrangements between Beijing
Oriental and NCF Financial Service, NCF Cloud Service and Jin Xun Shi Dai and its shareholders as a type of acquisition transaction
falling under the M&A Rules. However, as there has been no official interpretation or clarification of the M&A Rules,
there is uncertainty as to how this regulation will be interpreted or implemented.
Regulations
Relating to Employment
The
PRC Labor Law and the Labor Contract Law require that employers must execute written employment contracts with full-time employees.
If an employer fails to enter into a written employment contract with an employee within one month from the date on which the
employment relationship is established, the employer must rectify the situation by entering into a written employment contract
with the employee and pay the employee twice the employee’s salary for the period from the day following the lapse of one
month from the date of establishment of the employment relationship to the day prior to the execution of the written employment
contract. All employers must compensate their employees with wages equal to at least the local minimum wage standards. Violations
of the PRC Labor Law and the Labor Contract Law may result in the imposition of fines and other administrative sanctions, and
serious violations may result in criminal liabilities.
Enterprises
in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance
funds, namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and
a maternity insurance plan, and a housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages
of salaries, including bonuses and allowances, of the employees as specified by the local government from time to time at locations
where they operate their businesses or where they are located. Failure to make adequate contributions to various employee benefit
plans may be subject to fines and other administrative sanctions. Also, enterprises in China are required by PRC laws and regulations
to be the individual income tax withhold agents and withhold individual income tax for their employees accordingly.
DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
Directors
and Senior Management
The following table
sets forth the names and ages of our current board of directors (the “Board”) and our named executive officers and
the principal offices and positions held by each person. Our executive officers are appointed by the Board. Our directors serve
until the earlier to occur of the appointment of his or her successor at the next meeting of shareholders, death, resignation
or removal by the Board. There are no family relationships among our directors and our named executive officers.
|
Names(1)
|
|
Age
|
|
Position
|
|
Huanxiang
Li
|
|
47
|
|
President
and Director
|
|
Jia
Sheng
|
|
38
|
|
Chief
Executive Officer and Director
|
|
Li
Wei
|
|
38
|
|
Chief
Financial Officer
|
|
Xin
Li
|
|
34
|
|
Chief
Operating Officer
|
|
Ruoshi
Zhang
|
|
38
|
|
Chief
Technology Officer
|
|
Tao
Yang
|
|
45
|
|
Independent
Director
|
|
David
X. Li
|
|
55
|
|
Independent
Director
|
|
Kevin
C. Wei
|
|
51
|
|
Independent
Director
|
Set
forth below is a brief biography of each director, named executive officer and significant employee that contains information
regarding the individual’s service as a director, named executive officer or significant employee including business experience
for the past five years. In addition, information for directors includes directorships held during the past five years, information
concerning certain legal or administrative proceedings, if applicable, and the experiences, qualifications, attributes or skills
that caused the Board to determine that the individual should serve as a director for us.
Huanxiang
Li (President)
Ms.
Li has been the President and a director since March 2019 and the President and a director of NCF since 2014. Ms. Li has 15 years
of experience in the financial industry. Prior to joining NCF, she was Vice-President of the United Venture Financial Guarantee
Group from 2003 to 2013, President of Tianjin United Venture Capital Guarantee Co., Ltd. from 2013 to 2015, and President of Dongfang
Credit Management Co., Ltd. from 2015 to 2017. Ms. Li holds an EMBA degree from the PBC School of Finance of Tsinghua University.
Jia
Sheng (Chief Executive Officer)
Mr.
Sheng has been the Chief Executive Officer and a director since March 2019 and the Chief Executive Officer and a director of NCF
since June 2013. Mr. Sheng has 12 years of experience in the Internet and the financial industry. Prior to joining NCF Wealth
Holdings, he was Product Manager in Google China and Mountain View from June 2007 to October 2010, and a Co-founder of Yunrang
(Beijing) Information Technology Co., Ltd. From November 2010 to May 2013. Mr. Sheng holds an EMBA degree from the PBC School
of Finance of Tsinghua University, a Master degree in Computer Science from the University of Toronto in Canada and a Bachelor
degree in Computer Science and Technology from Tsinghua University.
Li
Wei (Chief Financial Officer)
Ms.
Wei joined the management team in March 2019 and of NCF in October 2014. She has 12 years of experience in auditing & consulting
services and more than 12 years of management experience. Prior to joining NCF, Ms. Wei worked at KPMG from August 2002 to April
2008 and PricewaterhouseCoopers from May 2008 to October 2014. Ms. Wei received her MBA from the School of Economics and Management
of Tsinghua University. She obtained her Bachelor’s degree in Finance from Renmin University of China. Ms. Wei is a CICPA
and an internationally registered internal auditor.
Xin
Li (Chief Operating Officer)
Ms.
Li joined the management team in March 2019 and of NCF in February 2014. She worked at China Ping An Life Insurance Co., Ltd.
from September 2007 to November 2010 and China International Futures Co., Ltd. from April 2012 to January 2014. Ms. Li has more
than 10 years of experience in the finance industry and is an expert in operations management, marketing, and financial product
design. She holds a Bachelor’s degree in finance from Heilongjiang University.
Ruoshi
Zhang (Chief Technology Officer)
Mr.
Zhang joined the management team in March 2019 and of NCF in May 2014. He has more than 10 years of experience in R&D management
and distributed system design and development. Mr. Zhang worked at Visual China Group from October 2005 to August 2011, IFeng.com
from August 2011 to August 2012 and Credit Ease from January 2013 to April 2013. Mr. Zhang specializes in the development and
design of distributed storage systems, social networking sites and financial trading systems. Mr. Zhang earned his Bachelor’s
degree from Information Engineering University.
Tao
Yang (Independent Director)
Mr.
Yang has been a researcher and an advisor to doctoral candidates of the Institute of Finance & Banking of the Chinese Academy
of Social Sciences since August 2003. He has also been the Chief Economist of the China FinTech 50 Forum since April 2017. Mr.
Yang’s main scope of research covers monetary and fiscal policies, financial markets, financial technology as well as payments
and settlements. He received his PhD degree in Economics from Graduate School of Chinese Academy of Social Sciences, a Master’s
degree from Chinese Academy of Fiscal Sciences, and a Bachelor’s degree from Nanjing University of Science and Technology.
David
X. Li (Independent Director)
Mr.
Li has been a professor of finance, and faculty co-director of Master of Finance (MF) program at Shanghai Advanced Institute of
Finance (SAIF) since January 2018, and an associate director of Chinese Academy of Financial Research (CAFR) at Shanghai Jiaotong
University since January 2018. Previously, he worked at leading financial institutions for more than two decades in the areas
of new product development, risk management, asset/liability management and investment analytics. He was the chief-risk-officer
for China International Capital Corporation (CICC) Ltd from May 2008 to January 2013, head of credit derivative research and analytics
at Citigroup and Barclays Capital from October 2001 to April 2008, and head of modeling for AIG Investments from January 2012
to March 2016.
David
holds a PhD degree in statistics from the University of Waterloo, a Master’s degrees in economics, finance and actuarial
science, and a Bachelor’s degree in mathematics. Mr. Li is currently an associate editor for North American Actuarial Journal,
an adjunct professor at the University of Waterloo. Mr. Li was one of the pioneers in credit derivatives. His seminal work of
using copula functions for credit portfolio modeling has been widely cited by academic research, broadly used by practitioners
for credit portfolio trading, risk management and rating, and well covered by media such as Wall Street Journal, Financial Times,
Nikkei, CBC News.
Kevin
C. Wei (Independent Director)
Mr.
Wei has been a managing partner of Fontainburg Corporation Limited, a corporate finance advisory firm, since November 2013. Mr.
Wei served as the Chief Financial Officer of IFM Investments Limited (stock code: CTC), a New York Stock Exchange listed company
headquartered in Beijing, from December 2007 to September 2013, and served as its director from November 2008 until December 2014.
From 2006 to 2007, Mr. Wei served as the Chief Financial Officer of a Chinese solar company listed on Nasdaq. From 1999 to 2005,
Mr. Wei worked in the internal audit and risk management functions for multinational companies including LG Philips Displays International
Ltd. From 1991 to 1999, Mr. Wei worked with KPMG LLP and Deloitte Touche LLP in various audit and consulting roles in the United
States of America and China. Mr. Wei graduated from Central Washington University in 1991, where he received his Bachelor’s
degree (cum laude) with a double major in accounting and business administration.
Executive
and Director Compensation
For
the 2018 fiscal year we paid an aggregate of approximately $450,000.00 in cash compensation and non-share-based compensation to
our executive officers.
We
did not pay any compensation to our directors in 2018.
Board
of Directors
Our
board of directors currently consists of five directors, three of whom satisfy the “independence” requirements of
Rule 10A-3 under the Exchange Act and Rule 5605 of the NASDAQ Rules. The law of our home country, which is the Marshall Islands,
does not require a majority of the board of directors of our Company to be composed of independent directors, nor does Marshall
Islands law require that of a compensation committee or a nominating committee. We intend to follow our home country practice
with regard to composition of the board of directors. A director is not required to hold any shares in the Company by way of qualification.
A director who is in any way, whether directly or indirectly, interested in a contract or transaction or proposed contract or
transaction with our company must declare the nature of his interest at a meeting of the directors. Subject to the NASDAQ Rules,
a director may vote in respect of any contract or transaction or proposed contract or transaction notwithstanding that he or she
may be interested therein and if he or she does so his or her vote shall be counted and he or she may be counted in the quorum
at the relevant board meeting at which such contract or transaction or proposed contract or transaction is considered. Our board
of directors may exercise all of the powers of our Company to borrow money, to mortgage or charge our undertakings, property and
uncalled capital, and to issue debentures or other securities whenever money is borrowed or pledged as security for any debt,
liability or obligation of our Company or of any third party.
Committees
of the Board of Directors
Our
Board of Directors has an audit committee, a compensation committee and a corporate governance and nominating committee. We
have adopted a charter for each of the three committees. Each committee’s members and functions are described
below.
Pursuant
to an exemption for foreign private issuers, we are permitted to follow home country practice in lieu of certain of NASDAQ’s
corporate governance requirements that are applicable to U.S. companies listed on NASDAQ.
Corporate
Governance
As
a foreign private issuer whose securities are listed on the NASDAQ Capital Market, we, as a Marshall Islands company, are not
required to comply with certain corporate governance practices followed by U.S. companies under NASDAQ listing standards. We believe
that our established practices in the area of corporate governance are in line with the spirit of the NASDAQ standards and provide
adequate protection to our shareholders. The practices we follow in lieu of NASDAQ’s corporate governance requirements include:
Independence
of Directors.
NASDAQ listing standards require, among other things, that a listed U.S. company has a board of directors
comprised of a majority of independent directors, as defined in the NASDAQ listing standards and applicable SEC rules. Our board
of directors is currently comprised of three independent directors and two executive directors. Our independent directors may
have meetings at which only independent directors are present.
Audit
Committee.
Our audit committee consists of Tao Yang and Kevin C. Wei, and is chaired by Kevin C. Wei. Each of the members
of our audit committee satisfy the “independence” requirements of Rule 10A-3 under the Exchange Act and Rule 5605
of the NASDAQ Rules. NASDAQ listing standards requires, among other things, that a listed U.S. company have an audit committee
with a minimum of three members. As permitted by Rule 10A-3 under the Exchange Act, our audit committee consists of two independent
(as defined in Rule 10A-3) directors. Pursuant to our audit committee charter, the audit committee is responsible for conferring
with our independent registered public accounting firm and will review, evaluate and advise the board of directors concerning
the adequacy of our accounting systems, our financial reporting practices, the maintenance of our books and records and our internal
controls. Our audit committee is also responsible for reviewing and approving all payments made to our sponsor, executive
officers or directors and their respective affiliates. Any payments made to members of our audit committee are reviewed and approved
by our board of directors, with the interested director or directors abstaining from such review and approval. In addition, the
audit committee reviews the scope of the audit of our consolidated financial statements and results thereof. The approval of the
Audit Committee is required for any affiliated party transaction.
Compensation
Committee
.
Our compensation committee
consists of David X. Li, Huanxiang Li and Jia Sheng. David X. Li is the chairman of our compensation committee. We have determined
that David X. Li satisfy the “independence” requirements of Rule 5605(a)(2) of Nasdaq Stock Market Rule. As permitted
under Marshall Islands law, we do not currently have an independent compensation committee. Pursuant to our compensation committee
charter, the compensation committee is responsible for, among others: (i) discharging the Board’s responsibilities relating
to compensation of our executives, including reviewing and evaluating and, if necessary, revising the compensation
plans, policies and programs of the Company adopted by our management, (ii) reviewing and approving the annual
report on executive compensation for inclusion in our annual report on Form 20-F filed with the SEC; (iii) ensuring
that compensation programs are designed to encourage high performance, promote accountability and assure that employee interests
are aligned with the interests of our shareholders; and (iv) exercising any other powers and carrying out any
other responsibilities delegated to it by the Board from time to time consistent with our articles of incorporation
and bylaws, as amended and restated from time to time (collectively, the “Articles”).
Corporate
Governance and Nominating Committee.
Our corporate governance and nominating committee consists of Tao Yang, Huanxiang Li
and Jia Sheng. Tao Yang is the chairman of our corporate governance and nominating committee. We have determined that Tao Yang
satisfy the “independence” requirements of Rule 5605(a)(2) of Nasdaq Stock Market Rule. As permitted under Marshall
Islands law, we do not currently have an independent compensation committee. Pursuant to our corporate governance and nominating
committee charter, the corporate governance and nominating committee is responsible for, among others: (i) identifying qualified
candidates as consistent with the criteria approved by the Board as director nominees and recommending such candidates to the
Board for selection for all directorships to be filled by the Board of by the shareholders; (ii) conducting annual review of the
composition of the Board in light of the characteristics of independence, qualification, experience and availability of the Board
members; (iii) monitoring of compliance with our Code of Business Conduct and Ethics, including reviewing the adequacy and effectiveness
of our internal rules and procedures to ensure compliance with applicable laws and regulations; and (iv) exercising any other
powers and carry out any other responsibilities delegated to it by the Board from time to time consistent with our Articles.
Executive
Sessions.
NASDAQ listing standards require that the board of directors of a U.S. listed company convene regular
meetings of independent directors in executive session without management present. As permitted under Marshall Islands law
and our Articles, our independent directors may or may not hold executive sessions without management present.
Code
of Conduct.
NASDAQ listing standards require that a listed U.S. company adopt a code of conduct applicable to all directors,
officers and employees, which shall be publicly available and which must provide for an enforcement mechanism. Disclosure of any
director or officer’s waiver of the code and the reasons for such waiver is required. We have adopted such code of conduct
.
Proxies.
As
a foreign private issuer, we will not be required to solicit proxies or provide proxy statements to NASDAQ pursuant to NASDAQ
corporate governance rules or Marshall Islands law. Consistent with Marshall Islands law, we will notify our shareholders of meetings
at least 15 days, but not more than 60 days, before the meeting. This notification will contain, among other things, information
regarding business to be transacted at the meeting. In addition, our Articles provide that shareholders must give us advance notice
to properly introduce any business at a meeting.
Shareholder
Approval of Securities Issuances.
In lieu of obtaining shareholder approval prior to the issuance of designated securities
or the adoption of equity compensation plans or material amendments to such equity compensation plans, we will comply with provisions
of the BCA, providing that the board of directors may approve share issuances and adoptions of and material amendments to equity
compensation plans. Likewise, in lieu of obtaining shareholder approval prior to the issuance of securities in certain circumstances,
consistent with the BCA and our Articles, the board of directors may approve certain share issuances.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information with respect to the beneficial ownership of Hunter Maritime’s Class A common shares
as of June 14, 2019:
|
|
●
|
each
person known to us to own beneficially more than 5% of our Class A common shares;
|
|
|
●
|
each
of our current executive officers and directors; and
|
|
|
●
|
each
of our directors and executive officers as a group.
|
Beneficial
ownership is determined in accordance with SEC rules and includes voting or investment power with respect to securities. Except
as indicated by the footnotes below, Hunter Maritime believes that the persons and entities named in the table below have, as
of June 14, 2019, sole voting and investment power with respect to all stock that they beneficially own, subject to applicable community
property laws. All Hunter Maritime stock subject to options or warrants exercisable within 60 days of the consummation of the
Business Combination are deemed to be outstanding and beneficially owned by the persons holding those options or warrants for
the purpose of computing the number of shares beneficially owned and the percentage ownership of that person. They are not, however,
deemed to be outstanding and beneficially owned for the purpose of computing the percentage ownership of any other person.
Subject
to the paragraph above, percentage ownership of outstanding shares is based on 204,041,004 Class A common shares of Hunter Maritime
to be outstanding upon consummation of the Business Combination. All of the below shareholders acquired their shares in the Business
Combination. The shares owned by such persons do not have voting rights different from the shares owned by other holders.
|
Name and Address (1)
|
|
Number of Shares
Beneficially
Owned
|
|
|
Percentage of
Ownership
|
|
|
Zhenxin Zhang(2)
|
|
|
122,815,857
|
|
|
|
60.2
|
%
|
|
Great Reap Ventures Limited (3)
|
|
|
103,613,734
|
|
|
|
50.8
|
%
|
|
TMF (Cayman) Ltd.(4)
|
|
|
19,202,123
|
|
|
|
9.4
|
%
|
|
Ever Step Holdings Limited(5)
|
|
|
17,625,804
|
|
|
|
8.6
|
%
|
|
Highlight Limited(6)
|
|
|
12,114,794
|
|
|
|
5.9
|
%
|
|
Huanxiang Li(7)
|
|
|
349,129
|
|
|
|
*
|
|
|
Jia Sheng(8)
|
|
|
3,723,197
|
|
|
|
1.8
|
%
|
|
Ruoshi Zhang(7)
|
|
|
192,021
|
|
|
|
*
|
|
|
Xin Li(7)
|
|
|
122,195
|
|
|
|
*
|
|
|
Li Wei(7)
|
|
|
78,989
|
|
|
|
*
|
|
|
Tao Yang
|
|
|
0
|
|
|
|
0
|
|
|
David X. Li
|
|
|
0
|
|
|
|
0
|
|
|
Kevin C. Wei
|
|
|
0
|
|
|
|
0
|
|
|
All directors and executive officers as a group (8 individuals)
|
|
|
4,465,531
|
|
|
|
2.2
|
%
|
|
|
(1)
|
Unless
otherwise indicated, the business address of each of the individuals is Tower A, WangXin
Building, 28 Xiaoyun Rd, Chaoyang District, Beijing, 100027.
|
|
|
(2)
|
Consists
of shares owned by Great Reap Ventures Limited and TMF (Cayman) Ltd.
|
|
|
(3)
|
Great
Reap Ventures Limited is owned and controlled by Mr. Zhenxin Zhang.
|
|
|
(4)
|
TMF
(Cayman) Ltd is owned by employees of NCF Wealth Holdings Limited and Mr. Zhenxin Zhang
has voting power over the shares owned by TMF (Cayman) Ltd.
|
|
|
(5)
|
Ever
Step Holdings Limited is owned and controlled by Chong Sing Holdings FinTech Group Limited,
a company listed on the Hong Kong Stock Exchange with stock code 8207.
|
|
|
(6)
|
Highlight
Limited is owned and controlled by Mr. Kecun Hu.
|
|
|
(7)
|
Consists
of shares owned by TMF (Cayman) Ltd., which the beneficial owner can demand TMF (Cayman)
Ltd. to distribute to the beneficial owner at any time.
|
|
|
(8)
|
Consists
of (i) 209,477 shares owned by TMF (Cayman) Ltd., which the beneficial owner can demand
TMF (Cayman) Ltd. to distribute to the beneficial owner at any time., and (ii) 3,513,720
shares owned by Shanghai Yixiu Equity Investment Fund LLP, over which shares the beneficial
owner has voting and dispositive power.
|
Except
as disclosed herein, we are not aware of any arrangement that may, at a subsequent date, result in a change of control of the
company.
SELLING
SHAREHOLDER
This
prospectus relates to the proposed sale from time to time of up to 1,745,648 of our Class A common shares issued to the
Selling Shareholder named in the table below. We have filed the registration statement of which this prospectus forms a part
in order to permit the Selling Shareholder to offer these shares for resale or transfer from time to time as set forth above
in “Plan of Distribution”.
The
following table sets forth certain information regarding the Selling Shareholder and its beneficial ownership of our Class A common
shares. The table is based upon information provided by the Selling Shareholder. The table assumes that all the Class A common
shares being offered by the Selling Shareholder pursuant to this prospectus are ultimately sold in the offering. The Selling Shareholder
may sell some, all or none of its Class A common shares covered by this prospectus, and as a result the actual number of shares
that will be held by the Selling Shareholder upon termination of the offering may exceed the minimum number set forth in the table.
|
Name of Selling Shareholder
|
|
Class A Common Shares Beneficially
Owned Before Offering
|
|
|
Percentage
of Class Prior to the Offering
(1)
|
|
|
Total Class A Common Shares
Offered Hereby
|
|
|
Class A Common Shares Beneficially
Owned Following the Offering
|
|
|
Percentage
of Class Following the Offering
(1)
|
|
|
China
Hui Yuan Juice Holdings Co. Ltd.
(2)
|
|
|
1,745,648
|
|
|
|
*
|
%
|
|
|
1,745,648
|
|
|
|
0
|
|
|
|
0
|
|
|
|
(1)
|
Based
on an aggregate of 204,041,004 Class A common shares outstanding.
|
|
|
(2)
|
China
Hui Yuan Juice Holdings Co. Ltd. acquired its shares at the closing of the Merger. China Hui Yuan Juice Holdings Co. Ltd.
is owned and controlled by Mr. Xinli Zhu.
|
PLAN
OF DISTRIBUTION
Issuance
of Class A Common Shares Underlying Public Warrants
We
are registering the issuance of up to 7,586,550 shares of Class A common shares underlying the public warrants. We will receive
the proceeds from the exercise of the public warrants, but not from the sale of the underlying Class A Common Shares. Upon exercise
of a public warrant, we will issue the shares of Class A Common Stock underlying such public warrant pursuant to and in accordance
with the terms of the Warrant Agreement.
Shares
of Class A Common Shares Being Registered for Resale
The
Selling Shareholder, which for purposes herein includes donees, pledgees, transferees, distributees, designees or other
successors in interest, and its respective affiliates that are direct or indirect equity investors in us, including other
successors in interest selling our Class A common shares received after the date of this prospectus from the Selling
Shareholder as a gift, pledge, distribution, dividend, or other transfer, may, from time to time, sell, transfer or otherwise
dispose of any or all of our Class A common shares, including on any stock exchange, quotation service, market or other
trading facility on which our common shares are listed or traded, in the over-the-counter market, through underwriters,
through agents, to dealers, or in private transactions, at fixed prices, at market prices prevailing at the time of sale, at
prices related to the prevailing market prices, at varying prices (which may be above or below market prices prevailing at
the time of sale), at negotiated prices or otherwise.
The
Selling Shareholder may use any one or more of the following methods when disposing of Class A common shares or interests therein:
|
|
●
|
ordinary
brokerage transactions and transactions in which a broker-dealer solicits purchasers;
|
|
|
●
|
block
trades in which a broker-dealer will attempt to sell the common shares as agent, but may position and resell a portion of
the block as principal to facilitate the transaction;
|
|
|
●
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
|
|
|
●
|
an
exchange distribution in accordance with the rules of the applicable exchange;
|
|
|
●
|
privately
negotiated transactions;
|
|
|
●
|
through
the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
|
|
|
●
|
broker-dealers
may agree with the Selling Shareholder to sell a specified number of common shares at a stipulated price per share;
|
|
|
●
|
a
distribution by way of a dividend or otherwise to existing shareholders of such Selling Shareholder;
|
|
|
●
|
a
combination of any such methods of sale; and
|
|
|
●
|
any
other method permitted pursuant to applicable law.
|
The
Selling Shareholder may, from time to time, pledge or grant a security interest in some or all of the Class A common shares owned
by it and, if it defaults in the performance of its secured obligations, the pledgees or secured parties may offer and sell the
common shares, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933, as amended, or the Securities Act, amending the list of Selling Shareholders
to include the donees, pledgees, transferees, distributees, designees or other successors in interest as Selling Shareholders
under this prospectus. The Selling Shareholder also may transfer the common shares in other circumstances, in which case the donees,
pledgees, transferees, distributees, designees or other successors in interest will be the selling beneficial owners for purposes
of this prospectus.
In
connection with the sale of common shares or interests therein, the Selling Shareholder may enter into hedging transactions with
broker-dealers or other financial institutions, which may in turn engage in short sales of the Class A common shares in the course
of hedging the positions that they assume. The Selling Shareholder may also sell Class A common shares short and deliver these
securities to close out its short positions, or loan or pledge common shares to broker-dealers that in turn may sell these securities.
The Selling Shareholder may also enter into option or other transactions with broker-dealers or other financial institutions or
create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of common
shares offered by this prospectus, which common shares such broker-dealer or other financial institution may resell pursuant to
this prospectus (as supplemented or amended to reflect such transaction).
The
aggregate proceeds to the Selling Shareholder from the sale of common shares offered by it will be the purchase price of the Class
A common shares less discounts or commissions, if any. The Selling Shareholder reserves the right to accept and, together with
its agents from time to time, to reject, in whole or in part, any proposed purchase of common shares to be made directly or through
agents. We will not receive any of the proceeds from this offering.
The
Selling Shareholder also may resell all or a portion of the Class A common shares in open market transactions in reliance upon
Rule 144 under the Securities Act, if available, provided that it meets the criteria and conforms to the requirements of that
rule.
Any
underwriters, broker-dealers or agents that participate in the sale of Class A common shares or interests therein may be deemed
to be “underwriters” within the meaning of Section 2(a)(11) of the Securities Act. Any discounts, commissions, concessions
or profit that it earns on any resale of the Class A common shares may be deemed to be underwriting discounts and commissions
under the Securities Act. Anyone who is deemed to be an “underwriter” within the meaning of Section 2(a)(11) of the
Securities Act may be subject to certain statutory liabilities as underwriters under the Securities Act. China Hui Yuan Juice
Holdings Co. Ltd. is deemed to be an underwriter within the meaning of Section2(a)(11).
In
order to comply with the securities laws of some states, if applicable, the Class A common shares may be sold in those jurisdictions
only through registered or licensed brokers or dealers. In addition, in some states Class A common shares may not be sold unless
they have been registered or qualified for sale or an exemption from registration or qualification requirements is available and
is complied with.
We
have informed the Selling Shareholder that the anti-manipulation rules of Regulation M under the Exchange Act of 1934, as amended,
or the Exchange Act, may apply to sales of Class A common shares in the market and to the activities of the Selling Shareholder
and their affiliates. In addition, we will make copies of this prospectus available to the Selling Shareholder for the purpose
of satisfying any applicable prospectus delivery requirements of the Securities Act. The Selling Shareholder may indemnify any
broker-dealer that participates in transactions involving the sale of the Class A common shares against certain liabilities, including
liabilities arising under the Securities Act. We have agreed to provide customary indemnification to the Selling Shareholder.
Pursuant
to the registration rights agreement that we entered into on March 20, 2019, or the Registration Rights Agreement, we may be required
to register additional securities for resale under the Securities Act by the Selling Shareholder. The Selling Shareholder is entitled
under the Registration Rights Agreement to make up to three demands that we register certain of our securities held by them for
sale under the Securities Act and to have the securities covered thereby registered for resale pursuant to Rule 415 under the
Securities Act. In addition, the Selling Shareholders have the right to include its securities in other registration statements
filed by us. We will bear the costs and expenses of filing any such registration statements. In addition, in connection with the
closing of the Merger, we entered into a registration rights agreement with the stockholder representative, pursuant to which
we granted each NCF Stockholder certain registration rights with respect to the registration of the Closing Payment Shares. We
shall indemnify the Selling Shareholders against certain liabilities, including liabilities arising under the Securities Act in
connection with this offering.
Aside
from the registration rights agreements described above, we know of no existing arrangements between any Selling Shareholder and
any broker, dealer, underwriter, or agent relating to the sale or distribution of the Class A common shares offered by this prospectus.
There can be no assurance that the Selling Shareholder will sell any or all of the 1,745,648 Class A common shares pursuant to
this prospectus.
SHARES
ELIGIBLE FOR FUTURE SALE
We
have 204,041,004 Class A common shares outstanding as of June 14, 2019. Of these shares, approximately 250,000 are freely tradable without
restriction or further registration under the Securities Act of 1933, as amended. Additionally, any of these shares held by affiliates,
as that term is defined in Rule 144 under the Securities Act, which generally includes officers, directors or 10% shareholders,
will also be restricted from public sale as restricted stock.
There
are 7,586,550 Class A common shares underlying outstanding warrants issued in our initial public offering pursuant to a
prospectus dated November 18, 2016, and warrants to purchase 4,289,746 shares issued in private transactions. The shares issuable upon exercise of the warrants will also be freely tradable, provided
that there is a registration statement in effect at the time of their exercise. This registration statement is registering
the shares underlying those warrants.
Therefore,
as of June 14, 2019, there are an aggregate of 11,876,296 shares that may be issued in the future upon exercise of outstanding
warrants and options.
Rule
144.
Rule 144 is unavailable for the resale of restricted securities initially issued by a blank-check or shell company, both
before and after an initial business combination, despite technical compliance with the requirements of Rule 144. Accordingly,
such restricted securities can be resold only through a registered offering or pursuant to another exemption from registration.
Notwithstanding the foregoing, a person who beneficially owns restricted securities of a company which:
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1.
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has
ceased to qualify as a blank-check or shell company;
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2.
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is
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
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3.
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has
filed all reports and other materials required to be filed by Section 13 or 15(d), as applicable, during the preceding 12
months (or such shorter period that the company was required to file such reports and materials); and
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4.
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has
filed certain information with the SEC (Form 10 information) reflecting that it is no longer a blank-check or shell company
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may,
after one year has elapsed from the filing of the Form 10 information, within any three-month period resell a number of such restricted
securities that does not, with respect to the shares, exceed the greater of either of the following:
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1.
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1%
of the total number of shares then outstanding; or
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2.
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the
average weekly trading volume of the shares during the four calendar weeks preceding the filing of a notice on Form 144 with
respect to the sale.
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Sales
under Rule 144 are also limited based on the availability of current public information about us, and, in the case of sales by
affiliates, by manner of sale provisions and notice requirements.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Related
Party Transactions of Hunter Maritime
On
July 11, 2016, Bocimar Hunter, a Belgian entity affiliated with our current Sponsor, CMB NV, purchased 4,312,500 founder shares
for an aggregate purchase price of $25,000, or $0.006 per share, of which 519,225 were subsequently forfeited as a result of the
partial exercise of the underwriters’ overallotment option. The number of founder shares issued determined based on the
expectation that such founder shares would represent 20% of the outstanding shares upon completion of the IPO. The purchase price
of the founder shares was determined by dividing the amount of cash contributed to us by the number of founder shares issued.
Upon the effectiveness of our Amended and Restated Articles of Incorporation, the founder shares were automatically reclassified
and converted to our Class B common shares.
Bocimar
Hunter purchased an aggregate of 3,333,333 private placement warrants at a price of $1.50 per warrant in a private placement that
occurred simultaneously with the closing of the IPO. Pursuant to the underwriters’ partial exercise of the overallotment
option on December 16, 2016, we sold an additional 23,080 private placement warrants to Bocimar Hunter. Each private placement
warrant entitles the holder to purchase one Class A common share at $11.50 per share. Our Sponsor is permitted to transfer the
Class B common shares and private placement warrants held by them to certain permitted transferees, including our executive officers
and directors and other persons or entities affiliated with or related to them, but the transferees receiving such securities
will be subject to the same agreements with respect to such securities as the initial purchasers. Otherwise, these warrants will
not, subject to certain limited exceptions, be transferable or salable until 30 days after the completion of our business combination.
The private placement warrants will be non-redeemable so long as they are held by our initial purchasers or their permitted transferees.
The private placement warrants may also be exercised by the initial purchasers or their permitted transferees for cash or on a
cashless basis. Otherwise, the private placement warrants have terms and provisions that are identical to those of the Warrants
sold as part of the units in the IPO. CMB NV, an affiliate of our Sponsor, purchased 200,000 Units in the IPO.
On
September 27, 2018, pursuant to the terms of a Securities Purchase Agreement, Bocimar Hunter transferred ownership of its (i)
3,793,275 Class B common shares and (ii) 3,356,413 private placement warrants of the Company to CMB NV, an affiliated entity controlled
by members of the Saverys family, which we now consider our Sponsor. CMB NV acquired the Class B common shares and the private
placement warrants for a purchase price of $25,000 and $5,034,620, respectively, which were the original value of the securities
at the time they were acquired by Bocimar Hunter. Pursuant to the terms of a Joinder Agreement with respect to the Letter Agreement,
dated September 27, 2018, CMB NV became party to the Letter Agreement, to assume all of the rights and obligations of Bocimar
Hunter thereunder, and to be bound by the restrictions thereunder. Pursuant to the terms of an Assignment Agreement and a Joinder
Agreement with respect to the registration rights agreement (discussed below), each dated September 27, 2018, Bocimar Hunter assigned
all of its rights and interests under the registration rights agreement to CMB NV, and CMB NV became party to the registration
rights agreement and agreed to assume all of the rights and obligations of Bocimar Hunter thereunder and to be bound by the terms
and provisions thereof. Pursuant to the terms of an agreement with respect to our Warrant Agreement and a related warrant assignment
agreement, each dated September 27, 2018, Bocimar Hunter assigned all of its rights and interests under the Warrant Agreement
to CMB NV and CMB NV agreed to assume all of the rights and obligations of Bocimar Hunter thereunder and to be bound by the terms
and provisions thereof.
In
order to fund working capital deficiencies, if any, or finance transaction costs in connection with an intended initial business
combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to,
loan us funds as may be required. If we complete our initial business combination, we would repay such loaned amounts. In the
event that our initial business combination does not close, we may use a portion of the working capital held outside the Trust
Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $2,000,000
of such loans may be convertible into warrants of the post-business combination entity at a price of $1.50 per warrant at the
option of the lender. Such warrants would be identical to the private placement warrants.
Pursuant
to a registration rights agreement we entered into with our Sponsor on November 18, 2016, we may be required to register certain
securities for sale under the Securities Act. These holders are entitled under the registration rights agreement to make up to
three demands that we register certain of our securities held by them for sale under the Securities Act and to have the securities
covered thereby registered for resale pursuant to Rule 415 under the Securities Act. In addition, these holders have the right
to include their securities in other registration statements filed by us. However, the registration rights agreement provides
that we will not permit any registration statement filed under the Securities Act to become effective until the securities covered
thereby are released from their lock-up restrictions, as described herein. We will bear the costs and expenses of filing any such
registration statements.
On
November 18, 2016, we entered into an administrative services agreement with CMB NV, who is now our Sponsor, pursuant to which
we have paid a total of $10,000 per month for office space, secretarial support and administrative services. This arrangement
has been agreed to for our benefit and is not intended to provide our Sponsor, or its affiliate, compensation in lieu of salary
or other remuneration. We believe that such fees are at least as favorable as we could have obtained from an unaffiliated person.
We
will reimburse our officers, directors, or any of their respective affiliates, for any reasonable out-of-pocket expenses incurred
by them in connection with identifying, investigating and consummating a potential initial business combination with one of more
acquisition targets. Subject to availability of proceeds not placed in the Trust Account, there is no limit on the amount of out-of-pocket
expenses that could be incurred. Our board of directors will review and approve all expense reimbursements made to our directors
with the interested director or directors abstaining from such review and approval. To the extent such out-of-pocket expenses
exceed the available proceeds not deposited in the Trust Account and those proceeds are properly withdrawn from the Trust Account,
such out-of-pocket expenses would not be reimbursed by us unless we consummate our initial business combination. In addition,
the Sponsor has provided loans to us in the aggregate amount of $1,000,000 as of the date of this Offer, and we expect that the
Sponsor will provide additional loans to us prior to the Business Combination Deadline, which loans are repayable only upon the
consummation of a business combination, and further the aggregate amount of the Monthly Extension Contributions will be repayable
by us to our Sponsor only if we complete an initial business combination.
Following
the completion of our initial business combination, members of our management and executive directors will be entitled to receive
customary fees and we may enter into employment or other compensation arrangements with members of our management and executive
directors, the terms of which have not yet been determined.
All
ongoing and future transactions between us and any of our executive officers and directors or their respective affiliates, including
loans by our directors, will be on terms believed by us at that time, based upon other similar arrangements known to us, to be
no less favorable than are available from unaffiliated third parties. Such transactions or loans, including any forgiveness of
loans, will require prior approval in each instance by a majority of our disinterested directors, who had access, at our expense,
to our attorneys or independent legal counsel. It is our intention to obtain estimates from unaffiliated third parties for similar
goods or services to ascertain whether such transactions with affiliates are on terms that are no less favorable to us than are
otherwise available from such unaffiliated third parties.
Related
Party Transactions of NCF
Please
see Note 19 to NCF Wealth Group’s financial statements for the fiscal year ended December 31, 2018 for a summary of NCF
Group’s related party transactions.
DESCRIPTION
OF SECURITIES
Authorized
Capitalization
Pursuant
to our amended and restated articles of incorporation, we are authorized to issue up to 400,000,000 Class A common shares, par
value $0.0001 per share, 100,000,000 Class B common shares, par value $0.0001 per share, and 50,000,000 preferred shares, par
value $0.0001 per share. As of the date of this prospectus, we had 204,041,004 Class A common shares, no Class B common shares
or preferred shares outstanding.
Units
Each
unit consists of one Class A common share and one-half warrant. Holders have the option to continue to hold units or separate
their units into the component securities. Holders must have their brokers contact our transfer agent in order to separate the
units into Class A common shares and warrants. No fractional warrants will be issued upon separation of the units and only whole
warrants will trade. Accordingly, unless you purchase at least two units, you will not be able to receive or trade warrants. There
are units outstanding of 218,453 at the closing of the merger.
Common
Shares
Our
shareholders are entitled to one vote for each share held of record on all matters to be voted on by shareholders. Our Class A
common shares have no conversion, preemptive, or other subscription rights and there are no sinking fund or redemption provisions
applicable to the common shares.
Preferred
Shares
Our
amended and restated articles of incorporation authorize the issuance of up to 50,000,000 shares, par value $0.0001 per share,
of blank check preferred stock with such designation, rights and preferences as may be determined from time to time by our board
of directors. No shares of preferred stock have been or are being issued or registered in the IPO. Accordingly, our board of directors
is empowered, without shareholder approval, to issue preferred stock with dividend, liquidation, conversion, voting, or other
rights which could adversely affect the voting power or other rights of the holders of common shares. In addition, the preferred
stock could be utilized as a method of discouraging, delaying or preventing a change in control of us. Although we do not currently
intend to issue any shares of preferred stock, we cannot assure you that we will not do so in the future.
Warrants
Public
Warrants
Each
full warrant entitles the holder to purchase one Class A common share at a price of $11.50 per share, subject to adjustment as
discussed below, at any time, unless the warrants have previously expired, commencing on the later of:
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30
days after the consummation of the initial Business Combination; and
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12
months from the closing of the IPO; provided that, during the period in which the warrants are exercisable, a registration
statement under the Securities Act covering the Class A common shares issuable upon exercise of the warrants is effective
and a current report relating to the Class A common shares issuable upon the exercise of the warrants is available.
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We
have agreed to use our best efforts to have an effective registration statement covering our Class A common shares reserved for
issuance upon exercise of the warrants from the date the warrants become exercisable and to maintain a current report relating
to those Class A common shares until the warrants expire or are redeemed by us.
The
warrants will expire at 5:00 p.m., New York City time, March 21, 2024 or, if an effective registration statement covering the
Class A common shares issuable upon exercise of the warrants is not then effective and a report relating to such Class A common
shares is not then available, upon such registration statement being effective and such report being available for five consecutive
business days, or in either case, earlier upon redemption or liquidation or, in either case, earlier upon redemption or liquidation
by us. If we elect to redeem the warrants, we will have the option to require all holders who elect to exercise their warrants
prior to redemption to do so on a cashless basis. We may redeem the warrants (except as described herein with respect to the private
placement warrants) at any time after the warrants become exercisable:
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in
whole and not in part;
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at
a price of $0.01 per warrant;
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upon
a minimum of 30 days’ prior written notice of redemption to each warrant holder; and
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only
if (x) the closing price of our Class A common shares on NASDAQ, or any other national securities exchange on which our Class
A common shares may be traded, equals or exceeds $18.00 per share for any 20 trading days within a 30 trading-day period ending
three business days before we send the notice of redemption to warrant holders, (y) a registration statement under the Securities
Act covering Class A common shares issuable upon exercise of the warrants is effective and remains effective from the date
on which we send a redemption notice to and including the redemption date and (z) a current report relating to the Class A
common shares issuable upon exercise of the warrants is available from the date on which we send a redemption notice to and
including the redemption date.
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We
established this last criterion to provide warrant holders with the opportunity to realize a premium to the warrant exercise price
prior to the redemption of their warrants, as well as to provide them with a degree of liquidity to cushion the market reaction,
if any, to our election to redeem the warrants. If the foregoing conditions are satisfied and we call the warrants for redemption,
each warrant holder will then be entitled to exercise his, her or its warrants prior to the scheduled redemption date. There can
be no assurance that the price of our Class A common shares will not fall below the $18.00 per share trigger price or the $11.50
per share warrant exercise price after the redemption notice is delivered. We do not need the consent of the underwriters or our
shareholders to redeem the outstanding warrants.
If
we call the warrants for redemption, our management will have the option to require all holders that elect to exercise such warrants
to do so on a “cashless basis,” provided that such cashless exercise is permitted under the laws of our corporate
jurisdiction. In such event, each holder would pay the exercise price by surrendering the warrants and would receive on exercise
that number of Class A common shares equal to the quotient obtained by dividing (x) the product of the number of common shares
underlying the warrants being surrendered, multiplied by the difference between the exercise price of the warrants and the “fair
market value” by (y) the fair market value and then would receive Class A common shares underlying the non-surrendered warrants.
The “fair market value” shall mean the average reported closing price of our Class A common shares for the 10 trading
days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants. Such
warrants may not be settled on a cashless basis unless they have been called for redemption and we have required all such warrants
to be settled on a cashless basis.
The
right to exercise the warrants will be forfeited unless they are exercised before the redemption date specified in the notice
of redemption. From and after the redemption date, the record holder of a warrant will have no further rights except to receive,
upon surrender of the warrants, the redemption price.
The
warrants are issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant
agent, and us, which is attached to this prospectus as Exhibit 4.2.
The
exercise price and number of Class A common shares issuable on exercise of the warrants may be adjusted in certain circumstances,
including in the event of a stock dividend or our recapitalization, reorganization, merger or consolidation.
If
the number of outstanding Class A common shares is increased by a capitalization or share dividend payable in Class A common shares,
or by a split-up of Class A common shares or other similar event, then, on the effective date of such share dividend, split-up
or similar event, the number of Class A common shares issuable on exercise of each warrant will be increased in proportion to
such increase in the outstanding Class A common shares. A rights offering to holders of Class A common shares entitling holders
to purchase Class A common shares at a price less than the fair market value will be deemed a capitalization of a number of Class
A common shares equal to the product of (i) the number of Class A common shares actually sold in such rights offering (or issuable
under any other equity securities sold in such rights offering that are convertible into or exercisable for Class A common shares)
multiplied by (ii) one (1) minus the quotient of (x) the price per Class A common shares paid in such rights offering divided
by (y) the fair market value. For these purposes (i) if the rights offering is for securities convertible into or exercisable
for Class A common shares, in determining the price payable for Class A common shares, there will be taken into account any consideration
received for such rights, as well as any additional amount payable upon exercise or conversion and (ii) fair market value means
the volume weighted average price of Class A common shares as reported during the ten (10) trading day period ending on the trading
day prior to the first date on which the Class A common shares trade on the applicable exchange or in the applicable market, regular
way, without the right to receive such rights.
If
the number of outstanding Class A common shares is decreased by a consolidation, combination, reverse share split or redesignation
of Class A common shares or other similar event, then, on the effective date of such consolidation, combination, reverse share
split, redesignation or similar event, the number of Class A common shares issuable on exercise of each warrant will be decreased
in proportion to such decrease in outstanding Class A common shares.
Whenever
the number of Class A common shares purchasable upon the exercise of the warrants is adjusted, as described above, the warrant
exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x)
the numerator of which will be the number of Class A common shares purchasable upon the exercise of the warrants immediately prior
to such adjustment, and (y) the denominator of which will be the number of Class A common shares so purchasable immediately thereafter.
In
case of any redesignation or reorganization of the outstanding Class A common shares (other than those described above or that
solely affects the par value of such Class A common shares), or in the case of any merger or consolidation of us with or into
another corporation (other than a consolidation or merger in which we are the continuing corporation and that does not result
in any redesignation or reorganization of our outstanding Class A common shares), or in the case of any sale or conveyance to
another corporation or entity of the assets or other property of us as an entirety or substantially as an entirety in connection
with which we are dissolved, the holders of the warrants will thereafter have the right to purchase and receive, upon the basis
and upon the terms and conditions specified in the warrants and in lieu of our Class A common shares immediately theretofore purchasable
and receivable upon the exercise of the rights represented thereby, the kind and amount of shares of stock or other securities
or property (including cash) receivable upon such redesignation, reorganization, merger or consolidation, or upon a dissolution
following any such sale or transfer, that the holder of the warrants would have received if such holder had exercised their warrants
immediately prior to such event. However, if the holders of our Class A common shares were entitled to exercise a right of election
as to the kind or amount of securities, cash or other assets receivable upon such consolidation or merger, then the kind and amount
of securities, cash or other assets for which each warrant will become exercisable will be deemed to be the weighted average of
the kind and amount received per share by the holders of Class A common shares in such consolidation or merger that affirmatively
make such election, and if a tender, exchange or redemption offer has been made to and accepted by such shareholders under circumstances
in which, upon completion of such tender or exchange offer, the maker thereof, together with members of any group (within the
meaning of Rule 13d-5(b)(1) under the Exchange Act) of which such maker is a part, and together with any affiliate or associate
of such maker (within the meaning of Rule 12b-2 under the Exchange Act) and any members of any such group of which any such affiliate
or associate is a part, own beneficially (within the meaning of Rule 13d-3 under the Exchange Act) more than 50% of the outstanding
Class A common shares, the holder of a warrant will be entitled to receive the highest amount of cash, securities or other property
to which such holder would actually have been entitled as a shareholder if such warrant holder had exercised the warrant prior
to the expiration of such tender or exchange offer, accepted such offer and all of the Class A common shares held by such holder
had been purchased pursuant to such tender or exchange offer, subject to adjustment (from and after the consummation of such tender
or exchange offer) as nearly equivalent as possible to the adjustments provided for in the warrant agreement. Additionally, if
less than 70% of the consideration receivable by the holders of Class A common shares in such a transaction is payable in the
form of capital stock or shares in the successor entity that is listed for trading on a national securities exchange or is quoted
in an established over-the-counter market, or is to be so listed for trading or quoted immediately following such event, and if
the registered holder of the warrant properly exercises the warrant within thirty days following the public disclosure of such
transaction, the warrant exercise price will be reduced as specified in the warrant agreement based on the per share consideration
minus Black-Scholes Warrant Value (as defined in the warrant agreement) of the warrant.
The
warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant
agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied
(except in the event we have required cashless exercise of the warrants in connection with a redemption) by full payment of the
exercise price, by certified check payable to us, for the number of warrants being exercised. The warrant holders do not have
the rights or privileges of holders of Class A common shares and any voting rights until they exercise their warrants and receive
Class A common shares. After the issuance of Class A common shares upon exercise of the warrants, each holder will be entitled
to one vote for each share held of record on all matters to be voted on by shareholders.
No
warrants will be exercisable unless at the time of exercise a registration statement relating to Class A common shares issuable
upon exercise of the warrants is effective and a report relating to Class A common shares issuable upon exercise of the warrants
is available and the Class A common shares have been registered or qualified or deemed to be exempt under the securities laws
of the state of residence of the holder of the warrants. Holders of the warrants are not entitled to net cash settlement and the
warrants may only be settled by delivery of shares of our Class A common shares and not cash. Under the terms of the warrant agreement,
we have agreed to meet these conditions and use our commercially reasonable efforts to maintain an effective registration statement
and to make available a current report relating to Class A common shares issuable upon exercise of the warrants until the expiration
or earlier redemption of the warrants. However, we cannot assure you that we will be able to do so. We have no obligation to settle
the warrants or otherwise permit the warrants to be exercised in the absence of an effective registration statement or a currently
available report. The warrants may never become exercisable if we fail to comply with these registration requirements. The warrants
may be deprived of any value and the market for the warrants may be limited if holders are prohibited from exercising warrants
because an effective registration statement and the report relating to the Class A common shares issuable upon the exercise of
the warrants is not currently available or if the Class A common shares are not qualified or exempt from qualification in the
jurisdictions in which the holders of the warrants reside and we will not be required to cash settle any such warrant exercise.
Warrants included in the units sold in the IPO will not be exercisable at the option of the holder on a cashless basis, provided
that in connection with a call for redemption of the warrants, we may require all holders who wish to exercise their warrants
to do so on a cashless basis. The private placement warrants will not be exercisable at any time unless a registration statement
is effective and a report is available. We have not registered the Class A common shares issuable upon exercise of the warrants
at this time. However, we have agreed that, as soon as practicable, but in no event later than 30 days after the closing of our
initial Business Combination, we will use our best efforts to file with the SEC a registration statement covering the Class A
common shares issuable upon exercise of the warrants. After the filing of such registration statement, we will use our best efforts
to cause the effectiveness thereof as soon as reasonably practicable and to maintain a current report relating to those Class
A common shares until the warrants expire or are redeemed, as specified in the warrant agreement. See “Risk Factors—Risks
Associated with the Company and the Offering—We have not registered the Class A common shares issuable upon exercise of
the warrants under the Securities Act or any state securities laws at this time, and such registration may not be in place when
an investor desires to exercise warrants, thus precluding such investor from being able to exercise its warrants and causing such
warrants to expire worthless.”
Private
Placement Warrants
CMB
NV, the sponsor in our initial public offering (the “sponsor”), purchased an aggregate of 3,333,333 private placement
warrants at a price of $1.50 per warrant in private placement transactions that occurred in connection with our IPO. Pursuant
to the underwriters’ partial exercise of the overallotment option on December 16, 2016, we sold an additional 23,080 private
placement warrants to the sponsor. Each private placement warrant entitles the holder to purchase one Class A common share at
$11.50 per share.
The
private placement warrants are identical to the warrants included in the units sold in the IPO, except that:
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the
private placement warrants will be exercisable at the option of the holder on a cashless basis so long as they are held by
the original purchaser or its permitted transferees and such cashless exercise is permitted under the laws of our corporate
jurisdiction;
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the
private placement warrants will not be redeemable by us; and
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the
private placement warrants (including the Class A common shares issuable upon exercise of the private placement warrants)
may not, subject to certain limited exceptions, be transferred, assigned or sold until 30 days after the completion of our
initial Business Combination.
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If
a holder of the private placement warrants elects to exercise them on a cashless basis, that holder would pay the exercise price
by surrendering his, her or its warrants for that number of Class A common shares equal to the quotient obtained by dividing (x)
the product of the number of Class A common shares underlying the warrants, multiplied by the difference between the exercise
price of the warrants and the “fair market value” by (y) the fair market value. The “fair market value”
shall mean the average reported closing price of the Class A common shares for the 10 trading days ending on the third trading
day prior to the date on which the notice of redemption is sent to the holders of warrants.
On
March 21, 2019, we issued an additional 933,333 private warrants to the sponsor in exchange for the cancellation of $1,400,000
of promissory notes which we made in the sponsor’s favor.
Memorandum
and Articles of Association
We
are a corporation formed under the laws of the Republic of the Marshall Islands on June 24, 2016 and our affairs are governed
by our amended and restated articles of incorporation, our amended and restated bylaws, which are filed as exhibit 2.1 and 2.2,
respectively, to this prospectus, and the laws of the Republic of the Marshall Islands.
Below
is a summary of the description of our capital stock, including the rights, preferences and restrictions attaching to each class
of stock. Because the following is a summary, it does not contain all information that you may find useful. For more complete
information, you should read our amended and restated articles of incorporation and amended and restated bylaws, which are incorporated
by reference herein.
Purpose
Our
purpose, as stated in our amended and restated articles of incorporation, is to engage in any lawful act or activity for which
corporations may be organized under the Marshall Islands Business Corporation Act (the “BCA”), and we may exercise
all the powers and privileges that are necessary or convenient to the conduct, promotion or attainment of our business or purposes.
Directors
Our
directors are elected by a plurality of the votes cast by shareholders entitled to vote. There is no provision for cumulative
voting.
Our
amended and restated articles of incorporation require our board of directors to consist of at least one member. Our board of
directors currently consists of five members. Our amended and restated bylaws may be amended by the vote of a majority of our
entire board of directors. Directors are elected annually on a staggered basis, with the term of office of one or another of the
three classes expiring each year. Each director elected holds office for a three-year term or until his successor is duly elected
and qualified, except in the event of his death, resignation, removal or the earlier termination of his term of office.
Shareholder
meetings
Under
our amended and restated bylaws, annual meetings of shareholders will be held at a time and place selected by our board of directors.
The meetings may be held in or outside of the Marshall Islands. Special meetings may be called at any time by a majority of our
board of directors or our Chief Executive Officer. Our board of directors may set a record date between 15 and 60 days before
the date of any meeting to determine the shareholders that will be eligible to receive notice and vote at the meeting. One or
more shareholders representing at least one-third of the total voting rights of our total issued and outstanding shares present
in person or by proxy at a shareholder meeting shall constitute a quorum for the purposes of the meeting.
Dissenters’
rights of appraisal and payment
Under
the BCA, our shareholders have the right to dissent from various corporate actions, including any merger or consolidation and
the sale of all or substantially all of our assets not made in the usual course of our business, and receive payment of the fair
value of their shares. In the event of any further amendment of our amended and restated articles of incorporation, a shareholder
also has the right to dissent and receive payment for his or her shares if the amendment alters certain rights in respect of those
shares. The dissenting shareholder must follow the procedures set forth in the BCA to receive payment. In the event that we and
any dissenting shareholder fail to agree on a price for the common shares, the BCA procedures involve, among other things, the
institution of proceedings in the high court of the Republic of the Marshall Islands or in any appropriate court in any jurisdiction
in which our shares are primarily traded on a local or national securities exchange.
Shareholders’
derivative actions
The
BCA authorizes corporations to limit or eliminate the personal liability of directors to corporations and their shareholders for
monetary damages for certain breaches of directors’ fiduciary duties. Our amended and restated articles of incorporation
and amended and restated bylaws include a provision that eliminates the personal liability of directors for monetary damages for
actions taken as a director to the fullest extent permitted by law. Our amended and restated articles of incorporation provide
that we must indemnify our directors and officers to the fullest extent authorized by law, and further, that we may advance expenses
incurred while defending a civil or criminal proceeding. The foregoing obligations could result in us incurring substantial expenditures
to cover the cost of settlement or damage awards against our officers and directors, which we may be unable to recoup.
Our
amended and restated bylaws further permit us to secure insurance on behalf of any officer, director or employee for any liability
arising out of his or her actions, regardless of whether Marshall Islands law would permit indemnification. We have purchased
a policy of directors’ and officers’ liability insurance that insures our directors and officers against the cost
of defense, settlement or payment of a judgment in some circumstances and insures us against our obligations to indemnify the
directors and officers.
These
provisions and resultant costs may discourage us and our shareholders from bringing a lawsuit against our officers and directors
for breaches of their fiduciary duties, and may similarly reduce the likelihood of derivative litigation by our shareholders against
our officers and directors even though such actions, if successful, might otherwise benefit us and our shareholders. Furthermore,
a shareholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against
directors and officers pursuant to these indemnification provisions. We believe that these provisions, the insurance and the indemnity
agreements are necessary to attract and retain talented and experienced directors and officers.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
There
is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification
is sought.
Anti-takeover
effect of certain provisions of our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws
Several
provisions of our amended and restated articles of incorporation and amended and restated bylaws, which are summarized below,
may have anti-takeover effects. These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a
hostile change of control and enhance the ability of our board of directors to maximize shareholder value in connection with any
unsolicited offer to acquire us. However, these anti-takeover provisions, which are summarized below, could also discourage, delay
or prevent (1) the merger or acquisition of us by means of a tender offer, a proxy contest or otherwise that a shareholder may
consider in its best interest and (2) the removal of incumbent officers and directors.
Blank
check preferred stock
Under
the terms of our amended and restated articles of incorporation, our board of directors has authority, without any further vote
or action by our shareholders, to issue up to 50,000,000 shares of blank check preferred stock. Our board of directors may issue
preferred shares on terms calculated to discourage, delay or prevent a change of control of us or the removal of our management
and might harm the market price of our common shares. We have no current plans to issue any preferred shares.
Election
and removal of directors
Our
amended and restated articles of incorporation prohibit cumulative voting in the election of directors. Our amended and restated
bylaws require parties other than the board of directors to give advance written notice of nominations for the election of directors.
Our amended and restated articles of incorporation also provide that our directors may be removed for cause upon the affirmative
vote of not less than 70% of the outstanding shares of our capital stock entitled to vote for those directors. These provisions
may discourage, delay or prevent the removal of incumbent officers and directors.
Limited
actions by shareholders
Our
amended and restated articles of incorporation and our amended and restated bylaws provide that any action required or permitted
to be taken by our shareholders must be effected at an annual or special meeting of shareholders or by the unanimous written consent
of our shareholders. Our amended and restated articles of incorporation and our amended and restated bylaws provide that, unless
otherwise prescribed by law, only a majority of our board of directors or the Chief Executive Officer may call special meetings
of our shareholders and the business transacted at the special meeting is limited to the purposes stated in the notice. Accordingly,
a shareholder will be prevented from calling a special meeting for shareholder consideration of a proposal unless scheduled by
our board of directors and shareholder consideration of a proposal may be delayed until the next annual meeting.
Advance
notice requirements for shareholder proposals and director nominations
Our
amended and restated bylaws provide that shareholders seeking to nominate candidates for election as directors or to bring business
before an annual meeting of shareholders must provide timely notice of their proposal in writing to the corporate secretary. Generally,
to be timely, a shareholder’s notice must be received at our principal executive offices not less than 150 days nor more
than 180 days prior to the one year anniversary of the immediately preceding annual meeting of shareholders. Our amended and restated
bylaws also specify requirements as to the form and content of a shareholder’s notice. These provisions may impede shareholders’
ability to bring matters before an annual meeting of shareholders or make nominations for directors at an annual meeting of shareholders.
Classified
Board of Directors
As
described above, our amended and restated articles of incorporation provide for the division of our board of directors into three
classes of directors, with each class as nearly equal in number as possible, serving staggered three year terms beginning on the
expiration of the initial term for each class. Accordingly, approximately one-third of our board of directors will be elected
each year. This classified board provision could discourage a third party from making a tender offer for our shares or attempting
to obtain control of us. It could also delay shareholders who do not agree with the policies of our board of directors from removing
a majority of our board of directors for two years.
Transfer
Agent
The
registrar and transfer agent for securities and the warrant agent for our warrants is Continental Stock Transfer & Trust Company.
Share
History
On
November 23, 2016, we consummated our IPO of 15,000,000 units. Each unit issued in the IPO consists of one Class A common share
and one- half of one warrant. Each whole warrant entitles the holder to purchase one Class A common share at a price of $11.50.
Simultaneously with the consummation of the IPO, our Sponsor purchased 3,333,333 warrants in a private placement, which we refer
to as the private placement warrants, at a purchase price of $1.50 per warrant to our Sponsor generating gross proceeds of $5,000,000.
On
December 16, 2016, the underwriters of our IPO exercised their overallotment option in part, for a total of an additional 173,100
Units. As a result of the partial exercise of the overallotment option, as of January 3, 2017, our Sponsor forfeited 519,225 Class
B common shares in order to maintain its ownership, on an as-converted basis, at 20% of our issued and outstanding common shares.
In addition, we completed the private sale of an additional 23,080 private placement warrants to our Sponsor at a purchase price
of $1.50 per warrant, generating gross proceeds of $34,620, in accordance with the terms of the private placement agreement entered
into concurrently with the IPO.
The
15,173,100 Units sold in the IPO, including the 173,100 Units sold pursuant to the overallotment option, were sold at an offering
price of $10.00 per Unit, generating gross proceeds of $151,731,000, which was placed in the Trust Account pending our completion
of an initial business combination.
On
January 9, 2017, the Class A common shares and Warrants underlying the units sold in the IPO began to trade separately.
On
September 27, 2018, pursuant to the terms of a Securities Purchase Agreement dated September 27, 2018, by and between Bocimar
Hunter and CMB NV, Bocimar Hunter transferred ownership of its (i) 3,793,275 Class B common shares and (ii) 3,356,413 private
placement Warrants of the Company to CMB NV.
On
November 6, 2018, we completed a tender offer, funded with the proceeds then held in the Trust Account, in connection with an
amendment to our Amended and Restated Articles of Incorporation to extend the deadline, or the Extension Amendment, by which a
business combination must be consummated to April 23, 2019 or the Extended Date, pursuant to which we purchased 12,999,350 Class
A common shares at $10.125 per share, for an aggregate purchase price of approximately $131.6 million, or the Extension Tender
Offer. In connection with the Extension Tender Offer, we deposited into the Trust Account an additional $1,896,638 to make the
total amount on deposit in the Trust Account equal to $10.125 per Class A common share, or the First Tender Contribution. The
First Tender Contribution was funded by a combination of cash on hand held outside the Trust Account and a loan to us from our
Sponsor in the principal amount of $500,000 and which bears interest at LIBOR plus 0.60%, or the November 2018 Promissory Note.
In
connection with the Extension Amendment, our Sponsor, or persons on its behalf, has agreed to contribute to us $0.03 for each
Public Share that was not purchased in the Extension Tender Offer for each calendar month commencing on November 23, 2018 (the
day by which were initially required to complete our initial business combination) until April 23, 2019, or such earlier date
that we complete our initial business combination, or the Monthly Extension Contribution. We will deposit the amount of the Monthly
Extension Contribution in the Trust Account within five (5) business days of the beginning of each such calendar month, with respect
to the previous such calendar month, commencing on December 23, 2018 and on the 23rd day of each subsequent month up to and including
the Extended Date. The aggregate amount of the Monthly Extension Contribution will be repayable by us to our Sponsor if we complete
an initial business combination. On each of December 27, 2018, January 30, 2019, and February 12, 2019, $65,212.50 was contributed
to the Trust Account for the Monthly Extension Contribution. The Monthly Extension Contributions were funded with a portion of
the proceeds from three loans to us from our Sponsor, one in the principal amount of $300,000 and which bears interest at LIBOR
plus 0.60%, one in the principal amount of $200,000 and which bears interest at LIBOR plus 0.60%, and one in the principal amount
of $400,000 and which bears interest at LIBOR plus 0.60%.
On
March 21, 2019, in conjunction with the Merger, we completed the Tender Offer, funded with the proceeds then held in the Trust
Account, pursuant to our Amended and Restated Articles of Incorporation, which required that in connection with the Merger, we
provide our shareholders with the opportunity to redeem their Class A common shares for a pro rata portion of the Trust Account
that was established to hold the proceeds of its initial public offering and certain other funds, pursuant to which we purchased
2,173,750 Class A common shares at $10.215 per share, for an aggregate purchase price of approximately $22,204,856.
On
March 21, 2019, upon closing of the Merger, we issued (i) 200,000,000 Class A common shares to the NCF Stockholders as consideration
in the Merger (of which 15,000,000 Class A common shares were deposited into escrow to secure certain indemnification obligations
of NCF and the NCF Stockholders), and (ii) 3,793,275 Class A common shares to the Sponsor upon the conversion of its Class B common
shares. In addition, pursuant to the Merger Agreement, we may issue up to an additional 50,000,000 Class A common shares to the
NCF Stockholders in earnout payments if certain financial performance targets are met for the 2019 and 2020 fiscal years.
Also
on March 21, 2019, we issued an additional 933,333 private warrants to the sponsor in exchange for the cancellation of debts that
we owed to the Sponsor pursuant to $1,400,000 of promissory notes which we made in the Sponsor’s favor.
TAXATION
The
following summary of the material Marshall Islands and United States federal income tax consequences of an investment in our Class
A common shares is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all
of which are subject to change, possibly with retroactive effect. This summary does not deal with all possible tax consequences
relating to an investment in our Class A common shares, such as the tax consequences under United States state or local tax laws,
or tax laws of jurisdictions other than the Marshall Islands and the United States.
Marshall
Islands Tax Considerations
Under
current Marshall Islands law, we are not subject to tax on income or capital gains, and no Marshall Islands withholding tax will
be imposed upon payments of dividends by us to our shareholders.
United
States Federal Income Taxation
General
The
following is a summary of the material U.S. federal income tax consequences of the acquisition, ownership and disposition of our
common shares.
The
discussion below of the U.S. federal income tax consequences under the heading “U.S. Holders” will apply to a beneficial
owner of our common shares that is for U.S. federal income tax purposes:
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an
individual citizen or resident of the United States;
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a
corporation (or other entity treated as a corporation) that is created or organized (or treated as created or organized) in
or under the laws of the United States, any state thereof or the District of Columbia;
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an
estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source; or
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a
trust if (i) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S.
persons are authorized to control all substantial decisions of the trust; or (ii) it has a valid election in effect under
applicable U.S. Treasury regulations to be treated as a U.S. person.
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A
beneficial owner of our common shares that is described above is referred to herein as a “U.S. Holder”. If a beneficial
owner of our common shares is not described as a U.S. Holder and is not an entity treated as a partnership or other pass-through
entity for U.S. federal income tax purposes, such owner will be considered a “Non-U.S. Holder”. The material U.S.
federal income tax consequences applicable specifically to Non-U.S. Holders are described below under the heading “Non-U.S.
Holders”.
This
summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, Treasury
regulations promulgated thereunder, published rulings and court decisions, all as currently in effect. These authorities are subject
to change or differing interpretations, possibly on a retroactive basis.
This
discussion does not address all aspects of U.S. federal income taxation that may be relevant to any particular holder based on
such holder’s individual circumstances. In particular, this discussion considers only holders that own and hold our common
shares as capital assets within the meaning of Section 1221 of the Code and does not address the alternative minimum tax.
In addition, this discussion does not address the U.S. federal income tax consequences to holders that are subject to special
rules, including:
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financial
institutions or financial services entities;
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persons
that are subject to the mark-to-market accounting rules under Section 475 of the Code;
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governments
or agencies or instrumentalities thereof;
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regulated
investment companies;
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real
estate investment trusts;
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certain
expatriates or former long-term residents of the United States;
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persons
that actually or constructively own 5% or more of our shares;
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persons
that acquired our common shares pursuant to an exercise of employee options, in connection with employee incentive plans or
otherwise as compensation;
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persons
that hold our common shares as part of a straddle, constructive sale, hedging, conversion or other integrated transaction;
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persons
whose functional currency is not the U.S. dollar;
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controlled
foreign corporations; or
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passive
foreign investment companies.
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This
discussion does not address any aspect of U.S. federal non-income tax laws, such as gift or estate tax laws, or state, local or
non-U.S. tax laws, or except as discussed herein, any tax reporting obligations applicable to a holder of our common shares. Additionally,
this discussion does not consider the tax treatment of partnerships or other pass-through entities or persons who hold our common
shares through such entities. If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes)
is the beneficial owner of our common shares, the U.S. federal income tax treatment of a partner in the partnership generally
will depend on the status of the partner and the activities of the partnership. This discussion also assumes that any distribution
made (or deemed made) to a holder in respect of our common shares and any consideration received (or deemed received) by a holder
in connection with the sale or other disposition of our common shares will be in U.S. dollars.
We
have not sought, and will not seek, a ruling from the Internal Revenue Service (“IRS”) or an opinion of counsel as
to any U.S. federal income tax consequence described herein. The IRS may disagree with the description herein, and its determination
may be upheld by a court. Moreover, there can be no assurance that future legislation, regulations, administrative rulings or
court decisions will not adversely affect the accuracy of the statements in this discussion.
THIS
DISCUSSION IS ONLY A SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION
OF OUR COMMON SHARES. IT IS NOT TAX ADVICE. EACH HOLDER OF OUR COMMON SHARES IS URGED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT
TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR COMMON SHARES, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, AND NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL TAX LAWS AND ANY APPLICABLE TAX
TREATIES.
U.S.
Holders
Taxation
of Cash Distributions Paid on Common shares
Subject
to the passive foreign investment company, or “PFIC”, rules discussed below, a U.S. Holder generally will be
required to include in gross income as ordinary income the amount of any cash dividend paid on our common shares. A cash distribution
on such common shares generally will be treated as a dividend for U.S. federal income tax purposes to the extent the distribution
is paid out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). Such dividend
generally will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends
received from other U.S. corporations. The portion of such cash distribution, if any, in excess of such earnings and profits will
be applied against and reduce (but not below zero) the U.S. Holder’s adjusted tax basis in our common shares. Any remaining
excess generally will be treated as gain from the sale or other taxable disposition of such common shares.
With
respect to non-corporate U.S. Holders, any such dividends may be subject to U.S. federal income tax at the lower applicable regular
long-term capital gains tax rate (see “— Taxation on the Disposition of Common shares” below) provided that
(1) our common shares are readily tradable on an established securities market in the United States or, in the event we are
deemed to be a PRC “resident enterprise” under the EIT Law, we are eligible for the benefits of the Agreement between
the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of
Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income (the “U.S.-PRC Tax Treaty”); (2) we
are not a PFIC, as discussed below, for either the taxable year in which such dividend was paid or the preceding taxable year;
and (3) certain holding period requirements are met. Under published IRS authority, common shares are considered for purposes
of clause (1) above to be readily tradable on an established securities market in the United States only if they are listed
on certain exchanges, which presently include the NASDAQ Stock Market LLC (“Nasdaq”). While our common shares are
currently listed and traded on Nasdaq, U.S. Holders nevertheless should consult their own tax advisors regarding the availability
of the lower rate for any dividends paid with respect to our common shares.
If
a PRC income tax applies to any cash dividends paid to a U.S. Holder on our common shares, such tax may be treated as a foreign
tax eligible for a deduction from such holder’s U.S. federal taxable income or a foreign tax credit against such holder’s
U.S. federal income tax liability (subject to applicable conditions and limitations). In addition, if such PRC tax applies to
any such dividends, such U.S. Holder may be entitled to certain benefits under the U.S.-PRC Tax Treaty, if such holder is considered
a resident of the United States for purposes of, and otherwise meets the requirements of, the U.S.-PRC Tax Treaty. U.S. Holders
should consult their own tax advisors regarding the deduction or credit for any such PRC tax and their eligibility for the benefits
of the U.S.-PRC Tax Treaty.
Taxation
on the Disposition of Common Shares
Upon
a sale or other taxable disposition of our common shares, and subject to the PFIC rules discussed below, a U.S. Holder generally
will recognize capital gain or loss in an amount equal to the difference between the amount realized and the U.S. Holder’s
adjusted tax basis in the common shares.
The
regular U.S. federal income tax rate on capital gains recognized by U.S. Holders generally is the same as the regular U.S. federal
income tax rate on ordinary income, except that long-term capital gains recognized by non-corporate U.S. Holders generally are
subject to U.S. federal income tax at a maximum regular rate of 20%. Capital gain or loss will constitute long-term capital gain
or loss if the U.S. Holder’s holding period for the common shares exceeds one year. The deductibility of capital losses
is subject to various limitations.
If
a PRC income tax applies to any gain from the disposition of our common shares by a U.S. Holder, such tax may be treated as a
foreign tax eligible for a deduction from such holder’s U.S. federal taxable income or a foreign tax credit against such
holder’s U.S. federal income tax liability (subject to applicable conditions and limitations). In addition, if such PRC
tax applies to any such gain, such U.S. Holder may be entitled to certain benefits under the U.S.-PRC Tax Treaty, if such holder
is considered a resident of the United States for purposes of, and otherwise meets the requirements of, the U.S.-PRC Tax Treaty.
U.S. Holders should consult their own tax advisors regarding the deduction or credit for any such PRC tax and their eligibility
for the benefits of the U.S.-PRC Tax Treaty.
Possible
Constructive Distributions
The
terms of each warrant provide for an adjustment to the number of 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. However,
the U.S. Holders of the warrants would 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 common shares that would be obtained upon exercise) as a result of a distribution of cash to the holders of our
common shares which is taxable to the U.S. Holders of such common shares as described under “— Taxation of Cash Distributions
Paid on Common 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.
Exercise
or Lapse of a Warrant
Subject
to the PFIC rules discussed below, a U.S. Holder generally will not recognize gain or loss upon the acquisition of a common share
from the exercise of two warrants for cash. A common share acquired pursuant to the exercise of two warrants for cash generally
will have a tax basis equal to the U.S. Holder’s tax basis in the warrants, increased by the amount paid to exercise the
warrants. The holding period of such common share generally would begin on the day after 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 re
co
gnize a capital loss equal to such holder’s tax basis in the warrant.
The
tax consequences of a cashless exercise of warrants are not clear under current tax law. A cashless exercise may be tax-free,
either because the exercise is not a realization event (i.e., not a transaction in which gain or loss is realized) or because
the exercise is treated as a recapitalization for U.S. federal income tax purposes. In either tax-free situation, a U.S. Holder’s
basis in the common shares received would equal the holder’s basis in the warrants. If the cashless exercise were treated
as not being a realization event, a U.S. Holder’s holding period in the common shares should be treated as commencing on
the date following the date of exercise of the warrants. If the cashless exercise were treated as a recapitalization, the holding
period of the common shares received would include the holding period of the warrants. It is also possible that a cashless exercise
could be treated as a taxable exchange in which gain or loss would be recognized. In such event, a U.S. Holder could be deemed
to have surrendered a number of warrants with a fair market value equal to the exercise price for the number of warrants deemed
exercised. For this purpose, the number of warrants deemed exercised would be equal to the amount needed to receive on exercise
the number of common shares issued pursuant to the cashless exercise. In this situation, the U.S. Holder would recognize capital
gain or loss in an amount equal to the difference between the fair market value of the warrants deemed surrendered to pay the
exercise price and the U.S. Holder’s tax basis in the warrants deemed surrendered. Such gain or loss would be long-term
or short-term depending on the U.S. Holder’s holding period in the warrants. In this case, a U.S. Holder’s tax basis
in the common shares received would equal the sum of the fair market value of the warrants deemed surrendered and the U.S. Holder’s
tax basis in the warrants deemed exercised. A U.S. Holder’s holding period for the common shares should commence on the
date following the date of exercise of the warrants. There may also be alternative characterizations of any such taxable exchange
that would result in similar tax consequences, except that a U.S. Holder’s gain or loss would be short-term. 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 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 of the warrants.
Additional
Taxes
U.S.
Holders that are individuals, estates or trusts and whose income exceeds certain thresholds generally will be subject to a 3.8%
Medicare contribution tax on unearned income, including, without limitation, cash dividends on, and gains from the sale or other
taxable disposition of, our common shares, subject to certain limitations and exceptions. Under applicable regulations, in the
absence of a special election, such unearned income generally would not include income inclusions under the qualified electing
fund, or “QEF”, rules discussed below under “— Passive Foreign Investment Company Rules”, but
would include distributions of earnings and profits from a QEF. U.S. Holders should consult their own tax advisors regarding the
effect, if any, of such tax on their ownership and disposition of our common shares.
Passive
Foreign Investment Company Rules
A
foreign (i.e., non-U.S.) corporation will be a PFIC if either (a) at least 75% of its gross income in a taxable year of the
foreign corporation, including its pro rata share of the gross income of any corporation in which it is considered to own (directly
or indirectly) at least 25% of the shares by value, is passive income; or (b) at least 50% of its assets in a taxable year
of the foreign corporation, ordinarily determined based on fair market value and averaged quarterly over the year, including its
pro rata share of the assets of any corporation in which it is considered to own (directly or indirectly) at least 25% of the
shares by value, are held for the production of, or produce, passive income. Passive income generally includes dividends, interest,
rents and royalties (other than certain rents or royalties derived from the active conduct of a trade or business), and gains
from the disposition of passive assets.
Based
on the composition (and estimated values) of the assets and the nature of the income of us and our subsidiaries for our taxable
year ended December 31, 2018, we do not believe that we will be treated as a PFIC for such year. However, because we have not
performed a definitive analysis as to our PFIC status for such year, there can be no assurance with respect to our PFIC status
for such year. There also can be no assurance in respect to our status as a PFIC for our current taxable year or any subsequent
taxable year.
If
we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder
of our common shares and such U.S. Holder did not make either a timely QEF election for our first taxable year as a PFIC in which
the U.S. Holder held (or was deemed to hold) our common shares, a QEF election along with a purging election or a mark-to-market
election, each as described below, such holder generally will be subject to special rules for regular U.S. federal income
tax purposes with respect to:
|
|
●
|
any
gain recognized by the U.S. Holder on the sale or other disposition of its common shares; and
|
|
|
●
|
any
“excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable
year of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect
of our common shares during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder’s
holding period for the common shares).
|
Under
these rules,
|
|
●
|
the
U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for
the common shares;
|
|
|
●
|
the
amount allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain or received the excess
distribution, or to the period in the U.S. Holder’s holding period before the first day of our first taxable year in
which we qualified as a PFIC, will be taxed as ordinary income;
|
|
|
●
|
the
amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will be
taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder; and
|
|
|
●
|
the
interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such
other taxable year of the U.S. Holder.
|
In
general, if we are determined to be a PFIC, a U.S. Holder may avoid the PFIC tax consequences described above in respect to our
common shares by making a timely QEF election (or a QEF election along with a purging election). Pursuant to the QEF election,
a U.S. Holder generally will be required to include in income its pro rata share of our net capital gains (as long-term capital
gain) and other earnings and profits (as ordinary income), on a current basis, in each case whether or not distributed, in the
taxable year of the U.S. Holder in which or with which our taxable year ends if we are treated as a PFIC for that taxable year.
A U.S. Holder may make a separate election to defer the payment of taxes on undistributed income inclusions under the QEF rules,
but if deferred, any such taxes will be subject to an interest charge.
The
QEF election is made on a shareholder-by-shareholder basis and, once made, can be revoked only with the consent of the IRS. A
U.S. Holder generally makes a QEF election by attaching a completed IRS Form 8621 (Information Return by a Shareholder of
a Passive Foreign Investment Company or Qualified Electing Fund), including the information provided in a PFIC annual information
statement, to a timely filed U.S. federal income tax return for the taxable year to which the election relates. Retroactive QEF
elections generally may be made only by filing a protective statement with such return and if certain other conditions are met
or with the consent of the IRS.
In
order to comply with the requirements of a QEF election, a U.S. Holder must receive certain information from us. Upon request
from a U.S. Holder, we will endeavor to provide to the U.S. Holder no later than 90 days after the request such information as
the IRS may require, including a PFIC annual information statement, in order to enable the U.S. Holder to make and maintain a
QEF election. However, there is no assurance that we will have timely knowledge of our status as a PFIC in the future or of the
required information to be provided.
If
a U.S. Holder has made a QEF election with respect to our common shares, and the special tax and interest charge rules do
not apply to such common shares (because of a timely QEF election for our first taxable year as a PFIC in which the U.S. Holder
holds (or is deemed to hold) such common shares or a QEF election along with a purge of the PFIC taint pursuant to a purging election,
as described below), any gain recognized on the sale or other taxable disposition of such common shares generally will be taxable
as capital gain and no interest charge will be imposed. As discussed above, for regular U.S. federal income tax purposes, U.S.
Holders of a QEF generally are currently taxed on their pro rata shares of the QEF’s earnings and profits, whether or not
distributed. In such case, a subsequent distribution of such earnings and profits that were previously included in income generally
should not be taxable as a dividend to such U.S. Holders. The adjusted tax basis of a U.S. Holder’s common shares in a QEF
will be increased by amounts that are included in income, and decreased by amounts distributed but not taxed as dividends, under
the above rules. Similar basis adjustments apply to property if by reason of holding such property the U.S. Holder is treated
under the applicable attribution rules as owning common shares in a QEF.
Although
a determination as to our PFIC status will be made annually, an initial determination that we are a PFIC generally will apply
for subsequent years to a U.S. Holder who held our common shares while we were a PFIC, whether or not we meet the test for PFIC
status in those subsequent years. A U.S. Holder who makes the QEF election discussed above for our first taxable year as a PFIC
in which the U.S. Holder holds (or is deemed to hold) our common shares, however, will not be subject to the PFIC tax and interest
charge rules discussed above in respect to such common shares. In addition, such U.S. Holder will not be subject to the QEF
inclusion regime with respect to such common shares for any of our taxable years that end within or with a taxable year of the
U.S. Holder and in which we are not a PFIC. On the other hand, if the QEF election is not effective for each of our taxable years
in which we are a PFIC and during which the U.S. Holder holds (or is deemed to hold) our common shares, the PFIC rules discussed
above will continue to apply to such shares unless the holder files on a timely filed U.S. income tax return (including extensions)
a QEF election and a purging election to recognize under the rules of Section 1291 of the Code any gain that the U.S.
Holder would otherwise recognize if the U.S. Holder had sold such shares for their fair market value on the “qualification
date”. The qualification date is the first day of our tax year in which we qualify as a QEF with respect to such U.S. Holder.
The purging election can only be made if such U.S. Holder held our common shares on the qualification date. The gain recognized
by the purging election generally will be subject to the special tax and interest charge rules treating the gain as an excess
distribution, as described above. As a result of the purging election, the U.S. Holder generally will increase the adjusted tax
basis in its common shares by the amount of the gain recognized and also will have a new holding period in its common shares for
purposes of the PFIC rules.
Alternatively,
if a U.S. Holder, at the close of its taxable year, owns (or is deemed to own) common shares in a PFIC that are treated as marketable
stock, the U.S. Holder may make a mark-to-market election with respect to such common shares for such taxable year. If the U.S.
Holder makes a valid mark-to-market election for the first taxable year of the U.S. Holder in which the U.S. Holder holds (or
is deemed to hold) our common shares and for which we are determined to be a PFIC, such holder generally will not be subject to
the PFIC rules described above in respect to its common shares as long as such shares continue to be treated as marketable
stock. Instead, in general, the U.S. Holder will include as ordinary income for each year that we are treated as a PFIC the excess,
if any, of the fair market value of its common shares at the end of its taxable year over the adjusted tax basis in its common
shares. The U.S. Holder also will be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted tax basis
of its common shares over the fair market value of its common shares at the end of its taxable year (but only to the extent of
the net amount of previously included income as a result of the mark-to-market election). The U.S. Holder’s adjusted tax
basis in its common shares will be adjusted to reflect any such income or loss amounts, and any further gain recognized on a sale
or other taxable disposition of the common shares in a taxable year in which we are treated as a PFIC generally will be treated
as ordinary income. Special tax rules may apply if a U.S. Holder makes a mark-to-market election for a taxable year after
the first taxable year in which the U.S. Holder holds (or is deemed to hold) our common shares and for which we are determined
to be a PFIC.
The
mark-to-market election is available only for stock that is regularly traded on a national securities exchange that is registered
with the SEC (including Nasdaq) or on a foreign exchange or market that the IRS determines has rules sufficient to ensure
that the market price represents a legitimate and sound fair market value. While our common shares are currently listed and traded
on Nasdaq, U.S. Holders nevertheless should consult their own tax advisors regarding the availability and tax consequences of
a mark-to-market election in respect to our common shares under their particular circumstances.
If
we are a PFIC and, at any time, have a foreign subsidiary that is classified as a PFIC, a U.S. Holder of our common shares generally
should be deemed to own a portion of the shares of such lower-tier PFIC, and generally could incur liability for the deferred
tax and interest charge described above if we receive a distribution from, or dispose of all or part of our interest in, or the
U.S. Holder otherwise were deemed to have disposed of an interest in, the lower-tier PFIC. Upon request, we will endeavor to cause
any lower-tier PFIC to provide to a U.S. Holder no later than 90 days after the request the information that may be required to
make or maintain a QEF election with respect to the lower-tier PFIC. However, there is no assurance that we will have timely knowledge
of the status of any such lower-tier PFIC or will be able to cause the lower-tier PFIC to provide the required information. A
mark-to-market election generally would not be available with respect to such a lower-tier PFIC. U.S. Holders are urged to consult
their own tax advisors regarding the tax issues raised by lower-tier PFICs.
A
U.S. Holder that owns (or is deemed to own) common shares in a PFIC during any taxable year of the U.S. Holder may have to file
an IRS Form 8621 (whether or not a QEF election or mark-to-market election is or has been made) with such U.S. Holder’s
U.S. federal income tax return and provide such other information as may be required by the U.S. Treasury Department.
The
rules dealing with PFICs and with the QEF and mark-to-market elections are very complex and are affected by various factors
in addition to those described above. Accordingly, U.S. Holders of our common shares should consult their own tax advisors concerning
the application of the PFIC rules to our common shares under their particular circumstances.
Non-U.S.
Holders
Cash
dividends paid (or deemed paid) to a Non-U.S. Holder in respect to our common shares generally will not be subject to U.S. federal
income tax, unless such dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within
the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed
base that such holder maintains or maintained in the United States).
In
addition, a Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain attributable to a sale or other
taxable disposition of our common shares unless such gain is effectively connected with its conduct of a trade or business in
the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed
base that such holder maintains or maintained in the United States) or the Non-U.S. Holder is an individual who is present in
the United States for 183 days or more in the taxable year of such sale or other disposition and certain other conditions are
met (in which case, such gain from U.S. sources generally is subject to U.S. federal income tax at a 30% rate or a lower applicable
tax treaty rate).
Cash
dividends and gains that are effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United
States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base that
such holder maintains or maintained in the United States) generally will be subject to regular U.S. federal income tax at the
same regular U.S. federal income tax rates applicable to a comparable U.S. Holder and, in the case of a Non-U.S. Holder that is
a corporation for U.S. federal income tax purposes, also may be subject to an additional branch profits tax at a 30% rate or a
lower applicable tax treaty rate.
Backup
Withholding and Information Reporting
In
general, information reporting for U.S. federal income tax purposes should apply to distributions made on our common shares within
the United States to a U.S. Holder (other than an exempt recipient) and to the proceeds from sales and other dispositions of our
common shares by a U.S. Holder (other than an exempt recipient) to or through a U.S. office of a broker. Payments made (and sales
and other dispositions effected at an office) outside the United States will be subject to information reporting in limited circumstances.
In addition, certain information concerning a U.S. Holder’s adjusted tax basis in its common shares and adjustments to that
tax basis and whether any gain or loss with respect to such common shares is long-term or short-term also may be required to be
reported to the IRS, and certain holders may be required to file an IRS Form 8938 (Statement of Specified Foreign Financial
Assets) to report their interests in our common shares.
Moreover,
backup withholding of U.S. federal income tax at a current rate of 24% generally will apply to cash dividends paid on our common
shares to a U.S. Holder (other than an exempt recipient) and the proceeds from sales and other dispositions of our common shares
by a U.S. Holder (other than an exempt recipient), in each case who:
|
|
●
|
fails
to provide an accurate taxpayer identification number;
|
|
|
●
|
is
notified by the IRS that backup withholding is required; or
|
|
|
●
|
in
certain circumstances, fails to comply with applicable certification requirements.
|
A
Non-U.S. Holder generally may eliminate the requirement for information reporting and backup withholding by providing certification
of its foreign status, under penalties of perjury, on a duly executed applicable IRS Form W-8 or by otherwise establishing
an exemption.
Backup
withholding is not an additional tax. Rather, the amount of any backup withholding will be allowed as a credit against a U.S.
Holder’s or a Non-U.S. Holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided
that certain required information is timely furnished to the IRS. Holders are urged to consult their own tax advisors regarding
the application of backup withholding and the availability of and procedures for obtaining an exemption from backup withholding
in their particular circumstances.
Disclosure
of Commission Position on Indemnification for Securities Act Liabilities
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling
us pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and is theretofore unenforceable.
LEGAL
MATTERS
Certain legal matters
in connection with this offering will be passed upon for us by Loeb & Loeb, New York, New York. Certain legal matters as to
Marshall Islands law, including the validity of the Class A common shares, will be passed upon for us by Seward & Kissel LLP,
New York, New York.
EXPERTS
The
audited financial statements of Hunter Maritime Acquisition Corp. as of and for the years ended December 31, 2018 and 2017 and
for the period from June 24, 2016 to December 31, 2016 have been included in this prospectus in reliance upon the report of UHY
LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
The
audited combined and consolidated financial statements for the fiscal years ended December 31, 2018, 2017 and 2016 of NCF Wealth
Holdings Limited have been included in this prospectus in reliance on the report of UHY LLP, an independent registered public
accounting firm, appearing elsewhere in this prospectus upon the authority of the said firm as experts in auditing and accounting.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We
have filed with the SEC a registration statement on Form F-1, which includes exhibits, schedules and amendments, under the Securities
Act, with respect to the shares to be sold in this offering. Although this prospectus, which forms a part of the registration
statement, contains all material information included in the registration statement, parts of the registration statement have
been omitted as permitted by rules and regulations of the SEC. We refer you to the registration statement and its exhibits for
further information about us, our securities and this offering. The registration statement and its exhibits, as well as our other
reports filed with the SEC, can be inspected and copied at the SEC’s public reference room at 100 F Street, N.E., Washington,
D.C. 20549-1004. The public may obtain information about the operation of the public reference room by calling the SEC at 1-800-SEC-0330.
In addition, the SEC maintains a web site at http://www.sec.gov which contains the Form F-1 and other reports, proxy and information
statements and information regarding issuers that file electronically with the SEC. We are subject to the information reporting
requirements of the Securities Exchange Act of 1934, and we will file reports, proxy statements and other information with the
SEC.
NCF
Wealth Holdings Limited
COMBINED
AND CONSOLIDATED FINANCIAL STATEMENTS
Table
of Contents
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and
Shareholders
of NCF Wealth Holdings Limited
Opinion
on the Financial Statements
We
have audited the accompanying combined and consolidated balance sheets of NCF Wealth Holdings Limited and its subsidiaries (the
“Company”) as of December 31, 2018 and 2017, and the related combined and consolidated statements of operations, comprehensive
income (loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December
31, 2018, and the related notes (collectively referred to as the “combined and consolidated financial statements”).
In our opinion, the combined and consolidated financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2018 and 2017, and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States
of America.
Basis
for Opinion
These
combined and consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on the Company’s combined and 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the combined and consolidated financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial
reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the combined and consolidated 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 combined and consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the combined and consolidated financial statements. We believe that our audits provide a reasonable basis
for our opinion.
Emphasis
of Matter
The
Company had material related party transactions and balances as of December 31, 2018 and 2017 and for each of the years in the
three-year period ended December 31, 2018. Those related parties are either under common control of the Company’s Founder
or under significant influence of the Company’s key management members. The material related party balances and transactions
were disclosed in the combined and consolidated financial statements as of December 31, 2018 and 2017 and for each of the years
in the three-year period ended December 31, 2018, respectively. The detail of the related party transactions are disclosed in
Note 19 to the combined and consolidated financial statements. Our opinion is not modified with respect to that matter.
/s/
UHY LLP
We
have served as the Company’s auditor since 2018.
New
York, New York
April
30, 2019
NCF
WEALTH HOLDINGS LIMITED
COMBINED
AND CONSOLIDATED BALANCE SHEETS
(Expressed
in U.S. dollars, except for the number of shares)
|
|
|
As of December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
25,057,905
|
|
|
$
|
35,067,737
|
|
|
Accounts receivable, net of bad debt allowance of $ 713,080 and $0,
respectively
|
|
|
3,017,176
|
|
|
|
2,066,302
|
|
|
Accounts receivable – related parties
|
|
|
272,731
|
|
|
|
1,651,530
|
|
|
Advances to suppliers
|
|
|
2,724,798
|
|
|
|
6,519,327
|
|
|
Other receivables, net
|
|
|
1,525,929
|
|
|
|
10,861,713
|
|
|
Advances to suppliers and other receivable - related parties
|
|
|
1,238,726
|
|
|
|
4,745,184
|
|
|
Short-term investment
|
|
|
129,182,053
|
|
|
|
470,641
|
|
|
Loan receivable – related parties
|
|
|
-
|
|
|
|
43,773,878
|
|
|
Other current assets
|
|
|
6,155,139
|
|
|
|
4,808,738
|
|
|
|
|
|
169,174,457
|
|
|
|
109,965,050
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
4,621,750
|
|
|
|
7,713,383
|
|
|
Fixed assets, net
|
|
|
2,348,203
|
|
|
|
1,422,816
|
|
|
Equity method investments
|
|
|
6,333,850
|
|
|
|
806,055
|
|
|
Long-term other receivable
|
|
|
263,259
|
|
|
|
325,128
|
|
|
Other non-current assets
|
|
|
143,534
|
|
|
|
4,609,440
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
182,885,053
|
|
|
$
|
124,841,872
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders’ equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accrued marketing and channel fees
|
|
$
|
4,332,622
|
|
|
$
|
2,841,260
|
|
|
Accrued marketing and channel fees – related parties
|
|
|
8,721,892
|
|
|
|
4,495,817
|
|
|
Accruals and other liabilities
|
|
|
9,800,696
|
|
|
|
5,199,481
|
|
|
Accruals and other liabilities – related parties
|
|
|
365,707
|
|
|
|
14,642,846
|
|
|
Taxes payable
|
|
|
7,317,785
|
|
|
|
2,214,941
|
|
|
Loans payable – related parties
|
|
|
1,140,742
|
|
|
|
-
|
|
|
Amount due to related parties
|
|
|
1,091,146
|
|
|
|
92,074
|
|
|
Note payable – Great Reap
|
|
|
4,077,000
|
|
|
|
-
|
|
|
|
|
|
36,847,590
|
|
|
|
29,486,419
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
Note payable – Great Reap
|
|
|
-
|
|
|
|
4,077,000
|
|
|
Total liabilities
|
|
|
36,847,590
|
|
|
|
33,563,419
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 18)
|
|
|
|
|
|
|
|
|
NCF
WEALTH HOLDINGS LIMITED
COMBINED
AND CONSOLIDATED BALANCE SHEETS
(Expressed
in U.S. dollar, except for the number of shares)
|
|
|
As of December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
Series B Preferred shares ($0.00001
par value, 1,000,000,000 shares authorized; 29,426,129 shares issued and outstanding as of December 31, 2018 and 2017)
|
|
|
294
|
|
|
|
294
|
|
|
Series C-1 Preferred shares ($0.00001 par value,
1,000,000,000 shares authorized; 24,711,296 shares issued and outstanding as of December 31, 2018 and 2017)
|
|
|
247
|
|
|
|
247
|
|
|
Ordinary Shares ($0.00001 par value, authorized
3,000,000,000 shares; 1,091,569,209 shares issued as of December 31, 2018 and 2017; 981,569,209 shares outstanding as of December
31, 2018 and 2017)
|
|
|
10,916
|
|
|
|
10,916
|
|
|
Shares in Employee Benefit Trust ($0.00001 par
value, 110,000,000 shares held as of December 31, 2018 and 2017)
|
|
|
(4,077,600
|
)
|
|
|
(4,077,600
|
)
|
|
Additional paid-in capital
|
|
|
141,011,552
|
|
|
|
145,580,710
|
|
|
Statutory reserve
|
|
|
6,838,628
|
|
|
|
721,818
|
|
|
Retained earnings (Accumulated deficit)
|
|
|
563,487
|
|
|
|
(53,604,674
|
)
|
|
Accumulated other comprehensive
income
|
|
|
1,810,416
|
|
|
|
2,487,570
|
|
|
Total NCF Wealth Holdings Limited
Shareholders’ Equity
|
|
|
146,157,940
|
|
|
|
91,119,281
|
|
|
Non-controlling interest
|
|
|
(120,477
|
)
|
|
|
159,172
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
|
146,037,463
|
|
|
|
91,278,453
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
and shareholders’ equity
|
|
$
|
182,885,053
|
|
|
$
|
124,841,872
|
|
The
accompanying notes are an integral part of these combined and consolidated financial statements.
NCF
WEALTH HOLDINGS LIMITED
COMBINED
AND CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed
in U.S. dollar, except for the number of shares)
|
|
|
For the Years Ended December
31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
|
|
|
|
|
|
|
|
Transaction and service fee
|
|
$
|
234,972,184
|
|
|
$
|
208,166,308
|
|
|
$
|
99,056,931
|
|
|
Transaction and service fee - related parties
|
|
|
6,273,413
|
|
|
|
87,660
|
|
|
|
1,176,104
|
|
|
Commission fee
|
|
|
8,751,657
|
|
|
|
4,334,526
|
|
|
|
10,080,180
|
|
|
Commission fee - related parties
|
|
|
1,626,942
|
|
|
|
3,628,848
|
|
|
|
1,197,575
|
|
|
Other revenue
|
|
|
13,787,535
|
|
|
|
5,541,601
|
|
|
|
2,755,364
|
|
|
Other revenue – related parties
|
|
|
7,039
|
|
|
|
149,701
|
|
|
|
33,935
|
|
|
Total net revenue
|
|
|
265,418,770
|
|
|
|
221,908,644
|
|
|
|
114,300,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cost and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
156,329,090
|
|
|
|
150,411,453
|
|
|
|
103,619,248
|
|
|
Product development expenses
|
|
|
17,198,056
|
|
|
|
15,323,516
|
|
|
|
13,656,817
|
|
|
Loan facilitation and servicing expenses
|
|
|
3,919,555
|
|
|
|
3,334,719
|
|
|
|
2,973,370
|
|
|
General and administrative expenses
|
|
|
15,433,707
|
|
|
|
11,981,156
|
|
|
|
9,274,374
|
|
|
Total operating cost and expenses
|
|
|
192,880,408
|
|
|
|
181,050,844
|
|
|
|
129,523,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
72,538,362
|
|
|
|
40,857,800
|
|
|
|
(15,223,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income – related parties
|
|
|
7,176,876
|
|
|
|
4,773,013
|
|
|
|
1,802,979
|
|
|
Interest expense – related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
(282,276
|
)
|
|
Interest (expense) income
|
|
|
(36,829
|
)
|
|
|
(157,640
|
)
|
|
|
126,616
|
|
|
Foreign currency transaction (loss) gain
|
|
|
(1,171,933
|
)
|
|
|
2,246,572
|
|
|
|
(2,324,618
|
)
|
|
Loss in equity method investment
|
|
|
(199,908
|
)
|
|
|
(22,777
|
)
|
|
|
(110,494
|
)
|
|
Gain on sale of equity method investment
|
|
|
-
|
|
|
|
-
|
|
|
|
110,494
|
|
|
Gain on sale of equity interest in a subsidiary
|
|
|
94,104
|
|
|
|
-
|
|
|
|
-
|
|
|
Income from short-term investment
|
|
|
506,590
|
|
|
|
494,252
|
|
|
|
-
|
|
|
Other miscellaneous income (expense)
|
|
|
361,743
|
|
|
|
1,473
|
|
|
|
(159,090
|
)
|
|
Total other income (expenses)
|
|
|
6,730,643
|
|
|
|
7,334,893
|
|
|
|
(836,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax
|
|
|
79,269,005
|
|
|
|
48,192,693
|
|
|
|
(16,060,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
|
|
(19,260,548
|
)
|
|
|
(12,348,395
|
)
|
|
|
2,806,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
60,008,457
|
|
|
|
35,844,298
|
|
|
|
(13,253,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to non-controlling interest
|
|
|
(276,514
|
)
|
|
|
(143,333
|
)
|
|
|
(96,262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to NCF Wealth Holdings Limited
|
|
$
|
60,284,971
|
|
|
$
|
35,987,631
|
|
|
$
|
(13,157,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income allocated to participating securities
|
|
|
2,848,612
|
|
|
|
1,700,503
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable
to ordinary shareholders of NCF Wealth Holdings Limited
|
|
$
|
57,436,359
|
|
|
$
|
34,287,128
|
|
|
$
|
(13,157,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per ordinary share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per
ordinary share attributable to NCF Wealth Holdings
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
|
$
|
(0.01
|
)
|
|
Weighted-average number
of ordinary shares used in computing basic net income (loss) per share
|
|
|
1,091,569,209
|
|
|
|
1,091,569,209
|
|
|
|
1,088,230,612
|
|
|
Diluted earnings (loss)
per ordinary share attributable to NCF Wealth Holdings
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
|
$
|
(0.01
|
)
|
|
Weighted-average number
of ordinary shares used in computing diluted net income (loss) per share
|
|
|
1,145,706,634
|
|
|
|
1,145,706,634
|
|
|
|
1,088,230,612
|
|
The
accompanying notes are an integral part of these combined and consolidated financial statements.
NCF
WEALTH HOLDINGS LIMITED
COMBINED
AND CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Expressed
in U.S. dollar)
|
|
|
For the Years Ended December
31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
60,008,457
|
|
|
$
|
35,844,298
|
|
|
$
|
(13,253,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(680,289
|
)
|
|
|
31,160
|
|
|
|
1,838,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
59,328,168
|
|
|
|
35,875,458
|
|
|
|
(11,414,751
|
)
|
|
Less: Comprehensive loss attributable to non-controlling interest
|
|
|
(279,649
|
)
|
|
|
(143,208
|
)
|
|
|
(82,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to NCF Wealth Holdings Limited
|
|
$
|
59,607,817
|
|
|
$
|
36,018,666
|
|
|
$
|
(11,331,844
|
)
|
The
accompanying notes are an integral part of these combined and consolidated financial statements.
NCF
WEALTH HOLDINGS LIMITED
COMBINED
AND CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Expressed
in U.S. dollar, except for the number of shares)
|
|
|
Preferred
Shares
|
|
|
Ordinary
Shares
|
|
|
Additional
Paid-in
|
|
|
Shares
in EBT*
|
|
|
Statutory
|
|
|
Retained
Earnings
/
(Accumulated
|
|
|
Accumulated
Other
Comprehensive
|
|
|
Non-
controlling
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Shares
|
|
|
Amount
|
|
|
Reserve
|
|
|
Deficit)
|
|
|
Gain
(loss)
|
|
|
Interest
|
|
|
Total
|
|
|
January
1, 2016
|
|
|
29,426,129
|
|
|
$
|
294
|
|
|
|
1,069,808,711
|
|
|
$
|
10,698
|
|
|
$
|
78,681,379
|
|
|
|
(110,000,000
|
)
|
|
$
|
(4,077,600
|
)
|
|
$
|
23,330
|
|
|
$
|
(75,736,656
|
)
|
|
$
|
631,218
|
|
|
$
|
385,287
|
|
|
$
|
(82,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series C-1 preferred shares
|
|
|
24,711,296
|
|
|
|
247
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41,949,548
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
41,949,795
|
|
|
Yinghua
Wealth additional capital contribution
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,328,247
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,328,247
|
|
|
Proceeds
from shares issued
|
|
|
-
|
|
|
|
-
|
|
|
|
21,760,498
|
|
|
|
218
|
|
|
|
13,199,700
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,199,918
|
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13,157,161
|
)
|
|
|
-
|
|
|
|
(96,262
|
)
|
|
|
(13,253,423
|
)
|
|
Share-based
compensation - employees
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,622,264
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,622,264
|
|
|
Currency
translation differences
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,825,317
|
|
|
|
13,355
|
|
|
|
1,838,672
|
|
|
December
31, 2016
|
|
|
54,137,425
|
|
|
|
541
|
|
|
|
1,091,569,209
|
|
|
|
10,916
|
|
|
|
143,781,138
|
|
|
|
(110,000,000
|
)
|
|
|
(4,077,600
|
)
|
|
|
23,330
|
|
|
|
(88,893,817
|
)
|
|
|
2,456,535
|
|
|
|
302,380
|
|
|
|
53,603,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory
reserve
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
698,488
|
|
|
|
(698,488
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Acquisition
of Tianjin Yuanrong
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,632,280
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,632,280
|
)
|
|
Net
income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35,987,631
|
|
|
|
-
|
|
|
|
(143,333
|
)
|
|
|
35,844,298
|
|
|
Share-based
compensation - employees
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,431,852
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,431,852
|
|
|
Currency
translation differences
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,035
|
|
|
|
125
|
|
|
|
31,160
|
|
|
December
31, 2017
|
|
|
54,137,425
|
|
|
|
541
|
|
|
|
1,091,569,209
|
|
|
|
10,916
|
|
|
|
145,580,710
|
|
|
|
(110,000,000
|
)
|
|
|
(4,077,600
|
)
|
|
|
721,818
|
|
|
|
(53,604,674
|
)
|
|
|
2,487,570
|
|
|
|
159,172
|
|
|
|
91,278,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory
Reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,116,810
|
|
|
|
(6,116,810
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Acquisition
of Yinghua
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,136,107
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,136,107
|
)
|
|
Net
income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
60,284,971
|
|
|
|
-
|
|
|
|
(276,514
|
)
|
|
|
60,008,457
|
|
|
Share-based
compensation - employees
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
566,949
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
566,949
|
|
|
Currency
translation differences
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(677,154
|
)
|
|
|
(3,135
|
)
|
|
|
(680,289
|
)
|
|
December
31, 2018
|
|
|
54,137,425
|
|
|
$
|
541
|
|
|
|
1,091,569,209
|
|
|
$
|
10,916
|
|
|
$
|
141,011,552
|
|
|
|
(110,000,000
|
)
|
|
$
|
(4,077,600
|
)
|
|
$
|
6,838,628
|
|
|
$
|
563,487
|
|
|
$
|
1,810,416
|
|
|
$
|
(120,477
|
)
|
|
$
|
146,037,463
|
|
The
accompanying notes are an integral part of these combined and consolidated financial statements.
NCF
WEALTH HOLDINGS LIMITED
COMBINED
AND CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed
in U.S. dollar)
|
|
|
For the Years Ended December
31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
60,008,457
|
|
|
$
|
35,844,298
|
|
|
$
|
(13,253,423
|
)
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
660,483
|
|
|
|
612,563
|
|
|
|
908,412
|
|
|
Net losses on disposals of equipment
|
|
|
7,626
|
|
|
|
19,331
|
|
|
|
55,068
|
|
|
Share-based compensation
|
|
|
566,949
|
|
|
|
3,431,852
|
|
|
|
2,622,264
|
|
|
Loss in equity method investment
|
|
|
199,908
|
|
|
|
22,777
|
|
|
|
110,494
|
|
|
Gain on sale of equity method investment
|
|
|
-
|
|
|
|
-
|
|
|
|
(110,494
|
)
|
|
Gains from disposal of Zhonghui
|
|
|
(163,116
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Loss from disposal of Tianjin Yuanrong
|
|
|
69,012
|
|
|
|
-
|
|
|
|
-
|
|
|
Bad debt - Accounts receivable and other receivable
|
|
|
710,790
|
|
|
|
1,303,739
|
|
|
|
-
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,765,089
|
)
|
|
|
1,220,810
|
|
|
|
(2,390,668
|
)
|
|
Accounts receivable – related parties
|
|
|
1,289,267
|
|
|
|
(1,064,963
|
)
|
|
|
(285,077
|
)
|
|
Advances to suppliers
|
|
|
3,474,401
|
|
|
|
(2,944,507
|
)
|
|
|
4,295
|
|
|
Other receivables
|
|
|
1,321,891
|
|
|
|
(8,068,090
|
)
|
|
|
565,054
|
|
|
Other current assets
|
|
|
(1,589,871
|
)
|
|
|
(4,022,850
|
)
|
|
|
977,134
|
|
|
Advances to suppliers and other receivables – related parties
|
|
|
2,310,521
|
|
|
|
14,425,869
|
|
|
|
(8,805,405
|
)
|
|
Loan receivable – related parties
|
|
|
4,762,112
|
|
|
|
(2,200,938
|
)
|
|
|
(1,802,979
|
)
|
|
Long-term other receivable
|
|
|
44,916
|
|
|
|
242,371
|
|
|
|
(34,464
|
)
|
|
Other non-current assets
|
|
|
(143,201
|
)
|
|
|
(4,440,420
|
)
|
|
|
-
|
|
|
Accrued marketing and channel fees
|
|
|
1,684,252
|
|
|
|
(1,417,402
|
)
|
|
|
(3,123,315
|
)
|
|
Accrued marketing and channel fees – related parties
|
|
|
4,392,579
|
|
|
|
(256,235
|
)
|
|
|
(933,699
|
)
|
|
Accruals and other liabilities
|
|
|
2,891,741
|
|
|
|
(1,587,610
|
)
|
|
|
1,896,880
|
|
|
Accruals and other liabilities – related parties
|
|
|
(13,476,727
|
)
|
|
|
2,278,308
|
|
|
|
(625,012
|
)
|
|
Taxes payable
|
|
|
5,200,591
|
|
|
|
1,357,894
|
|
|
|
458,289
|
|
|
Amounts due to related parties
|
|
|
1,002,027
|
|
|
|
(2,133,647
|
)
|
|
|
(4,514,235
|
)
|
|
Other long-term liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,689
|
)
|
|
Deferred tax assets
|
|
|
2,684,231
|
|
|
|
11,166,845
|
|
|
|
(2,810,102
|
)
|
|
Net cash provided by (used in) operating activities
|
|
|
76,143,750
|
|
|
|
43,789,995
|
|
|
|
(31,103,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Fengshou
|
|
|
(1,452,370
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Proceeds from disposal of Zhongli
|
|
|
879,637
|
|
|
|
|
|
|
|
-
|
|
|
Proceeds from disposal of Tianjin Yuanrong
|
|
|
1,452,370
|
|
|
|
-
|
|
|
|
-
|
|
|
Acquisition of Yinghua Wealth
|
|
|
(4,938,058
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Proceeds from the sale of equity interest in Jiutai
|
|
|
58,095
|
|
|
|
-
|
|
|
|
-
|
|
|
Investment in Zisheng
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,204,376
|
)
|
|
Investment in Jiutai
|
|
|
-
|
|
|
|
-
|
|
|
|
(60,219
|
)
|
|
Investment in Linggui
|
|
|
-
|
|
|
|
(740,070
|
)
|
|
|
-
|
|
|
Purchase of available-for-sale financial products
|
|
|
(44,424,096
|
)
|
|
|
(39,103,321
|
)
|
|
|
(451,656
|
)
|
|
Redemption of available-for-sale financial assets
|
|
|
52,857,009
|
|
|
|
39,093,995
|
|
|
|
-
|
|
|
Purchase of certificates of deposit
|
|
|
(128,767,124
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Loans to related parties
|
|
|
(144,946,712
|
)
|
|
|
(23,267,801
|
)
|
|
|
(22,352,546
|
)
|
|
Collection of loan to related parties
|
|
|
182,369,794
|
|
|
|
7,257,770
|
|
|
|
-
|
|
|
Collection of third party loans
|
|
|
-
|
|
|
|
-
|
|
|
|
752,735
|
|
|
Purchases of fixed assets
|
|
|
(1,668,303
|
)
|
|
|
(313,449
|
)
|
|
|
(523,124
|
)
|
|
Proceeds from disposal of fixed assets
|
|
|
4,462
|
|
|
|
-
|
|
|
|
-
|
|
|
Net cash (used in) investing activities
|
|
|
(88,575,296
|
)
|
|
|
(17,072,876
|
)
|
|
|
(23,839,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution received by Yinghua Wealth
|
|
|
-
|
|
|
|
-
|
|
|
|
7,479,175
|
|
|
Proceeds from issuance of preference shares, net of issuance cost
|
|
|
-
|
|
|
|
-
|
|
|
|
37,295,187
|
|
|
Proceeds from issuance of ordinary shares
|
|
|
-
|
|
|
|
-
|
|
|
|
13,199,918
|
|
|
Proceeds from bank borrowings
|
|
|
13,507,041
|
|
|
|
-
|
|
|
|
14,005,538
|
|
|
Proceeds from loans payable to related parties
|
|
|
4,647,584
|
|
|
|
-
|
|
|
|
1,505,470
|
|
|
Repayment of loans payable to related parties
|
|
|
(2,059,896
|
)
|
|
|
(1,504,069
|
)
|
|
|
(6,021,880
|
)
|
|
Repayments of bank borrowings
|
|
|
(13,507,041
|
)
|
|
|
(13,769,890
|
)
|
|
|
-
|
|
|
Net cash provided by (used in) financing activities
|
|
|
2,587,688
|
|
|
|
(15,273,959
|
)
|
|
|
67,463,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash, cash equivalents, and restricted cash
|
|
|
(9,843,858
|
)
|
|
|
11,443,160
|
|
|
|
12,520,550
|
|
|
Cash, cash equivalents and restricted cash at the beginning of the year
|
|
|
35,067,737
|
|
|
|
23,896,950
|
|
|
|
10,338,379
|
|
|
Exchange losses (gains) on cash and cash equivalents
|
|
|
(165,974
|
)
|
|
|
(272,373
|
)
|
|
|
1,038,021
|
|
|
Cash, cash equivalents and restricted cash, end
of year
|
|
$
|
25,057,905
|
|
|
$
|
35,067,737
|
|
|
$
|
23,896,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
175,862
|
|
|
$
|
216,733
|
|
|
$
|
305,004
|
|
|
Income taxes
|
|
$
|
12,856,660
|
|
|
$
|
5,706
|
|
|
$
|
1,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock issued for a decrease in other liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,654,609
|
|
|
Investment in Zisheng for a decrease in other non-current assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,053,829
|
|
|
Disposal of Zisheng in settlement of amount due to related party
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,258,205
|
|
|
Settlement of debt between related parties
|
|
$
|
-
|
|
|
$
|
13,581,076
|
|
|
$
|
-
|
|
|
Acquisition of Tianjin Yuanrong
|
|
$
|
-
|
|
|
$
|
1,480,140
|
|
|
$
|
-
|
|
|
Increase in investment in Kunyuan Hengtong for a decrease in other
assets
|
|
$
|
4,357,110
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Investment in available-for-sale financial products for a decrease
in other receivable
|
|
$
|
7,988,035
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Increase in accruals and other liabilities for investment in Silver
Triumph
|
|
$
|
99
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Loans to related party offsets with loan payable related party
|
|
$
|
1,452,370
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to amounts on combined and consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
25,057,905
|
|
|
$
|
35,067,737
|
|
|
$
|
10,088,922
|
|
|
Restricted cash
|
|
|
-
|
|
|
|
-
|
|
|
|
13,808,028
|
|
|
Total cash, cash equivalents, and restricted cash
|
|
$
|
25,057,905
|
|
|
$
|
35,067,737
|
|
|
$
|
23,896,950
|
|
The
accompanying notes are an integral part of these combined and consolidated financial statements.
NCF
WEALTH HOLDINGS LIMITED
NOTES
TO THE COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
Note
1 - Organization and principal activities
NCF
Wealth Holdings, Ltd. (“the Company”, “Parent” or “NCF”) was established in the British Virgin
Islands on December 13, 2011 with the former name of Frontier Financial Rental Co., Ltd., and was renamed NCF Wealth Holdings
Limited in November 2015. The Company has wholly-owned subsidiaries that are incorporated in the British Virgin Islands (“BVI”),
and also has various subsidiaries that are incorporated in Hong Kong and People Republic of China (“PRC”).
Since
2013, the Company operates an online marketplace with a brand name of ‘Wangxin Puhui’ through its subsidiaries and
variable interest entities and its subsidiaries, (“consolidated VIEs”), (collectively, the “Group”). This
is an online Peer-to-peer, (“P2P”) platform matching borrowers with investors and facilitating transactions. Wangxin
Puhui offers qualified borrowers a quick and convenient access to affordable credit at competitive prices. To provide a transparent
marketplace, the interest rates, transaction fees, and other charges are all clearly disclosed to borrowers upfront.
Since
2016, NCF Wealth Group also operates an internet platform with a brand of ‘Wangxin’ which is positioned as an open
platform for financial technology, providing information publishing, information display, information exchange, and online user
diversion services for a variety of organizations including insurance sales, securities, fund sales. At the same time, Wangxin
provides technology platforms and operational solutions for various cooperative organizations, and to helps cooperative organizations
to improve the efficiency of customer management. The Group also provides Premier Wealth Management (“PWM”) services
to investors and facilitate the matching of investors with borrowers.
In
March 2017, NCF Wealth Group launched a new program to promote exchange administered product program (“E-APP”) to
investors and borrowers. The E-APP includes (I) product registration services and (II) promotion services on best efforts basis
and (III) Data Processing Technical Services.
The
Company is controlled by Great Reap Ventures Limited, which owns 54% of the Company’s ordinary shares as of December 31,
2018. The remaining 46% of the shares are widely held. The ultimate controlling party of the Group is the Founder (defined below).
Merger
Agreement entered with Hunter Maritime Acquisition Corp.
On
October 5, 2018, the Group entered into a definitive agreement to complete a business combination (the “Transaction”)
with Hunter Maritime Acquisition Corp. (Nasdaq: HUNT) (“Hunter”), a special purpose acquisition company. Hunter has
established a wholly-owned subsidiary that will acquire the Group by way of merger in an all-stock transaction which values the
Group at an equity value of $2,000,000,000. Hunter has agreed to issue 200,000,000 Class A common shares of Hunter’s to
the shareholders of the Group at the closing of the merger. The shareholders of the Group shall also be entitled to receive up
to 50,000,000 additional Class A common shares if Hunter meets certain financial performance targets for the 2019 and 2020 fiscal
years. The Transaction was consummated on March 21, 2019.
Reorganization
Acquisition
of Yinghua Wealth Investment Management Holdings Co., Ltd. (“Yinghua Wealth”)
In
May 2018, the Group acquired 91.91% equity interest in Yinghua Wealth for a total consideration of $5,136,107 (RMB 34,000,000).
Yinghua Wealth acts as an agent to introduce potential investors to other parties to purchase contractual funds or private equity
funds, Yinghua Wealth is controlled by Mr. Zhenxin Zhang, who is the founder (“Founder”) of the Company.
The
consideration of $5,136,107 was paid on June 5, 2018 and was recorded with an offsetting adjustment to equity in accordance with
ASC 805-50-25-2.B.
Acquisition
and disposition of Tianjin Yuanrong Asset Management Co., Ltd (“Tianjin Yuanrong”)
In December 2016, the Group acquired
a 100% equity interest in Tianjin Yuanrong for a total consideration of $1,632,280 (RMB 10,000,000) from the Founder. Tianjin
Yuanrong primarily engages in asset management, investment advisory, and financial consulting services. Tianjin Yuanrong is also
controlled by the Founder. The consideration was recorded with an offsetting adjustment to equity in the combined and consolidated
statements of equity in accordance with ASC 805-50-25-2.B. The consideration was paid in early 2018.
As
the Group, Yinghua Wealth and Tianjin Yuanrong are under the common control of the Founder before and after the acquisition, the
acquisition of Yinghua Wealth and Tianjin Yuanrong was accounted for as a reorganization of entities under common control in a
manner similar to a pooling of interest using historical cost in accordance with ASC 805-50-05-5. As a result of the reorganization,
the 91.91% net assets of Yinghua Wealth and 100% net assets of Tianjin Yuanrong have been presented as “combined”
with the Group at their carrying values as though the transaction occurred at the beginning of periods presented, in which the
common control existed. All significant intercompany accounts and transactions among the Group, Yinghua Wealth and Tianjin Yuanrong
have been eliminated for all periods presented.
On
August 31, 2018, Tianjin Yuanrong was sold to an unrelated third party for a total consideration of $1,452,370 (RMB 10,000,000),
resulting in a loss from disposition of $69,012. This disposition did not qualify as discontinued operations as it does not represent
a strategic shift that has had a major impact on the Group’s operations or financial results.
As
of December 31, 2018, the Group’s subsidiaries and consolidated VIEs are incorporated in the following jurisdictions:
|
Name
|
|
Incorporation
date
|
|
Place
of
incorporation/
establishment
|
|
Percentage
of
ownership
|
|
|
Principal activities
|
|
Beijing Yinghua Wealth
Investment Management Holdings Co., Ltd. (“Yinghua Wealth”)
|
|
April 11, 2011
|
|
PRC
|
|
|
91.91
|
%
|
|
Investment consulting
|
|
Beijing Oriental Union Investment
Management Co., Ltd. (“Beijing Oriental”)
|
|
June 21, 2011
|
|
PRC
|
|
|
Consolidated
VIE
|
|
|
Services for online marketplace
|
|
UCF Huarong Investment Co., Ltd.
(UCF)
|
|
December 23, 2011
|
|
Hong Kong
|
|
|
100
|
%
|
|
Holding company
|
|
Beijing NCF Financial Services
Information Technology Co., Ltd. (“NCF Financial”)
|
|
April 15, 2014
|
|
PRC
|
|
|
100
|
%
|
|
Financing / Investment advisory services provider
|
|
Beijing Jing Xun Shi Dai Technology
Co., Ltd. (“Jing Xun Shi Dai”)
|
|
June 27, 2014
|
|
PRC
|
|
|
Consolidated
VIE
|
|
|
Services for online marketplace
|
|
State Ace Ltd. (SAL)
|
|
October 22, 2015
|
|
BVI
|
|
|
100
|
%
|
|
Holding company
|
|
Zhan Yang Ltd. (ZYL)
|
|
October 22, 2015
|
|
BVI
|
|
|
100
|
%
|
|
Holding company
|
|
Tall Lead Ltd. (TLL)
|
|
October 22, 2015
|
|
BVI
|
|
|
100
|
%
|
|
Holding company
|
|
NCF Development Co., Ltd. (NCFD)
|
|
November 16, 2015
|
|
Hong Kong
|
|
|
100
|
%
|
|
Holding company
|
|
NCF International Ltd. (NCFI)
|
|
November 16, 2015
|
|
Hong Kong
|
|
|
100
|
%
|
|
Holding company
|
|
Shenzhen Yifang Yurong Financial
Information Technology Service Co., Ltd. (“Yifang Yurong”)
|
|
December 1, 2015
|
|
PRC
|
|
|
100
|
%
|
|
Investment consulting
|
|
Shenzhen Yingxin Fund Sales Limited
Liability Co., Ltd. (“Yingxin Fund Sales”)
|
|
December 29, 2015
|
|
PRC
|
|
|
100
|
%
|
|
Fund sales agency
|
|
Beijing NCF Cloud Services Information
Technology Co., Ltd. (“Cloud Services”)
|
|
January 5, 2016
|
|
PRC
|
|
|
100
|
%
|
|
Technology development and services
|
|
Shanghai Cenmu Business Information
Consulting Co., Ltd.
|
|
January 17, 2017
|
|
PRC
|
|
|
100
|
%
|
|
Business consulting
|
|
Xinzu (Beijing) Technology Co.,
Ltd.
|
|
May 5, 2017
|
|
PRC
|
|
|
Consolidated
VIE as a subsidiary of Jing Xun Shi Dai
|
|
|
Technology development and consulting
|
|
Shanghai NCF Puhui Business Consulting
Co., Ltd.
|
|
July 30, 2018
|
|
PRC
|
|
|
100
|
%
|
|
Business consulting
|
Note
2 - Summary of significant accounting policies
|
(a)
|
Basis
of presentation
|
The
combined and consolidated financial statements of the Group are prepared in accordance with accounting principles generally accepted
in the United States of America (“U.S. GAAP”), and pursuant to the rules and regulations of the Securities Exchange
Commission (“SEC”).
Certain prior year amounts have been
reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results
of operations. An adjustment has been made to the combined and consolidated balance sheet, and combined and consolidated statements
of operations for the year ended December 31, 2017 to reclassify certain related party transactions. The items were reclassified
as follows:
|
|
|
Previously reported
|
|
|
Reclassification
|
|
|
After reclassification
|
|
|
|
|
2017
|
|
|
(Decrease)/ Increase
|
|
|
2017
|
|
|
Combined and Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
3,693,095
|
|
|
|
(1,626,793
|
)
|
|
|
2,066,302
|
|
|
Accounts receivable – related parties
|
|
|
24,737
|
|
|
|
1,626,793
|
|
|
|
1,651,530
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued marketing and channel fees
|
|
|
6,565,830
|
|
|
|
(3,724,570
|
)
|
|
|
2,841,260
|
|
|
Accrued marketing and channel fees – related parties
|
|
|
771,247
|
|
|
|
3,724,570
|
|
|
|
4,495,817
|
|
|
Combined and Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission fee
|
|
|
6,446,753
|
|
|
|
(2,112,227
|
)
|
|
|
4,334,526
|
|
|
Commission fee - related parties
|
|
|
1,516,621
|
|
|
|
2,112,227
|
|
|
|
3,628,848
|
|
|
(c)
|
Principal
of consolidation
|
The
combined and consolidated financial statements include the financial statements of the Group, its wholly-owned subsidiaries, and
consolidated VIEs. All significant intercompany transactions and balances have been eliminated upon consolidation.
The
Group has an employee benefit trust to facilitate share transactions pursuant to certain equity incentive plans. The trust is
a separate legal entity under the Group’s control, for which the Group is the primary beneficiary using variable interest
entities model criteria under Accounting Standards Codification (“ASC”) 810,
Consolidations
. Consequently,
the group has consolidated and classified the trust shares within our combined and consolidated balance sheets.
Variable
Interest Entities (“VIE”) arrangements
To
be in compliance with PRC regulations for information intermediary companies, the Group entered into VIE arrangements with the
following entities:
|
|
(i)
|
On
September 28, 2014 (“Effective Date”), NCF Financial and Beijing Oriental signed the VIE agreements. Beijing Oriental
is the principal operating entity of the P2P business of the Group. The VIE agreements enable NCF Financial to (1) have the
power to direct the activities that most significantly affect the economic performance of Beijing Oriental , and (2) receive
the economic benefits of Beijing Oriental that could be significant to Beijing Oriental. Accordingly, NCF Financial is considered
the primary beneficiary of Beijing Oriental and has consolidated Beijing Oriental’s assets, liabilities, results of
operations, and cash flows in the accompanying combined and consolidated financial statements.
|
|
|
(ii)
|
On January 22, 2018 (“Effective
Date”), Cloud Services, a wholly owned subsidiary of the Group, entered into a series of VIE agreements with Jing
Xun Shi Dai’s shareholders, Mr. Zhenxin Zhang and Ms. Huanxiang Li, who acquired Jing Xun Shi Dai from Bejing Oriental
on January 4, 2018.
The VIE agreements enable Cloud
Services to (1) have the power to direct the activities that most significantly affect the economic performance of Jing
Xun Shi Dai, and (2) receive the economic benefits of Jing Xun Shi Dai that could be significant to Jing Xun Shi Dai.
Accordingly, Cloud Services is considered the primary beneficiary of Jing Xun Shi Dai and has consolidated Jing Xun Shi
Dai’s assets, liabilities, results of operations, and cash flows in the accompanying audited combined and consolidated
financial statements.
|
VIE
agreements
Power
of Attorney
The
shareholders of the VIEs have executed an irrevocable power of attorney in favor of NCF Financial and Cloud Services (collectively,
“Primary Beneficiaries”), or any entity or individual designated by Primary Beneficiaries. Pursuant to the power of
attorney, Primary Beneficiaries (or their designees) have full power and authority to exercise all of such shareholder’s
rights, including the right to attend and vote at equity holders’ meetings and appoint directors. The power of attorney
will remain in force for so long as shareholders remain as shareholders of Primary Beneficiaries.
Exclusive
Option Agreement
The VIEs and their shareholders have
entered into an exclusive share option agreement with Primary Beneficiaries, pursuant to which all the shareholders of the VIEs
have granted an exclusive option to Primary Beneficiaries (or their designees) to purchase all or part of such shareholders’
equity interest, at a purchase price equal to the higher of the registered capital of the VIEs or the minimum price permitted
by applicable PRC laws at the time of such purchase. Unless unilaterally terminated Primary Beneficiaries, the exclusive option
agreements remain in effect until the equity interest that are the subject of such agreements are transferred to Primary Beneficiaries.
Equity
Interest Pledge Agreement
The
shareholders of the VIEs have entered into an equity interest pledge agreement with Primary Beneficiaries, pursuant to which all
shareholders have pledged their interests in the VIEs to secure the performance of obligations by the VIEs and their shareholders
under the business cooperation agreement, and exclusive option agreements. Unless mutually terminated, these equity interest pledge
agreements remain in force for the duration of the terms of the aforementioned agreements.
Business
Cooperation Agreement
The VIEs and their shareholders have
entered into a business cooperation agreement with Primary Beneficiaries, pursuant to which Primary Beneficiaries have the exclusive
right to provide to the VIEs technical and consulting services including but not limited to, server maintenance and related internet
platform management service, development, and upgrade of application software for servers and users, training of technical and
business personnel, and other services agreed upon by the parties. Without Primary Beneficiaries’ prior written consent,
the VIEs shall not engage any third party for any of the technical and consulting services provided under this agreement.
In
addition, Primary Beneficiaries exclusively own all intellectual property rights resulting from the performance of all services
under this agreement. The Business Cooperation Agreement entitles Primary Beneficiaries to charge the VIEs service fees that amount
to substantially all of the net income of the VIEs. The term of this agreement is ten years the effective dates of the VIE agreements
and will be extended upon the written notice made by the Primary Beneficiaries for a period determined by it. Primary Beneficiaries
can terminate the agreement at any time by providing 30 days’ prior written notice to the VIEs. The VIEs are not permitted
to terminate the agreement prior to the expiration date, which is ten years from their respective Effective Date.
Risks
in relation to the VIE structure
The
Company believes that the contractual arrangements with the VIEs and their shareholders are in compliance with PRC laws and regulations
and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce
the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and
regulations, the PRC government could:
|
|
a.
|
Revoke
the business and operating licenses of the Company’s PRC subsidiaries and the consolidated VIEs;
|
|
|
b.
|
Discontinue
or restrict the operations of any related-party transactions among the Company’s PRC subsidiaries and the consolidated
VIEs;
|
|
|
c.
|
Impose
fines or other requirements on the Company’s PRC subsidiaries and the consolidated VIEs;
|
|
|
d.
|
Require
the Company or the Company’s PRC subsidiaries and the VIE to revise the relevant ownership structure or restructure
operations;
|
|
|
e.
|
Restrict
or prohibit the Company’s use of the proceeds of the additional public offering to finance the Company’s business
and operations in China;
|
|
|
f.
|
Shut
down the Group’s servers or blocking the Group’s online platform;
|
|
|
g.
|
Discontinue
or placing restrictions or onerous conditions on the Group’s operations; and/or
|
|
|
h.
|
Require
the Company to undergo a costly and disruptive restructuring.
|
The
Company’s ability to conduct its business may be negatively affected if the PRC government were to carry out any of the
aforementioned actions. As a result, the Company may not be able to consolidate the VIEs in its combined and consolidated financial
statements as it may lose the ability to exert effective control over the VIEs and their shareholders, and it may lose the ability
to receive economic benefits and loss from the VIEs.
The
interests of the shareholders of VIEs may diverge from that of the Company, and that may potentially increase the risk that they
would seek to act contrary to the contractual terms, for example by influencing the VIEs to not pay the service fees when required
to do so. The Company cannot assure that when conflicts of interest arise, shareholders of the VIEs will act in the best interests
of the Company or that conflicts of interests will be resolved in the Company’s favor. Currently, there no existing arrangements
which would give rise to any potential conflicts of interest. The Company believes the shareholders of the VIEs will not act contrary
to any of the contractual arrangements and the exclusive option agreement provide the Company with a mechanism to maintain control
of the VIEs. The Company relies on shareholders of the VIEs to fulfill their fiduciary duties and abide by laws of the PRC and
act in the best interest of the Company. If the Company cannot resolve any conflicts of interest or disputes between the Company
and the shareholders of the VIEs, the Company would have to rely on legal proceedings, which could result in disruption of its
business, and there is substantial uncertainty as to the outcome of any such legal proceedings.
The
following table sets forth the carrying amount of the assets and liabilities of the VIEs included in the Company’s combined
and consolidated balance sheets with intercompany transactions eliminated:
|
|
|
As of December
31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
135,131,467
|
|
|
$
|
24,859,791
|
|
|
Non-current assets
|
|
$
|
6,099,961
|
|
|
$
|
12,642,404
|
|
|
Total assets
|
|
$
|
141,231,428
|
|
|
$
|
37,502,195
|
|
|
Total liabilities
|
|
$
|
19,713,707
|
|
|
$
|
22,145,453
|
|
In accordance with the VIE contractual
arrangements, Cloud Services and NCF Financial have the power to direct activities of the VIE Companies, and can have assets transferred
out of the VIE Companies. There are no consolidated VIE’s assets that are collateral for the VIE’s obligations and
can only be used to settle the VIE’s obligations. There are no creditors (or beneficial interest holders) of the VIEs that
have recourse to the general credit of the Company. There are no terms in any arrangements, considering both explicit arrangements
and implicit variable interests, which require the Company or its subsidiaries to provide financial support to the VIEs. However,
if the VIEs ever need financial support, the Company or its subsidiaries may, at its option and subject to statutory limits and
restrictions, provide financial support to its VIEs through loans to the shareholders of the VIEs or entrustment loans to the
VIEs. Relevant PRC laws and regulations restrict the VIE from transferring a portion of its net assets, equivalent to the balance
of its paid-in capital, capital reserve and statutory reserves, to the Company in the form of loans and advances or cash dividends.
The
preparation of combined and consolidated financial statements in accordance with U.S. GAAP requires management to make estimates
and assumptions that affect the amounts reported and disclosed in the combined and consolidated financial statements and accompanying
notes. Actual amounts could differ from those estimates and differences could be material. Changes in estimates are recorded in
the period they are identified.
Significant
accounting estimates reflected in the Group’s combined and consolidated financial statements include valuation allowances
for deferred tax assets, allowance for doubtful accounts, the useful lives of fixed assets, valuation of available for sales investments,
valuation of share-based awards, accrued marketing and channel fees, accruals and other liabilities.
The
Group engages primarily in operating an online consumer finance marketplace and matches borrowers with investors. The transaction
fees are not earned until a borrower and investor are matched and enter into a transaction. The Group earns revenue through transaction
and service fees, commission fees, and various other insignificant types of revenue.
As
an information intermediary in the introduction between borrowers and investors, the Group acts as an agent and does not have
any legal obligations of the loans or securities facilities. Therefore, the Group does not record loans receivable and payable
arising from the loans between lending investors and borrowers on its combined and consolidated balance sheets.
Revenue
is recognized when each of the following criteria is met under ASC Topic 605:
|
|
1)
|
Persuasive
evidence of an arrangement exists;
|
|
|
2)
|
Services
have been rendered;
|
|
|
3)
|
Pricing
is fixed or determinable; and
|
|
|
4)
|
Collectability
is reasonably assured.
|
Transaction
and service fees
Transaction
and service fees include the following products:
|
|
●
|
Online
P2P loan facilitation services: matching services to connect borrowers with investors and setting up automated repayment schedule
upon loan origination. The Group charges borrowers a transaction fee for the service;
|
|
|
●
|
Premier
wealth management services (“PWM”): services provided to borrowers to facilitate the matching of investors with
various registered wealth management products. The Group charges borrowers a transaction fee for the PWM services.
|
|
|
●
|
Exchange
administered product program (E-APP): product registration services include advising registration holders (usually are borrowers)
on the selection of local financial assets trading service platforms, review registration application documentation and assists
with due diligence conducted by the local financial assets trading service platform. The Group charges registration holders
for the E-APP product registration services to connect borrowers with investors.
|
Transaction
fees are usually non-refundable and recognized upon loan origination or upon funding received by registration holders for E-APP
or when the price is considered fixed. At this point, the Group has completed all performance obligations to the borrowers and
collectability is reasonably assured.
Incentives
to investors
The
Group occasionally provides incentives to potential investors at its sole discretion. The voucher incentives are offered to all
investors who invest through the Wangxin Puhui platform and Wangxin platform.
The
Group provides the following types of incentive:
|
Cash incentive types
|
|
Description
|
|
Awarded to
|
|
Benefit
|
|
|
|
|
|
|
|
|
|
Event reward/sign up voucher
|
|
Earned upon sign-up for platform events and applied upon investment
|
|
Potential investor
|
|
One-time fee deduction
|
|
|
|
|
|
|
|
|
|
Investment reward voucher
|
|
Earned upon making an investment and applied in the next investment
|
|
Investor
|
|
One-time fee deduction or Additional interest
|
When
an investor makes an investment through the Group, the investor can redeem the vouchers, either upfront as a one-time contribution
to the investment amount or on a monthly basis over the term of the investment as additional interest. If the investor chooses
to redeem the voucher upfront, their investment is reduced by the voucher value, and the investor still entitled to full repayment
of the stated principal value.
The
Group considers both investors and borrowers as customers. The event reward and sign up voucher can be applied to the initial
investment only. The cost of the awarded vouchers is treated as a direct reduction of revenue upon initial investment by the investor
in accordance with ASC 605-50-25-7.
The
investment reward voucher can be applied after the initial investment. The Group considers the investment reward voucher as an
obligation to investors for future investment. As the amount of the investment reward is relatively insignificant as compared
to the financial statements taken as a whole, the Group does not record this as a deferred revenue.
Commission
fee
Yinghua
Wealth, one of the Group’s subsidiaries, engages in the businesses of introducing potential investors to purchase contractual
funds from other financial institutions. The commission fee is calculated based on a certain percentage of the funds invested
by investors that are recommended by Yinghua Wealth and is recognized as revenue when the funds are fully subscribed.
The
Group provides E-APP product promotion services to promote financial products registered at local financial assets exchange trading
service platform. The commission fee is calculated based on a certain percentage of the funds invested by investors and the Group
recognizes revenue when registration holders of the financial instruments received funding.
Other
revenues
Other
revenues mainly include advisory income and technology service fees.
Advisory
income is charged to a borrower for assistance with the credit assessment before the borrower qualifies for their loan. They earn
a fee based on the percentage between 0.5%-1% of the loan.
E-APP
data processing technology services include data transmission and storage to E-APP borrowers to facilitate the preparation of
registration application.
Other
revenues are recognized upon loan origination or upon funding received by registration holders for E-APP.
|
(f)
|
Foreign
currency and foreign currency translation
|
The
reporting currency of the Group is the US dollar. The functional currency of the BVI and HK entities is the Hong Kong dollar (“HK$”).
The functional currency of the Group’s PRC subsidiaries, VIEs and the subsidiaries of the VIEs is RMB based on the criteria
of ASC 830, Foreign Currency Matters.
The
combined and consolidated financial statements are translated to U.S. dollars using the period-end rates of exchange for assets
and liabilities, equity is translated at historical exchange rates, and average rates of exchange (for the period) are used for
revenues and expenses and cash flows. As a result, amounts relating to assets and liabilities reported on the statements of cash
flows may not necessarily agree with the changes in the corresponding balances on the combined and consolidated balance sheets.
Translation adjustments resulting from the process of translating the functional currency financial statements into U.S. dollars
are included in determining comprehensive income / loss. Transactions denominated in foreign currencies are translated into the
functional currency at the exchange rates prevailing on the transaction dates. Assets and liabilities denominated in foreign currencies
are translated into the functional currency at the exchange rates prevailing at the balance sheet date with any transaction gains
and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency
are included in the results of operations as incurred.
Asset and liability accounts at December
31, 2018, and 2017 were translated at RMB 1.00 to US $0.1457 and at RMB 1.00 to US $0.1536, respectively, which were the exchange
rates on the balance sheet dates. Equity accounts were stated at their historical rates. The average translation rates applied
to the statements of operations for the years ended December 31, 2018, 2017 and 2016 were RMB 1.00 to US $0.1452, RMB 1.00 to
US $0.1480 and RMB 1.00 to US $0.1505, respectively.
|
(g)
|
Cash
and cash equivalents
|
Cash
and cash equivalents consist of cash on hand and funds held in checking, deposits, short term certificate of deposits with banks,
which are highly liquid and have original maturities of three months or less and are unrestricted as to withdrawal or use. As
of December 31, 2018 and 2017, the Group had $2,705,237 and $825,175 cash deposited with Haikou United Rural Commercial Bank Co.,
Ltd., respectively. Haikou United Rural Commercial Bank Co., Ltd. was a related party in 2017 and beginning October 26, 2018,
it ceased to be a related party as the Haikou’s director, Mr. Nan Xiao, resigned from Yinghua Weath.
|
(h)
|
Short-term
investments
|
Short-term
investments consist of certificates of deposit and available for sale debt securities with original maturities of greater than 90
days and not more than one year.
The
Group intends to hold the certificates of deposit until maturity. Investment in certificates of deposit are valued at amortized
cost, which approximates fair value.
The
Group classifies the debt securities as available for sale in accordance with FASB ASC Topic 320 “
Investments —
Debt and Equity Securities
.” The debt securities not classified as held to maturity or trading shall be classified as
available for sale and are reported at fair value. Unrealized gains and losses on available for sale securities are excluded from
earnings and reported as accumulated other comprehensive income or loss (a separate component of equity), net of related income
taxes. Realized gains or losses are included in earnings during the period in which the gain or loss is realized. The unrealized
gain for the available-for-sale financial assets as of December 31, 2017 is immaterial as compared to the combined and consolidated
financial statements taken as a whole.
As of December 31, 2017, the Group
only holds debt securities which are the loan products listed on its online marketplace platform. The average term of most of
loan products the Group purchased were 21 days. As a result, the Group classified such investments as available-for-sale and carry
them at fair value. As of December 31, 2018, the Group redeemed all of the available-for-sale financial assets and the short term
investment only consists held-to-maturity financial assets.
The
Group reviews its held to maturity and available-for-sale financial assets for other-than-temporary impairment (“OTTI”)
based on the specific identification method. The Group considers available quantitative and qualitative evidence in evaluating
potential impairment of its investments. If the cost of an investment exceeds the investment’s fair value, the Group considers,
among other factors, general market conditions, expected future performance of the investees, the duration and the extent to which
the fair value of the investment is less than the cost, and the Group’s intent and ability to hold the investment.
|
(i)
|
Fair
value measurement
|
Fair
value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. When determining the fair value measurements for assets and liabilities required
or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact,
and it considers assumptions that market participants would use when pricing the asset or liability.
The
established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon
the lowest level of input that is significant to the fair value measurement.
The
Group applies ASC 820,
Fair Value Measurements and Disclosures
, (“ASC 820”). ASC 820 defines fair value, establishes
a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requires disclosures to be
provided on fair value measurement.
ASC
820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level
1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level
2: Observable, market-based inputs, other than quoted prices, in active markets for identical assets or liabilities.
Level
3: Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or
liabilities.
The Group’s financial instruments
include cash and cash equivalents, short-term investments, accounts receivables, advances to suppliers and other receivables,
loan receivable – related parties, various accrued liabilities, and loans payable – related parties. Certificates
of deposit, which was recorded under short-term investment, accounts receivables, advances to suppliers, loan receivable –
related parties, various accrued liabilities, and loans payable – related parties were not recorded at fair value. Their
carrying values approximate their fair values due to the short-term maturity of these instruments.
The following table presents information
about the Group’s assets and liabilities that were measured at fair value on a recurring basis as of December 31, 2018,
and 2017 and indicates the fair value hierarchy of the valuation techniques the Group utilized to determine such fair value.
|
|
|
|
December 31,
|
|
|
|
Quoted
Prices
In
Active
Markets
|
|
|
|
Significant
Other
Observable
Inputs
|
|
|
|
Significant
Other
Unobservable
Inputs
|
|
|
Description
|
|
|
2018
|
|
|
|
(Level
1)
|
|
|
|
(Level
2)
|
|
|
|
(Level
3)
|
|
|
Asset:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale financial assets*
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
December 31,
|
|
|
Quoted
Prices
In
Active
Markets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Other
Unobservable
Inputs
|
|
|
Description
|
|
2017
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Asset:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale financial assets*
|
|
$
|
470,641
|
|
|
$
|
-
|
|
|
$
|
470,641
|
|
|
$
|
-
|
|
*Available-for-sale financial assets
were recorded under short-term investment.
|
(j)
|
Accounts
receivables and allowance for doubtful accounts
|
Accounts
receivable are stated at the historical carrying amount, net of an allowance for any potentially uncollectible amounts. The Group
makes estimates for the allowance for doubtful accounts based upon the assessment of various factors, including historical experience,
the age of the accounts receivable balances, the credit quality of customers, current economic conditions, and other factors that
may affect customers’ ability to pay. The Group recorded bad debt allowance of $713,080 and $0 as of year ended December
31, 2018, and 2017.
Equipment,
software, and leasehold improvement are recorded at cost, less accumulated depreciation and impairment. Depreciation of equipment,
software, and leasehold improvement is calculated on a straight-line basis, after consideration of expected useful lives. The
estimated useful lives of these assets are as follows:
|
Category
|
|
Estimated useful lives
of the assets
|
|
Electronic equipment
|
|
3-5 years
|
|
Furniture and office equipment
|
|
3-5 years
|
|
Software
|
|
3-5 years
|
|
Leasehold improvement
|
|
Shorter of useful life or 3 years
|
Expenditures for maintenance and repairs
are expensed as incurred. Gains and losses on disposal of equipment, software, and leasehold improvement are the difference between
net sales proceeds and the carrying amount of the related assets and are recognized in the combined and consolidated statements
of operations as other miscellaneous expense.
|
(m)
|
Impairment
of long-lived assets
|
The
Group evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amounts to the expected future undiscounted
cash flows attributable to these assets. If it is determined that an asset is not recoverable, an impairment loss is recorded
in the amount by which the carrying amount of the assets exceeds the expected undiscounted cash flows arising from those assets.
No impairment of long-lived assets was recognized for the years ended December 31, 2018, 2017 and 2016.
|
(n)
|
Sales
and marketing expenses
|
Sales
and marketing expenses consist primarily of commission paid to co-operating institution, financial advisors, advertising and marketing
promotion expenses, salaries and benefits and other expenses incurred by the Group’s sales and marketing personnel.
|
(o)
|
Loan
facilitation and servicing expenses
|
Loan
facilitation and servicing expenses consist primarily of costs related to credit assessment and customer and system support.
|
(p)
|
General
and administrative expenses
|
General
and administrative expenses consist primarily of salaries and benefits (including share-based compensation) for general management,
finance, and administrative personnel, rental, professional service fees, and other expenses.
|
(q)
|
Product
development expenses
|
Product
development expenses include expenses incurred by the Group to gather historical data and borrowing behaviors, as well as to maintain,
monitor and manage the Group’s transaction and service platforms. The Group recognizes website, software and mobile applications
development costs in accordance with ASC 350-50 “
Website development costs
” and ASC 350-40 “
Software
- internal use software
” respectively. The Group expenses all costs that are incurred in connection with the planning
and implementation phases of development and costs that are associated with repair or maintenance of the existing websites and
mobile applications or the development of software or mobile applications for internal use and websites content. Product development
costs that required capitalization was immaterial as of December 31, 2018 and 2017.
|
(r)
|
Share-based
compensation
|
The
Group applies ASC 718,
Compensation-Stock Compensation
(“ASC 718”), to account for its employee share-based
payments. In accordance with ASC 718, the Group determines whether an award should be classified and accounted for as a liability
award or an equity award. All of the Group’s share-based awards to employees were classified as equity awards. The awards
granted are only subject to a service condition and contain graded vesting features. The Group measures the employee share-based
compensation based on the grant date fair value of the equity instrument issued and recognized as compensation expense net of
an estimated forfeiture rate using graded vesting method, over the requisite service period, with a corresponding amount reflected
in additional paid-in capital. The amount of accumulated compensation costs recognized at any date is at least equal to the portion
of the grant date fair value of the vested awards on that date.
The
estimated forfeiture rate will be adjusted over the requisite service period to the extent that actual forfeiture rate differs,
or is expected to differ, from such estimates. Changes in estimated forfeiture rate are recognized through a cumulative catch-up
adjustment in the period of change.
Share-based
awards granted to non-employees are accounted for in accordance with ASC 505-50
Equity-Based Payments to Non-Employee
.
All transactions in which services are received in exchange for share-based awards are accounted for based on the fair value of
the consideration received or the fair value of the awards issued, whichever is more reliably measurable. Share-based compensation
is measured at fair value at the earlier of the commitment date or the date the services are completed. The Group re-measure the
awards using the then-current fair value at each reporting date until the measurement date, generally when the services are completed,
and awards are vested and attribute the changes in those fair values over the service period by the straight-line method.
Interest
income includes interest earned from the Group’s custodian account, Haikou United Rural Commercial Bank Co., Ltd., and loan
receivable from a related party (See Note 19).
Value-added
tax
Effective
since January 1, 2012, the PRC ministry of finance and the state administration of taxation launched the Value Added Tax (“VAT”)
Pilot Program for certain industries in certain regions in China. According to the implementation circulars released by the ministry
of finance and the state administration of taxation on the Pilot Program, the “Modern Service Industries” includes
research, development and technological services, information technology services, cultural innovation services, logistics support,
lease of tangible properties, attestation and consulting services. Revenue presented in the combined and consolidated statements
of operations is net off VAT.
Income
taxes
The
income tax expense for the period is comprised of current and deferred tax. Tax is recognized in the combined and consolidated
statements of operations, except to the extent that it relates to items recognized in other comprehensive income or directly in
equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.
The
current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date
in the countries where the Group’s subsidiaries and consolidated VIEs operate and generate taxable income. Management periodically
evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation.
It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
The
Group accounts for income taxes using the asset/liability method prescribed by ASC 740, “
Accounting for Income Taxes
.”
Deferred income taxes are recognized with net operating loss carryforwards and credits are applied using enacted statutory tax
rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,
it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized.
An
uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would
be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount
of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more
likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax
are classified as income tax expense in the period incurred. PRC tax returns filed in 2017, 2016, and 2015 are subject to examination
by any applicable tax authorities. The Group had no uncertain tax positions for the years ended December 31, 2018, 2017 and 2016.
Deferred
income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current
tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority
on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
|
(u)
|
Statutory
reserves and restricted net assets
|
In
accordance with the PRC laws and regulations, the Group’s PRC subsidiary and consolidated VIEs are required to make an appropriation
to certain statutory reserves, namely general reserve, enterprise expansion reserve, and staff welfare and bonus reserve, all
of which are appropriated from net profit as reported in their PRC statutory accounts. PRC subsidiary and consolidated VIEs are
required to appropriate at least 10% of their after-tax profits to the statutory reserve until such reserve has reached 50% of
their respective registered capital. As of December 31, 2018 and 2017, the accumulated amounts of statutory reserves amounted
to $6,838,628 and $721,818, respectively.
Appropriations
to the enterprise expansion reserve and the staff welfare and bonus reserve are to be made at the discretion of the Board of Directors
of each of the Group’s PRC entities. There are no appropriations to these reserves by the Group’s PRC entities for
the years ended December 31, 2018, and 2017.
As a result of PRC laws and regulations
and the requirement that distributions by the PRC entities can only be paid out of distributable profits computed in accordance
with the PRC GAAP, the PRC entity is restricted from transferring a portion of their net assets to the Group. Amounts restricted
include paid-in capital, capital reserves and statutory reserves of the Group’s PRC entities. As of December 31, 2018, and
2017, the aggregated amounts of paid-in-capital, capital reserve and statutory reserves represented the amount of net assets of
the relevant entity in the Group not available for distribution amounted to $86,542,277 and $59,739,451, respectively (including
the statutory reserve fund of $6,838,628 and $721,818 as of December 2018, and 2017, respectively). As a result of the above restrictions,
parent-only financials are presented in Schedule 1.
|
(v)
|
Non-controlling
Interest
|
Non-controlling interest mainly consists
of an aggregate of 8.09% as of 2018 and 2017, and 16.07% prior to 2017, of the equity interests in Yinghua Wealth held by a third
party. The non-controlling interests are presented in the combined and consolidated balance sheets, separately from equity attributable
to the shareholders of the Group. Loss attributable to non-controlling interests holders are presented on the combined and consolidated
statement of operations as an allocation of the total income (loss) for the year between non-controlling interest holders and
the shareholders of the Group.
|
(w)
|
Earnings
(loss) per share
|
The
Company computes earnings per share in accordance with ASC Topic 260,
Earnings per Share
(“ASC 260”), which
requires earnings per share for each class of stock (ordinary stock and participating preferred stock) to be calculated using
the two-class method. The two-class method is an allocation of earnings between the holders of ordinary shares and a company’s
participating security holders. Under the two-class method, earnings for the reporting period are allocated between ordinary shareholders
and other security holders based on their respective participation rights in undistributed earnings. The options and restricted
stock units of the Company do not contain non-forfeitable rights and therefore are not considered participating securities. (Note
17)
The
Group follows ASC 280, Segment Reporting. The Group’s chief operating decision maker, the Chief Executive Officer, reviews
the consolidated results when making decisions about allocating resources and assessing the performance of the Group as a whole
and hence, the Group has only one reportable segment. The Group does not distinguish between markets or segments for the purpose
of internal reporting. The Group’s long-lived assets are substantially all located in the PRC, and substantially all of
the Group’s revenues are derived from within the PRC. Therefore, no geographical segments are presented.
|
(y)
|
Significant
risks and uncertainties
|
Interest
Rate Risk
The
Group has not been exposed to material risks due to changes in market interest rates, and it has not used any derivative financial
instruments to manage its interest risk exposure. However, the Group cannot provide assurance that it will not be exposed to material
risks due to changes in market interest rates in the future. Its future interest income may fall short of expectations due to
changes in market interest rates.
The
fluctuation of interest rates may also affect the demand for our marketplace lending business. For example, a decrease in the
interest rate may cause potential borrowers to seek loans from other channels and higher returns offered by comparable or substitute
products may damper investor desire to invest in its marketplace. However, it does not expect that the fluctuation of interest
rates will have a material impact on our financial condition.
Foreign
currency risk
RMB
is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People’s
Bank of China, controls the conversion of RMB into foreign currencies. The value of RMB is subject to changes in central government
policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading
System market.
The
concentration of credit risk
Financial instruments that potentially
expose the Group to significant concentration of credit risk primarily included in the combined and consolidated financial statement
lines of cash and cash equivalents, short-term investments, accounts receivable, advances to suppliers, other receivable, loans
receivable – related parties. As of December 31, 2018 and 2017, $136,238,314 (including certificates of deposit of $129,182,053)
and $33,234,949 were deposited in financial institutions located in the PRC, respectively. As of December 31, 2018 and 2017, $18,001,644
and $1,832,788 were deposited in financial institutions located in Hong Kong, respectively. Accounts receivable and loans receivable
from related parties are typically unsecured and are derived from revenue earned from customers or related parties. The risk with
respect to accounts receivable and loan receivable – related parties are mitigated by credit evaluations. The Group performs
on its customers or related parties and its ongoing monitoring process of outstanding balances.
As
of December 31, 2018, and 2017, the Group had loans receivable from related parties below:
|
|
|
As of December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Net Credit Group Co., Ltd.
|
|
$
|
-
|
|
|
$
|
4,492,072
|
|
|
Gain Thrive Limited
|
|
|
-
|
|
|
|
22,471,164
|
|
|
UCF Holdings Group Limited
|
|
|
-
|
|
|
|
16,810,642
|
|
|
|
|
$
|
-
|
|
|
$
|
43,773,878
|
|
There
were no revenues from customers which individually represent greater than 10% of the total net revenues for any year of the three
years ended December 31, 2018, 2017 and 2016.
There
were four and two (two from related parties) customers that accounted for 64% and 44% (44% from related parties) of the Group’s
carrying amount of accounts receivable as of December 31, 2018, and 2017, respectively.
There
were three (two from related parties) and three (three from related parties) service providers that accounted for 47% (36%
from related parties) and 62% (62% from related parties) of the Group’s payable or accrued expenses as of December 31, 2018,
and 2017.
There
were three (two from related parties), three (one from related parties), and two (two from related parties) service providers
that accounted for 67% (32% from related parties), 55% (12% from a related party), and 30% (30% from related parties) of the Group’s
carrying amount of the sales and marketing expenses during the years ended December 31, 2018, 2017, and 2016, respectively.
There
were one, two (one from a related party), and two (one from a related party) service providers that accounted for 11%, 24% (13%
from a related party), 38% (16% from a related party) of the Group’s carrying amount of the origination and servicing expenses
during the years ended December 31, 2018, 2017, and 2016, respectively.
There were three (one from a related
party), four (two from related parties), and two (one from a related party) asset cooperative institutions that accounted for
55% (17% from a related party), 57% (26% from a related party), and 43% (20% from a related party) of the total loan
facilitated as of December 31, 2018, 2017 and 2016, respectively. Asset cooperative institutions are the companies who introduce
qualified borrowers to the Group.
There were two (two from related
parties), two (two from related parties), and one (one from a related party) funding cooperative institutions that accounted for
64% (64% from related parties), 39% (39% from related parties) and 39% (39% from related parties), of the
total loan facilitated as of December 31, 2018, 2017 and 2016, respectively. Funding cooperative institutions are the companies
who introduce funding sources to the Group.
The
Company expenses advertising costs as they incurred. Advertising expense has been included as part of sales and marketing expenses.
For the years ended December 31, 2018, 2017, and 2016, the Company incurred advertising expense of $753,413, $434,190 and $737,452,
respectively.
|
(aa)
|
Recently
issued accounting standards
|
In
May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). This
ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance,
and creates guidance for when revenue should be recognized from the exchange of goods or services. ASU No. 2016-08 was issued
in March 2016 to clarify the principal versus agent guidance in this new revenue recognition standard. ASU 2016-10 was issued
in April 2016 to clarify the guidance on accounting for licenses of intellectual property and identifying performance obligations
in the new revenue recognition standard. ASU 2016-12 was issued in May 2016 to clarify the guidance on transition, collectability,
non-cash consideration and the presentation of sales and other similar taxes in the new revenue recognition standard. ASU 2016-20
was issued in December 2016 to make technical corrections and improvements on narrow aspects of this guidance. ASU No. 2015-14
was issued in August 2015 to defer the effective date of ASU 2014-09 for one year.
In
May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedients. The object is to address certain issues identified by the FASB-IASB Joint Transition Resource Group for Revenue Recognition.
The amendments in this Update affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers
(Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are
the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). Accounting
Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective
date of Update 2014-09 by one year.
The
new standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption
or (ii) a modified retrospective approach with the cumulative effect of initially applying the new standard recognized at the
date of initial application and providing certain additional disclosures. The new standard is effective for public companies’
annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.
To
determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs
the following five steps:
(i)
identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction
price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or
as) the entity satisfies a performance obligation. Topic 606 also impacts certain other areas, such as the accounting for costs
to obtain or fulfill a contract. The standard also requires disclosure of the nature, amount, timing and uncertainty of revenue
and cash flows arising from contracts with customers.
The
Group has completed its initial analysis of Topic 606 and has concluded that the measurement of revenue and the timing of recognizing
revenue is not expected to change for the revenues from loan transaction fees, commission fees and other revenue. The Group plans
to adopt Topic 606 using the modified retrospective method in the first quarter of fiscal 2019, assuming the Company will still
remain an emerging growth company on that date. Based on the Group’s initial analysis, it did not identify a material cumulative
catch-up adjustment to the opening balance sheet of retained earnings on January 1, 2019. The Group’s future financial statements
will include additional disclosures as required by Topic 606.
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize
the following for all leases (with the exception of short-term leases) at the commencement date: 1) A lease liability, which is
a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and 2) A right-of-use
asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease
term. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize
lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. The amendments
in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those years. The
Company will adopt ASU 2016-02 on January 1, 2020 assuming the Company will still remain an emerging growth company on that date.
In
July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and
Derivatives and Hedging (Topic 815). The amendments in Part I of the Update change the reclassification analysis of certain equity-linked
financial instruments (or embedded features) with down-round features. The amendments in Part II of this Update re-characterize
the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a
scope exception. The amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period.
If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the
fiscal year that includes that interim period. The amendments in Part II of this Update do not require any transition guidance
because those amendments do not have an accounting effect. The Group does not believe the adoption of this ASU would have a material
effect on the Group’s combined and consolidated financial statements.
In
February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of
Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this Update affect any entity that is required
to apply the provisions of Topic 220, Income Statement – Reporting Comprehensive Income, and has items of other comprehensive
income for which the related tax effects are presented in other comprehensive income as required by GAAP. The amendments in this
Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal
years. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, (1) for public
business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities
for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update
should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change
in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Group does not believe the adoption
of this ASU would have a material effect on the Group’s combined and consolidated financial statements.
In
2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting”, which changes the measurement date for share-based awards to the grant date, instead of the previous
requirement to remeasure the awards through the performance completion date. ASU No. 2018-07 is effective for the Company for
fiscal years beginning after December 31, 2018, including interim periods within that fiscal year. Early adoption is permitted.
The Company does not believe adopting ASU No. 2018-07 will have a material impact on its consolidated financial statements.
In
2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement”, which modifies fair value disclosures and removes some disclosure requirements
for both public and private companies. In addition, public companies are subject to some new disclosure requirements which requires
to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level
3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable
inputs used to develop Level 3 fair value measurements. ASU No. 2018-13 is effective for all entities for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company does not believe
adopting ASU No. 2018-13 will have a material impact on its consolidated financial statements.
The
Group does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material
effect on the Group’s combined and consolidated balance sheets, statements of operations and comprehensive income (loss)
and statements of cash flows.
|
(ac)
|
Management’s
Evaluation of Subsequent Events
|
The
Group evaluates events that have occurred after the balance sheet date of December 31, 2018, through the date which the combined
and consolidated financial statements were issued. Based upon the review, other than those described in Note 20 – Subsequent
Events, the Group did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure
in the combined and consolidated financial statements.
Note
3 – Acquisitions and Disposition
Disposition
of NCF Zhonghui Investment Management Co., Ltd. (“Zhonghui”)
- In January 2018, Beijing Oriental sold
Zhonghui for a total consideration of $nil (RMB 1) to Beijing NCF Baize Investment Services Co., Ltd, a third party. Zhonghui’s
net liabilities in the amount of $163,116 has been eliminated from the Group’s combined and consolidated financial statements
since the date of disposal. The Group recognized a gain of $163,116 from the disposal. The disposition did not qualify as a discontinued
operation as it does not represent a strategic shift that has had a major impact on the Group’s operations or financial
results.
2018
Insignificant Acquisitions
During
the year ended December 31, 2018, the Group completed three insignificant acquisitions for a total consideration of approximately
$1,659 (RMB11,428). These acquisitions generally enhance the breadth and depth of the Group’s online platforms and prepare
the Group to provide for fintech services. The three insignificant acquisitions are:
|
|
1.
|
Xinzu
(Beijing) Technology Co., Ltd.
|
|
|
2.
|
Shanghai
NCF Puhui Business Consulting Co., Ltd.
|
|
|
3.
|
Shenzhen
Yifang Yurong Financial Information Technology Service Co., Ltd.
|
Pro
forma results of operations for the acquisitions have not been presented because they are not material to the combined and consolidated
financial statements of the Group either individually or in the aggregate.
Note
4 – Accounts receivable
Accounts
receivable consist of unsecured obligations due from customers under normal trade terms. The Group grants credit to its customers
based on the Group’s evaluation of a customer’s credit worthiness.
Allowances
for doubtful accounts are maintained for potential credit losses based on the age of the accounts receivable and the results of
the Group’s credit evaluations of its customers’ financial condition. Receivables are written off as uncollectible
and deducted from the allowance for doubtful accounts after collection efforts have been deemed to be unsuccessful. Subsequent
recoveries are netted against the provision for doubtful accounts expense. The allowance for doubtful accounts was $713,080 and
$0 as of December 31, 2018 and 2017, respectively.
Note
5 – Advances to suppliers
Advances
to suppliers consist of the following:
|
|
|
As of December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Advances for sale and marketing suppliers
|
|
$
|
1,927,157
|
|
|
$
|
5,091,395
|
|
|
Other prepaid administrative expenses
|
|
|
536,436
|
|
|
|
532,425
|
|
|
Advances for software purchases
|
|
|
261,205
|
|
|
|
895,507
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,724,798
|
|
|
$
|
6,519,327
|
|
Note
6 - Other receivables, net
Other
receivables, net consist of the following:
|
|
|
As of December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Loans to third parties (a)
|
|
$
|
-
|
|
|
$
|
1,536,480
|
|
|
Payments made on behalf of third parties (b)
|
|
|
87
|
|
|
|
1,729,428
|
|
|
Amounts due from employees
|
|
|
32,004
|
|
|
|
62,310
|
|
|
Investments in transit (c )
|
|
|
-
|
|
|
|
8,450,640
|
|
|
Interest receivable from Custody Bank (d)
|
|
|
524,015
|
|
|
|
-
|
|
|
Interest receivable from Saving Account
|
|
|
331,836
|
|
|
|
-
|
|
|
Others
|
|
|
637,987
|
|
|
|
424,306
|
|
|
Less: bad debt allowance (b)
|
|
|
-
|
|
|
|
(1,341,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total other receivable, net
|
|
$
|
1,525,929
|
|
|
$
|
10,861,713
|
|
|
(a)
|
Loans
to third parties
|
In
2013, Tianjin Yuanrong loaned to Dalian Frontier Weirong Investment Consulting Co., Ltd. (“Weirong”) in an aggregate
amount of $1,536,480 (RMB 10,000,000). Weirong was a related party of Tianjin Yuanrong up through August 2013 and beginning September
2013, Weirong ceased to be a related party as Tianjin Yuanrong lost significant influence in Weirong. The loan had no interest
and was repaid in August 2018.
|
(b)
|
Payments
made on behalf of third parties
|
Before
2015, Beijing Oriental paid general and administrative expenses for several prospect companies with the intention to form a strategic
partnership with them. These companies were considered related parties of Beijing Oriental until January 2015 when Mr. Zhenxin
Zhang no longer had an indirect equity interest in those companies. The Group assesses the allowance for doubtful accounts based
upon the historical collection experience, the age of the other receivable balances, and the third parties’ ability to pay.
The Group recorded bad debt allowance in the amount of $NIL, and $1,341,451 as of December 31, 2018 and 2017, respectively. This
bad debt allowance was fully written off during the year ended December 31, 2018.
|
(c)
|
Investments
in transit
|
The
group invested in the money market with aggregate amount of $8,450,640 (RMB 55,000,000) on December 31, 2017. The registration
process was not completed until January 2, 2018. In this case, all of the balance from other receivable as of December 31, 2017
was reclassified to short-term investment in January 2018. And the same amount was redeemed in 2018.
|
(d)
|
Interest
receivable from Custody Bank
|
The interest receivable from
Haikou Bank was $524,015 as of December 31, 2018. Haikou Bank was no longer considered as a related party since October 26, 2018
because Mr. Nan Xiao resigned from Yinghua Wealth. Interest from Haikou Bank was disclosed as other receivable from related party
as of December 31, 2017.
Note
7 - Other current assets
Other current assets include prepaid
VAT and corporate income tax refund receivable. Pursuant to the PRC tax laws, entities that are VAT general taxpayers are allowed
to offset qualified input VAT paid to suppliers against their output VAT liabilities. During the years ended December 31, 2018,
and 2017, the Group’s input VAT exceeded the output VAT. The prepaid VAT balance was $4,630,320 and $4,808,738 as of December
31, 2018 and 2017, respectively.
The corporate income tax refund receivable
is related to the overpayment of income taxes because Cloud Services was granted the Certification of Software Company on November
30, 2018. Pursuant to such certificate, Cloud Services qualifies for a tax holiday at corporate income tax rate of 0% for the
year ended December 31, 2018 and at 12.5% from January 1, 2019 to December 31, 2021. The balance of corporate income tax refund
receivable was $1,524,819 and $0 as of December 31, 2018 and 2017, respectively.
Note
8 – Short-term investment
Beginning
in December 2016, the Group participated in its own P2P marketplace platform as a lender and funded its P2P investment account
for investment in P2P loan products. Due to the short-term nature of the loan terms, the fair value of the P2P loan product portfolio
approximates its costs. The Group ceased investing through its own platform since December 2017.
The
loan products held at December 31, 2017 were sold in January 2018 at cost of $461,292. No gain or loss was recognized.
During
2018, the Group purchased the following certificates of deposit with interest rates ranging from 1.30% to 2.03%. As of December
31, 2018, and 2017, the balance of short-term investment that the Group held was $129,182,053 and $470,641, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
Annual
|
|
|
|
|
Purchase
|
|
|
|
|
|
|
|
|
Interest
|
|
|
Financial Institutions
|
|
Date
|
|
|
Term
|
|
|
Amount
|
|
|
Rate
|
|
|
Pufa CunZhen Bank
|
|
|
October
16, 2018
|
|
|
|
Six
Months
|
|
|
$
|
728,525
|
|
|
|
1.30
|
%
|
|
Pufa CunZhen Bank
|
|
|
October
17, 2018
|
|
|
|
Six
Months
|
|
|
|
6,993,840
|
|
|
|
1.69
|
%
|
|
Changan Bank
|
|
|
November
9, 2018
|
|
|
|
Six
Months
|
|
|
|
30,160,935
|
|
|
|
1.77
|
%
|
|
Changan Bank
|
|
|
November
9, 2018
|
|
|
|
Six
Months
|
|
|
|
5,828,200
|
|
|
|
1.77
|
%
|
|
Changan Bank
|
|
|
November
12, 2018
|
|
|
|
Twelve
Months
|
|
|
|
29,141,000
|
|
|
|
2.03
|
%
|
|
Changan Bank
|
|
|
November
13, 2018
|
|
|
|
Six
Months
|
|
|
|
29,141,000
|
|
|
|
1.77
|
%
|
|
Changan Bank
|
|
|
November
14, 2018
|
|
|
|
Six
Months
|
|
|
|
14,570,500
|
|
|
|
1.77
|
%
|
|
Changan Bank
|
|
|
November
14, 2018
|
|
|
|
Six
Months
|
|
|
|
12,618,053
|
|
|
|
1.77
|
%
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129,182,053
|
|
|
|
|
|
Note
9 – Fixed assets, net
Fixed
assets consist of the following:
|
|
|
As of December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
1,923,817
|
|
|
$
|
1,922,984
|
|
|
Software
|
|
|
2,634,466
|
|
|
|
993,534
|
|
|
Leasehold Improvement
|
|
|
435,191
|
|
|
|
392,079
|
|
|
Less: accumulated depreciation and amortization
|
|
|
(2,645,271
|
)
|
|
|
(1,885,781
|
)
|
|
Total
|
|
$
|
2,348,203
|
|
|
$
|
1,422,816
|
|
Depreciation
and amortization expense for the years ended December 31, 2018, 2017, and 2016 amounted to $660,483, $612,563, and $908,412 respectively.
Note
10 - Other non-current assets
In
October 2017, the Group entered into an equity investment agreement. Pursuant to the terms of the agreement, the Group shall make
a total cash investment amounting to $4,609,440 (RMB 30,000,000) in Beijing Kunyuan Hengtong Investment Center L.P. (“Kunyuan
Hengtong”), a limited partnership incorporated on July 7, 2017, in exchange for a 20% equity interest in Kunyuan Hengtong.
Due to the fact that the transaction did not complete until July 2018, such investment was classified as other non-current assets
as of December 31, 2017 and was classified as equity method investment as of December 31, 2018.
The balance of other non-current assets
were $143,534 and $4,609,440 as of December 31, 2018, and 2017, respectively.
Note
11 – Equity method investments
Jiutai
District Rural Property Rights Exchange Center Co., Ltd
.
In
July 2016, Beijing Oriental entered into an Equity Investment Agreement to invest $57,588 (RMB 400,000) in Jiutai District Rural
Property Rights Exchange Center Co., Ltd. (“Jiutai”), in exchange for 40% of Jiutai’s equity interest. Jiutai
is a company incorporated on July 25, 2016, and is primarily engaged in providing rural property rights exchange services. There
were no operations during the years ended December 31, 2018, 2017, and 2016.
In
March 2018, Beijing Oriental entered into a share exchange agreement to sell the 40% of the equity interest in Jiutai to NCF Group
Co., Ltd., a related party, for $58,095 (RMB 400,000).
The
Group accounted for this investment using the equity method. As of December 31, 2018, and 2017, the equity investment in Jiutai
was $NIL and $61,459 (RMB 400,000), respectively.
Fengshou
Technology Co., Ltd.
In
May 2018, the Group entered into an equity investment agreement to invest $1,452,293 (RMB 10,000,000) in Fengshou Technology Co.,
Ltd. (“Fengshou”) in exchange of 18% equity interest in Fengshou, a company incorporated on April 25, 2018. The Group
accounted for its investment in Fengshou’s operation using equity method as the Group exercises significant influence. As
of December 31, 2018, the equity investment in Fengshou was $1,457,050. The Group’s share of the results of the Fengshou’s
operation was insignificant for the year ended December 31, 2018.
Linggui
Technology (Beijing) Co., Ltd.
In
November 2017, Cloud Services entered into an equity investment agreement to invest $740,070 (RMB 5,000,000) in Linggui Technology
(Beijing) Co., Ltd. (“Linggui”) in exchange of 19% of Linggui’s equity interest. In November 2018, Cloud Services
entered into an amended agreement to reduce its equity interest in Linggui to 5.46%. Linggui is a company incorporated on October
24, 2017 and is primarily engaged in providing technology development, technology transfer, and technology consulting services.
The
Group accounted for its investment in Lingui’s operation using equity method as the Group exercises significant influence.
The Group’s total investment in Lingui at December 31, 2018 and 2017 was $517,385, and $744,596, respectively, after recording
its share of Linggui’s losses for the year ended December 31, 2018 and 2017 of $199,908 and $22,777, respectively.
Note
12 - Taxation
BVI
Under
the current laws of the BVI, the Group is not subject to taxes on income or capital gains.
Additionally,
upon payments of dividends to the shareholders, no BVI withholding tax will be imposed.
Hong
Kong
The
entities incorporated in Hong Kong are subject to the Hong Kong profits tax rate at 16.5%.
PRC
In
accordance with the Enterprise Income Tax Law (“EIT Law”), Foreign Investment Enterprises (“FIEs”) and
domestic companies are subject to Enterprise Income Tax (“EIT”) at a uniform rate of 25%. In addition, Cloud Services
obtained the Hi-Tech Enterprise certificate and is entitled to a preferential income tax rate of 15% for 2017, 2018, and
2019. Cloud Services was granted the Certification of Software Company on November 30, 2018. Pursuant to such certificate, Cloud
Services qualifies for a tax holiday during which it is entitled to an exemption from enterprise income tax for two years commencing
from its first profit-making year and a 50% reduction of enterprise income tax for the following three years.
For
Cloud Services, tax year 2018 was considered the second profit-making year and accordingly, Cloud Services was exempted from EIT
for the year of 2018. Starting from January 1, 2019 to December 31, 2021, Cloud Services is qualified for the reduced tax rate
of 12.5%.
For
the year ended December 31, 2018, Shanghai Puhui qualified for preferential tax treatment available to small and low-profit
enterprises, and only 50% of its income was subject to tax and at the preferential rate of 20%.
The
EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “de facto management
body” is located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the
PRC income tax at the rate of 25% for its global income. The Implementing Rules of the EIT Law define 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.” Based
on a review of surrounding facts and circumstances, the Group does not believe that it is likely that its entities registered
outside of the PRC should be considered as resident enterprises for the PRC tax purposes.
The
EIT Law also imposes a withholding income tax of 10% on dividends distributed by a FIE to its immediate holding company outside
of the PRC, unless such immediate holding company’s jurisdiction of incorporation has a tax treaty with the PRC that provides
for a different withholding arrangement. The British Virgin Islands, where the Company incorporated, does not have such tax treaty
with the PRC. In accordance with accounting guidance, all undistributed earnings are presumed to be transferred to the parent
company and are subject to the withholding taxes. The presumption may be overcome if the Company has sufficient evidence to demonstrate
that the undistributed dividends will be re-invested and the remittance of the dividends will be postponed indefinitely. The Group
did not record any dividend withholding tax, as it does not have any retained earnings for any of the periods presented.
|
|
|
For the Year Ended December
31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax
|
|
$
|
16,576,316
|
|
|
$
|
1,181,550
|
|
|
$
|
3,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax
|
|
|
2,684,232
|
|
|
|
11,166,845
|
|
|
|
(2,810,102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefits)
|
|
$
|
19,260,548
|
|
|
$
|
12,348,395
|
|
|
$
|
(2,806,686
|
)
|
Reconciliation
of the differences between the applicable tax rate and the effective tax rate
The
following table sets forth the reconciliation between the applicable EIT rate and the effective tax rate
|
|
|
For the Years Ended December
31,
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
2017
|
|
|
|
|
|
2016
|
|
|
|
|
|
Income (loss) before income tax
|
|
$
|
79,269,005
|
|
|
|
|
|
|
$
|
48,192,693
|
|
|
|
|
|
|
$
|
(16,060,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax calculated at the applicable tax rate (25%)
|
|
|
19,817,251
|
|
|
|
25
|
%
|
|
|
12,048,173
|
|
|
|
25
|
%
|
|
|
(4,015,027
|
)
|
|
|
25
|
%
|
|
Tax effects of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Difference in overseas tax rates
|
|
|
387,093
|
|
|
|
0
|
%
|
|
|
442,032
|
|
|
|
1
|
%
|
|
|
648,277
|
|
|
|
(4
|
)%
|
|
Effect of tax holiday and preferential tax rate
|
|
|
(1,803,388
|
)
|
|
|
(2
|
)%
|
|
|
(663,664
|
)
|
|
|
(1
|
)%
|
|
|
279,648
|
|
|
|
(2
|
)%
|
|
Expenses not deductible for tax purposes
|
|
|
175,621
|
|
|
|
0
|
%
|
|
|
267,584
|
|
|
|
1
|
%
|
|
|
43,452
|
|
|
|
0
|
%
|
|
Unrecognized deductible tax losses
|
|
|
14,118
|
|
|
|
0
|
%
|
|
|
10,529
|
|
|
|
0
|
%
|
|
|
95,982
|
|
|
|
(1
|
)%
|
|
Research and development tax credit
|
|
|
(180,468
|
)
|
|
|
0
|
%
|
|
|
(197,345
|
)
|
|
|
0
|
%
|
|
|
-
|
|
|
|
|
|
|
Valuation allowances
|
|
|
850,321
|
|
|
|
1
|
%
|
|
|
441,086
|
|
|
|
1
|
%
|
|
|
140,982
|
|
|
|
(1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
expense/(benefits)
|
|
$
|
19,260,548
|
|
|
|
24
|
%
|
|
$
|
12,348,395
|
|
|
|
27
|
%
|
|
$
|
(2,806,686
|
)
|
|
|
17
|
%
|
Deferred
tax assets
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The principal components of the deferred tax assets are as follows:
|
|
|
As of December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Accrued employee benefits
|
|
$
|
-
|
|
|
$
|
8,470
|
|
|
Allowance for bad debts expense - other receivables/accounts receivables
|
|
|
178,271
|
|
|
|
345,764
|
|
|
Advertising expenses
|
|
|
241,601
|
|
|
|
|
|
|
Operating loss carryforwards, net
|
|
|
7,170,804
|
|
|
|
9,590,434
|
|
|
|
|
|
7,590,676
|
|
|
|
9,944,668
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: valuation allowances
|
|
|
(2,968,926
|
)
|
|
|
(2,231,285
|
)
|
|
|
|
$
|
4,621,750
|
|
|
$
|
7,713,383
|
|
Deferred income tax assets are recognized
to the extent that the realization of the related tax benefit through future taxable profits is probable. The Group has recorded
valuation allowances of $2,968,926 and $2,231,285 as of December 31, 2018 and 2017, respectively to reflect the estimated amount
of deferred tax assets that may not be realized. The net operating loss carryforwards was $28,683,216, $ 38,361,736, and
$79,987,735 as of December 31, 2018, 2017 and 2016 respectively.
According to PRC tax regulations, the
PRC net operating loss can generally be carried forward for no more than five years starting from the year subsequent to the year
that the loss was incurred. Carryback of losses is not permitted. Net operating loss begins to expire in 2021.
Under PRC laws and regulations, arrangements
and transactions among related parties may be subject to examination by the PRC tax authorities. If the PRC tax authorities determine
that the contractual arrangements among related companies do not represent a price under normal commercial terms, they may make
adjustments to the companies’ income and expenses. A transfer pricing adjustment could result in additional tax liabilities.
The
Group evaluates the level of authority for each uncertain tax position (including the potential application of interest and penalties)
based on the technical merits and measures the unrecognized benefits associated with the tax positions. For the years ended December
31, 2018, 2017 and 2016, the Group did not have any unrecognized tax benefits.
Note
13 - Share-based compensation
In
2014, the Group adopted the 2014 Equity Incentive Plan (the “2014 Plan”), and in July 2015, the 2014 Plan was rolled
into the 2015 Equity Incentive Plan (the “2015 Plan”). The 2015 Plan permits the grant of two types of awards: options
and restricted stock units (“RSUs”). Persons eligible to participate in the 2015 Plan include an employee, director
or consultant of the Group or an affiliate, or other trust or special purpose vehicle under which any one or more of the participants
are interested.
Share
options and RSUs granted under these Plans vest over a four-year requisite service period, with one-fourth (25%) vesting on the
first anniversary, and then one-eighth (12.5%) vesting every six (6) months from the first anniversary date.
Options
No
options were granted during the years ended December 31, 2018, 2017, and 2016. As of December 31, 2018, all options granted under
the 2015 Plan are fully vested. The total fair value of shares vested for the years ended December 31, 2018, 2017 and 2016 was
$16,801, $153,131 and $436,608, respectively.
The
fair value of each option is estimated on each grant date using the option-pricing model (“OPM”), which uses the key
assumptions presented below. Expected volatilities are based on the average volatility of comparable companies in the industry
with the time period commensurate with the expected time period of the options granted. The contractual life of the option is
10 years. In the OPM, the Group used research data based upon empirical studies pertaining to option exercise multiples as well
as to estimated employment termination rates. The risk-free rate for periods within the contractual life of the options are based
on the yield of maturity of US government bond at the option valuation date plus the country default spread difference between
China and the US. The Group has no history of declaring or paying cash dividends on its capital stock, and the Group does not
plan to pay any dividend on its ordinary shares in the foreseeable future.
On
December 10, 2014, 50,600,000 shares options were granted under the 2015 Plan.
The
following table summarizes the Group’s share option activities:
|
|
|
For the year ended December
31, 2018
|
|
|
|
|
Number
of
Shares
Options
|
|
|
Average
Exercise
Price
Per
Share
Options
in
US$
|
|
|
Weighted-
Average
remaining
contractual
life
(in
years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the beginning of the year
|
|
|
36,000,000
|
|
|
$
|
0.08154
|
|
|
|
6.94
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
(1,000,000
|
)
|
|
$
|
0.08154
|
|
|
|
-
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
At the end of the year
|
|
|
35,000,000
|
|
|
$
|
0.08154
|
|
|
|
5.94
|
|
|
Vested and exercisable at the end of the year
|
|
|
35,000,000
|
|
|
$
|
0.08154
|
|
|
|
5.94
|
|
As
of December 31, 2018, the expiry date of all the outstanding share options is December 10, 2024.
Restricted
stock units
No
RSUs were granted during the years ended December 31, 2018, 2017 and 2016. As of December 31, 2018, there was approximately $120,000
of total unrecognized compensation cost related to non-vested RSUs arrangements granted under the 2015 Plan expected to be recognized
over a weighted average period of 0.52 years. To the extent the actual forfeiture rate is different from what the Group has anticipated,
share-based compensation related to these awards will be different from its expectations.
The
fair value of each RSU is estimated on each grant date using the OPM, which uses the key assumptions presented below. Expected
volatilities are based on annualized standard deviation of daily stock price return of comparable companies in the industry with
the time period commensurate with the expected time period of the RSUs granted. In the OPM, the Group determined expected life
for the RSU’s based upon an estimated Initial Public Offering (“IPO”) date. The risk-free rates for periods
within the expected life of the RSUs are based on the yield of maturity of Hong Kong Sovereign Curve plus country default risk
as of the valuation date. The Group has no history of declaring or paying cash dividends on its capital stock, and the Group does
not plan to pay any dividend on its ordinary shares in the foreseeable future.
On
July 24, 2015, 57,934,389 RSUs were granted to employees under the 2015 Plan.
A summary of the unvested restricted
shares for the year ended December 31, 2018 is as follows:
|
|
|
Number
of shares
|
|
|
Weighted-
average fair
value
|
|
|
Non-vested restricted
shares outstanding at January1, 2018
|
|
|
13,442,308
|
|
|
|
0.3565
|
|
|
Granted
|
|
|
-
|
|
|
|
0.3565
|
|
|
Forfeited
|
|
|
(217,760)
|
|
|
|
0.3565
|
|
|
Vested
|
|
|
(8,598,417)
|
|
|
|
0.3565
|
|
|
Non-vested restricted
shares outstanding at December 31, 2018
|
|
|
4,626,131
|
|
|
|
0.3565
|
|
The
following table summarizes the total share-based compensation expense for each year presented:
|
|
|
For the years ended December
31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
General and administrative expenses
|
|
$
|
349,638
|
|
|
$
|
1,783,225
|
|
|
$
|
1,708,460
|
|
|
Sales and marketing expenses
|
|
|
80,129
|
|
|
|
681,271
|
|
|
|
530,455
|
|
|
Product development expenses
|
|
|
137,182
|
|
|
|
967,355
|
|
|
|
383,349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
566,949
|
|
|
$
|
3,431,852
|
|
|
$
|
2,622,264
|
|
Note
14 - Accruals and other liabilities
Accruals
and other liabilities consist of the following:
|
|
|
As of December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Accrued salaries and welfare expenses
|
|
$
|
4,245,829
|
|
|
$
|
4,247,903
|
|
|
Accrued general and administrative expenses
|
|
|
5,554,867
|
|
|
|
951,578
|
|
|
|
|
$
|
9,800,696
|
|
|
$
|
5,199,481
|
|
Note
15 – Bank loan
During 2018, the Group borrowed $13,507,041
(RMB 93,000,000) from Xiamen International Bank at a fixed interest rate of 1.68% per annum with a maturity date of December 20,
2018. The amount was repaid in full on the maturity date. The Group borrowed $13,393,766 at a fixed interest rate of 1.58% per
annum in 2016 from Xiamen International Bank. The loan was repaid in 2017.
Note
16 – Equity
Preferred
shares
Since
the date of incorporation, the Group has completed two rounds of financing by issuing preferred shares: Series B Preferred shares
issued in 2015 and Series C-1 Preferred shares in 2016 (collectively known as the “Preferred shares”).
In
2016, the Group issued 24,711,296 Series C-1 Preferred shares in exchange for consideration of $42,009,205. In 2015, the Group
issued 29,426,129 Series B Preferred shares in exchange for consideration of $21,000,000. The Group incurred a total of issuance
costs in the amount of $59,410 and $1,055,162 for the years ended December 31, 2016, and 2015, respectively. The issuance costs
were recognized as a reduction of additional paid-in capital in the years of issuance. Therefore, Series C-1 and Series B Preferred
shares were recognized in the Combined and Consolidated Statements of Changes in Shareholders’ Equity in the amount of $41,949,795
ad $19,944,838 for the years ended December 31, 2016 and 2015.
The
Preferred shares have a par value of $0.00001 per share, have no maturity date and are not mandatorily redeemable. The key terms
of the Preferred shares are summarized as follows:
Conversion
feature
Upon
the occurrence of a successful Initial Public Offering or listing of shares of the Group on any internationally recognized stock
exchange (“IPO”), all fully paid Preferred shares then outstanding will be automatically converted into fully paid
Ordinary Shares of the Company (“Ordinary Shares”).
The
conversion price is set forth on the basis of one Ordinary Share for each Preferred Share (i.e., the conversion ratio is 1:1),
provided that the conversion ratio may be adjusted in such commercially reasonable manner as the board of directors of the Group
shall deem appropriate for any dilution upon issue of further Ordinary Shares at a price less than the Subscription Price (for
avoidance of doubt, no adjustment shall be made for any issue of Ordinary Shares pursuant to Employee Stock Option Plan (“ESOP”),
any issuance of further Ordinary Shares in connection with share dividends, subdivision, combination or reclassification of capital
stock, or issuance upon conversion or reclassification of capital stock) (i.e., there are anti-dilution adjustments, including
in the case that the issue is at market price but is less than the subscription price), and provided that any conversion must
be at least at par (conversion ratio 1:1 at least).
Holder’s
redemption upon trigger events
In
the event of any liquidation, dissolution or winding up or other trigger events of the Group, whether voluntary or involuntary,
holders of each Preferred share in issue shall be entitled to be paid out of the assets of the Group available for distribution
to shareholders, whether such assets are capital, surplus, or earnings, an amount equal in aggregate to the total subscription
price paid by each holder of Preferred shares to the Group for the subscription of all its Shares (Ordinary Shares and Preferred
shares) (i.e., the preferred shareholders can put the Ordinary Shares as well) plus all declared and unpaid dividends, before
and in preference to any distribution of any of the assets or surplus funds of the Group to the holders of Ordinary Shares or
of any other shares or stock. Triggering events include the following: (1) any occurrence of the event following a merger, consolidation
or amalgamation by the shareholders of the Group no longer together hold a majority voting power in the surviving entity or (2)
any sale, lease, transfer, exclusive license or other disposition of all or substantially all of the assets of the Group.
Dividends
rights
The
Preferred shares shall confer on the holders of Series B Preferred shares the right in priority over the holders of Ordinary Shares
of the Group as to the receipt of any dividends as the directors may from time to time declare. As such, to the extent that if
there are any dividends payable, the holders of Series B Preferred shares shall receive payment in respect of the dividends earlier
in time than holders of Ordinary Shares.
The
holders of Series C-1 Preferred shares have the same dividend rights as the Ordinary Shares on an as-converted basis.
No
dividends have been declared for the Preferred shares for the years presented.
Voting
rights
On
a show of hands, every holder of Preferred shares shall have one vote. On a poll, each holder of Preferred shares shall be entitled
to the number of votes equal to the number of Ordinary Shares into which such Preferred shares held by that holder could be converted
on the date such vote is taken. Holders of Preferred shares shall be entitled to receive notice of meetings of members in accordance
with the articles of association of the Group and on the same basis as holders of the Ordinary Shares. All Preferred shares and
the Ordinary Shares shall vote as a single class.
In
accordance with ASC 480-10-S99, the Group classified the Preferred shares as permanent equity because they are redeemable upon
the occurrence of certain events within the Group’s control. The Preferred shares were initially measured at fair value,
with issuance cost charged against additional paid-in capital. The Group determined that there was no embedded beneficial conversion
feature attributable to the Preferred shares. Beneficial conversion features exist when the conversion price of the convertible
preferred shares is lower than the fair value of the Ordinary Shares at the commitment date, which is the issuance date in the
Group’s case. On the commitment date, the most favorable conversion price used to measure the beneficial conversion feature
of the Preferred shares was higher than the fair value per ordinary share, and therefore no bifurcation of beneficial conversion
feature was recognized. The Group determined the fair value of the Ordinary Share with the assistance of an independent third
party valuation firm.
Statutory
reserve
PRC
subsidiaries and consolidated VIEs are required to make appropriations to certain reserve funds, comprising the statutory surplus
reserve and the discretionary surplus reserve, based on after-tax net income determined in accordance with PRC laws and regulations.
Appropriations to the statutory surplus reserve are required to be at least 10% of the after-tax net income determined in accordance
with PRC GAAP until the reserve is equal to 50% of the entity’s registered capital. Appropriations to the discretionary
surplus reserve are made at the discretion of the Board of Directors. The reserved amounts as determined pursuant to PRC statutory
laws totaled $6,838,628 and $721,818 as of December 31, 2018, and 2017, respectively.
Ordinary
Shares
The
Company is authorized to issue 5,000,000,000 shares of its Ordinary Shares with a par value of $0.00001 per share.
In
February 2016, the Company issued 21,760,498 ($0.00001 par value) Ordinary Shares at $0.6066 per share for an aggregate cash consideration
of $13,199,918.
As
of December 31, 2018, 2017, and 2016, the Company has 1,091,569,209 Ordinary Shares issued and 981,569,209 shares outstanding.
See EBT shares below.
Employee
benefit trust Ordinary Shares (“EBT shares”)
On
July 13, 2015, the Group established First P2P Limited Employee Benefit Trust (“EBT”) in Cayman Island to provide
a source to meet our obligations under our equity incentive plans. Mr. Zhang, our Founder, was appointed by us as a sole member
of compensation committee of the EBT who has the authority to manage the trust.
On
July 13, 2015, 50 million of the Company’s Ordinary Shares were transferred to the trust as a loan from Great Reap Venture
Ltd. (“Great Reap”), a majority shareholder of our company and is 100% owned by Mr. Zhang. The loan can be repaid
either in cash at the exercise price of $0.08154 per share as determined in the 2015 Equity Incentive Plan or by transferring
the shares back to Great Reap at the option of the Company. The loan agreement can be repaid by the trust in whole or in part
at any time without any interest. The Group recorded the 50 million shares at $4,077,000 as a reduction of the Group’s equity.
For the year ended December 31, 2017,
the Group recorded a long-term loan – Great Reap in the amount of $4,077,000 in the combined and consolidated financial
statements. For the year ended December 31, 2018, the Group reclassed the loan to short term as majority of the EBT shares are
vested and exercisable, and because the employees who have been granted the options are expected to exercise their options
within one year from the balance sheet date.
On
July 13, 2015, the Company issued 60 million Ordinary Shares to the EBT at the par value of $0.00001. The shares were transferred
in accordance to the 2015 Equity Incentive Plan as our contribution to the RSU’s pool to be granted to qualified participants
under the 2015 Incentive Plan. The Group recorded the 60 million shares at $600 as a reduction of the Group’s equity.
It
is the Company’s intention not to return the EBT shares to Great Reap and the Company. The EBT shares are entitled to voting
rights and dividends rights. Therefore, we do not consider EBT shares as contingency shares and EBT shares are considered outstanding
in the computation of EPS (Note 17).
The
assets of the trust were not used to fund any of the Group’s obligations under incentive plans (Note 13) during the years
ended December 31, 2018, 2017 and 2016.
Note
17 - Earnings (loss) per share
Basic
earnings per ordinary share is computed by dividing income or loss available to the Company’s ordinary shareholders by the
weighted average number of shares of basic ordinary shares outstanding. The Series B and C-1 convertible preferred stock which
are convertible into shares of common stock of the Company, have the same dividend rights as the ordinary shares on an as-converted
basis, and therefore qualify as participating securities in accordance with ASC 260. Net income allocated to the holders of the
Company’s Series B and C-1 Preferred Stock is calculated based on the shareholders’ proportionate share of weighted
average shares of ordinary shares outstanding on an if-converted basis. The terms of the Preferred shares do not include a contractual
obligation to participate in the losses of the Company, and therefore the participating securities are not included in the calculation
of EPS in the years in which there are losses.
For purposes of determining diluted earnings
per ordinary share, basic earnings per ordinary share is further adjusted to include the effect of potential dilutive ordinary
shares outstanding, including Series B and C-1 Preferred Stock using the if-converted method. Under the two-class method of calculating
diluted earnings per share, net income is reallocated to ordinary stock, the Series B and C-1 Preferred stock and all other dilutive
securities based on the contractual participating rights of the security to share in the current earnings as if all of the earnings
for the period had been distributed. In the computation of diluted earnings per share, the two-class method and if-converted method
for the Series B and C-1 Preferred Stock resulted in the same earnings per share amounts as the holder of the Series B and C-1
Preferred Stock had the same economic rights as the holders of the ordinary stock.
Basic
and diluted net earnings (loss) per ordinary share for each of the years presented are calculated as follows:
|
|
|
Year Ended December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to NCF
Wealth Holding Limited
|
|
$
|
60,284,971
|
|
|
$
|
35,987,631
|
|
|
$
|
(13,157,161
|
)
|
|
Less: Net income allocated
to participating securities
|
|
|
2,848,612
|
|
|
|
1,700,503
|
|
|
|
-
|
|
|
Net income (loss) available to
ordinary shareholders of NCF Wealth Holding Limited
|
|
|
57,436,359
|
|
|
|
34,287,128
|
|
|
|
(13,157,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic ordinary shares outstanding
|
|
|
1,091,569,209
|
|
|
|
1,091,569,209
|
|
|
|
1,088,230,612
|
|
|
Weighted average additional
ordinary shares outstanding if preferred shares converted to ordinary shares (if dilutive)
|
|
|
54,137,425
|
|
|
|
54,137,425
|
|
|
|
-
|
|
|
Total weighted average common
shares outstanding if preferred shares converted to ordinary shares
|
|
|
1,145,706,634
|
|
|
|
1,145,706,634
|
|
|
|
1,088,230,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per ordinary share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
|
$
|
(0.01
|
)
|
|
Diluted
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
|
$
|
(0.01
|
)
|
The
following ordinary share equivalents were excluded from the computation of diluted net earnings (loss) per share for the periods
presented because including them would have been anti-dilutive:
|
|
|
For the year ended December
31
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
Series B preferred shares
|
|
|
-
|
|
|
|
-
|
|
|
|
29,426,129
|
|
|
Series C-1 preferred shares
|
|
|
-
|
|
|
|
-
|
|
|
|
24,711,296
|
|
Note
18 - Commitments and contingencies
|
(a)
|
Operating
lease commitments – the Group as lessee
|
The
Group was obligated under non-cancellable operating leases. The lease terms are three years, and renewable at the end of the lease
period at the market rate. Rent expense were $4,019,641, $4,133,541, and $5,400,809 for the years ended December 31, 2018, 2017
and 2016 respectively.
The
future aggregate minimum lease payments under non-cancellable operating leases are as follows:
|
Years ended December 31,
|
|
Amount
|
|
|
2019
|
|
$
|
4,008,358
|
|
|
2020
|
|
|
1,167,009
|
|
|
2021
|
|
|
550,786
|
|
|
|
|
$
|
5,726,153
|
|
|
(b)
|
Service
contracts commitments
|
In
August 2018, the Group entered into a finder agreement with EarlyBirdCapital, Inc. to introduce potential special purpose acquisition
corporation (“SPAC”) to the Group in connection with consummating a merger. The total fee is $3,000,000 and is expected
to be paid in May 2019.
The
Group operates an online marketplace to provide online P2P, PWM services and E-APP in China to match registered investors to potentially
qualified borrowers, where the laws and regulations governing the industry are developing and evolving rapidly. Various Chinese
authorities are tailoring new laws and regulations that could be applicable to the Group, which may cause an unforeseeable impact
on the Group’s existing practice and business model. Hence, the Group is continually monitoring and assessing such impacts
as well as making adjustments to meet regulators’ requirements.
Beginning
in 2018, PWM services has been slowly winding down as the Group focuses more on E-APP.
Beijing Oriental received
a Notice on further strict Implementation of “three reductions” goal from Head Office of Chaoyang District, Beijing
City for Special Rectification of Finance and Societal Risk on the date of April 24th, 2019. If Beijing Oriental cannot meet the
requirement of “three reductions”, its rectification shall not be accepted and shall not pass administrative inspection.
Beijing Oriental had sent its plan to the designated mail according to the requirements. The requirement of “three reductions”
may lead to the decrease of Beijing Oriental’s net revenue and net income.
Note
19 - Related party transactions and balances
The
Group is controlled by Great Reap Ventures Limited, which owns 54.0% of the Company’s Ordinary Shares. The remaining 46.0%
of the shares are widely held. The Great Reap Ventures Limited is 100% owned by the Founder of the Group. The ultimate controlling
party of the Group is the Founder.
In addition to those disclosed elsewhere
in the combined and consolidated financial statements, the following transactions were carried out with related parties, either
the shares of which are owned by the Founder of the Group or for which key management positions are held by the same person.
The
Group entered into the following significant related party transactions:
|
(a)
|
Revenue
from related parties
|
|
|
|
|
|
For
the year ended December 31,
|
|
|
|
|
Relationship with the Group
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
Transaction and service fee
|
|
|
|
|
|
|
|
|
|
|
|
|
Hainan International Tourism Industry Finance
Leasing Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
$
|
-
|
|
|
$
|
77,713
|
|
|
$
|
445,721
|
|
|
Shanghai ZhongFeng Commercial Finance Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
139,149
|
|
|
|
-
|
|
|
|
35,573
|
|
|
Yingtai Finance Leasing (Shenzhen) Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
1,373,597
|
|
|
|
-
|
|
|
|
-
|
|
|
Shanghai Fengchao Business Services Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
259,922
|
|
|
|
-
|
|
|
|
-
|
|
|
Beijing Fengchao Business Services Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
131,257
|
|
|
|
-
|
|
|
|
-
|
|
|
Xiamen Danxia Real Estate Marketing Planning Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
80,742
|
|
|
|
-
|
|
|
|
-
|
|
|
Liaoning Kai Yuan Finance Leasing Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
50,826
|
|
|
|
|
|
|
|
|
|
|
Shenzhen Guozuhaifeng Finance Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
-
|
|
|
|
9,947
|
|
|
|
24,792
|
|
|
Shenzhen Yuanchang Jewelry Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
-
|
|
|
|
-
|
|
|
|
594,060
|
|
China Finance Leasing Co., Ltd.
*This entity was
no longer treated as a related party since October 26, 2018, as Mr. Nan Xiao resigned from Yinghua Wealth
|
|
Key management positions held by the same person
|
|
|
1,169,783
|
|
|
|
-
|
|
|
|
7,273
|
|
|
Shenzhen Qiyuantianxia Technology Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
-
|
|
|
|
-
|
|
|
|
65,767
|
|
|
Junling Property Consultant (Shanghai) Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Beijing Kai Yuan Finance Leasing Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
3,067,693
|
|
|
|
-
|
|
|
|
2,899
|
|
|
Others
|
|
Shares owned by the Founder of the Group
|
|
|
444
|
|
|
|
-
|
|
|
|
19
|
|
|
|
|
|
|
$
|
6,273,413
|
|
|
$
|
87,660
|
|
|
$
|
1,176,104
|
|
|
|
|
|
|
For
the year ended December 31,
|
|
|
|
|
Relationship with the Group
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
Commission fee
|
|
|
|
|
|
|
|
|
|
|
|
|
Xianfeng Technology Asset Management (Dalian)
Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
$
|
-
|
|
|
$
|
1,099,130
|
|
|
$
|
-
|
|
|
Junling Property Consultant (Shanghai) Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
241,148
|
|
|
|
327,260
|
|
|
|
440,089
|
|
|
Shanghai Heyi Internet Information Services Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
-
|
|
|
|
-
|
|
|
|
461,068
|
|
|
Net Credit Media Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
-
|
|
|
|
-
|
|
|
|
296,418
|
|
|
Liaoning Kai Yuan Finance Leasing Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
192,391
|
|
|
|
-
|
|
|
|
-
|
|
|
Beijing Kunlun Wealth Investment Management Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
396,201
|
|
|
|
-
|
|
|
|
-
|
|
|
Beijing Kai Yuan Finance Leasing Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
362,181
|
|
|
|
-
|
|
|
|
-
|
|
|
Shanghai Jinmao Asset Management Co., Ltd.
|
|
Key management positions held by the same person
|
|
|
410,855
|
|
|
|
961,947
|
|
|
|
-
|
|
|
Shenzhen Lianhe Currency Wealth Management (Shanghai)
Co., Ltd.
|
|
Key management positions held by the same person
|
|
|
22,191
|
|
|
|
1,150,279
|
|
|
|
-
|
|
|
Others
|
|
Shares owned by the Founder of the Group/key management positions held
by the same person
|
|
|
1,975
|
|
|
|
90,232
|
|
|
|
-
|
|
|
|
|
|
|
$
|
1,626,942
|
|
|
$
|
3,628,848
|
|
|
$
|
1,197,575
|
|
|
|
|
|
|
For
the year ended December 31,
|
|
|
|
|
Relationship with the Group
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
Other revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Beijing Yilian Information Technology Services Co., Ltd.
|
|
Key management positions held by the same person
|
|
$
|
-
|
|
|
$
|
55,592
|
|
|
$
|
-
|
|
|
Net Credit Group Co., Ltd.
|
|
Key management positions held by the same person
|
|
|
-
|
|
|
|
46,973
|
|
|
|
-
|
|
|
Net Credit Media Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
-
|
|
|
|
-
|
|
|
|
33,935
|
|
|
Shanghai Fengchao Business Services Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
7,039
|
|
|
|
-
|
|
|
|
-
|
|
|
Others
|
|
Shares owned by the Founder of the Group/key management positions held
by the same person
|
|
|
-
|
|
|
|
47,136
|
|
|
|
-
|
|
|
|
|
|
|
$
|
7,039
|
|
|
$
|
149,701
|
|
|
$
|
33,935
|
|
|
(b)
|
Services
provided by related parties
|
The
Group incurred commission fees to individuals, co-operating institutions and other partners who introduced lenders. The Group
also incurred office rental expenses, maintenance expense on the platform’s system, marketing expenses and other administrative
expenses. For the years ended December 31, 2018, 2017, and 2016, such services provided by related parties were as follows:
|
|
|
|
|
For
the year ended December 31,
|
|
|
|
|
Relationship
with the Group
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
Office Rental
|
|
|
|
|
|
|
|
|
|
|
|
Beijing
Xiaoyunhuayuan Properties Co., Ltd.
*This entity was no longer treated as a related
party since the entity was disposed by Mr. Zhenxin Zhang in April 2017
|
|
Shares owned by the Founder
of the Group
|
|
$
|
-
|
|
|
$
|
730,488
|
|
|
$
|
2,120,207
|
|
|
Others
|
|
Shares owned by the Founder of the Group
|
|
|
2,693
|
|
|
|
180
|
|
|
|
16,015
|
|
|
|
|
|
|
$
|
2,693
|
|
|
$
|
730,668
|
|
|
$
|
2,136,222
|
|
|
Commission
Fee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai
Jinmao Asset Management Co., Ltd.
|
|
Key management positions held by the same
person
|
|
$
|
19,816,131
|
|
|
$
|
11,133,735
|
|
|
$
|
-
|
|
|
Shenzhen
Lianhe Currency Wealth Management (Shanghai) Co., Ltd.
|
|
Key management positions held by the same
person
|
|
|
30,019,871
|
|
|
|
18,583,182
|
|
|
|
-
|
|
|
Jiangsu
Shanghutong Capital Holding Co., Ltd.
|
|
Key management positions held by the same
person
|
|
|
228,521
|
|
|
|
1,232,698
|
|
|
|
545,976
|
|
|
Beijing
Caiyitong Investment Co., Ltd
|
|
Key management positions held by the same
person
|
|
|
119,835
|
|
|
|
263,445
|
|
|
|
-
|
|
Beijing
Lianhe Hengrui Investment Management Co., Ltd.
*This entity was no longer treated as a related
party since the entity was disposed by Mr. Zhenxin Zhang in June, 2017
|
|
Shares owned by the Founder of the Group
|
|
|
-
|
|
|
|
35,591
|
|
|
|
506,750
|
|
|
Shenzhen
Lianhe Currency Wealth Management Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
-
|
|
|
|
-
|
|
|
|
5,200,453
|
|
|
Beijing
Net Credit Zhongchou Technology Co., Ltd
|
|
Shares owned by the Founder of the Group/key
management positions held by the same person
|
|
|
181,969
|
|
|
|
-
|
|
|
|
7,980
|
|
|
Others
|
|
Shares owned by the Founder of the Group/key
management positions held by same person
|
|
|
82,642
|
|
|
|
314,139
|
|
|
|
1,320,382
|
|
|
|
|
|
|
$
|
50,448,969
|
|
|
$
|
31,562,790
|
|
|
$
|
7,581,541
|
|
|
System Operation and Maintenance Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Credit Yunxing Technology Co., Ltd.
|
|
Key management positions held by the same
person
|
|
|
4,057,045
|
|
|
|
3,980,726
|
|
|
|
4,428,354
|
|
|
|
|
|
|
$
|
4,057,045
|
|
|
$
|
3,980,726
|
|
|
$
|
4,428,354
|
|
|
Consulting
fee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beijing
Netcom Baize Investment Service Co., Ltd.
*This entity was no longer treated as a related
party since the entity was disposed by Mr. Zhenxin Zhang in July 2016.
|
|
Shares owned by the Founder of the Group
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,821,131
|
|
|
Others
|
|
Shares owned by the Founder of the Group/key
management positions held by the same person
|
|
|
-
|
|
|
|
113,592
|
|
|
|
4,701
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
113,592
|
|
|
$
|
7,825,832
|
|
|
Marketing
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beijing
Lianhe Currency Exchange Co., Ltd
|
|
Shares owned by the Founder of the Group
|
|
$
|
398,761
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Others
|
|
Shares owned by the Founder of the Group/key
management positions held by the same person
|
|
$
|
35,091
|
|
|
$
|
131,820
|
|
|
$
|
5,792,421
|
|
|
|
|
|
|
$
|
433,852
|
|
|
$
|
131,820
|
|
|
$
|
5,792,421
|
|
|
Outsourced
Service Fee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beijing
Yilian Information Technology Services Co., Ltd.
|
|
Key management positions held by the same
person
|
|
$
|
1,161,896
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Others
|
|
Shares owned by the Founder of the Group/key
management positions held by the same person
|
|
|
341,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
$
|
1,503,146
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Others
including vehicle usage fee, Intermediary Service Fee and office expense
|
|
Shares owned by the Founder of the Group/key
management positions held by the same person
|
|
$
|
35,779
|
|
|
$
|
164,780
|
|
|
$
|
416,754
|
|
|
(c)
|
Year-end
balances arising from related parties
|
|
|
|
|
|
As
of December 31
|
|
|
|
|
Relationship
with the Group
|
|
2018
|
|
|
2017
|
|
|
Accounts receivable-related parties
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Shanghai
Jinmao Asset Management Co., Ltd
.
|
|
Key management positions
held by the same person
|
|
$
|
65,101
|
|
|
$
|
801,795
|
|
|
Shenzhen
Lianhe Currency Wealth Management (Shanghai) Co., Ltd.
|
|
Key management positions held by the same
person
|
|
|
|
|
|
|
824,998
|
|
|
Beijing
Kunlun Wealth Investment Management Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
207,630
|
|
|
|
-
|
|
|
Others
|
|
Shares owned by the Founder of the Group/
key management positions held by the same person
|
|
|
|
|
|
|
24,737
|
|
|
|
|
|
|
$
|
272,731
|
|
|
$
|
1,651,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances
to suppliers – related parties
|
|
|
|
|
|
|
|
|
|
|
|
Huangshi
Kaichuang Network Technology Co., Ltd.
|
|
Key management positions held by the same
person
|
|
$
|
-
|
|
|
$
|
205,239
|
|
|
Others
|
|
Shares owned by the same person
|
|
|
-
|
|
|
|
1,523
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
206,762
|
|
|
Other
receivable - related parties
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
Xianfeng
Payment Co., Ltd.
|
|
(i)
|
|
$
|
1,190,244
|
|
|
$
|
2,077,069
|
|
|
Beijing
Net Credit Wealth Investment Management Co., Ltd.
|
|
Key management positions held by the same
person
|
|
|
-
|
|
|
|
994,650
|
|
|
Net
Credit Group Co., Ltd.
|
|
Key management positions held by the same
person
|
|
|
-
|
|
|
|
984,822
|
|
|
Others
|
|
Shares owned by the Founder of the Group/
key management positions held by the same person
|
|
|
48,482
|
|
|
|
481,881
|
|
|
|
|
|
|
$
|
1,238,726
|
|
|
$
|
4,538,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
receivable – related parties
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
Net
Credit Group Co., Ltd.
|
|
(ii)
|
|
$
|
-
|
|
|
$
|
2,093,869
|
|
|
Gain
Thrive Limited
|
|
(iii)
|
|
|
-
|
|
|
|
22,471,164
|
|
|
UCF
Holdings Group Limited
|
|
(iv)
|
|
|
-
|
|
|
|
16,810,642
|
|
|
Beijing
Yilian Information Technology Services Co., Ltd.
|
|
Key management positions held by the same
person
|
|
|
-
|
|
|
|
2,398,203
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
43,773,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
due to related parties
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
Net
Credit Group Co., Ltd.
|
|
(vi)
|
|
$
|
433,320
|
|
|
$
|
80,066
|
|
|
Gain
Thrive Limited
|
|
Shares owned by the Founder of the Group
|
|
|
12,021
|
|
|
|
-
|
|
|
Dalian
United Holding Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
585,951
|
|
|
|
|
|
|
Others
|
|
Shares owned by the Founder of the Group
|
|
|
59,854
|
|
|
|
12,008
|
|
|
|
|
|
|
$
|
1,091,146
|
|
|
$
|
92,074
|
|
|
|
|
|
|
As
of December 31
|
|
|
|
|
Relationship
with the Group
|
|
2018
|
|
|
2017
|
|
|
Accrued marketing and channel fee –
related parties
|
|
|
|
|
|
|
|
|
|
|
|
Shanghai
Jinmao Asset Management Co., Ltd.
|
|
Key management positions
held by the same person
|
|
$
|
5,491,404
|
|
|
$
|
3,723,689
|
|
|
Shenzhen
Lianhe Currency Wealth Management (Shanghai) Co., Ltd.
|
|
Key management positions held by the same
person
|
|
|
3,133,456
|
|
|
|
54,645
|
|
|
Phoenix
Asset Management Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
-
|
|
|
|
345,771
|
|
|
Jiangsu
Shanghutong Capital Holding Co., Ltd.
|
|
Key management positions held by the same
person
|
|
|
5,958
|
|
|
|
53,706
|
|
|
Others
|
|
|
|
|
91,074
|
|
|
|
318,006
|
|
|
|
|
|
|
$
|
8,721,892
|
|
|
$
|
4,495,817
|
|
|
Accruals
and other liabilities – related parties
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
Xianfeng
Payment Co., Ltd. (payment processing service charges)
|
|
(i)
|
|
$
|
-
|
|
|
$
|
4,595,416
|
|
|
Dalian
Xianfeng United Investment Consulting Co., Ltd.
|
|
Shares owned by the Founder of the Group
|
|
|
-
|
|
|
|
1,536,480
|
|
|
Haikou
United Rural Commercial Bank Co., Ltd. (bank custodian fee) This entity was no longer treated as a related party since October
26, 2018, as Mr. Nan Xiao resigned from Yinghua Wealth
|
|
Key management positions held by the same
person
|
|
|
-
|
|
|
|
8,510,950
|
|
|
Huangshi
Kaichuang Network Technology Co., Ltd
|
|
Key management positions held by the same
person
|
|
|
323,829
|
|
|
|
-
|
|
|
Others
|
|
|
|
|
41,878
|
|
|
|
-
|
|
|
|
|
|
|
$
|
365,707
|
|
|
$
|
14,642,846
|
|
|
Loan
payable – related parties
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Credit Group Co., Ltd.
|
|
(v)
|
|
$
|
703,628
|
|
|
$
|
-
|
|
|
Beijing
Yuewang Jinfu Information Technology Co., Ltd.
|
|
(vii)
|
|
|
437,114
|
|
|
|
-
|
|
|
|
|
|
|
|
1,140,742
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable – related party
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
Great
Reap Venture Ltd. (see note 16)
|
|
(viii) Parent of the Group
|
|
$
|
4,077,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
|
Great
Reap Venture Ltd.
|
|
(viii) Parent of the Group
|
|
$
|
-
|
|
|
$
|
4,077,000
|
|
|
|
i.
|
Xianfeng
Payment Co., Ltd (“Xianfeng Payment”) was primarily owned by the Group’s founder and major shareholder,
Mr. Zhenxin Zhang. Xianfeng Payment acted as the certified payment platform which facilitated the deposit from investors and
payment to the borrowers via the custody accounts. The amount due from Xianfeng Payment was related to the Group’s deposit
that was not yet withdrawn, and the amount due to Xianfeng Payment was related to the service fee that Group collected from
the borrowers.
|
|
|
ii.
|
The
Group’s President Ms. Huanxiang Li and CEO, Mr. Jia Sheng hold the key management positions at Net Credit
Group Co., Ltd. (“Net Credit Group”). The receivable primarily represents three and two borrowings during the
year ended December 31, 2018 and 2017, respectively with this related party. These notes were due on January 2, 2019, July
6, 2019, May 28, 2019, December 31, 2018 and December 31, 2018, respectively. The borrowing’s interest rate ranges from
0% to 0.02% per day. During the year ended December 31, 2018, $122,427,925 and $123,836,854 of the loan principal were borrowed
by and received from Net Credit Group, respectively. During the year ended December 31, 2018, $3,418,054 of interest were
received. All loans were fully collected in November 2018.
|
There
were both due from and due to Net Credit Group (see vi below) as of December 31, 2018, and 2017 as they are related to the transactions
with different subsidiaries in the Group, and these amounts would not be offset with each other.
|
|
iii.
|
Gain
Thrive Limited (“Gain Thrive”) was primarily owned by the Group’s Founder, Mr. Zhenxin Zhang. As of December
31, 2017, the balance of loan principal and loan interest was $20,326,566 and $2,144,598, respectively. During 2018, the Group
incurred three new loans to Gain thrive, bearing an interest rate of 6% per annum with a maturity date of October 31, 2018,
November 8, 2018 and December 28, 2018, with total amounts of $22,378,125 of principal and $1,648,923 of interest, respectively.
As of December 31, 2018, all of the principal and interest were fully collected from Gain Thrive.
|
|
|
iv.
|
UCF Holdings
Group Limited (“UCF Holdings”) was primarily owned by the Group’s founder, Mr. Zhenxin Zhang. The receivable
represents $14,312,759 of principal and $2,497,883 of interest about two borrowings with this related party, due on June 10,
2018, and December 31, 2017, respectively. Both of the borrowings bore an annual interest rate of 6%. No more new borrowing
incurred during 2018. As of December 31, 2018, $14,312,759 of principal and $ 2,658,319 of interest were fully collected by
March 2018 and October 2018, respectively.
|
|
|
v.
|
The
Group’s President Ms. Huanxiang Li and CEO, Mr. Jia Sheng hold the key management positions at Net Credit Group. The
loan payable represents a total principal of $4,225,445 with interest rate 0.02% per day from this related party, due on Aug
16, 2019. As of December 31, 2018, $1,452,370 of principal was offset with the loan to Net Credit Group. The balance
at the year ended December 31, 2018 was $703,628, which was subsequently collected in February, 2019.
|
|
|
vi.
|
The Group’s
President Ms. Huanxiang Li and CEO, Mr. Jia Sheng hold the key management positions at Net Credit Group. The total amounts
of $433,320 represents an overpayment received from this related party. The balance was subsequently repaid to the related
party in February, 2019.
|
|
|
vii.
|
The Group’s founder, Mr. Zhenxin Zhang owns shares of Beijing Yuewang Jinfu Information
Technology Co., Ltd. The payable represents the balance of a new borrowing from this related party in August 2018. The borrowing
is approximately $437,114, bearing an interest rate of 0% per annum, with a maturity date on August 16, 2019. The amount was
fully repaid in January 2019.
|
|
|
viii.
|
On July 13, 2015, 50
million of the Company’s Ordinary Shares were transferred to the trust as a loan from Great Reap Venture Ltd. (“Great
Reap”), a majority shareholder of our company and is 100% owned by Mr. Zhang. The Group recorded the 50 million shares
at $4,077,000 as a reduction of the Group’s equity.
|
Guarantor - related parties
During the years ended December 31,
2018, 2017, and 2016, there were 31%, 51%, and 68% of the total loans facilitated by the Group that were guaranteed by the related
parties. Among these loans guaranteed by the related parties, there are 31%, 31%, 44% of total loans guaranteed by related parties
under common by the Founder of the Group during the years ended December 31, 2018, 2017 and 2016, respectively. For the years
ended December 31, 2018, 2017 and 2016, there are 0%, 20%, 24% of total loans guaranteed by related parties for which the key
management positions are held by the same person, respectively. These related parties provide guarantees for loans facilitated
through the Group’s marketplace for the assurance that investors’ principal and interest would be repaid in the event
that their loans became default.
Loans facilitated by asset cooperative institutions-related
parties
One, two and two asset cooperative
institutions were related parties and accounted for 17%, 26% and 20% of the total loan facilitated for the years ended December 31,
2018, 2017, and 2016, respectively. Asset cooperative institutions are the companies who introduce qualified borrowers to the
Group.
Loans facilitated by funding cooperative
institutions-related parties
Two, two, and two funding cooperative
institutions were related parties and accounted for 64%, 39%, and 39% of the total loan facilitated for the years ended December 31,
2018, 2017 and 2016, respectively. Funding cooperative institutions are the companies who introduce funding sources to the Group.
Cash deposited with the related party
As of December 31, 2017, the cash deposited
in the related party, Haikou United Rural Commercial Bank Co., Ltd., was $824,917.
Since October 26, 2018, Haikou United
Rural Commercial Bank Co., Ltd., ceased to be a related party because Mr. Nan Xiao resigned from Yinghua Wealth.
Interest income from related parties
|
|
|
Relationship with the Group
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
Custody Bank Service Charges*
|
|
|
|
|
|
|
|
|
|
|
|
Haikou United Rural Commercial Bank Co., Ltd. *Interest income received from the
customers’ deposits at Haikou United Rural Commercial Bank Co., Ltd.
* This entity was no longer treated
as a related party since October 26, 2018, as Mr. Nan Xiao resigned from Yinghua Wealth
|
|
Key management positions held by the same person
|
|
$
|
2,038,425
|
|
|
$
|
2,680,795
|
|
|
$
|
-
|
|
|
Gain Thrive Limited
|
|
(iii)
|
|
|
1,648,923
|
|
|
|
1,227,727
|
|
|
|
934,363
|
|
|
UCF Holdings Group Limited
|
|
(iv)
|
|
|
160,436
|
|
|
|
864,492
|
|
|
|
868,616
|
|
|
Net Credit Group Co., Ltd.
|
|
|
|
|
3,179,035
|
|
|
|
-
|
|
|
|
-
|
|
|
Others
|
|
|
|
|
150,057
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
|
|
$
|
7,176,876
|
|
|
$
|
4,773,013
|
|
|
$
|
1,802,979
|
|
Interest expense from related parties
|
|
|
|
|
For the year ended December 31,
|
|
|
|
|
Relationship with the Group
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
Interest Expense from Related Party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Credit Zhengxin Co., Ltd
|
|
Key management positions held by the same person
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
282,276
|
|
Note 20 - Subsequent Events
On January 24, 2019, Hunter Maritime
Acquisition Corp (“Hunter Maritime”) received a letter from NASDAQ stating that the Company had failed to demonstrate
compliance with the Minimum Public Holders Rule within the required time period and Listing Rule 5620(a), accordingly, the NASDAQ
staff had initiated procedures to delist its Class A common shares, Units and Warrants from NASDAQ. Hunter Maritime has requested
a hearing to appeal the staff’s determination and as of the filing of this report, the appeal case is still pending.
On April 24, 2019, Hunter Maritime
received notification from the Nasdaq Hearings Panel (the “Panel”) that the Panel determined to suspend trading in
the Hunter’s securities effective at the open of business on Friday, April 26, 2019 and to formally delist the securities
on May 9, 2019 unless Hunter Maritime appeal the decision.
On March 21, 2019, the Group consummated
the merger with Hunter Maritime (Note 1). The merger is accounted for as a reverse recapitalization, whereby NCF is the acquirer
for accounting and financial reporting purposes and Hunter Maritime is the legal acquirer. Under a reverse recapitalization, the
common stock of Hunter Maritime remaining after redemptions and the unrestricted net cash and equivalents on the date the merger
is consummated is accounted for as a capital infusion into NCF. Expenses incurred by NCF related to the merger up to the point
of viability is charged to operations in the period incurred. Hunter Maritime’s assets, liabilities and results of operations
will be consolidated with the assets, liabilities and results of operations of NCF Wealth Group upon consummation of the Merger. The
shareholders meeting held on April 23, 2019 has approved the amendment of the certificate of incorporation of Hunter Maritime
to change its name from “Hunter Maritime Acquisition Corp.” to “NCF Wealth Holdings Limited”.
Upon the closing of the merger, all
of the NCF Series B and C-1 Preferred Shares were automatically converted into 9,450,487 common stock of Hunter Maritime. All
of NCF’s issued ordinary shares, including 110,000,000 shares held in NCF’s Employee benefit trust (Note 16) were
converted into 190,549,513 common stock of Hunter Maritime.
On February 1, 2019, the Group entered into
a loan agreement with Xiamen International Bank amounted to $13,536,894 (RMB 93,000,000) at a fixed interest rate of 1.68% per
annum with an expiration date of December 20, 2019, which was secured by a deposit amounted to $13,959,012 (RMB 95,900,000).
Beijing Oriental received a Notice on further
strict Implementation of “three reductions” goal from Head Office of Chaoyang District, Beijing City for Special Rectification
of Finance and Societal Risk on the date of April 24, 2019. If Beijing Oriental cannot meet the requirement of “three reductions”,
its rectification shall not be accepted and shall not pass administrative inspection. Beijing Oriental had sent its plan to the
designated mail according to the requirements. The requirement of “three reductions” may lead to the decrease of Beijing
Oriental’s net revenue and net income.
The Group evaluates events that have occurred
after the balance sheet date of December 31, 2018, through the date which the combined and consolidated financial statements
were issued. Based upon the review, the Group did not identify any recognized or non-recognized subsequent events that would have
required adjustment or disclosure in the combined and consolidated financial statements.
SCHEDULE I-CONDENSED
FINANCIAL INFORMATION OF THE PARENT COMPANY
The Group performed a test on the restricted
net assets of consolidated subsidiaries in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08 (e) (3),
“General Notes to Financial Statements” and concluded that it was applicable for the Group to disclose the financial
statements for the parent company.
The subsidiaries did not pay any dividend to
the Company for the years presented. For the purpose of presenting parent only financial information, the Company records its
investments in its subsidiaries under the equity method of accounting. Such investments are presented on the separate condensed
balance sheets of the Company as “Investments (deficit) in subsidiaries and VIEs” and the profit (loss) of the subsidiaries
is presented as “income/(loss) from equity method investment”. Certain information and footnote disclosures generally
included in financial statements prepared in accordance with U.S. GAAP have been condensed and omitted.
The Group did not have significant capital
and other commitments, long-term obligations, or guarantees as of December 31, 2018 and 2017, respectively.
Parent Company Condensed Balance Sheets
|
|
|
As of December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Assets
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,956,817
|
|
|
$
|
1,756,596
|
|
|
Advances to suppliers
|
|
|
26,533
|
|
|
|
23,932
|
|
|
Advances to suppliers and other receivable – subsidiaries
|
|
|
100,628,018
|
|
|
|
62,959,863
|
|
|
Loan receivable – related parties
|
|
|
-
|
|
|
|
39,281,806
|
|
|
Total current assets
|
|
|
104,611,368
|
|
|
|
104,022,197
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
Investment (deficits) in subsidiary and VIEs
|
|
|
27,092,036
|
|
|
|
(33,987,720
|
)
|
|
Total assets
|
|
$
|
131,703,404
|
|
|
$
|
70,034,477
|
|
|
Liabilities and shareholders’ equity
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accruals and other liabilities
|
|
$
|
982,501
|
|
|
$
|
285,261
|
|
|
Amounts due to related parties
|
|
|
55,962
|
|
|
|
55,898
|
|
|
Total liabilities
|
|
|
1,038,463
|
|
|
|
341,159
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
Series B Preferred shares ($0.00001 par value; 1,000,000,000 shares authorized; 29,426,129 shares issued and outstanding
as of December 31, 2018 and 2017)
|
|
|
294
|
|
|
|
294
|
|
|
Series C-1 Preferred shares ($0.00001 par value; 1,000,000,000 shares authorized; 24,711,296 shares issued and
outstanding as of December 31, 2018, and 2017, respectively)
|
|
|
247
|
|
|
|
247
|
|
|
Ordinary Shares ($0.00001 par value, authorized 3,000,000,000 shares; shares issued, 1,091,569,209 shares issued as
of December 31, 2018 and 2017; 981,569,209 shares outstanding as of December 31, 2018 and 2017)
|
|
|
10,916
|
|
|
|
10,916
|
|
|
Additional paid-in capital
|
|
|
123,226,418
|
|
|
|
122,659,469
|
|
|
Retained earnings (accumulated deficit)
|
|
|
7,378,786
|
|
|
|
(52,906,185
|
)
|
|
Accumulated other comprehensive income (loss)
|
|
|
48,280
|
|
|
|
(71,423
|
)
|
|
Total shareholders’ equity
|
|
|
130,664,941
|
|
|
|
69,693,318
|
|
|
Total liabilities and shareholders’ equity
|
|
$
|
131,703,404
|
|
|
$
|
70,034,477
|
|
Parent Company Condensed Statements of
Comprehensive Income (Loss
)
|
|
|
For
the years ended December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
Expenses
|
|
$
|
2,618,899
|
|
|
$
|
4,254,823
|
|
|
$
|
3,430,562
|
|
|
Total operating expenses
|
|
|
2,618,899
|
|
|
|
4,254,823
|
|
|
|
3,430,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net – related parties
|
|
|
1,811,694
|
|
|
|
2,092,219
|
|
|
|
1,802,979
|
|
|
Interest income (expense), net
|
|
|
12,421
|
|
|
|
6,108
|
|
|
|
(773,875
|
)
|
|
Income/(loss) in equity method investment
|
|
|
61,079,755
|
|
|
|
38,144,127
|
|
|
|
(10,755,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before income tax
|
|
|
60,284,971
|
|
|
|
35,987,631
|
|
|
|
(13,157,161
|
)
|
|
Income tax expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Net income (loss) attributable to
ordinary shareholders
|
|
|
60,284,971
|
|
|
$
|
35,987,631
|
|
|
$
|
(13,157,161
|
)
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustment
|
|
|
119,703
|
|
|
|
(960,658
|
)
|
|
|
(722,122
|
)
|
|
Total comprehensive income (loss)
|
|
$
|
60,404,674
|
|
|
$
|
35,026,974
|
|
|
$
|
(13,879,283
|
)
|
Parent Company Condensed Statements of
Cash Flows
|
|
|
For the Years Ended December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
60,284,971
|
|
|
$
|
35,987,631
|
|
|
$
|
(13,157,161
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
566,949
|
|
|
|
3,431,852
|
|
|
|
2,622,264
|
|
|
(Income)/loss from equity method investment
|
|
|
(61,079,755
|
)
|
|
|
(38,144,127
|
)
|
|
|
10,755,703
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances to suppliers
|
|
|
(2,577
|
)
|
|
|
(24,092
|
)
|
|
|
1,896
|
|
|
Advances to suppliers and other receivable - other entities within the
Group
|
|
|
4,907,455
|
|
|
|
44,645
|
|
|
|
(26,973,837
|
)
|
|
Loan receivable – related parties
|
|
|
491,600
|
|
|
|
(2,092,218
|
)
|
|
|
(1,802,879
|
)
|
|
Accruals and other liabilities
|
|
|
698,053
|
|
|
|
273,042
|
|
|
|
73,578
|
|
|
Amounts due to related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,175
|
)
|
|
Net cash used in operating activities
|
|
|
5,866,696
|
|
|
|
(523,267
|
)
|
|
|
(28,487,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to related parties
|
|
|
(22,518,788
|
)
|
|
|
-
|
|
|
|
(20,532,237
|
)
|
|
Proceeds from related party loan
|
|
|
18,853,890
|
|
|
|
-
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(3,664,898
|
)
|
|
|
-
|
|
|
|
(20,532,237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issue of preference shares, net of issuance cost
|
|
|
-
|
|
|
|
-
|
|
|
|
37,295,187
|
|
|
Proceeds from issue of ordinary shares
|
|
|
-
|
|
|
|
-
|
|
|
|
13,199,918
|
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
50,495,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
2,201,798
|
|
|
|
(523,267
|
)
|
|
|
1,475,257
|
|
|
Cash and cash equivalents at the beginning of the year
|
|
|
1,756,596
|
|
|
|
2,105,796
|
|
|
|
-
|
|
|
Exchange (gains)/losses on cash and cash equivalents
|
|
|
(1,577
|
)
|
|
|
174,067
|
|
|
|
630,539
|
|
|
Cash and cash equivalents at end of the year
|
|
$
|
3,956,817
|
|
|
$
|
1,756,596
|
|
|
$
|
2,105,796
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Noncash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock issued for a decrease in other liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,654,609
|
|
HUNTER MARITIME ACQUISITION CORP.
AND SUBSIDIARIES
Consolidated Financial
Statements
For the Years Ended December 31, 2018
and 2017
and the Period from June 24, 2016 to
December 31, 2016
HUNTER MARITIME ACQUISITION CORP.
AND SUBSIDIARIES
Consolidated Financial Statements
For the Years Ended December 31, 2018
and 2017
and the Period from June 24, 2016 to
December 31, 2016
Table of Contents
HUNTER
MARITIME ACQUISITION CORP. AND SUBSIDIARIES
Consolidated
Financial Statements
For
the Years Ended December 31, 2018 and 2017
and
the Period from June 24, 2016 to December 31, 2016
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders
of Hunter Maritime Acquisition Corp.
Opinion
on the Consolidated Financial Statements
We
have audited the accompanying consolidated balance sheets of Hunter Maritime Acquisition Corp. and Subsidiaries (a Republic of
Marshall Islands corporation) (the Company) as of December 31, 2018 and 2017, and the related consolidated statements of operations,
comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended
December 31, 2018 and for the period from June 24, 2016 to December 31, 2016, and the related notes to the consolidated financial
statements (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, 2018 and 2017, and the results
of their operations and their cash flows for each of the years in the two-year period ended December 31, 2018 and for the period
from June 24, 2016 to December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
Substantial
Doubt about the Company’s Ability to Continue as a Going Concern
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1 to the consolidated financial statements, the Company will only have until April 23, 2019, to consummate
an Initial Business Combination. If the Company does not complete the Initial Business Combination by the April 23, 2019, it will
cease operations and liquidate the Company’s assets. Management’s evaluation of the events and conditions and plans regarding
those matters also are described in Notes 2 and 12. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.
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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting,
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We
have served as the Company’s auditor since 2018.
New
York, New York
March
27, 2019
HUNTER MARITIME ACQUISITION CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in USD except for share data)
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
140,517
|
|
|
$
|
447,616
|
|
|
Cash and Investments held in the Trust Account
|
|
|
22,074,404
|
|
|
|
152,102,400
|
|
|
Prepaid expenses and other current assets
|
|
|
3,320
|
|
|
|
181,502
|
|
|
Total current assets
|
|
|
22,218,241
|
|
|
|
152,731,518
|
|
|
Total assets
|
|
$
|
22,218,241
|
|
|
$
|
152,731,518
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
37,749
|
|
|
$
|
279,382
|
|
|
Accrued expenses
|
|
|
139,793
|
|
|
|
4,516
|
|
|
Deferred underwriting fee
|
|
|
5,310,585
|
|
|
|
-
|
|
|
Unsecured promissory notes
|
|
|
800,000
|
|
|
|
-
|
|
|
Total current liabilities
|
|
|
6,288,127
|
|
|
|
283,898
|
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
Deferred underwriting fee
|
|
|
-
|
|
|
|
5,310,585
|
|
|
Total non-current liabilities
|
|
|
-
|
|
|
|
5,310,585
|
|
|
Total liabilities
|
|
|
6,288,127
|
|
|
|
5,594,483
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock subject to possible redemption
|
|
|
10,930,113
|
|
|
|
142,137,034
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 500,000,000 shares authorized; 4,890,697
and 4,752,672 shares issued and outstanding as of December 31, 2018, and 2017, respectively (excluding 1,076,328 and 14,213,703
shares subject to possible redemption)
|
|
|
489
|
|
|
|
475
|
|
|
Additional paid-in capital
|
|
|
7,331,343
|
|
|
|
5,781,005
|
|
|
Retained earnings
|
|
|
(2,331,831
|
)
|
|
|
(781,479
|
)
|
|
Total stockholders’ equity
|
|
|
5,000,001
|
|
|
|
5,000,001
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’
equity
|
|
$
|
22,218,241
|
|
|
$
|
152,731,518
|
|
The accompanying notes are an integral
part of the consolidated financial statements
HUNTER MARITIME ACQUISITION CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in USD except for share data)
|
|
|
Year ended
December 31,
2018
|
|
|
Year ended
December 31,
2017
|
|
|
Period from
June 24, 2016
to December 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
(949,114
|
)
|
|
|
(1,324,088
|
)
|
|
|
(397,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(949,114
|
)
|
|
|
(1,324,088
|
)
|
|
|
(397,367
|
)
|
|
Other income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income
|
|
|
1,482,889
|
|
|
|
1,084,213
|
|
|
|
31,808
|
|
|
Interest and other expenses
|
|
|
(2,084,127
|
)
|
|
|
(103,531
|
)
|
|
|
(33,315
|
)
|
|
Loss before provision of income tax
|
|
|
(1,550,352
|
)
|
|
|
(343,406
|
)
|
|
|
(398,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
-
|
|
|
|
(39,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,550,352
|
)
|
|
$
|
(382,605
|
)
|
|
$
|
(398,874
|
)
|
|
Net loss attributable to Hunter Maritime Acquisition Corp. and subsidiaries
|
|
|
(1,550,352
|
)
|
|
|
(382,605
|
)
|
|
|
(398,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of basic and diluted common shares outstanding
(excluding shares subject to possible redemption)
|
|
|
3,793,275
|
|
|
|
3,793,275
|
|
|
|
3,793,275
|
|
|
Basic and diluted net loss per share (excluding shares subject to
possible redemption)
|
|
$
|
(0.41
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.11
|
)
|
The accompanying notes are an integral
part of the consolidated financial statements
HUNTER MARITIME ACQUISITION CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY
(in USD except for share data)
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Additional
|
|
|
Retained
|
|
|
Total
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
paid-in capital
|
|
|
earnings
|
|
|
stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at June 24, 2016 (inception)
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of class B shares to Sponsor
|
|
|
-
|
|
|
|
-
|
|
|
|
4,312,500
|
|
|
|
431
|
|
|
|
24,569
|
|
|
|
-
|
|
|
|
25,000
|
|
|
Sale of units in initial public offering
|
|
|
15,000,000
|
|
|
|
1,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
149,998,500
|
|
|
|
-
|
|
|
|
150,000,000
|
|
|
Sale of over-allotment units
|
|
|
173,100
|
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,730,983
|
|
|
|
-
|
|
|
|
1,731,000
|
|
|
Offering costs charged to stockholders’ equity
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,872,106
|
)
|
|
|
-
|
|
|
|
(8,872,106
|
)
|
|
Sale of private placement warrants to Sponsor
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,034,620
|
|
|
|
-
|
|
|
|
5,034,620
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(398,874
|
)
|
|
|
(398,874
|
)
|
|
Common stock subject to possible redemption
|
|
|
(14,251,964
|
)
|
|
|
(1,425
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(142,518,214
|
)
|
|
|
-
|
|
|
|
(142,519,639
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
921,136
|
|
|
|
92
|
|
|
|
4,312,500
|
|
|
|
431
|
|
|
|
5,398,352
|
|
|
|
(398,874
|
)
|
|
|
5,000,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of shares (class B)
|
|
|
-
|
|
|
|
-
|
|
|
|
(519,225
|
)
|
|
|
(52
|
)
|
|
|
|
|
|
|
-
|
|
|
|
(52
|
)
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(382,605
|
)
|
|
|
(382,605
|
)
|
|
Contribution from common stock subject to possible redemption (class
A)
|
|
|
38,261
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
382,653
|
|
|
|
|
|
|
|
382,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
959,397
|
|
|
|
96
|
|
|
|
3,793,275
|
|
|
|
379
|
|
|
|
5,781,005
|
|
|
|
(781,479
|
)
|
|
|
5,000,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,550,352
|
)
|
|
|
(1,550,352
|
)
|
|
Contribution from common stock subject to possible redemption (class
A)
|
|
|
138,025
|
|
|
|
14
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,550,338
|
|
|
|
-
|
|
|
|
1,550,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
1,097,422
|
|
|
$
|
110
|
|
|
|
3,793,275
|
|
|
$
|
379
|
|
|
$
|
7,331,343
|
|
|
$
|
(2,331,831
|
)
|
|
$
|
5,000,001
|
|
The accompanying notes are an integral
part of the consolidated financial statements
HUNTER MARITIME ACQUISITION CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in USD)
|
|
|
Year ended
December 31,
2018
|
|
|
Year ended
December 31,
2017
|
|
|
Period from
June 24, 2016
to December 31,
2016
|
|
|
Cash flows from Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,550,352
|
)
|
|
$
|
(382,605
|
)
|
|
$
|
(398,874
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earned on investments held in Trust Account
|
|
|
(1,482,889
|
)
|
|
|
(1,084,213
|
)
|
|
|
(31,808
|
)
|
|
Changes in current assets and current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
178,181
|
|
|
|
(181,502
|
)
|
|
|
-
|
|
|
Accounts payable
|
|
|
(241,633
|
)
|
|
|
191,328
|
|
|
|
284,496
|
|
|
Accrued expenses
|
|
|
135,277
|
|
|
|
(667,952
|
)
|
|
|
-
|
|
|
Net cash used in operating activities
|
|
|
(2,961,416
|
)
|
|
|
(2,124,944
|
)
|
|
|
(146,186
|
)
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of Investments held in Trust Account
|
|
|
(1,365,575,723
|
)
|
|
|
(1,517,612,646
|
)
|
|
|
(151,735,618
|
)
|
|
Proceeds from sale of Investments held in Trust Account
|
|
|
1,497,086,626
|
|
|
|
1,518,361,885
|
|
|
|
-
|
|
|
Cash deposited to Trust Account
|
|
|
1,961,833
|
|
|
|
-
|
|
|
|
-
|
|
|
Net cash provided by (used
in) investing activities
|
|
|
133,472,736
|
|
|
|
749,239
|
|
|
|
(151,735,618
|
)
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issue of Class B common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
Proceeds from initial public offering (held in trust account)
|
|
|
-
|
|
|
|
-
|
|
|
|
151,731,000
|
|
|
Proceeds from issuance of warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
5,034,620
|
|
|
Transaction costs recognized as a deduction from retained earnings
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,085,495
|
)
|
|
Redemption of Class A common stock
|
|
|
(131,618,419
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Proceeds from promissory notes
|
|
|
800,000
|
|
|
|
-
|
|
|
|
150,000
|
|
|
Repayment of loans from related parties
|
|
|
-
|
|
|
|
-
|
|
|
|
(150,000
|
)
|
|
Net cash provided by financing
activities
|
|
|
(130,818,419
|
)
|
|
|
-
|
|
|
|
153,705,125
|
|
|
Net change in cash
|
|
|
(307,099
|
)
|
|
|
(1,375,705
|
)
|
|
|
1,823,321
|
|
|
Cash at the beginning of the year
|
|
|
447,616
|
|
|
|
1,823,321
|
|
|
|
-
|
|
|
Cash at end of year
|
|
$
|
140,517
|
|
|
$
|
447,616
|
|
|
$
|
1,823,321
|
|
The accompanying notes are an integral
part of the consolidated financial statements
HUNTER MARITIME ACQUISITION CORP.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the Years Ended December 31,
2018 and 2017
and the Period from June 24, 2016
to December 31, 2016
|
|
(1)
|
Organization
and Business Operations
|
|
|
a)
|
Description
of Business
|
Hunter Maritime Acquisition
Corp. (the “Company” or “HMAC”) was incorporated in the Republic of the Marshall Islands on June 24, 2016. The Company’s registered
address is Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH96960.
The Company was formed for
the purpose of acquiring, through a merger, capital stock exchange, asset acquisition, debt acquisition, stock purchase, reorganization
or other similar business combination, vessels, vessel contracts (including contracts for the purchase and charter-in by the Company
of vessels) or one or more operating businesses in the international maritime shipping industry, or one or more different sectors
that may be unrelated to the shipping industry, that it has not yet identified (“Initial Business Combination”). As of December
31, 2018, the Company had not commenced any operations. The Company will not generate any operating revenues until after completion
of its Initial Business Combination, at the earliest. Following the completion of a tender offer the Company has until April 23,
2019 (further discussed below) to complete its Initial Business Combination.
The Company has selected
December 31 as its fiscal year end.
|
|
b)
|
Financing
and Initial Business Combination
|
On July 11, 2016, Bocimar
Hunter NV, the Company’s sponsor (the “Sponsor”) purchased 4,312,500 Class B Common Shares of the Company (the “Founder Shares”)
for $25,000, or $0.006 per share.
On November 23, 2016, HMAC
consummated its initial public offering of 15,000,000 Units. Each Unit (“Unit”) issued in the Initial Public Offering (‘IPO’)
consists of one Class A common share and one-half of one Warrant (“Warrant”). Each whole Warrant entitles the holder to purchase
one Class A common share at a price of $11.50. Simultaneously with the consummation of the IPO, HMAC completed a private placement
of 3,333,333 Warrants (“private placement Warrants”) at a purchase price of $1.50 per Warrant to its Sponsor, generating gross
proceeds of $5,000,000. On November 18, 2016, the Units commenced trading on the NASDAQ under the symbol “HUNTU.”
On December 16, 2016, the
underwriters of the IPO exercised their overallotment option in part, for a total of an additional 173,100 Units. As a result
of the partial exercise of the overallotment option, as of January 3, 2017, the Sponsor forfeited 519,225 Class B common shares
in order to maintain its ownership, on an as-converted basis, at 20% of HMAC’s issued and outstanding common shares. In addition,
HMAC completed the private sale of an additional 23,080 private placement Warrants to the Sponsor at a purchase price of $1.50
per Warrant, generating gross proceeds of $34,620, in accordance with the terms of the private placement agreement entered into
concurrently with the IPO.
HUNTER
MARITIME ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the Years Ended December 31,
2018 and 2017
and the Period from June 24, 2016
to December 31, 2016
The 15,173,100 Units sold
in the IPO, including the 173,100 Units sold pursuant to the overallotment option, were sold at an offering price of $10.00 per
Unit, generating gross proceeds of $151,731,000, which been placed in the Trust Account pending HMAC’s completion of an initial
business combination.
On January 9, 2017, the
Class A common shares and Warrants underlying the Units sold in the IPO began to trade separately.
On September 27, 2018, pursuant
to the terms of a Securities Purchase Agreement, Bocimar Hunter transferred ownership of its (i) 3,793,275 Class B common shares
and (ii) 3,356,413 private placement Warrants of the Company to CMB NV (“CMB”) which we now consider the Sponsor. See also Note
9 Related Party Transactions.
On November 6, 2018, we
completed a tender offer, funded with the proceeds then held in the Trust Account, in connection with an amendment to our Amended
and Restated Articles of Incorporation to extend the deadline (the “Extension Amendment”) by which a business combination must
be consummated to April 23, 2019 (the “Extended Date” or “Business Combination Deadline”), pursuant to which we purchased 12,999,350
Class A common shares at $10.125 per share, for an aggregate purchase price of approximately $131.6 million (the “Extension Tender
Offer”). In connection with the Extension Tender Offer, we deposited into the Trust Account an additional $1,896,638 to make the
total amount on deposit in the Trust Account equal to $10.125 per Class A common share (the “First Tender Contribution”). As a
result, approximately $22.1 million remained in the Trust Account.
In connection with the Extension
Amendment, the Sponsor, or persons on its behalf, has agreed to contribute to us $0.03 for each Public Share that was not purchased
in the Extension Tender Offer for each calendar month commencing on November 23, 2018 (the day by which were initially required
to complete our initial business combination) until April 23, 2019, or such earlier date that we complete our initial business
combination (the “Monthly Extension Contribution”). The aggregate amount of the Monthly Extension Contribution will be repayable
by us to the Sponsor if we complete an initial business combination. On each of December 27, 2018 and January 30, 2019, $65,213
was contributed to the Trust Account for the Monthly Extension Contribution. As a result, following the Extension Tender Offer,
First Tender Contribution, and Monthly Extension Contributions, approximately $22.1 million remains in the Trust Account.
At November 6, 2018, the
per public share redemption or conversion price increased to $10.125 per share as a result of the $1,896,638 deposit into the
Trust Account relating to the other expenses to extend the time to complete the initial business combination. At November 23,
2018, the per public share redemption or conversion price increased to $10.155 per share as a result of the $65,213 deposit into
the Trust Account relating to the other expenses to extend the time to complete the initial business combination.
HUNTER MARITIME ACQUISITION CORP.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the Years Ended December 31,
2018 and 2017
and the Period from June 24, 2016
to December 31, 2016
On November 6, 2018, December
19, 2018 and January 30, 2019, HMAC has drawn an amount of $500,000, $300,000 and $200,000 respectively under a promissory note
with its sponsor CMB. These loans are unsecured and bear interest at a rate per annum of LIBOR plus 0.60%.
The Company has neither
engaged in any operations nor generated significant revenue to date. HMAC’s only activities between inception and the closing
of its Public Offering were organizational activities and those necessary to prepare for and close the Public Offering. Since
the consummation of the Public Offering, HMAC’s activity has been limited to evaluating candidates for its initial business combination.
If we do not consummate
our initial business combination by the Business Combination Deadline, we must liquidate the Trust Account to the holders of the
public shares and dissolve.
The Trust Account is a segregated
account at KBC Bank located in Belgium into which the net proceeds from the Public Offering and the sale of the Private Placement
Warrants were deposited in accordance with an Investment Management Trust Agreement by and among the Company, KBC Bank and Continental
Stock Transfer & Trust Company (“Continental”) and pursuant to which Continental is acting as trustee. The Trust Account can
only be invested in permitted United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company
Act of 1940, as amended (the “Investment Company Act”), having a maturity of 180 days or less or in money market funds meeting
certain conditions under Rule 2a-7 promulgated under the Investment Company Act. At December 31, 2017, the Trust Account consisted
of investments in US Treasury bills with maturity date January 10, 2018. At December 31, 2018, the Trust Account consists of cash
available on the bank account only.
The Company’s amended and
restated articles of incorporation provide that, other than the withdrawal of investment earnings earned on the Trust Account
to pay taxes or to fund working capital requirements, none of the funds held in the trust account will be released until the earlier
of (i) the completion of the Company’s Initial Business Combination, or (ii) the redemption of the Public Shares properly submitted
in connection with a shareholder vote to approve an amendment to the Company’s amended and restated articles of incorporation
that would affect the substance or timing of its obligation to redeem 100% of the Public Shares if the Company has not consummated
an Initial Business Combination by the Business Combination Deadline.
|
|
d)
|
Significant
Risks and Uncertainties Including Business and Credit Concentration
|
The Company’s management
has broad discretion with respect to the specific application of the net proceeds of the Public Offering and the sale of the Private
Placement Warrants, although substantially all of the net proceeds are intended to be generally applied toward completing the
Initial Business Combination. There is no assurance that the Company will be able to successfully complete the Initial Business
Combination.
HUNTER MARITIME ACQUISITION CORP.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the Years Ended December 31,
2018 and 2017
and the Period from June 24, 2016
to December 31, 2016
The Company will provide
its public shareholders with the opportunity to redeem all or a portion of their Public Shares, (i) if the Company is a foreign
private issuer (“FPI”), upon the completion of the Initial Business Combination, by means of a tender offer in accordance with
the U.S. tender offer rules or, (ii) if the Company is not an FPI, either, (A) in connection with a shareholder meeting called
to approve the Initial Business Combination, in conjunction with a proxy solicitation for such meeting pursuant to the U.S. proxy
rules or, (B) by means of a tender offer, in each case, for cash equal to their pro rata share of the aggregate amount then on
deposit in the Trust Account as of two business days prior to the consummation of the Initial Business Combination, less taxes
payable and any amounts released to the Company to fund working capital requirements. However, in no event will the Company redeem
its Public Shares in an amount that would cause its net tangible assets to be less than $5,000,001. In such case, the Company
would not proceed with the redemption of its Public Shares and the related Initial Business Combination, and instead may search
for an alternate business combination.
The Company will only have
until April 23, 2019, to consummate an Initial Business Combination. If the Company does not complete the Initial Business Combination
by the Business Combination Deadline, it shall, (i) cease all operations except for the purposes of winding up, (ii) as promptly
as reasonably possible, but not more than ten business days thereafter, redeem the Public Shares for a per-share pro rata portion
of the Trust Account, less taxes payable (less up to $100,000 of such net interest to pay dissolution expenses) and, (iii) as
promptly as possible following such redemption, subject to the approval of the Company’s remaining shareholders and Board of Directors,
dissolve and liquidate the balance of the Company’s net assets to its remaining shareholders, as part of its plan of dissolution
and liquidation, subject to applicable law.
The Sponsor entered into
a letter agreement with the Company, pursuant to which it has waived its rights to participate in any redemption with respect
to the Founder Shares (as defined below); however, if the Sponsor or any of the Company’s officers, directors or affiliates acquire
Class A Common Shares in or after the Public Offering, they will be entitled to a pro rata share of the Trust Account upon the
Company’s redemption or liquidation in the event the Company does not complete the Initial Business Combination within the required
time period.
|
|
(2)
|
Significant
Accounting Policies
|
The accompanying Consolidated
Financial Statements in this Annual Report have been presented in U.S. dollars and prepared in accordance with generally accepted
accounting principles in the United States of America (“GAAP”) and with the rules and regulations of the United States Securities
and Exchange Commission (“SEC”). These consolidated financial statements include the consolidated balance sheet, consolidated
statements of operations, comprehensive income, changes in stockholders’ equity and cash flows of the Company, including its subsidiaries,
all of which are wholly-owned. All inter-company accounts and transactions have been eliminated in consolidation.
HUNTER
MARITIME ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the Years Ended December 31,
2018 and 2017
and the Period from June 24, 2016
to December 31, 2016
The Company has the intention
to complete an Initial Business Combination before the Business Combination Deadline of April 23, 2019, the Consolidated Financial
Statements of the Company as of December 31, 2018, have been prepared on a going concern basis. The funds available to us by means
of the amounts drawn under promissory notes with our sponsor CMB will allow us to operate at least until April 23, 2019. See also
Notes 9 and 11. These financial statements do not include any adjustments that might result from these uncertainties.
The preparation of financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Significant
items subject to such estimates and assumptions include contingencies.
|
|
d)
|
Principles
of Consolidation
|
The accompanying consolidated
financial statements include the accounts of Hunter Maritime Acquisition Corp. and its wholly owned subsidiaries Hunter Maritime
(BVI) Limited, incorporated under BVI law on October 1, 2018, with its registered address on Wickhams Cay 1, Road Town, Tortola,
Hamburg Maritime N.V., incorporated under Belgian law on May 15, 2017, with its registered address on De Gerlachekaai 20, 2000
Antwerpen, and Maritime Partner BVBA, incorporated under Belgian law on May 9, 2017, with registered address on De Gerlachekaai
20, 2000 Antwerpen (collectively, the Company). All inter-company accounts and transactions have been eliminated in consolidation.
Hamburg Maritime NV and
Maritime Partner BVBA were sold to the Sponsor on October 5, 2018 and have been included in the financial statements through that
date. Both entities were sold at their respective equity values and hence no profit or loss was recognized.
|
|
e)
|
Cash
and Cash Equivalents
|
The Company considers all
short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did
not have any cash equivalents as of December 31, 2018 and 2017.
HUNTER
MARITIME ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the Years Ended December 31,
2018 and 2017
and the Period from June 24, 2016
to December 31, 2016
|
|
f)
|
Cash
and Investments held in the Trust Account
|
Investments consist of cash
in United States Money Market and United States Treasury securities. The Company classifies its United States Treasury securities
as held-to-maturity in accordance with FASB ASC Topic 320 “Investments - Debt and Equity Securities.” Held-to-maturity securities
are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities
are recorded at amortized cost and adjusted for the amortization or accretion of premiums or discounts.
A decline in the market
value of held-to-maturity securities below cost that is deemed to be other than temporary, results in an impairment that reduces
the carrying costs to such securities’ fair value. The impairment is charged to earnings and a new cost basis for the security
is established. To determine whether an impairment is other than temporary, the Company considers whether it has the ability and
intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment
is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the impairment,
the severity and the duration of the impairment, changes in value subsequent to year-end, forecasted performance of the investee,
and the general market condition in the geographic area or industry the investee operates in.
Premiums and discounts are
amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective-interest
method. Such amortization and accretion is included in the “interest income” line item in the statements of operations. Interest
income is recognized when earned.
Cash and Investments held
in the Trust account of $22,074,404 (2017: 152,102,400) includes an amount of $0 (2017: $151,856,355) of investments in United
States Treasury Bills (see also Note 3).
The Company complies with
the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not
of being sustained. (See also Note 5)
HUNTER
MARITIME ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the Years Ended December 31,
2018 and 2017
and the Period from June 24, 2016
to December 31, 2016
|
|
h)
|
General
and Administrative Expenses
|
General and administrative
expenses include all corporate and administrative functions such as legal, human resource management, finance, investor and public
relations, information technology, management, accounting and auditing. These functions serve to support the Company’s current
and future operations and provide an infrastructure to support future growth.
|
|
i)
|
Commitments
and Contingencies
|
Liabilities for loss contingencies
arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability
has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed
as incurred.
|
|
h)
|
Fair
Value Measurement
|
FASB ASC Topic 820 “Fair
Value Measurements and Disclosures” defines fair value, the methods used to measure fair value and the expanded disclosures about
fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between the buyer and the seller at the measurement date. In determining fair value, the valuation techniques
consistent with the market approach, income approach and cost approach shall be used to measure fair value. FASB ASC Topic 820
establishes a fair value hierarchy for inputs, which represent the assumptions used by the buyer and seller in pricing the asset
or liability. These inputs are further defined as observable and unobservable inputs. Observable inputs are those that buyer and
seller would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable
inputs reflect the Company’s assumptions about the inputs that the buyer and seller would use in pricing the asset or liability
developed based on the best information available in the circumstances.
The fair value hierarchy
is categorized into three levels based on the inputs as follows:
Level 1 — Valuations based
on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily
and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.
Level 2 — Valuations based
on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for
identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived
principally from or corroborated by market through correlation or other means.
Level 3 — Valuations based
on inputs that are unobservable and significant to the overall fair value measurement.
HUNTER
MARITIME ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the Years Ended December 31,
2018 and 2017
and the Period from June 24, 2016
to December 31, 2016
The fair value of the Company’s
certain assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurements and Disclosures,”
approximates the carrying amounts represented in the balance sheet. The fair values of cash and cash equivalents, prepaid assets,
accounts payable and accrued expenses, due to related parties are estimated to approximate the carrying values due to the short
maturities of such instruments.
|
|
k)
|
Concentration
of Credit Risk
|
Financial instruments that
potentially subject the Company to concentration of credit risk currently consist of cash accounts in a financial institution
only. The Company has not experienced losses on these accounts. The proceeds held in the Trust Account do not carry a significant
credit risk as these proceeds can be invested only in permitted United States “government securities” within the meaning of Section
2(a)(16) of the Investment Company Act of 1940, as amended, having a maturity of 180 days or less or in money market funds meeting
certain conditions under Rule 2a-7 promulgated under the Investment Company Act. Management is of the opinion that the Company
is not exposed to significant risks on such accounts.
|
|
l)
|
Common
stock subject to possible redemption
|
The Company accounts for
its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic
480 “Distinguishing Liabilities from Equity”. Common stock subject to mandatory redemption (if any) are classified as liability
instruments and are measured at fair value. Conditionally redeemable common stock (including common stock that feature redemption
rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely
within the Company’s control) are classified as temporary equity. At all other times, common stock are classified as stockholders’
equity. The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s control
and subject to occurrence of uncertain future events. Accordingly, at December 31, 2018, and December 31, 2017, 1,076,328 and
14,213,703 respectively shares of common stock subject to possible redemption at the redemption amount are presented as temporary
equity, outside of the stockholders’ equity section of the Company’s balance sheet.
Since the Company is not
required to net cash settle the Warrants and the Warrants are exercisable upon the consummation of an initial Business Combination,
the management determined that the Warrants will be classified within shareholders’ equity as “Additional paid-in capital” upon
their issuance in accordance with ASC 815-40. The proceeds from the sale will be allocated to Public Shares and Warrants based
on the relative fair value of the securities in accordance with 470-20-30. The value of the Public Shares and Warrants will be
based on the closing price paid by investors.
HUNTER
MARITIME ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the Years Ended December 31,
2018 and 2017
and the Period from June 24, 2016
to December 31, 2016
|
|
n)
|
Net
Income per Ordinary Share
|
The Company complies with
accounting and disclosure requirements ASC Topic 260, “Earnings Per Share.” Net income per ordinary share is computed by dividing
net income by the weighted average number of ordinary shares issued and outstanding for the year. For the years ended December
31, 2018 and 2017 and the period ended December 31, 2016, the Company did not have any dilutive securities and other contracts
that could, potentially, be exercised or converted into ordinary shares and then share in the income of the Company. As a result,
diluted income per ordinary share is the same as basic income per ordinary shares for the periods.
|
|
o)
|
Emerging
Growth Company
|
Section 102(b)(1) of the
Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with
new or revised financial accounting standards until private companies (that is, those that have not had a registration statement
under the Securities Act of 1933, as amended (the “Securities Act”), declared effective or do not have a class of securities registered
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are required to comply with the new or revised financial
accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with
the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has
elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different
application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard
at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements
with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of
using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
|
|
p)
|
Recently
Issued Accounting Standards
|
Management does not believe
that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s
financial statements.
HUNTER
MARITIME ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the Years Ended December 31,
2018 and 2017
and the Period from June 24, 2016
to December 31, 2016
|
|
(3)
|
Cash
and Investments held in the Trust Account
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
22,074,404
|
|
|
$
|
246,045
|
|
|
Held-to-maturity investments
|
|
|
-
|
|
|
|
151,856,355
|
|
|
Cash and investments held in the Trust Account
|
|
$
|
22,074,404
|
|
|
$
|
152,102,400
|
|
As per December 31, 2018,
Cash and Investments held in the Trust Account consists of cash held on a bank account only. The Held-to-maturity investments
as of December 31, 2017, represents the redemption value of 151,903,000 units of US Treasury bills that matured on January 10,
2018.
The decrease in Cash and
Investments held in the Trust account is mainly due to the payment of $131.6 million to investors who validly tendered 12,999,350
Class A common shares as part of the Tender Offer to extend the time for completing a business combination.
|
|
(4)
|
Fair
Value Measurement
|
The fair values of the financial
instruments as of December 31, 2018 and 2017 represent the amounts that would be received to sell those assets or that would be
paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements
maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or
liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that
market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best
information available in the circumstances, including expected cash flows and appropriately risk-adjusted discount rates, available
observable and unobservable inputs.
The following methods and
assumptions were used to estimate the fair value of each class of financial instruments:
United States Treasury Bills:
The Company classifies its Treasury Instruments and equivalent securities as held to- maturity in accordance with FASB ASC 320
“Investments - Debt and Equity Securities”. Held-to-maturity securities are those securities which the Company has the ability
and intent to hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost on the accompanying balance
sheets and adjusted for amortization or accretion of premiums or discounts.
The table below presents
the carrying value under ASC 320, excluding accrued interest income and gross unrealized holding gain. Since all of the Company’s
permitted investments consist of U.S. government treasury bills and cash, fair values of its investments are determined by Level
2 inputs utilizing quoted prices (unadjusted) in active markets for identical assets as follows:
HUNTER
MARITIME ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the Years Ended December 31,
2018 and 2017
and the Period from June 24, 2016
to December 31, 2016
|
|
|
Carrying
Value
|
|
|
Fair Value
(Level 2)
|
|
|
Asset:
|
|
|
|
|
|
|
|
|
|
US Treasury Bills held in Trust Account as of December 31, 2018
|
|
$
|
-
|
|
|
$
|
-
|
|
|
US Treasury Bills held in Trust Account as of December 31, 2017
|
|
$
|
151,856,355
|
|
|
$
|
151,725,991
|
|
The Company is incorporated
in the Republic of the Marshall Islands, and in accordance with the income tax laws of the Marshall Islands, is not subject to
Marshall Islands’ income tax. Dividends paid by the Company are not subject to any withholding tax under the laws of the Marshall
Islands. As the Company proceeds with making investments in various jurisdictions, tax considerations outside the Marshall Islands
may arise. Although the Company intends to pursue tax-efficient investments, it may be subject to income tax, withholding tax,
capital gains tax, and other taxes imposed by tax authorities in other jurisdictions. The Company does not expect to be subject
to direct taxation based on net income in the United States as long as it is not engaged in a trade or business in the United
States for U.S. federal income tax purposes. The Company does not expect to invest in any U.S. obligation that will be subject
to U.S. withholding taxes.
The Company follows the
provisions of ASC 740-10 which prescribes a recognition threshold and measurement attribute for how a company should recognize,
measure, present and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take
on its tax return. ASC 740-10 requires that the financial statements reflect expected future tax consequences of such positions
presuming the taxing authorities’ full knowledge of the position and all relevant facts, but without considering time values.
There were no adjustments related to uncertain tax positions recognized during the years ended December 31, 2018 and 2017.
Based on the Company’s evaluation,
it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements.
Since the Company was incorporated on June 24, 2016, the evaluation was performed for 2018, 2017 and 2016 tax years which are
the periods subject to examination. The Company believes that its income tax positions and deductions would be sustained on audit
and does not anticipate any adjustments that would result in a material changes to its financial position.
The amount of $39,199 included
as Income tax expense for the year ended December 31, 2017, represents withholding taxes payable on interest received on the Trust
Account investments.
HUNTER
MARITIME ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the Years Ended December 31,
2018 and 2017
and the Period from June 24, 2016
to December 31, 2016
Common Stock
The Company is authorized
to issue up to 500,000,000 shares of common stock, consisting of (i) 400,000,000 Class A Shares and (ii) 100,000,000 shares of
Class B common stock, par value $0.0001 per share (the “Class B Shares”). At December 31, 2018, there were issued and outstanding
2,173,750 Class A Shares and 3,793,275 Class B Shares, compared to 15,173,100 Class A shares and 3,793,275 Class B Shares as of
December 31, 2017.
The Class B Shares will
automatically convert into Class A Shares on the first business day following the consummation of the Initial Business Combination
on a one-for-one basis, subject to adjustment pursuant to the Company’s Amended and Restated Articles of Incorporation.
At December 31, 2018, 1,076,328
(2017: 14,213,703) shares were subject to redemption in connection with the Initial Business Combination (at an anticipated redemption
value of $10.155 per share (2017: $10.00)). A total amount of $10,930,113 (2017: $142,137,034) has been accounted for as a temporary
equity.
Our articles of incorporation
do not provide a specified maximum redemption threshold, except that in no event will we redeem our public shares in an amount
that would cause our net tangible assets to be less than $5,000,001 (such that we are not subject to the SEC’s “penny stock” rules)
or any greater net tangible asset or cash requirement which may be contained in the agreement relating to our Initial Business
Combination.
Preferred Stock
The Company is authorized
to issue up to 50,000,000 shares of preferred stock, par value $0.0001 per share (the “Preferred Shares”), with such designations,
voting and other rights and preferences as may be determined from time to time by the Board of Directors. At December 31, 2018
and December 31, 2017, there were no Preferred Shares issued and outstanding.
Offering Costs
The Company complies with
the requirements of ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (SAB) Topic 5A — “Expenses of Offering”. Offering costs
consist principally of professional and registration fees incurred through the balance sheet date that are related to the Public
Offering and that were charged to stockholders’ equity upon the completion of the Initial Public Offering. Offering costs of approximately
$8,872,106 have been charged to additional paid-in capital upon completion of the Initial Public Offering in 2016.
Offering expenses comprise
all expenses related to the initial public offering of 15,000,000 shares in the Company and the sale of 173,100 shares following
the partial exercise of the Over-allotment Option, and include amongst others $3,034,620 of upfront underwriting fees and $5,310,585
of deferred underwriting fees. For the accounting years 2018 and 2017, there were no offering costs related to the issuance of
shares.
HUNTER
MARITIME ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the Years Ended December 31,
2018 and 2017
and the Period from June 24, 2016
to December 31, 2016
|
|
(7)
|
Commitment
and Contingencies
|
The Company paid an underwriting
fee of $3,034,620, equal to a 2.00% underwriting fee on the per Unit offering price, to the underwriters based on a sale of 15,000,000
Units, at the closing of the Public Offering and 173,100 Units following the partial exercise of the Over-allotment Option. The
Company will pay an additional fee of $5,310,585, equal to a 3.50% underwriting fee on the per Unit offering price, to underwriters
upon the Company’s completion of the Initial Business Combination (the “Deferred Fee”). The Deferred Fee will become payable to
the underwriters from the amounts held in the Trust Account solely in the event the Company completes the Initial Business Combination.
If the Company fails to complete its Initial Business Combination within 24 months from the closing of the Public Offering, the
underwriters have agreed to waive their right to the Deferred Fee.
The Company has agreed to
pay $10,000 a month for office space, administrative services and secretarial support to CMB. Services commenced on November 18,
2016, and will terminate upon the earlier of the consummation by the Company of its Initial Business Combination or the liquidation
of the Company, which has been extended to April 23, 2019.
|
|
(8)
|
General
and administrative expenses
|
|
|
|
Year ended
December 31,
2018
|
|
|
Year ended
December 31,
2017
|
|
|
Period from
June 24, 2016
to December 31,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Officers Liability Insurance
|
|
$
|
285,307
|
|
|
$
|
393,537
|
|
|
$
|
49,694
|
|
|
Advisory fees
|
|
|
211,762
|
|
|
|
209,306
|
|
|
|
7,937
|
|
|
Legal fees
|
|
|
191,344
|
|
|
|
394,819
|
|
|
|
-
|
|
|
Administrative Services fee payable to CMB
|
|
|
120,000
|
|
|
|
119,516
|
|
|
|
15,000
|
|
|
Audit fees
|
|
|
110,000
|
|
|
|
50,000
|
|
|
|
225,000
|
|
|
Registration and listing fees
|
|
|
-
|
|
|
|
90,000
|
|
|
|
88,364
|
|
|
Other expenses
|
|
|
30,701
|
|
|
|
66,910
|
|
|
|
11,372
|
|
|
Total general and administrative expenses
|
|
$
|
949,114
|
|
|
$
|
1,324,088
|
|
|
$
|
397,367
|
|
HUNTER
MARITIME ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the Years Ended December 31,
2018 and 2017
and the Period from June 24, 2016
to December 31, 2016
Advisory fees mainly relate
to fees incurred in relation to the 2018 and 2017 Tender Offers and various annual fees payable to amongst others NASDAQ and Continental
Stock Transfer and Trust Company.
Legal fees for the year
ended December 31, 2018, consist mainly of fees incurred for the legal work done in relation to the Tender Offer for the Extension
Amendment and the Merger Agreement. For the year ended December 31, 2017, they mainly relate to fees incurred in relation to the
incorporation of Maritime Partner BVBA and Hamburg Maritime NV and fees for the legal work done in relation to the 2017 Tender
Offer.
The General and administrative
expenses for the period ended December 31, 2016, mainly represent expenses for the audit of the financial statements and fees
related to the registration statement.
|
|
(9)
|
Related
Party Transactions
|
Founder Shares
On July 11, 2016, the Sponsor
purchased 4,312,500 Class B Common Shares of the Company (which are the Founder Shares) for $25,000, or $0.006 per share. The
Founder Shares are identical to the Public Shares included in the Units sold in the Public Offering except that, (i) only holders
of the Founder Shares will be entitled to vote on the election of directors prior to the Company’s initial Business Combination
and, (ii) the Founder Shares are subject to certain transfer restrictions, as described in more detail below. The Sponsor agreed
to forfeit up to 562,500 Founder Shares to the extent that the Over-allotment Option was not exercised in full by the underwriters
so that the Sponsor will own 20% of the Company’s issued and outstanding common shares after the Public Offering. On January 3,
2017, the Sponsor forfeited 519,225 Class B Common Shares pursuant to the partial exercise on December 16, 2016 of the underwriters’
Over-allotment Option. Subsequently the number of outstanding Founder Shares amounts to 3,793,275.
The Sponsor has agreed not
to transfer, assign or sell any of their Founder Shares until the earlier of, (i) one year after the completion of the Company’s
Initial Business Combination, or earlier if, subsequent to the Company’s Initial Business Combination, the last sale price of
the Company’s common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations
and recapitalizations) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Company’s
Initial Business Combination or, (ii) the Company consummates a liquidation, merger, stock exchange or other similar transaction
that results in all of the Company’s shareholders having the right to exchange their Class A Common Shares for cash, securities,
or other property.
HUNTER
MARITIME ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the Years Ended December 31,
2018 and 2017
and the Period from June 24, 2016
to December 31, 2016
Private Placement Warrants
Upon the closing of the
Public Offering on November 23, 2016, the Sponsor purchased from the Company an aggregate of 3,333,333 Private Placement Warrants
at a price of $1.50 per Private Placement Warrant (an aggregate purchase price of $5,000,000). On December 16, 2016, following
the partial exercise of the Over-allotment Option the Sponsor purchased a further 23,080 Additional Private Placement Warrants
at a price of $1.50 per Private Placement Warrant (an aggregate purchase price of $34,620). A portion of the proceeds from the
sale of the Private Placement Warrants and the full proceeds from the sale of the Additional Private Placement Warrants were placed
into the Trust Account.
The Private Placement Warrants
(including the Class A Common Shares issuable upon exercise of the Private Placement Warrants) are not transferable, assignable
or salable until 30 days after the completion of the Initial Business Combination and they are non-redeemable and exercisable
on a cashless basis, provided that such cashless exercise is permitted under the laws of the Company’s corporate jurisdiction,
so long as they are held by the initial purchasers of the Private Placement Warrants or their permitted transferees, subject to
certain exceptions. If the Private Placement Warrants are held by someone other than the initial purchasers of the Private Placement
Warrants or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such
holders on the same basis as the Warrants included in the Units sold in the Public Offering. Otherwise, the Private Placement
Warrants have terms and provisions that are identical to those of the Warrants sold as part of the Units in the Public Offering
and have no net cash settlement provisions.
If the Company does not
complete the Initial Business Combination, then the proceeds will be part of the liquidating distribution to the public shareholders
and the Private Placement Warrants issued to the Sponsor will expire worthless.
Units purchased in the
Public Offering
CMB purchased 200,000 Units
in the Public Offering at the public offering price, for an aggregate purchase price of $2,000,000.
Registration Rights
The holders of the Founder
Shares and Private Placement Warrants (and any Class A Common Shares issuable upon the exercise of the Private Placement Warrants)
are entitled to registration rights pursuant to a registration rights agreement executed on November 18, 2016. The holders of
these securities will be entitled to make up to three demands, excluding short form demands, that the Company register such securities.
In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent
to the completion of the Company’s Initial Business Combination and rights to require the Company to register for resale such
securities pursuant to Rule 415 under the Securities Act. However, the registration rights agreement provides that the Company
will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable
lock-up period, which occurs (i) in the case of the Founder Shares, one year after the date of the consummation of the Company’s
Initial Business Combination or earlier if, subsequent to the Company’s Initial Business Combination, (a) the last sale price
of the Company’s Class A Common Shares equals or exceeds $12.00 per share (as adjusted for share splits, share dividends, reorganizations
and recapitalizations) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Company’s
Initial Business Combination or (b) the Company consummates a subsequent liquidation, merger, stock exchange or other similar
transaction which results in all of the Company’s shareholders having the right to exchange their Class A Common Shares for cash,
securities or other property and (ii) in the case of the Private Placement Warrants and the respective Class A Common Shares underlying
such Warrants, 30 days after the completion of the Company’s Initial Business Combination. The Company will bear the expenses
incurred in connection with the filing of any such registration statements.
HUNTER
MARITIME ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the Years Ended December 31,
2018 and 2017
and the Period from June 24, 2016
to December 31, 2016
Sale of Founder Shares
and Private Placement Warrants
On September 27, 2018, pursuant
to the terms of a Securities Purchase Agreement, Bocimar Hunter transferred ownership of its (i) 3,793,275 Class B common shares
and (ii) 3,356,413 private placement Warrants of the Company to CMB, an affiliated entity under common control, which we now consider
the Sponsor. CMB acquired the Class B common shares and the private placement Warrants for a purchase price of $25,000 and $5,034,620,
respectively, which were the original value of the securities at the time they were acquired by Bocimar Hunter. Pursuant to the
terms of a Joinder Agreement with respect to the Letter Agreement, dated September 27, 2018, CMB became party to the Letter Agreement,
to assume all of the rights and obligations of Bocimar Hunter thereunder, and to be bound by the restrictions thereunder. Pursuant
to the terms of an Assignment Agreement and a Joinder Agreement with respect to the registration rights agreement (discussed below),
each dated September 27, 2018, Bocimar Hunter assigned all of its rights and interests under the registration rights agreement
to CMB, and CMB became party to the registration rights agreement and agreed to assume all of the rights and obligations of Bocimar
Hunter thereunder and to be bound by the terms and provisions thereof. Pursuant to the terms of an agreement with respect to our
Warrant Agreement and a related Warrant assignment agreement, each dated September 27, 2018, Bocimar Hunter assigned all of its
rights and interests under the Warrant Agreement to CMB and CMB agreed to assume all of the rights and obligations of Bocimar
Hunter thereunder and to be bound by the terms and provisions thereof.
Related Party Loans
No promissory notes have
been granted throughout the financial year 2017.
On November 6, 2018, and
December 19, 2018, the Company has drawn an amount of $500,000 and $300,000 respectively, under a promissory note with its Sponsor.
These loans are unsecured and bear interest at a rate per annum of LIBOR plus 0.60%.
HUNTER
MARITIME ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the Years Ended December 31,
2018 and 2017
and the Period from June 24, 2016
to December 31, 2016
Administrative Services
Agreement
The Company has agreed to
pay $10,000 a month for office space, administrative services and secretarial support to CMB. Services commenced on November 18,
2016, and will terminate upon the earlier of the consummation by the Company of its Initial Business Combination or the liquidation
of the Company.
For the period from January
1, 2018, through December 31, 2018, $120,000 (2017: $119,516) was expensed for services rendered by CMB during that period.
The Company complies with
accounting and disclosure requirements ASC Topic 260, “Earnings Per Share.” Net loss per share is computed by dividing net loss
attributable to owners of the Company by the weighted average number of shares of common stock outstanding for the period. Shares
of common stock subject to possible redemption have been excluded from the calculation of basic loss per share and diluted loss
per share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. The Company
has not considered the effect of (1) Warrants sold in the Initial Public Offering and Private Placement to purchase shares of
common stock, and (2) 15,000,000 Units sold in the Public Offering and the 173,100 Units sold pursuant to the partial exercise
of the Over-allotment Option (Class A common stocks), since the exercise of the Warrants and the voting rights of Class A shares
of common stock is contingent upon the occurrence of future events. In addition, in calculation of the net loss per share the
Company has also considered the effect of the forfeiture of common shares in January 2017 by excluding them from all calculations.
On January 24, 2019, we
received a letter from NASDAQ stating that the Company had failed to demonstrate compliance with the Minimum Public Holders Rule
within the required time period and that, accordingly, the NASDAQ staff had initiated procedures to delist our Class A common
shares, Units and Warrants from NASDAQ. In addition, NASDAQ advised us that our failure to comply with Listing Rule 5620(a), which
requires that we hold an annual meeting of shareholders within one year of the end of each fiscal year, serves as an additional
basis for delisting. We have requested a hearing to appeal the staff’s determination, which will stay the suspension of its securities
and the delisting procedures while the appeal is pending.
On January 30, 2019, HMAC
has drawn an amount of $200,000, under a promissory note with its Sponsor. The loan is unsecured and bears interest at a rate
per annum of LIBOR plus 0.60%.
HUNTER
MARITIME ACQUISITION CORP. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the Years Ended December 31,
2018 and 2017
and the Period from June 24, 2016
to December 31, 2016
On February 19, 2019 HMAC
announced the commencement of a tender offer pursuant to the terms of the Merger Agreement by and among HMAC, and NCF Wealth Holdings
Limited.
On February 22, 2019, HMAC
has drawn an amount of $400,000, under a promissory note with its Sponsor. The loan is unsecured and bears interest at a rate
per annum of LIBOR plus 0.60%.
On March 20, 2019, HMAC
announced the final results of its previously announced tender offer. A total of 1,926,021 Class A common shares were validly
tendered and accepted for purchase for a total cost of approximately $19.7 million, excluding fees and expenses related to the
Tender Offer, which will be released from the Company’s trust account.
On March 21, 2019, HMAC
closed the previously announced merger with NCF Wealth Holdings.
HUNTER
MARITIME ACQUISITION CORP.
PROSPECTUS
_____________, 2019
PART
II-INFORMATION NOT REQUIRED IN PROSPECTUS
Item
6. Indemnification of Directors and Officers.
|
|
I.
|
Article
VIII of the Amended and Restated Articles of Incorporation of the Registrant provides as follows:
|
Any
person who is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director
or officer of another partnership, joint venture, trust or other enterprise shall be entitled to be indemnified by the Corporation
upon the same terms, under the same conditions, and to the same extent as authorized by Section 60 of the BCA, if he or she acted
in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. If
the BCA is amended hereafter to authorize the further elimination or limitation of the liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest extent authorized by the BCA, as so amended. The
Corporation shall have the power to pay in advance expenses a director or officer incurred while defending a civil or criminal
proceeding, provided that the director or officer will repay the amount if it shall ultimately be determined that he or she is
not entitled to indemnification under this section. Any repeal or modification of this Article shall not adversely affect any
rights to indemnification and to the advancement of expenses of a director or officer of the Corporation existing at the time
of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification.
|
|
II.
|
Article
VII of the Amended and Restated Bylaws provides as follows:
|
The
Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a director or officer against any liability asserted
against such person and incurred by such person in such capacity whether or not the Corporation would have the power to indemnify
such person against such liability by law or under the provisions of the Bylaws or Articles of Incorporation.
|
|
III.
|
Section
60 of the Associations Law of the Republic of the Marshall Islands provides as follows:
|
|
|
(1)
|
Actions
not by or in right of the corporation
. A corporation shall have power to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal,
administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he
is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’
fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action,
suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea
of no contest, or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and
in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceedings, had reasonable cause to believe that his conduct was unlawful.
|
|
|
(2)
|
Actions
by or in right of the corporation.
A corporation shall have the power to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation
to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the corporation, or is
or was serving at the request of the corporation, or is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’
fees) actually and reasonably incurred by him or in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not, opposed to the best interests of the corporation
and except that no indemnification shall be made in respect of any claims, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only
to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity
for such expenses which the court shall deem proper.
|
|
|
(3)
|
When
director or officer successful.
To the extent that a director or officer of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in subsections (1) or (2) of this section, or in the
defense of a claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually
and reasonably incurred by him in connection therewith.
|
|
|
(4)
|
Payment
of expenses in advance.
Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid in advance
of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon
receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the corporation as authorized in this section.
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|
|
(5)
|
Indemnification
pursuant to other rights.
The indemnification and advancement of expenses provided by, or granted pursuant to, the other
subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement
of expenses may be entitled under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity while holding such office.
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|
|
(6)
|
Continuation
of indemnification.
The indemnification and advancement of expenses provided by, or granted pursuant to, this section
shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
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|
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(7)
|
Insurance
.
A corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director or
officer of the corporation or is or was serving at the request of the corporation as a director or officer against any liability
asserted against him and incurred by him in such capacity whether or not the corporation would have the power to indemnify
him against such liability under the provisions of this section.
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|
|
III.
|
Indemnification
Agreements and Insurance.
|
The
Registrant has entered into indemnification agreements with each of its officers and directors. These agreements require the Registrant
to indemnify these individuals to the fullest extent permitted under law against liabilities that may arise by reason of their
service to the Registrant, and to advance expenses incurred as a result of any proceeding against them as to which they could
be indemnified. The Registrant has purchased a policy of directors’ and officers’ liability insurance that insures
its directors and officers against the cost of defense, settlement or payment of a judgment in some circumstances and insures
the Registrant against its obligations to indemnify the directors and officers.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling
us pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and is theretofore unenforceable.
Item
7. Recent Sales of Unregistered Securities.
On
June 24, 2016, we sold an aggregate of 4,312,500 Class B common shares in a private placement without registration under the Securities
Act to Bocimar Hunter NV. Such Class B common shares were issued on July 11, 2016 in connection with our organization pursuant
to the exemption from registration contained in Section 4(a)(2) of the Securities Act. Shares issued to the entity above
were sold for an aggregate offering price of $25,000 at a purchase price of approximately $0.006 per share. No underwriting discounts
or commissions were paid with respect to such sales.
Simultaneously
with the closing of our initial public offering, we completed the private sale of 3,333,333 warrants (the "Private Placement
Warrants") to Bocimar Hunter NV at a purchase price of $1.50 per warrant, generating gross proceeds to the Company of $5,000,000.
The Private Placement Warrants are identical to the warrants sold as part of the units in our initial public offering, except
that (i) the Private Placement Warrants are exercisable at the option of the holder on a cashless basis so long as they are held
by the original purchaser or its permitted transferees and such cashless exercise is permitted under the laws of our corporate
jurisdiction, (ii) the Private Placement Warrants are not redeemable by us, and (iii) the Private Placement Warrants (including
the Class A Common Shares issuable upon exercise thereof) could not, subject to certain limited exceptions, be transferred, assigned
or sold until 30 days after the completion of our initial business combination. The Private Placement Warrants were issued in
reliance on the exemption from registration contained in Section 4(a)(2) of the Securities Act. No underwriting discounts
or commissions were paid with respect to such sales.
On
March 21, 2019, we issued an aggregate of 200,000,000 shares of our Class A Common Stock to the stockholders of NCF Wealth Holdings
Limited (“NCF”), in exchange for our acquisition of NCF. The Class A Common Stock was issued in reliance on the exemption
from registration contained in Section 4(a)(2) of the Securities Act. No underwriting discounts or commissions were paid
with respect to such sales.
On
March 21, 2019, we issued an additional 933,333 Private Placement Warrants to CMB NV in exchange for the cancellation of $1,400,000
of promissory notes which we made in CMB NV’s favor. The Private Placement Warrants were issued in reliance on the exemption
from registration contained in Section 4(a)(2) of the Securities Act. No underwriting discounts or commissions were paid
with respect to such sales.
Item
8. Exhibits and Financial Statement Schedules.
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2.1
|
|
Amended
and Restated Articles of Incorporation (1)
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2.2
|
|
Amended
and Restated Bylaws (1)
|
|
|
|
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2.3
|
|
Form of Class A Common Stock Certificate (1)
|
|
|
|
|
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2.4
|
|
Specimen
Unit Certificate (1)
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|
|
|
|
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2.5
|
|
Specimen
Warrant Certificate (1)
|
|
|
|
|
|
4.1
|
|
Underwriting
Agreement, dated November 18, 2016, by and between the Company and Morgan Stanley & Co., LLC, as representatives of the
several underwriters (2)
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|
|
|
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4.2
|
|
Warrant
Agreement, dated November 18, 2016, by and between the Company and Continental Stock Transfer & Trust Company, as warrant
agent (2)
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|
|
|
|
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4.3
|
|
Agreement
and Plan of Merger, dated October 5, 2018, by and among the Company, NCF Wealth Holdings Limited, Zhenxin Zhang, and Hunter
Maritime (BVI) Limited, 2018 (4)
|
|
|
|
|
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4.4
|
|
Securities
Purchase Agreement, dated September 27, 2018, by and between Bocimar Hunter NV and CMB NV (4)
|
|
|
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4.5
|
|
Registration
Rights Agreement dated March 21, 2019, by and between the Company and Zhenxin Zhang, as the representative of and attorney-in-fact
for each of the parties named therein. (5)
|
|
|
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4.6
|
|
Amended
and Restated Registration Rights Agreement, dated March 21, 2019, by and between the Company and CMB NV (5)
|
|
|
|
|
|
5.1
|
|
Opinion
of Seward & Kissel LLP as to the legality of the securities being registered**
|
|
|
|
|
|
23.1
|
|
Consent of UHY
|
|
|
|
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23.2
|
|
Consent of UHY
|
|
|
|
|
|
23.3
|
|
Consent
of Seward & Kissel LLP (included in Exhibit 5.1)**
|
|
|
|
|
|
24.1
|
|
Power
of Attorney*
|
|
|
|
|
|
8.1
|
|
List
of Subsidiaries (5)
|
|
|
|
|
|
11.1
|
|
Code
of Ethics (3)
|
|
|
|
|
|
99.1
|
|
Pro-Forma Financial Information
|
|
(1)
|
Incorporated
by reference to the Company’s Registration Statement on Form F-1, which was declared effective by the SEC on November
18, 2016.
|
|
(2)
|
Incorporated
by reference to the Company’s Report of Foreign Private Issuer on Form 6-K, filed with the SEC on November 23, 2016.
|
|
(3)
|
Incorporated
by reference to the Company’s Annual Report on Form 20-F, filed with the SEC on April 27, 2017.
|
|
(4)
|
Incorporated
by reference to Exhibit 99.2 to the Form 6-K filed by Hunter Maritime Acquisition Corp. on October 5, 2018.
|
|
(5)
|
Incorporated
by reference to the Company’s Annual Report on Form 20-F, filed with the SEC on March 27, 2019.
|
|
*
|
Previously
Filed.
|
|
|
|
|
**
|
To
be filed by amendment
|
Item
9. Undertakings.
(a) The
undersigned hereby undertakes:
|
|
(1)
|
To
file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
|
|
|
(i)
|
To
include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
|
|
|
(ii)
|
To
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
|
|
|
(iii)
|
To
include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
|
|
|
(2)
|
That,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
|
|
|
(3)
|
To
remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold
at the termination of the offering.
|
|
|
(4)
|
If
the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any
financial statements required by Item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous offering.
Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished,
provided
that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required
pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is
at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration
statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required
by Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3.
|
|
|
(5)
|
That,
for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial
distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned
registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned
registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
|
|
|
(i)
|
Any
preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant
to Rule 424
|
|
|
(ii)
|
Any
free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred
to by the undersigned registrant;
|
|
|
(iii)
|
The
portion of any other free writing prospectus relating to the offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the undersigned registrant; and
|
|
|
(iv)
|
Any
other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
|
|
|
(b)
|
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons
controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore
unenforceable
|
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized on June 14, 2019.
|
|
Hunter Maritime Acquisition
Corp.
|
|
|
|
|
|
By:
|
/s/
Jia Sheng Jia Sheng
|
|
|
|
Chief Executive Officer
(Principal Executive Officer)
|
Pursuant
to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons
in the capacities indicated on June 14, 2019.
|
Signature
|
|
Title
|
|
|
|
|
|
/s/
Jia Sheng
|
|
Chief
Executive Officer
|
|
Jia
Sheng
|
|
(Principal
Executive Officer) and Director
|
|
|
|
|
|
/s/
Li Wei*
|
|
Chief
Financial Officer
|
|
Li
Wei
|
|
(Principal
Financial Officer and Principal Accounting Officer)
|
|
|
|
|
|
/s/
Huanxiang Li*
|
|
President
and Director
|
|
Huanxiang
Li
|
|
|
|
|
|
|
|
/s/
Tao Yang*
|
|
Director
|
|
Tao
Yang
|
|
|
|
|
|
|
|
/s/
David X. Li*
|
|
Director
|
|
David
X. Li
|
|
|
|
|
|
|
|
/s/
Kevin C. Wei*
|
|
Director
|
|
Kevin
C. Wei
|
|
|
|
*By
|
/s/
Jia Sheng
|
|
|
|
|
Jia
Sheng, Attorney in Fact
|
|
|
SIGNATURE
OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant
to the requirements of the Securities Act of 1933, as amended, the undersigned, the duly authorized representative of the Registrant
in the United States, has signed this registration statement in the City of New York, State of New York, on June 13, 2019.
|
|
Loeb
& Loeb LLP
|
|
|
|
|
|
|
By:
|
/s/
Mitchell S. Nussbaum
|
|
|
Name:
|
Mitchell
S. Nussbaum
|
|
|
Title:
|
Partner
|
II-6
Hunter Maritime Acquisit... (CE) (USOTC:HUNTF)
過去 株価チャート
から 12 2024 まで 1 2025
Hunter Maritime Acquisit... (CE) (USOTC:HUNTF)
過去 株価チャート
から 1 2024 まで 1 2025
