HUNTF Hunter Maritime Acquisition Corporation (CE)

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 annual report. 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 “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report. 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.

Exchange Rate Information

Not Applicable.

Not Applicable.

Not Applicable.

Our business, financial condition and results of operations are subject to various changing business, competitive, economic, political and social conditions worldwide. In addition to the factors discussed elsewhere in this annual report, the following are some of the important factors that could adversely affect our operating results, financial condition and business prospects, and cause our actual results to differ materially from those projected in any forward-looking statements.

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 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. See “History and Development of the Company—Regulation—Regulations on Consumer Lending Service Provider.”

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 annual report, 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 annual report, 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 “History and Development of the Company —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 annual report, 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 annual report, 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.

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. Beijing Oriental provided its detailed plan to the designated email address before the deadline.

To the extent that Beijing Oriental is not able to fully comply with these requirements, our business, financial condition and results of operations 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 our business, financial condition and results of operations.

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 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 serves, 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:

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 (USD 11 billion) in 2016, approximately RMB 95 billion (USD 15 billion) in 2017 and approximately RMB 71 billion (USD 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 attractive 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 annual report, 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 recurring service 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 recurring fees and commissions paid by financial product providers. These recurring fees and commission rates are negotiated, and vary from product to product. Recurring 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:

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 an attractive 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.

Upon completion of this annual report, 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 “History and Development of the Company—Intellectual Property” and “History and Development of the Company —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 “History and Development of the Company —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:

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 “History and Development of the Company —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 “History and Development of the Company —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:

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 annual report 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 appeal the decision. Although we intend to appeal the decision and 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 appeal the decision. Although we intend to appeal the decision and 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:

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:

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.