UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
20-F
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2021
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
☐
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for
the transition period from __________ to ___________
Commission
file number: 001-36664
Roan
Holdings Group Co., Ltd.
(Exact
name of the Registrant as specified in its charter)
British
Virgin Islands
(Jurisdiction
of incorporation or organization)
147
Ganshui Lane, Yuhuangshannan Fund Town
Shangcheng
District
Hangzhou,
Zhejiang, China
(Address
of principal executive offices)
Zhiyong
Tang, Chief Executive Officer
Telephone:
+86-571-8662-1775
Email:
Zhiyong.Tang@roanholdingsgroup.com
(Name,
Telephone, E-mail of Company Contact Person)
Securities
registered or to be registered pursuant to Section 12(b) of the
Act:
None
Securities
registered or to be registered pursuant to Section 12(g) of the
Act:
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Title
of each class |
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Symbol |
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Name
of the principal U.S. market |
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Ordinary
Shares, no par value |
|
RAHGF |
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OTCMKTS |
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Warrants |
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RONWF |
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OTCMKTS |
Securities
for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None
Indicate
the number of outstanding shares of each of the issuer’s classes of
capital or common stock as of the close of the period covered by
the annual report: 25,287,851 ordinary shares.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
If
this report is an annual or transition report, indicate by check
mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of
1934.
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or an emerging
growth company. See definition of “large accelerated filer,”
“accelerated filer,” and “emerging growth company” in Rule 12b-2 of
the Exchange Act. (Check one):
|
Large
accelerated filer ☐ |
Accelerated
filer ☐ |
Non-accelerated
filer ☒ |
Emerging
Growth Company ☐ |
If an
emerging growth company that prepares its financial statements in
accordance with U.S. GAAP, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards† provided
pursuant to Section 13(a) of the Exchange Act. ☐
The
term “new or revised financial accounting standard” refers to any
update issued by the Financial Accounting Standards Board to its
Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on
and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the
registered public accounting firm that prepared or issued its audit
report. ☐
Indicate
by check mark which basis of accounting the registrant has used to
prepare the financial statements included in this
filing:
| ☒
US GAAP |
☐
International Financial Reporting
Standards as issued by the International
Accounting Standards Board |
☐
Other |
If
“Other” has been checked in response to the previous question,
indicate by check mark which financial statement item the
registrant has elected to follow.
If
this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
(APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS)
Indicate
by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of the securities under a plan confirmed by a
court.
TABLE
OF CONTENTS
CERTAIN
INFORMATION
In
this Annual Report on Form 20-F, or the “Annual Report”, unless the
context indicates otherwise, all references to the terms the
“Company,” “we,” “us” and “our” refer to Roan Holdings Group Co.,
Ltd., giving effect to the Lixin Acquisition (as defined below),
and all references to “China” or “PRC” and the “Chinese government”
refer to the People’s Republic of China and its government. In this
Annual Report, all references to “Renminbi,” or “RMB” are to the
legal currency of China and all references to “USD” “U.S. dollars,”
“dollars,” “$” or “US$” are to the legal currency of the United
States.
The
Company’s functional currency is USD. The functional currency of
its PRC operating subsidiaries is Chinese Yuan, or RMB. For
financial reporting purposes, the financial statements of the
Company’s PRC operating subsidiaries were prepared using RMB, are
translated into the Company’s functional currency, USD at the
exchange rates quoted by www.oanda.com. Assets and liabilities are
translated using the exchange rate at each balance sheet date.
Revenue and expenses are translated using average rates prevailing
during each reporting period, and owners’ equity is translated at
historical exchange rates. Adjustments resulting from the
translation are recorded as a separate component of accumulated
other comprehensive income in shareholders’ equity.
The
audited financial statements for the years ended December 31, 2021,
2020 and 2019 in this Annual Report have been prepared in
accordance with accounting principles generally accepted in the
United States, or “U.S. GAAP.”
FORWARD-LOOKING
STATEMENTS
This
Annual Report contains statements that may be deemed to be
“forward-looking statements” within the meaning of the federal
securities laws. These statements relate to anticipated future
events, future results of operations and/or future financial
performance. In some cases, you can identify forward-looking
statements by their use of terminology such as “anticipate,”
“believe,” “could,” “estimate,” “expect,” “future,” “intend,”
“may,” “ought to,” “plan,” “possible,” “potentially,” “predicts,”
“project,” “should,” “will,” “would,” negatives of such terms or
other similar terms. These forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be materially
different from any future results, performance or achievements
expressed or implied by the forward-looking statements. The
forward-looking statements in this Annual Report include, without
limitation, statements relating to:
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our
goals and strategies; |
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our
future business development, results of operations and financial
condition; |
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our
estimates regarding expenses, future revenues, capital requirements
and our need for additional financing; |
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our
estimates regarding the market opportunity for our
services; |
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the
impact of government laws and regulations; |
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our
ability to recruit and retain qualified personnel; |
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our
failure to comply with regulatory guidelines; |
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uncertainty
in industry demand; |
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general
economic conditions and market conditions in the finance
industry; |
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future
sales of large blocks or our securities, which may adversely impact
our share price; and |
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depth
of the trading market in our securities. |
The
preceding list is not intended to be an exhaustive list of all of
our forward-looking statements. Forward-looking statements reflect
our current views with respect to future events and are based on
assumptions and subject to risks and uncertainties, including those
described in Item 3D “Key Information - Risk Factors.”
You
should not unduly rely on any forward-looking statements. Although
we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee that future results,
levels of activity, performance and events and circumstances
reflected in the forward-looking statements will be achieved or
will occur. Except as required by law, we undertake no obligation
to update publicly any forward-looking statements for any reason
after the date of this Annual Report, to conform these statements
to actual results or to changes in our expectations.
PART
I
ITEM
1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISERS
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A. |
Directors
and Senior Management |
Not
required.
Not
required.
Not
required.
ITEM
2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not
required.
ITEM
3. KEY INFORMATION
|
A. |
Selected
financial data |
[RESERVED]
|
B. |
Capitalization
and Indebtedness |
Not
required.
|
C. |
Reasons
for the Offer and Use of Proceeds |
Not
required.
In
conducting our business, we face many risks that may interfere with
our business objectives. Some of these risks could materially and
adversely affect our business, financial condition and results of
operations. In particular, we are subject to various risks
resulting from changing economic, political, industry, business and
financial conditions. The risks and uncertainties described below
are not the only ones we face. Additional risks and uncertainties
not currently known to us or that we currently deem to be
immaterial may also materially adversely affect our business,
financial condition and results of operations.
You
should carefully consider the following factors and other
information in this Annual Report before you decide to invest in
our ordinary shares. If any of the risks referred to below occur,
our business, financial condition and results of operations could
suffer. In any such case, the trading price of our ordinary shares
could decline, and you may lose all or part of your
investment.
Risks
Factors Relating to the Company’s Business and
Operations
The COVID-19 pandemic has had an adverse effect on our business,
and public health epidemics such as COVID-19 could adversely impact
our future operating results.
The
COVID-19 pandemic has negatively impacted the global economy,
disrupted business operations of various industries, and created
significant volatility and disruption of financial markets. In
compliance with the government mandates, our Hangzhou, Shangyu,
Guangzhou and Urumqi offices closed and our operations temporarily
halted in the spring of 2020. During the closure, employees had
only limited access to our facilities and delayed our project
timeline, which affected our operating results and financial
condition. In December 2021, Shangyu District, Shaoxing City,
Zhejiang Province, where the subsidiary company Zhejiang Jingyuxin
Financing Guarantee Co., Ltd. is located, was closed and suspended
due to the epidemic, resulting in delays in our services to some
customers. After the lockdown was lifted on December 31, 2021,
operations could resume. COVID-19, including any variants thereof
such as the omicron variant, could continue to adversely affect our
business and financial results in 2022, including if any virus
resurgences cause significant disruptions to our operations or the
business of our customers, or our logistics and service providers,
or result in any negative impact to the pricing of our products. We
cannot predict the severity and duration of the impact from such
resurgence, if any.
COVID-19,
any variants thereof, or any new pandemics could continue to have
an adverse effect on our future business and financial performance.
If any new outbreak of COVID-19 is not effectively and timely
controlled, or if government responses to outbreaks or potential
outbreaks are severe or long-lasting, our business operations and
financial condition may be materially and adversely affected as a
result of the deteriorating market outlook, the slowdown in
regional and national economic growth, weakened liquidity and
financial condition of our customers or other factors that we
cannot foresee. Any of these factors and other factors beyond our
control could have an adverse effect on the overall business
environment, cause uncertainties in the regions where we conduct
business, and could materially and adversely impact our business,
financial condition and results of operations.
We do not have a history of profitability from continuing
operations. We may revert back to a loss mode.
We do not have a history of profitability from our continuing
operations. While we earned a profit from continuing operations
during 2021 of $757,301, we had losses from continuing operations
of $854,606 in 2020 and $2,557,110 in 2019. As we continue to
change our focus from microfinancing to industrial operations
services, we may revert back to a loss mode, which could lead to a
depletion of our cash reserves.
We have had substantial changes in its business models and we
cannot guarantee our future results of
operations
Since 2019, we have had substantial changes with our organizational
structure and business models, including the completion of the
Lixin Acquisition in December 2019 as discussed elsewhere in this
report and disposition of Feng Hui Ding Xin (Beijing) Financial
Consulting Co., Ltd. (“Ding Xin”) and its direct loan business in
September 2020 and disposition of China Roan Industrial-Financial
Holdings Group Co., Ltd. in September 2021. The Company has
transformed its business from a direct loan business, to a
financial, insurance, healthcare and industrial operation service
related solution provider serving middle-sized and micro
enterprises (“MSMEs:”) in China.
In addition, we have substantially expanded our health management
and other health related services and industrial operation
services. As we have limited operating history in the business
lines in which we are currently operating, it is difficult to
evaluate our prospects, and we may not have sufficient experience
in managing the changes and addressing the risks to which companies
operating in new and rapidly evolving markets such as the financial
guarantee, insurance, and health industries may be exposed. The
Company will continue to encounter risks and difficulties that
companies at a similar stage of development frequently experience,
including the potential failure to:
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obtain
sufficient working capital and increase its registered capital to
support expansion of its financial guarantee business, asset
management, supply chain financing and business
factoring; |
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comply
with any changes in the laws and regulations of the PRC or local
province that may affect its operations; |
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expand
its customer base; |
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maintain
adequate control of default risks and expenses allowing it to
realize anticipated revenue growth; |
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implement
its customer development, risk management of national growth and
acquisition strategies and plans and adapt and modify them as
needed; |
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integrate
any future acquisitions; and |
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anticipate
and adapt to changing conditions in the Chinese financing industry
resulting from changes in government regulations, mergers and
acquisitions involving its competitors, and other significant
competitive and market dynamics. |
If
the Company is unable to address any or all of the foregoing risks,
its business may be materially and adversely affected.
Our limited operating history makes it difficult to evaluate our
business and prospects.
In general we have a limited operating history as many of our
operating subsidiaries were formed in 2017 or later.
Hangzhou Zeshi Investment Partnership (Limited Partnership)
(“Hangzhou Zeshi”) was formed in November 2018 and commenced
financial services. Yifu Health Industry (Ningbo) Co., Ltd. (“Yi
Fu”), formerly Ningbo Ding Tai Financial Leasing Co., Ltd., was
formed in December 2016 but only commenced its health industry
operations in 2020. Zeshi (Hangzhou) Health Management Co., Ltd.
(“Zeshi Health”) and Ningbo Zeshi Insurance Technology Co., Ltd.
(“Zeshi Insurance”) began their operations in 2020.
The operating subsidiaries under Lixin Cayman also have a limited
operating history. While Zhejiang Jing Yu Xin Financing Guarantee
Co., Ltd. (“Zhejiang Jingyuxin”) was incorporated in 2013 and
Zhejiang Lixin Enterprise Management Holding Group Co.,
Ltd.(“Zhejiang Lixin”) was incorporated in 2015, Lixin (Hangzhou)
Asset Management Co., Ltd. (“LAM”) and Lixin Supply Chain
Management (Tianjin) Co., Ltd. (“Lixin Supply Chain”) were
incorporated in 2017.
As a result, the results of our operations in prior years may not
be indicative of future performance.
We have a customer concentration risk as two of our customers
represent almost half of our revenue. The loss of any one of these
customers would have a material adverse effect on our revenue and
profitability.
Two of our customers represent almost 50% of our revenue. These two
customers are able to reduce the amount of their business with us
at will or to cease doing business with us entirely at any time.
Therefore, our continued revenue from these customers depends on
their having continued needs that we are able to service in a
manner they find more attractive than utilizing third parties. The
loss or material reduction in revenue from either of these
customers would have a material adverse affect on our revenue and
profitability.
The Company’s current operations in China are geographically
limited to certain areas.
Our
business focuses on Yangtze River Delta region and Pearl River
Delta region. The Company’s future growth opportunities will depend
on the growth and stability of the economy in these areas. A
downturn in the economy of these areas or the implementation of
provincial or local policies unfavorable to MSMEs may cause a
decrease in the demand for the Company’s loan guaranty services and
other services provided to MSMEs and may negatively affect
borrowers’ ability to repay their loans on a timely basis, both of
which could have a negative impact on the Company’s profitability
and business. Although it is open to and are trying to develop
business in more areas, the Company still needs more time to expand
its business geographically.
Regarding its financial guarantee services to MSMEs, the Company is
subject to greater credit risks than larger guarantee providers,
which could adversely affect its results of
operations.
There
are inherent risks associated with our financial guarantee
activities, including credit risk, which is the risk that our
customers may not repay us after we make payments for them
according to our contracts. We provide financial guarantee services
to MSMEs. These customers generally have fewer financial resources
in terms of capital or borrowing capacity than larger entities and
may have fewer financial resources to weather a downturn in the
economy. Such customers may expose the Company to greater credit
risks than guaranty providers guaranteeing for larger,
better-capitalized state-owned businesses with longer operating
histories. Conditions such as inflation, economic downturn, local
policy change, adjustment of industrial structure and other factors
beyond our control may increase our credit risk more than such
events would affect larger guaranty providers. In addition, since
we are still focusing on Yangtze River Delta region and Pearl River
Delta region, our ability to geographically diversify the economic
risks is currently limited by the local markets and economies.
Also, decreases in local real estate value could adversely affect
the values of the real property used as collateral in the financial
guarantee business. Such adverse changes in the local economies may
have a negative impact on the ability of customers to repay their
loans and the value of their collateral and in turn our results of
operations and financial condition may be adversely
affected.
Competition in the financial industry is growing and could cause
the Company to lose market share and revenues in the
future.
We
believe that the financial industry is an emerging market in China.
We may face growing competition in the financial industry, and the
Company believes that the financial industry is becoming more
competitive as this industry matures and begins to consolidate. The
Company will compete with other financial companies and some
cash-rich state-owned companies or individuals that provide
financial services to MSMEs. Some of these competitors have larger
and more established customer bases and substantially greater
financial, marketing and other resources than we have. As a result,
the Company could lose market share and its revenues could decline,
thereby adversely affecting our earnings and potential for
growth.
The Company’s businesses will require highly qualified personnel,
and if it is unable to hire or retain qualified personnel, then it
may not be able to grow effectively.
The
Company’s future success depends upon its ability to attract and
retain highly qualified personnel. Establishment of Zeshi Insurance
and Zeshi Health in the first quarter of 2020 with healthcare
business and expansion of the businesses of each operating company
will require additional managers and employees with relevant
industry experience, and its success will be highly dependent on
its ability to attract and retain skilled management personnel and
other employees. These operating companies may not be able to
attract or retain highly qualified personnel. In addition,
competition for skilled personnel is significant in China. This
competition may make it more difficult and expensive to attract,
hire and retain qualified managers and employees. The Company may
incur additional expenses to recruit and retain qualified
replacements and its businesses may be disrupted and its financial
condition and results of operations may be materially and adversely
affected. In addition, key managers may join a competitor or form a
competing company. An operating company may not be able to
successfully enforce any contractual rights with its management
team, in particular in China, where all of these individuals reside
or will reside.
The Company’s business continuity plans could prove to be
inadequate, resulting in a material interruption in or disruption
to, its business and a negative impact on the Company’s results of
operations.
The
Company relies on communications and information systems to conduct
its business to some extent, and in general its ability to protect
its systems against damage from fire, power loss, telecommunication
failure, severe weather, natural disasters, terrorism or other
factors is important to its operations. The computer systems and
network infrastructure the Company uses could be vulnerable to
unforeseen problems. While the Company has a business continuity
plan and other policies and procedures designed to prevent or limit
the effect of a failure or interruption of our information systems,
there can be no assurance that any such failures or interruptions
will not occur or, if they do occur, that they will be adequately
addressed. The occurrence of any failures or interruptions of our
information systems could, among other things, damage the Company’s
reputation or result in a loss of clients, which could have a
material adverse effect on the Company’s results of
operations.
The Company has no material insurance coverage, which could expose
it to significant costs and business disruption.
Risks
associated with the Company’s business and operations include, but
are not limited to, clients’ failure to repay the outstanding
principal and interest after we make the payments for them and loss
reserves are not sufficient to cover such failure, losses of key
personnel, business interruption due to power loss or network
failure, and risks posed by natural disasters including storms,
floods and earthquakes, any of which may result in significant
costs or business disruption. The Company does not maintain any
credit insurance, business interruption insurance, general
third-party liability insurance, nor does it maintain key-man life
insurance or any other insurance coverage except the mandatory
social insurance for employees. If the Company incurs any loss that
is not covered by reserves, its business, financial condition and
results of operations could be materially and adversely
affected.
The
Company maintains cash deposits with various banks. These cash
accounts are not sufficiently insured or otherwise protected.
Should any bank holding these cash deposits become insolvent, or if
the Company is otherwise unable to withdraw funds, it could lose
the cash on deposit with that particular bank or trust
company.
The Company uses credit reports issued by the Credit Reference
Center of the People’s Bank of China for credit records, which may
not cover all accurate credit activities of guarantee
customers.
The
Company generally uses credit reports issued by the Credit
Reference Center of the People’s Bank of China (“CCRC”) for
guarantee customers’ credit records. According to the information
from CCRC’s official website (http://www.pbccrc.org.cn/crc/), CCRC
is a professional credit information service institution directly
under the People’s Bank of China (“PBOC”) which collects
comprehensive credit information about both enterprises and
individuals throughout China. The 2,100 credit reports query points
of the PBOC’s branches have covered almost all rural areas in
China, and CCRC has 300,000 information query ports in financial
institutions and networks around the country, and the credit
information service network is used throughout China. As of the end
of April 2015, CCRC’s database had collected credit information of
over 860 million individuals and over 20 million enterprises and
institutions, mainly from commercial banks as well as other
financial institutions. However, the CCRC’s credit reports do not
cover all credit and financing activities with all trust companies,
leasing companies, asset management companies, direct lending
companies, insurance companies, and other financial companies.
Moreover, the PBOC had not established a credit reporting system
until 1997 when it established the Bank Credit Registration System
which upgraded to the CCRC in 2006. Therefore, CCRC’s credit
reports may not be able to cover credit and financing activities
that occurred before 1997. In addition, the accuracy of credit
reports provided by CCRC may be mainly adversely affected by the
followings: (1) reliability of information source; (2) victimized
by criminals forging identity of the customers; (3) mistakes made
by data entry operators; and (4) technical stability of CCRC’s
computer system. Furthermore, despite using credit reports issued
by the CCRC, privately-owned guarantors may be more susceptible to
default than state-owned or public guarantors due to financial
difficulties or fraud and therefore, the Company may have more
difficulty enforcing guarantees from privately-owned guarantors
than from state-owned or public guarantors. Finally, having clean
credit history in the past does not preclude a guarantee customer
from defaulting in the future.
The business overlap of our subsidiaries could result in
inefficiencies to the Company’s business.
We completed the Lixin Acquisition in December 2019. Most of our
subsidiaries are in the financial industry and may conduct the same
business. On one hand they may share resources and expand their own
businesses. On the other hand, they may target the same
clients and compete with each other. This could reduce the
efficiency of the Company as a whole. For example, Hangzhou Zeshi
has commenced operations of asset management from 2019. Lixin
(Hangzhou) Asset Management Co., Ltd. (“LAM”) started its asset
management business in 2017. They both focus on Zhejiang province.
Hangzhou Zeshi is staffed entirely by new hires and in some measure
may compete with LAM for customers. As a result, Hangzhou Zeshi may
initially struggle to establish its business after the Lixin
Acquisition and some of its success it has may come at the expense
of LAM. Furthermore, because of PRC limitations, even
though the economic benefit of Hangzhou Zeshi and LAM will inure to
us, each will need to have its own segregated capital and client
base. As a result, Hangzhou Zeshi and LAM will not be able to
cross-collateralize or combine operations at the working level.
Although the Company plans to allocate the resources from a
strategic level, this structure may not allow the Company to
allocate resources to their most efficient use and may require
redundant or additional expenses.
Risks
Related to Doing Business in China
The failure to comply with PRC regulations relating to
mergers and acquisitions of domestic enterprises by offshore
special purpose vehicles may subject the Company to severe fines or
penalties and create other regulatory uncertainties regarding the
Company’s corporate structure.
On August 8, 2006, the Ministry of Commerce (“MOFCOM”), joined by
the China Securities Regulatory Commission (“CSRC”), the
State-owned Assets Supervision and Administration Commission of the
State Council, the State Administration of Taxation (“SAT”), the
State Administration for Industry and Commerce (the “SAIC”), and
the State Administration of Foreign Exchange (“SAFE”), jointly
promulgated regulations entitled the Provisions Regarding Mergers
and Acquisitions of Domestic Enterprises by Foreign Investors (the
“M&A Rules”), which took effect as of September 8, 2006, and as
amended on June 22, 2009. This regulation, among other things, has
certain provisions that require offshore companies formed for the
purpose of acquiring PRC domestic companies and controlled directly
or indirectly by PRC individuals and companies which are the
related parties with the PRC domestic companies, to obtain the
approval of MOFCOM prior to engaging in such acquisitions and to
obtain the approval of the CSRC prior to publicly listing special
purpose vehicles’ securities on an overseas stock market. On
September 21, 2006, the CSRC published on its official website a
notice specifying the documents and materials that are required to
be submitted for obtaining CSRC approval.
The application of the M&A Rules with respect to the Company’s
corporate structure remains unclear, with no current consensus
existing among leading PRC law firms regarding the scope and
applicability of the M&A Rules. We believe that the MOFCOM and
CSRC approvals under the M&A Rules were not required in the
context of the Business Combination and the Lixin Acquisition
because we did not acquire Feng Hui’s equity or assets and Xinjiang
Fenghui Jing Kai Direct Lending Co., Ltd. (“Jing Kai”) and Ding Xin
and Lixin Group were already foreign owned. However, we cannot be
certain that the relevant PRC government agencies, including the
CSRC and MOFCOM, would reach the same conclusion, and we cannot be
certain that MOFCOM or the CSRC will not deem that the Business
Combination or the Lixin Acquisition circumvented the M&A
Rules, and other rules and notices, or that prior MOFCOM or CSRC
approval was required for overseas financing.
If prior CSRC approval for overseas financings is required and not
obtained, the Company may face severe regulatory actions or other
sanctions from MOFCOM, the CSRC or other PRC regulatory agencies.
In such event, these regulatory agencies may impose fines or other
penalties on the Company’s operations in the PRC, limit the
Company’s operating privileges in the PRC, delay or restrict the
repatriation of the proceeds from overseas financings into the PRC,
restrict or prohibit payment or remittance of dividends to us or
take other actions that could have a material adverse effect on our
business, financial condition, results of operations, reputation
and prospects, as well as the trading price of our ordinary shares.
The CSRC or other PRC regulatory agencies may also take actions
requiring us, or making it advisable for us, to delay or cancel
overseas financings, to restructure the Company’s corporate
structure, or to seek regulatory approvals that may be difficult or
costly to obtain.
The M&A Rules, along with certain foreign exchange regulations
discussed below, will be interpreted or implemented by the relevant
government authorities in connection with our future offshore
financings or acquisitions, and we cannot predict how they will
affect our acquisition strategy.
PRC regulations relating to investments in offshore companies
by PRC residents may subject our PRC-resident beneficial owners or
our PRC subsidiaries to liability or penalties, limit our ability
to inject capital into our PRC subsidiaries or limit our PRC
subsidiaries’ ability to increase their registered capital or
distribute profits.
SAFE promulgated the Circular on Relevant Issues Concerning Foreign
Exchange Control on Domestic Residents’ Offshore Investment and
Financing and Roundtrip Investment through Special Purpose
Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced
the former circular commonly known as “SAFE Circular 75”
promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires
PRC residents to register with local branches of SAFE in connection
with their direct establishment or indirect control of an offshore
entity, for the purpose of overseas investment and financing, with
such PRC residents’ legally owned assets or equity interests in
domestic enterprises or offshore assets or interests, referred to
in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular
37 further requires amendment to the registration in the event of
any significant changes with respect to the special purpose
vehicle, such as increase or decrease of capital contributed by PRC
individuals, share transfer or exchange, merger, division or other
material event. In the event that a PRC resident 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.
SAFE promulgated the Notice of SAFE on Further Simplifying and
Improving Policies for the Foreign Exchange Administration of
Direct Investment, or SAFE Circular 13, on February 13, 2015, which
was effective on June 1, 2015. SAFE Circular 13 cancels two
administrative approval items which are foreign exchange
registration under domestic direct investment and foreign exchange
registration under overseas direct investment. Instead, banks shall
directly examine and handle foreign exchange registration under
domestic direct investment and foreign exchange registration under
overseas direct investment, and SAFE and its branch shall
indirectly regulate the foreign exchange registration of direct
investment through banks.
We have notified substantial beneficial owners of ordinary shares
who we know are PRC residents of their filing obligations in
accordance with SAFE Circular 37 and SAFE Circular 13. However, 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 cannot assure you that all of our PRC-resident
beneficial owners will comply with SAFE Circular 37, SAFE Circular
13 and subsequent implementation rules. The failure of our
beneficial owners who are PRC residents to register or amend their
SAFE registrations in a timely manner pursuant to SAFE Circular 37,
SAFE Circular 13 and subsequent implementation rules, or the
failure of future beneficial owners of our company who are PRC
residents to comply with the registration procedures set forth in
SAFE Circular 37, SAFE Circular 13 and subsequent implementation
rules, may subject such beneficial owners or our PRC subsidiaries
to fines and legal sanctions. Furthermore, since SAFE Circular 37
and SAFE Circular 13 was recently promulgated and it is unclear how
this regulation, and any future regulation concerning offshore or
cross-border transactions, will be interpreted, amended and
implemented by the relevant PRC government authorities, we cannot
predict how these regulations will affect our business operations
or future strategy. Failure to register or comply with relevant
requirements may also limit our ability to contribute additional
capital to our PRC subsidiaries and limit our PRC subsidiaries’
ability to distribute dividends to our company. These risks may
have a material adverse effect on our business, financial condition
and results of operations.
If any of our subsidiaries fails to maintain the requisite
registered capital, licenses and approvals required under PRC law,
our business, financial condition and results of operations may be
materially and adversely affected.
Numerous regulatory authorities of the central PRC government,
provincial and local authorities are empowered to issue and
implement regulations governing various aspects of the financial
industry. Each of our subsidiaries may be required to obtain and
maintain certain assets relevant to its business as well as
applicable licenses or approvals from different regulatory
authorities in order to provide its current services. These
registered capitals, licenses and approvals will be essential to
the operation of the Company’s business. If any of our subsidiaries
fails to obtain or maintain any of the required registered capital,
licenses or approvals for its business, it may be subject to
various penalties, such as confiscation of illegal net revenue,
fines and the discontinuation or restriction of its operations. Any
such disruption in its business operations could materially and
adversely affect our business, financial condition and results of
operations.
PRC regulation of loans to, and direct investments in, PRC entities
by offshore holding companies may delay or prevent us from making
loans or additional capital contributions to our PRC operating
subsidiaries and thereby prevent us from funding our
business.
As an
offshore holding company with PRC subsidiaries, we may transfer
funds to our PRC subsidiaries by means of loans or capital
contributions. Any loans to these PRC subsidiaries, which are
foreign-invested enterprises, cannot exceed statutory limits based
on the difference between the amount of our investments and
registered capital in such subsidiaries, and shall be registered
with SAFE, or its local counterparts. Furthermore, any capital
increase contributions we make to our PRC subsidiaries, which are
foreign-invested enterprises, shall be approved by MOFCOM, or its
local counterparts. We may not be able to obtain these government
registrations or approvals on a timely basis, if at all. If we fail
to receive such registrations or approvals, our ability to provide
loans or capital to increase contributions to our PRC subsidiaries
may be negatively affected, which could adversely affect their
liquidity and our ability to fund and expand their
business.
A slowdown of the Chinese economy or adverse changes in economic
and political policies of the PRC government could negatively
impact China’s overall economic growth, which could materially
adversely affect our business.
All
of the Company’s operations are entirely conducted in the PRC.
Although the PRC economy has grown in recent years, the pace of
growth has slowed, and even that rate of growth may not continue.
The annual rate of growth in the PRC declined from 7.3% in 2014 to
6.9% in 2015 to 6.7% in 2016, to 6.9% in 2017, to 6.6% in 2018, to
6.1% in 2019. Due to the COVID-19 pandemic, China’s economic growth
rate in 2020 has slowed to 2.3%, its lowest since 1990. In the
first quarter of fiscal year 2021, we witnessed a recovery in
China’s overall economy, benefiting from the COVID-19 pandemic
control measures and the resumption of production and business.
However, the recent outbreak of the pandemic in many areas of China
has caused, and may continue to cause, the authorities to implement
numerous measures to try to contain the disease and slow its
spread. These include travel bans and restrictions, quarantines,
shelter-in-place orders and shutdowns. These measures have created
significant uncertainty and economic disruption, both short-term
and potentially long-term. Furthermore, the global spread of
COVID-19 pandemic in a significant number of countries around the
world has resulted in, and may intensify, global economic distress.
A slowdown in overall economic growth, an economic downturn or
recession or other adverse economic developments in the PRC may
materially reduce the demand for the Company’s services and may
have a materially adverse effect on its business.
China’s
economy differs from the economies of most other countries in many
respects, including the amount of government involvement in the
economy, the general level of economic development, growth rates
and government control of foreign exchange and the allocation of
resources. While the PRC economy has grown significantly over the
past few decades, this growth has remained uneven across different
periods, regions and economic sectors.
The
PRC government also exercises significant control over China’s
economic growth by allocating resources, controlling the payment of
foreign currency-denominated obligations, setting monetary policy
and providing preferential treatment to particular industries or
companies. Any actions and policies adopted by the PRC government
could negatively impact the Chinese economy or the economy of the
region the Company serves, which could materially adversely affect
the Company’s business.
Substantial uncertainties and restrictions with respect to the
political and economic policies of the PRC government and PRC laws
and regulations could have a significant impact upon the business
the Company may be able to conduct in the PRC and accordingly on
the results of its operations and financial
condition.
The
Company’s business operations may be adversely affected by the
current and future political environment in the PRC. The Chinese
government exerts substantial influence and control over the manner
in which the Company must conduct its business activities. The
Company’s ability to operate in China may be adversely affected by
changes in Chinese laws and regulations. Under the current
government leadership, the government of the PRC has been pursuing
economic reform policies that encourage private economic activities
and greater economic decentralization. However, the government of
the PRC may not continue to pursue these policies, or may
significantly alter these policies from time to time without
notice.
There
are certain uncertainties regarding the interpretation and
application of PRC laws and regulations, including, but not limited
to, the laws and regulations governing the Company’s business, or
the enforcement and performance of the Company’s arrangements with
clients. Only after 1979 did the Chinese government begin to
promulgate a comprehensive system of laws that regulate economic
affairs in general, deal with economic matters such as foreign
investment, corporate organization and governance, commerce,
taxation and trade, as well as encourage foreign investment in
China. Although the influence of the law has been increasing, China
has not developed a fully integrated legal system and recently
enacted laws and regulations may not sufficiently cover all aspects
of economic activities in China. Also, because these laws and
regulations are relatively new, and because of the limited volume
of published cases and their lack of force as precedents,
interpretation and enforcement of these laws and regulations
involve significant uncertainties. New laws and regulations that
affect existing and proposed future businesses may also be applied
retroactively. In addition, there have been constant changes and
amendments of laws and regulations over the past 30 years in order
to keep up with the rapidly changing society and economy in China.
Because government agencies and courts provide interpretations of
laws and regulations and decide contractual disputes and issues,
their inexperience in adjudicating new business and new polices or
regulations in certain less developed areas causes uncertainty and
may affect the Company’s business. Consequently, we cannot predict
the future direction of Chinese legislative activities with respect
to either businesses with foreign investment or the effectiveness
on enforcement of laws and regulations in China. The uncertainties,
including new laws and regulations and changes of existing laws, as
well as judicial interpretation by inexperienced officials in the
agencies and courts in certain areas, may cause possible problems
to foreign investors.
The Company’s business is subject to extensive regulation and
supervision by state, provincial and local government authorities,
which may interfere with the way the Company conducts its business
and may negatively impact its financial results.
The
Company conducts its business in the financial industry which is
highly regulated. It is subject to extensive and complex state,
provincial and local laws, rules and regulations with regard to its
financing guaranties, capital structure, and asset management,
among other things. These laws, rules and regulations are issued by
different central government ministries and departments, provincial
and local governments and are enforced by different local
authorities. Therefore, the interpretation and implementation of
such laws, rules and regulations may not be clear and occasionally
the Company has to depend on oral inquiries with local government
authorities. As a result of the complexity, uncertainties and
constant changes in these laws, rules and regulation, including
changes in interpretation and implementation of such, the Company’s
business activities and growth may be adversely affected if they do
not respond to the changes in a timely manner or are found to be in
violation of the applicable laws, regulations and policies as a
result of a different position from theirs taken by the competent
authority in the interpretation of such applicable laws,
regulations and policies. If the Company is found to be not in
compliance with these laws and regulations, they may be subject to
sanctions by regulatory authorities, monetary penalties and/or
reputation damage, which could have a material adverse effect on
the Company’s business operations and profitability.
You may experience difficulties in effecting service of legal
process, enforcing foreign judgments or bringing original actions
against us or our management, in China, based upon United States
laws, including the U.S. federal securities laws, or other foreign
laws.
We are a company organized under the laws of the British Virgin
Islands. Substantially all of our operations are conducted in
China, and substantially all of our assets are located in China.
None of our subsidiaries is organized under the laws of the United
States. All of our directors and officers reside in China, and
substantially all of the assets of those persons are located
outside of the United States. As a result, it may be difficult for
a shareholder to effect service of process within the United States
upon these persons, or to enforce judgments against us which are
obtained in United States courts, including judgments predicated
upon the civil liability provisions of the securities laws of the
United States or any state in the United States.
Furthermore,
the recognition and enforcement of foreign judgments are provided
for under the PRC Civil Procedures Law. PRC courts may recognize
and enforce foreign judgments in accordance with the requirements
of the PRC Civil Procedures Law based either on treaties between
China and the country where the judgment is made or on principles
of reciprocity between jurisdictions. China does not have any
treaties or other form of reciprocity with the United States
providing for the reciprocal recognition and enforcement of foreign
judgments. In addition, according to the PRC Civil Procedures Law,
courts in the PRC will not enforce a foreign judgment against us or
our directors or officers if they decide that the judgment violates
the basic principles of PRC laws, national sovereignty, security or
public interest. As a result, it is uncertain whether and on what
basis a PRC court would enforce a judgment rendered by a court in
the United States.
Lastly,
in the event shareholders originate an action against a company
without domicile in China for disputes related to contracts or
other property interests, the PRC courts may accept a cause of
action if (a) the disputed contract is concluded or performed in
the PRC or the disputed subject matter is located in the PRC, (b)
the company (as defendant) has properties that can be seized within
the PRC, (c) the company has a representative organization within
the PRC, or (d) the parties chose to submit to the jurisdiction of
the PRC courts in the contract on the condition that such
submission does not violate the requirements of jurisdiction under
the PRC Civil Procedures Law. The action may be initiated by the
shareholder by filing a complaint with the PRC courts. The PRC
courts would determine whether to accept the complaint in
accordance with the PRC Civil Procedures Law. The shareholder may
participate in the action by itself or entrust any other person or
PRC legal counsel to participate on behalf of such shareholder.
Foreign citizens and companies will have the same rights as PRC
citizens and companies in such an action unless such foreign
country restricts the rights of PRC citizens and
companies.
Our Chinese subsidiaries’ ability to pay dividends to us may be
restricted due to foreign exchange control and other regulations of
China.
As an
offshore holding company, we will rely principally on dividends
from our subsidiaries in China, for our cash requirements. Under
the applicable PRC laws and regulations, foreign-invested
enterprises in China may pay dividends only out of their
accumulated profits, if any, determined in accordance with PRC
accounting standards and regulations. In addition, a
foreign-invested enterprise in China is required to set aside a
portion of its after-tax profit to fund specific reserve funds
prior to payment of dividends. In particular, at least 10% of its
after-tax profits based on PRC accounting standards each year is
required to be set aside towards its general reserves until the
accumulative amount of such reserves reach 50% of its registered
capital. These reserves are not distributable as cash
dividends.
Furthermore,
our Chinese subsidiaries’ ability to pay dividends may be
restricted due to foreign exchange control policies and the
availability of its cash balance. Substantially all of the
Company’s operations are conducted in China and all of the revenue
we recognize will be denominated in RMB. RMB is subject to exchange
control regulation in China, and, as a result, our Chinese
subsidiaries may be unable to distribute any dividends outside of
China due to PRC exchange control regulations that restrict our
ability to convert RMB into U.S. dollars.
The
lack of dividends or other payments from our Chinese subsidiaries
may limit our ability to make investments or acquisitions that
could be beneficial to our business, pay dividends or otherwise
fund, and conduct our business. Our funds may not be readily
available to us to satisfy obligations which have been incurred
outside the PRC, which could adversely affect our business and
prospects or our ability to meet our cash obligations. Accordingly,
if we do not receive dividends from our Chinese subsidiaries, our
liquidity and financial condition will be materially and adversely
affected.
Dividends payable to our foreign investors and gains on the sale of
our ordinary shares by our foreign investors may become subject to
tax by the PRC.
Under
the Enterprise Income Tax Law and its implementation regulations
issued by the State Council of the PRC, a 10% PRC withholding tax
is applicable to dividends payable to investors that are
non-resident enterprises, which do not have an establishment or
place of business in the PRC or which have such establishment or
place of business but the dividends are not effectively connected
with such establishment or place of business, to the extent such
dividends are derived from sources within the PRC. Similarly, any
gain realized on the transfer of shares by such investors is also
subject to PRC tax at a current rate of 10%, subject to any
reduction or exemption set forth in relevant tax treaties, if such
gain is regarded as income derived from sources within the PRC. If
we are deemed a PRC resident enterprise, dividends paid on our
shares, and any gain realized from the transfer of our shares,
would be treated as income derived from sources within the PRC and
would as a result be subject to PRC taxation. Furthermore, if we
are deemed a PRC resident enterprise, dividends payable to
individual investors who are non-PRC residents and any gain
realized on the transfer shares by such investors may be subject to
PRC tax at a current rate of 20%, subject to any reduction or
exemption set forth in applicable tax treaties. It is unclear
whether we or any of our subsidiaries established outside of China
are considered a PRC resident enterprise, holders of shares would
be able to claim the benefit of income tax treaties or agreements
entered into between China and other countries or areas. If
dividends payable to our non-PRC investors or gains from the
transfer of our shares by such investors are subject to PRC tax,
the value of your investment in our shares may decline
significantly.
Our global income may be subject to PRC taxes under the PRC
Enterprise Income Tax Law, which could have a material adverse
effect on our results of operations.
Under
the PRC Enterprise Income Tax Law, or the New EIT Law, and its
implementation rules, which became effective in January 2008, an
enterprise established outside of the PRC with a “de facto
management body” located within the PRC is considered a PRC
resident enterprise and will be subject to the enterprise income
tax at the rate of 25% on its global income. The implementation
rules define the term “de facto management bodies” as
“establishments that carry out substantial and overall management
and control over the manufacturing and business operations,
personnel and human resources, finance and treasury, and
acquisition and disposition of properties and other assets of an
enterprise.” On April 22, 2009, the State Administration of
Taxation (the “SAT”), issued a circular, or SAT Circular 82 (partly
modified by SAT Announcement [2014]No. 9), which provides certain
specific criteria for determining whether the “de facto management
body” of a PRC-controlled enterprise that is incorporated offshore
is located in China. Although the SAT Circular 82 only applies
to offshore enterprises controlled by PRC enterprises or PRC
enterprise groups, not those controlled by PRC individuals or
foreigners, the determining criteria set forth in the SAT Circular
82 may reflect the SAT’s general position on how the “de facto
management body” test should be applied in determining the resident
status of all offshore enterprises for the purpose of PRC tax,
regardless of whether they are controlled by PRC enterprises or
individuals. Although we do not believe that our legal entities
organized outside of the PRC constitute PRC resident enterprises,
it is possible that the PRC tax authorities could reach a different
conclusion. In such case, we may be considered a PRC resident
enterprise and may therefore be subject to the 25% enterprise
income tax on our global income, which could significantly increase
our tax burden and materially and adversely affect our cash flow
and profitability. In addition to the uncertainty regarding how the
new PRC resident enterprise classification for tax purposes may
apply, it is also possible that the rules may change in the future,
possibly with retroactive effect.
We and our shareholders face uncertainties with respect to indirect
transfers of equity interests in PRC resident enterprises by their
non-PRC holding companies.
On
February 3, 2015, the State Administration of Taxation issued an
Announcement on Several Issues Concerning Enterprise Income Tax on
Income Arising from Indirect Transfers of Property by Non-PRC
Resident Enterprises, or Announcement 7, with the same effective
date. Under Announcement 7, an “indirect transfer” refers to a
transaction where a non-resident enterprise transfers its equity
interest and other similar interest in an offshore holding company,
which directly or indirectly holds Chinese taxable assets (the
assets of an “establishment or place” situated in China; real
property situated in China and equity interest in Chinese resident
enterprises) and any indirect transfer without reasonable
commercial purposes are subject to the PRC taxation. In addition,
Announcement 7 specifies the conditions under which an indirect
transfer is deemed to lack a reasonable commercial purpose which
include: (1) 75% or more of the value of the offshore holding
company’s equity is derived from Chinese taxable assets,
(2) anytime in the year prior to the occurrence of the
indirect transfer of Chinese taxable assets, 90% or more of the
total assets (excluding cash) of the offshore holding company are
direct or indirect investment in China, or 90% or more of the
revenue of the offshore holding company was sourced from China; (3)
the functions performed and risks assumed by the offshore holding
company(ies), although incorporated in an offshore jurisdiction to
conform to the corporate law requirements there, are insufficient
to substantiate their corporate existence and (4) the foreign
income tax payable in respect of the indirect transfer is lower
than the Chinese tax which would otherwise be payable in respect of
the direct transfer if such transfer were treated as a direct
transfer. As a result, gains derived from such indirect transfer
will be subject to PRC enterprise income tax, currently at a rate
of 10%.
Announcement
7 grants a safe harbor under certain qualifying circumstances,
including transfers in the public securities market and certain
intragroup restricting transactions, however, there is uncertainty
as to the implementation of Announcement 7. For example,
Announcement 7 requires the buyer to withhold the applicable taxes
without specifying how to obtain the information necessary to
calculate taxes and when the applicable tax shall be submitted.
Announcement 7 may be determined by the tax authorities to be
applicable to our offshore restructuring transactions or sale of
the shares of our offshore subsidiaries where non-resident
enterprises, being the transferors, were involved. Though
Announcement 7 does not impose a mandatory obligation of filing the
report of taxable events, the transferring party shall be subject
to PRC withholding tax if the certain tax filing conditions are
met. Non-filing may result in an administrative penalty varying
from 50% to 300% of unpaid taxes. As a result, we and our
non-resident enterprises in such transactions may become at risk of
being subject to taxation under Announcement 7, and may be required
to expend valuable resources to comply with Announcement 7 or to
establish that we and our non-resident enterprises should not be
taxed under Announcement 7, for any restructuring or disposal of
shares of our offshore subsidiaries, which may have a material
adverse effect on our financial condition and results of
operations.
Restrictions on currency exchange may limit our ability to utilize
our revenue effectively.
Substantially
all of our revenue 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. Currently, our PRC subsidiaries, which are
wholly- owned foreign enterprises, may purchase foreign currency
for settlement of “current account transactions,” including payment
of dividends to us, without the approval of SAFE by complying with
certain procedural requirements. However, the relevant PRC
governmental authorities may limit or eliminate our ability to
purchase foreign currencies in the future for current account
transactions. Since a significant amount of our future revenue will
be denominated in Renminbi, any existing and future restrictions on
currency exchange may limit our ability to utilize revenue
generated in Renminbi to fund our business activities outside of
the PRC or pay dividends in foreign currencies to our shareholders.
Foreign exchange transactions under the capital account remain
subject to limitations and require approvals from, or registration
with, SAFE or banks and other relevant PRC governmental
authorities. This could affect our ability to obtain foreign
currency through debt or equity financing for our
subsidiaries.
Fluctuations in the foreign currency exchange rate between U.S.
Dollars and Renminbi could adversely affect our financial
condition.
The
value of the RMB against the U.S. dollar and other currencies may
fluctuate. Exchange rates are 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
RMB to the U.S. dollar. Under this policy, the RMB is permitted to
fluctuate within a narrow and managed band against a basket of
foreign currencies. Following the removal of the U.S. dollar peg,
the RMB appreciated more than 20% against the U.S. dollar over
three years. From July 2008 until June 2010, however, the RMB
traded stably within a narrow range against the U.S. dollar. On
June 20, 2010, the PBOC announced that the PRC government would
reform the RMB exchange rate regime and increase the flexibility of
the exchange rate. Since June 2010, the RMB has appreciated more
than 10% against the U.S. dollar. In April 2012, the PRC government
announced it would allow greater RMB exchange rate fluctuation. On
August 11, 12 and 13, 2015, the PRC government successively set the
central parity rate for the RMB more than 3% lower in the aggregate
than that of August 10, 2015 and announced that it will begin
taking into account previous day’s trading in setting the central
parity rate. In 2015, the yuan experienced a 4.88% drop in value,
and on January 4, 2016 the PRC government set the U.S.
dollar-Chinese yuan currency pair to a reference rate of 6.5%, the
lowest rate in 4.5 years. In 2019, the exchange rate of RMB against
the US dollar depreciated by 4.1%. (Source: website of National
Bureau of Statistics Annual Statistic Report, dated February 28,
2020). However, it is difficult to predict how market forces or PRC
or U.S. government policy may impact the exchange rate between the
RMB and the U.S. dollar in the future. As significant international
pressure remains on the PRC government to adopt a more flexible
currency policy, greater fluctuation of the RMB against the U.S.
dollar could result.
Our
revenues and costs are mostly denominated in RMB, and a significant
portion of our financial assets are also denominated in RMB. Any
significant fluctuations in the exchange rate between the RMB and
the U.S. dollar may materially adversely affect our cash flows,
revenues, earnings and financial position, and the amount of and
any dividends we may pay on our shares in U.S. dollars.
Fluctuations in the exchange rate between the RMB and the U.S.
dollar could also result in foreign currency translation losses for
financial reporting purposes.
If any dividend is declared in the future and paid in a foreign
currency, you may be taxed on a larger amount in U.S. dollars than
the U.S. dollar amount that you will actually ultimately
receive.
If
you are a U.S. holder of our ordinary shares, you will be taxed on
the U.S. dollar value of your dividends, if any, at the time you
receive them, even if you actually receive a smaller amount of U.S.
dollars when the payment is in fact converted into U.S. dollars.
Specifically, if a dividend is declared and paid in a foreign
currency such as the RMB, the amount of the dividend distribution
that you must include in your income as a U.S. holder will be the
U.S. dollar value of the payments made in the foreign
currency, determined at the spot rate of the foreign currency to
the U.S. dollar on the date the dividend distribution is
includible in your income, regardless of whether the payment is in
fact converted into U.S. dollars. Thus, if the value of the foreign
currency decreases before you actually convert the currency into
U.S. dollars, you will be taxed on a larger amount in U.S. dollars
than the U.S. dollar amount that you will actually ultimately
receive.
Future inflation in China may inhibit economic activity and
adversely affect the Company’s operations.
The
Chinese economy has experienced periods of rapid expansion in
recent years which can lead to high rates of inflation or
deflation. This has caused the PRC government to, from time to
time, enact various corrective measures designed to restrict the
availability of credit or regulate growth and contain inflation.
High inflation may in the future cause the PRC government to once
again impose controls on credit and/or prices, or to take other
action, which could inhibit economic activity in China. Any action
on the part of the PRC government that seeks to control credit
and/or prices may adversely affect the Company’s business
operations.
PRC laws and regulations have established more complex procedures
for certain acquisitions of Chinese companies by foreign investors,
which could make it more difficult for the Company to pursue growth
through acquisitions in China.
Further
to the Regulations on Mergers and Acquisitions of Domestic
Enterprises by Foreign Investors, or the New M&A Rules, the
Anti-monopoly Law of the PRC, the Rules of Ministry of Commerce on
Implementation of Security Review System of Mergers and
Acquisitions of Domestic Enterprises by Foreign Investors
promulgated by MOFCOM or the MOFCOM Security Review Rules, was
issued in August 2011, which 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 MOFCOM be
notified in advance of any change of control transaction in which a
foreign investor takes control of a PRC enterprise, or that the
approval from MOFCOM be obtained in circumstances where overseas
companies established or controlled by PRC enterprises or residents
acquire affiliated domestic companies. PRC laws and regulations
also require certain merger and acquisition transactions to be
subject to merger control review and or security review.
The
MOFCOM Security Review Rules, effective from September 1, 2011,
which implement the Notice of the General Office of the State
Council on Establishing the Security Review System for Mergers and
Acquisitions of Domestic Enterprises by Foreign Investors
promulgated on February 3, 2011, further provide that, when
deciding whether a specific merger or acquisition of a domestic
enterprise by foreign investors is subject to the security review
by MOFCOM, the principle of substance over form should be applied
and foreign investors are prohibited from bypassing the security
review requirement by structuring transactions through proxies,
trusts, indirect investments, leases, loans, control through
agreements control or offshore transactions.
Further,
if the business of any target company that the Company seeks to
acquire falls into the scope of security review, the Company may
not be able to successfully acquire such company either by equity
or asset acquisition, capital contribution or through any VIE
Agreement. The Company may grow its business in part by acquiring
other companies operating in its industry. Complying with the
requirements of the relevant regulations to complete such
transactions could be time consuming, and any required approval
processes, including approval from MOFCOM, may delay or inhibit its
ability to complete such transactions, which could affect its
ability to maintain or expand its market share.
In
addition, SAFE promulgated the Circular on the Settlement of
Foreign Currency Capital of Foreign-invested Enterprises, or
Circular 19, on June 1, 2015. Under Circular 19 (partly modified by
Huifa No.39 [2019]), registered capital of a foreign-invested
company settled in RMB converted from foreign currencies may only
be used within the business scope approved by the applicable
governmental authority and the equity investments in the PRC made
by the foreign-invested company shall be subject to the relevant
laws and regulations about the foreign-invested company’s
reinvestment in the PRC. In addition, foreign-invested companies
cannot use such capital to make the investments on securities, and
cannot use such capital to issue the entrusted RMB loans (except
approved in its business scope), repay the RMB loans between the
enterprises and the ones which have been transferred to the third
party. Circular 19 may significantly limit our ability to
effectively use the proceeds from future financing activities as
the Chinese subsidiaries may not convert the funds received from us
in foreign currencies into RMB, which may adversely affect their
liquidity and our ability to fund and expand our business in the
PRC.
Failure to comply with the United States Foreign Corrupt Practices
Act and Chinese anti-corruption laws could subject us to penalties
and other adverse consequences.
As
our shares are quoted on OTC, we are subject to the United States
Foreign Corrupt Practices Act, which generally prohibits United
States companies from engaging in bribery or other prohibited
payments to foreign officials for the purpose of obtaining or
retaining business. Non-U.S. companies, including some that may
compete with us, may not be subject to these prohibitions.
Corruption, extortion, bribery, pay-offs, theft and other
fraudulent practices may occur from time-to-time in the PRC. Our
employees or other agents may engage in such conduct for which we
might be held responsible. If our employees or other agents are
found to have engaged in such practices, we could suffer severe
penalties and other consequences that may have a material adverse
effect on our business, financial condition and results of
operations.
Our management may have to expend time and resources becoming
familiar with United States securities laws, which could lead to
various regulatory issues.
Management
of the Company has limited familiarity with United States
securities laws. They may have to expend time and resources
becoming more familiar with such laws. This could be expensive and
time-consuming and could lead to various regulatory issues, which
may adversely affect our operations.
If we become directly subject to the recent scrutiny, criticism and
negative publicity involving U.S.-listed Chinese companies, we may
have to expend significant resources to investigate and resolve the
matter which could harm our business operations and our reputation
and could result in a loss of your investment in our shares,
especially if such matter cannot be addressed and resolved
favorably.
U.S.
public companies that have substantially all of their operations in
China have been the subject of intense scrutiny, criticism and
negative publicity by investors, financial commentators and
regulatory agencies, such as the SEC. Much of the scrutiny,
criticism and negative publicity has centered around financial and
accounting irregularities, a lack of effective internal controls
over financial accounting, inadequate corporate governance policies
or a lack of adherence thereto and, in many cases, allegations of
fraud. As a result of the scrutiny, criticism and negative
publicity, the publicly traded stock of many U.S. listed Chinese
companies has sharply decreased in value and, in some cases, has
become virtually worthless. Many of these companies are now subject
to shareholder lawsuits and SEC enforcement actions and are
conducting internal and external investigations into the
allegations. It is not clear what effect this sector-wide scrutiny,
criticism and negative publicity will have on our company and our
business. If we become the subject of any unfavorable allegations,
whether such allegations are proven to be true or untrue, we will
have to expend significant resources to investigate such
allegations and/or defend the Company. This situation may be a
major distraction to our management. If such allegations are not
proven to be groundless, our Company and business operations will
be severely hampered and your investment in our stock could be
rendered worthless.
The disclosures in our reports and other filings with the SEC and
our other public pronouncements are not subject to the scrutiny of
any regulatory bodies in the PRC.
Our
reports and other filings with the SEC are subject to SEC review in
accordance with the rules and regulations promulgated by the SEC
under the Securities Act and the Exchange Act. Our SEC filings and
other disclosure and public pronouncements are not subject to the
review or scrutiny of any PRC regulatory authority. For example,
the disclosure in our SEC reports and other filings are not subject
to the review by CSRC, a PRC regulator that is tasked with
oversight of the capital markets in China. Accordingly, you should
review our SEC reports, filings and our other public pronouncements
with the understanding that no local regulator has done any review
of our Company, our SEC reports, other filings or any of our other
public pronouncements.
There are uncertainties under the PRC laws relating to the
procedures for U.S. regulators to investigate and collect evidence
from companies located in the PRC.
Shareholder
claims that are common in the U.S., including securities law class
actions and fraud claims, among other matters, generally are
difficult to pursue as a matter of law or practicality in China.
For example, in China, there are significant legal and other
obstacles to obtaining information needed for shareholder
investigations or litigation outside China or otherwise with
respect to foreign entities. Although the local authorities in
China may establish a regulatory cooperation mechanism with the
securities regulatory authorities of another country or region to
implement cross-border supervision and administration, such
regulatory cooperation with the securities regulatory authorities
in the Unities States have not been efficient in the absence of
mutual and practical cooperation mechanism. According to Article
177 of the PRC Securities Law, which became effective in March
2020, or Article 177, the securities regulatory authority of the
State Council may collaborate with securities regulatory
authorities of other countries or regions in order to monitor and
oversee cross border securities activities. Article 177 further
provides that overseas securities regulatory authorities are not
permitted to carry out investigation and evidence collection
directly within the territory of the PRC, and that any Chinese
entities and individuals are not allowed to provide documents or
materials related to securities business activities to overseas
agencies without prior consent of the securities regulatory
authority of the State Council and the competent departments of the
State Council.
Our
principal business operations are conducted in the PRC. In the
event that any U.S. regulators carry out investigations with
respect to our business and need to conduct investigation or
collect evidence within the territory of the PRC, the U.S.
regulators may not be able to carry out such investigation or
evidence collection directly in the PRC under the PRC laws. U.S.
regulators may consider cross-border cooperation with securities
regulatory authority of the PRC by way of judicial assistance,
diplomatic channels or regulatory cooperation mechanism established
with the securities regulatory authority of the PRC. However, there
can be no assurance that the U.S. regulators could succeed in
establishing such cross-border cooperation in a specific case or
could establish the cooperation in a timely manner. If U.S.
regulators are unable to conduct such investigations, they may
determine to suspend the quotation of our securities on the OTC
markets or choose to suspend or de-register our SEC
registration.
Newly enacted Holding Foreign Companies Accountable Act, recent
regulatory actions taken by the SEC and the Public Company
Accounting Oversight Board, or the PCAOB, and proposed rule changes
submitted by U.S. stock exchanges calling for additional and more
stringent criteria to be applied to China-based public companies
could add uncertainties to our capital raising activities and
compliance costs.
In
April 2020, the SEC then-Chairman, Jay Clayton, and PCAOB Chairman,
William D. Duhnke III, along with other senior SEC staff, released
a joint statement highlighting the risks associated with investing
in companies based in or have substantial operations in emerging
markets including China. The joint statement emphasized the risks
associated with lack of access for the PCAOB to inspect auditors
and audit work papers in China and higher risks of fraud in
emerging markets.
In
May 2020, the U.S. Senate passed the Holding Foreign Companies
Accountable Act (“HFCAA” or the “Act”) requiring a foreign company
to certify it is not owned or controlled by a foreign government if
the PCAOB is unable to audit specified reports because the company
uses a foreign auditor not subject to PCAOB inspection. If the
PCAOB is unable to inspect the company’s auditors for three
consecutive years, the issuer’s securities are prohibited to trade
on a national exchange.
In
August 2020, the President’s Working Group on Financial Markets
(“PWG”) issued a Report on Protecting United States Investors from
Significant Risks from Chinese Companies. The Report made five
recommendations designed to address risks to investors in U.S.
financial markets posed by the Chinese government’s failure to
allow audit firms that are registered with the PCAOB to comply with
U.S. securities laws and investor protection requirements. Among
the recommendations was advice to enhance the listing standards of
U.S. exchanges to require, as a condition of initial and continued
exchange listing, PCAOB access to main auditor work papers either
directly or through co-audits.
On
December 2, 2020, the U.S. House of Representatives passed the
HFCAA. On December 18, the HFCAA was signed into law. Among other
things, the HFCAA amends the Sarbanes-Oxley Act of 2002 to require
the SEC to prohibit the securities of foreign companies from being
traded on U.S. securities markets, if the company retains a foreign
accounting firm that cannot be inspected or investigated completely
by the PCAOB for three consecutive years, beginning in 2021. The
Act also requires foreign companies to make certain disclosures
about their ownership by governmental entities.
On
March 24, 2021, the SEC adopted interim final amendments and on
December 2, 2021, the SEC adopted final amendments to implement
congressionally mandated submission and disclosure requirements of
the HFCAA. The interim final amendments will apply to registrants
that the SEC identifies as having filed an annual report on Form
20-F and other forms with an audit report issued by a registered
public accounting firm that is located in a foreign jurisdiction
and that the PCAOB has determined it is unable to inspect or
investigate completely because of a position taken by an authority
in that jurisdiction. The SEC will implement a process for
identifying such a registrant and any such identified registrant
will be required to submit documentation to the SEC establishing
that it is not owned or controlled by a governmental entity in that
foreign jurisdiction, and will also require disclosure in a
company’s annual report regarding the audit arrangements of, and
governmental influence on, such a registrant.
The
lack of access to the audit work paper or other inspections
prevents the PCAOB from fully evaluating audits and quality control
procedures of the auditors based in China. As a result, investors
may be deprived of the benefits of such PCAOB inspections. The
inability of the PCAOB to conduct inspections of auditors in China
makes it more difficult to evaluate the effectiveness of those
accounting firms’ audit procedures or quality control procedures as
compared to auditors outside of China that are subject to the PCAOB
inspections.
After
SEC issued new disclosure requirements to Chinese companies seeking
to list on Nasdaq, SEC approved the Public Company Accounting
Oversight Board’s (PCAOB) Rule 6100 establishing framework for
determinations under the HFCAA. On December 20, 2021, the SEC’s
Division of Corporation Finance (the “Division”) posted an
illustrative letter containing sample comments that the Division
may issue to China-based companies describing 15 areas where the
agency encourages existing and future China-based listings to
increase disclosures. On December 20, 2021, the PCAOB issued
a report on its determinations that the PCAOB is unable to inspect
or investigate completely PCAOB-registered public accounting firms
headquartered in mainland because of positions taken by PRC
authorities in those jurisdictions.
Our
independent registered public accounting firm that issued the audit
report for our financial statements for 2021, as an auditor of
companies that are traded publicly in the United States and a firm
registered with the PCAOB, is subject to laws in the United States
pursuant to which the PCAOB conducts regular inspections to assess
our auditor’s compliance with the applicable professional
standards. Our auditor is based on the U.S. and has been inspected
by the PCAOB on a regular basis. However, the recent U.S.
legislative and evolving regulatory environments as related to PRC
companies listing or seeking to list stock on U.S. exchanges would
add uncertainties to the trading and price volatility of our common
shares. The rules and guidelines applicable in the future are
unclear and may affect the progress of our application. We cannot
be certain whether SEC or other U.S. regulatory authorities would
apply additional and more stringent criteria to Chinese issuers
including us as related to the audit of our financial statements.
These additional requirements and more stringent criteria to be
applied could add potential risks to our business and share price.
Investigations under more strict scrutiny brought significant
impact to the Company that may materially and adversely affect your
stock holdings value, reduces the value of your
investment.
Additional factors outside of our control related to doing business
in China could negatively affect our business.
Additional
factors that could negatively affect our business include a
potential significant revaluation of the Renminbi, which may result
in an increase in the cost of commodity or products in the PRC
supply chain industry, labor shortages and increases in labor costs
in China as well as difficulties in moving products manufactured in
China out of the country, whether due to infrastructure inadequacy,
labor disputes, slowdowns, PRC regulations and/or other factors.
Prolonged disputes or slowdowns can negatively impact both the time
and cost of goods. Natural disasters or health pandemics impacting
China can also have a significant negative impact on our business.
Further, the imposition of trade sanctions or other regulations
against products supplied or sold in the supply chain industry
transactions for which we provide solutions or the loss of “normal
trade relations” status with China could significantly affect our
operating results and harm our business.
The risk related to products quality responsibility and personal
claims.
The
Company’s subsidiaries and related parties’ business scope involve
the operation and distribution of medical device, in product
liability claims we should be liable for compensation according to
the Civil Law, the Product Quality Law and the Tort Liability Law
in below circumstances: (1)Where physical injury is caused to a
person or damage to another person’s property by a product’s defect
resulting from the seller’s fault; (2) Where the seller can
identify neither the producer of the defective product nor the
supplier thereof; (3) Where a defective product causes physical
injury to a person or damage to another person’s property, the
victim may claim compensation from the producer or from the seller
of such product. We may be involved in any litigation regarding the
products we sold or distributed due to our contractual relationship
with other companies. If we lose the lawsuit, the damages can be
very substantial, even if we are found not liable, the costs of
litigation can be quite substantial. Additional, product liability
dispute litigation may cause adversely affect on our business
reputation and efficiency, further, affect or interrupt the
company’s operations and revenue.
Risks arising from reliance on third-party service providers and
intellectual property rights risk.
The
Company’s subsidiaries have co-operation agreements with technology
enterprises that have patent or other independent intellectual
property rights which have been properly registered with regulatory
agencies such as the State Intellectual Property Office and
Trademark Office of China’s State Administration for Industry and
Commerce (SAIC). Our service and reputation significantly rely on
the third-party suppliers mentioned above. If (i) the PRC
authorities invalidate these agreements for violation of PRC laws,
rules, and regulations, (ii) the agreements are valid but can not
be performed, or (iii) any parties fail to perform their
obligations under these agreements, our business operations in
China would be materially and adversely affected, and the value of
your stock would substantially decrease. If a third party fails to
perform or defective perform its contractual obligations, it will
lead to a failure to provide products or services according to meet
our consumers’ requirements, we may have to take legal action to
compel them to fulfill their contractual obligations. The Company
depends on third parties to a large extent that it could not enable
us to feasibly monitor the behavior of third parties to reasonably
avoid contractual risks. Further, because intellectual property
rights are owned by a third party, it is difficult for the company
to restrain third parties from intellectual property infringement
or default disclosure of trade secrets. This could harm our
reputation and business position.
Federal and state privacy laws, and equivalent laws of third
countries, may increase our costs of operation and expose us to
civil and criminal sanctions.
The
Health Insurance Portability and Accountability Act of 1996, as
amended, and the regulations that have been issued under it, or
collectively HIPAA, and similar laws outside the United States,
contain substantial restrictions and requirements with respect to
the use and disclosure of individuals’ protected health
information. The HIPAA privacy rules prohibit “covered entities,”
such as healthcare providers and health plans, from using or
disclosing an individual’s protected health information, unless the
use or disclosure is authorized by the individual or is
specifically required or permitted under the privacy rules. Under
the HIPAA security rules, covered entities must establish
administrative, physical and technical safeguards to protect the
confidentiality, integrity and availability of electronic protected
health information maintained or transmitted by them or by others
on their behalf. While we do not believe that we will be a covered
entity under HIPAA, we believe many of our customers will be
covered entities subject to HIPAA. Such customers may require us to
enter into business associate agreements, which will obligate us to
safeguard certain health information we obtain in the course of our
relationship with them, restrict the manner in which we use and
disclose such information and impose liability on us for failure to
meet our contractual obligations.
In
addition, under The Health Information Technology for Economic and
Clinical Health Act of 2009, or HITECH, which was signed into law
as part of the U.S. stimulus package in February 2009, certain of
HIPAA’s privacy and security requirements are now also directly
applicable to “business associates” of covered entities and subject
them to direct governmental enforcement for failure to comply with
these requirements. We may be deemed as a “business associate” of
some of our customers. As a result, we may be subject as a
“business associate” to civil and criminal penalties for failure to
comply with applicable privacy and security rule requirements.
Moreover, HITECH created a new requirement obligating “business
associates” to report any breach of unsecured, individually
identifiable health information to their covered entity customers
and imposes penalties for failing to do so.
In
addition to HIPAA, most U.S. states have enacted patient
confidentiality laws that protect against the disclosure of
confidential medical information, and many U.S. states have adopted
or are considering adopting further legislation in this area,
including privacy safeguards, security standards, and data security
breach notification requirements. These U.S. state laws, which may
be even more stringent than the HIPAA requirements, are not
preempted by the federal requirements, and we are therefore
required to comply with them to the extent they are applicable to
our operations.
These
and other possible changes to HIPAA or other U.S. federal or state
laws or regulations, or comparable laws and regulations in
countries where we conduct business, could affect our business and
the costs of compliance could be significant. Failure by us to
comply with any of the standards regarding patient privacy,
identity theft prevention and detection, and data security may
subject us to penalties, including civil monetary penalties and in
some circumstances, criminal penalties. In addition, such failure
may damage our reputation and adversely affect our ability to
retain customers and attract new customers.
The
protection of personal data, particularly patient data, is subject
to strict laws and regulations in many countries. The collection
and use of personal health data in the EU is governed by the
provisions of Directive 95/46/EC of the European Parliament and of
the Council of 24 October 1995 on the protection of individuals
with regard to the processing of personal data and on the free
movement of such data, commonly known as the Data Protection
Directive. The Directive imposes a number of requirements including
an obligation to seek the consent of individuals to whom the
personal data relates, the information that must be provided to the
individuals, notification of data processing obligations to the
competent national data protection authorities of individual EU
Member States and the security and confidentiality of the personal
data. The Data Protection Directive also imposes strict rules on
the transfer of personal data out of the EU to the U.S. Failure to
comply with the requirements of the Data Protection Directive and
the related national data protection laws of the EU Member States
may result in fines and other administrative penalties and harm our
business. We may incur extensive costs in ensuring compliance with
these laws and regulations, particularly if we are considered to be
a data controller within the meaning of the Data Protection
Directive.
Once we commercialize our product, if ever, security breaches, loss
of data and other disruptions could compromise sensitive
information related to our business or prevent us from accessing
critical information and expose us to liability, which could
adversely affect our business and our
reputation.
We
face four primary risks relative to protecting this critical
information: loss of access risk, inappropriate disclosure risk,
inappropriate modification risk and the risk of our being unable to
identify and audit our controls over the first three
risks.
We
will be highly dependent on information technology networks and
systems, including the Internet, to securely process, transmit and
store this critical information. Security breaches of this
infrastructure, including physical or electronic break-ins,
computer viruses, attacks by hackers and similar breaches, can
create system disruptions, shutdowns or unauthorized disclosure or
modification of confidential information. The secure processing,
storage, maintenance and transmission of this critical information
will be vital to our operations and business strategy, and we plan
to devote significant resources to protecting such information.
Although we will take measures to protect sensitive information
from unauthorized access or disclosure, our information technology
and infrastructure, and that of our third-party providers, may be
vulnerable to attacks by hackers or viruses or breached due to
employee error, malfeasance or other disruptions.
A
security breach or privacy violation that leads to disclosure or
modification of or prevents access to consumer information
(including personally identifiable information or protected health
information) could harm our reputation, compel us to comply with
disparate state breach notification laws, require us to verify the
correctness of database contents and otherwise subject us to
liability under laws that protect personal data, resulting in
increased costs or loss of revenue. If we are unable to prevent
such security breaches or privacy violations or implement
satisfactory remedial measures, our operations could be disrupted,
and we may suffer loss of reputation, financial loss and other
regulatory penalties because of lost or misappropriated
information, including sensitive consumer data. In addition, these
breaches and other inappropriate access can be difficult to detect,
and any delay in identifying them may lead to increased harm of the
type described above.
Any
such breach or interruption could compromise our networks or those
of our third-party providers, and the information stored there
could be inaccessible or could be accessed by unauthorized parties,
publicly disclosed, lost or stolen. Any such interruption in
access, improper access, disclosure or other loss of information
could result in legal claims or proceedings, liability under laws
that protect the privacy of personal information, such as HIPAA,
and regulatory penalties. Unauthorized access, loss or
dissemination could also disrupt our operations, including our
ability to perform tests, provide test results, bill payers or
patients, process claims and appeals, provide customer assistance
services, conduct research and development activities, collect,
process and prepare company financial information, provide
information about our current and future products and other patient
and clinician education and outreach efforts through our website,
and manage the administrative aspects of our business and damage
our reputation, any of which could adversely affect our business.
Any such breach could also result in the compromise of our trade
secrets and other proprietary information, which could adversely
affect our competitive position.
In
addition, the interpretation and application of consumer,
health-related, privacy and data protection laws in the U.S., the
EU and elsewhere are often uncertain, contradictory and in flux. It
is possible that these laws may be interpreted and applied in a
manner that is inconsistent with our practices. If so, this could
result in government-imposed fines or orders requiring that we
change our practices, which could adversely affect our business.
Complying with these various laws could cause us to incur
substantial costs or require us to change our business practices
and compliance procedures in a manner adverse to our
business.
Risks
Related to our Operations as a Public Company and our
Securities
If financial performance do not meet the expectations of
investors, shareholders or financial analysts, the market price of
the Company’s securities may be volatile and
decline .
If our business and/or financial performance do not meet the
expectations of investors or securities analysts, the market price
of the Company’s securities may decline. If an active market for
the Company’s securities develops and continues, the trading price
of our securities could be volatile and subject to wide
fluctuations in response to various factors, some of which are
beyond our control. Any of the factors listed below could have a
material adverse effect on your investment in the Company’s
securities which may trade at prices significantly below the price
you paid for them. In such circumstances, the trading price of our
securities may not recover and may experience a further
decline.
Factors
affecting the trading price of the Company’s securities may
include:
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our operating results failing to meet
the expectation of securities analysts or investors in a particular
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changes in financial estimates and
recommendations by securities analysts concerning the Company or
the lending market in general; |
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operating and stock price performance
of other companies that investors deem comparable to the
Company; |
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our ability to market new and
enhanced services on a timely basis; |
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changes in laws and regulations
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commencement of, or involvement in,
litigation involving the Company; |
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the Company’s ability to access the
capital markets as needed; |
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changes in the Company’s capital
structure, such as future issuances of securities or the incurrence
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the volume of ordinary shares
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any major change in our board or
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sales of substantial amounts of
ordinary shares by our directors, executive officers or significant
shareholders or the perception that such sales could occur;
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general economic and political
conditions such as recessions, interest rates, fuel prices,
international currency fluctuations and acts of war or
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Broad market and industry factors may materially harm the market
price of the Company’s securities irrespective of our operating
performance. The stock market in general, has experienced price and
volume fluctuations that have often been unrelated or
disproportionate to the operating performance of the particular
companies affected. The trading prices and valuations of these
stocks, and of our securities, may not be predictable. A loss of
investor confidence in the market for retail stocks or the stocks
of other companies which investors perceive to be similar to the
Company could depress our stock price regardless of our business,
prospects, financial condition or results of operations. A decline
in the market price of our securities also could adversely affect
our ability to issue additional securities and our ability to
obtain additional financing in the future.
The Company’s business and share and warrant prices may suffer as a
result of the Company’s insufficient public company operating
experience and if securities or industry analysts do not publish or
cease publishing research or reports about the Company, its
business, or its market, or if they change their recommendations
regarding our ordinary shares adversely, the price and trading
volume of our ordinary shares and warrants could
decline.
The
Company has been a public company for a limited number of years.
The Company’s insufficient public company operating experience may
make it difficult to forecast and evaluate its future prospects. If
the Company is unable to execute its business strategy, either as a
result of its inability to effectively manage its business in a
public company environment or for any other reason, the Company’s
business, prospects, financial condition and operating results may
be harmed.
The trading market for our ordinary shares and warrants will be
influenced by the research and reports that industry or securities
analysts may publish about us, our business, our market, or our
competitors. Securities and industry analysts do not currently, and
may never, publish research on the Company. If no securities or
industry analysts commence coverage of the Company, our ordinary
share and warrant prices and trading volume would likely be
negatively impacted. If any of the analysts who may cover the
Company change their recommendation regarding our shares adversely,
or provide more favorable relative recommendations about our
competitors, the price of our ordinary shares and warrants would
likely decline. If any analyst who may cover the Company were to
cease coverage of the Company or fail to regularly publish reports
on it, we could lose visibility in the financial markets, which
could cause our share and warrant prices or trading volume to
decline.
The Company has only registered a small number of our
ordinary shares issuable upon exercise of our warrants, and has not
registered any of our ordinary shares underlying the preferred
shares under the Securities Act of 1933, as amended (the
“Securities Act”) or state securities laws at this time, and such
registration may not be in place when an investor desires to
exercise such warrants.
The Company has only registered a small number of the ordinary
shares issuable upon exercise of our warrants, and has not
registered any of our ordinary shares underlying the preferred
shares under the Securities Act or any state securities laws at
this time. We have agreed to use our best efforts to file with the
SEC a registration statement for the registration, under the
Securities Act, covering these securities as soon as practicable
after the closing of the Business Combination and cause the same to
become effective and to maintain the effectiveness of such
registration statement, and a current prospectus relating
thereto.
Warrants we sold will become exercisable for the Company’s
ordinary shares, which would increase the number of shares eligible
for future resale in the public market and result in dilution to
our shareholders.
In addition to the warrants issued before January 1, 2018, at an
exercise price of $6.00 per one-half of one share ($12.00 per whole
share), the Company issued in July 2018 Series A Warrants at an
exercise price of $2.6 per one share and adjusted to $1.18 per one
share on January 19, 2019. All warrants are subject to adjustments.
Warrants may be exercised only for a whole number of the Company’s
ordinary shares. No fractional shares will be issued upon exercise
of warrants. To the extent such warrants are exercised, additional
ordinary shares will be issued, which will result in dilution to
the then existing holders of ordinary shares of the Company and
increase the number of shares eligible for resale in the public
market. Sales of substantial numbers of such shares in the public
market could adversely affect the market price of our ordinary
shares.
The Company’s charter permits the Board by resolution to
amend our charter, including to create additional classes of
securities, including shares with rights, preferences, designations
and limitations as they determine which may have an anti-takeover
effect.
The Company’s charter permits the Board by resolution to amend the
charter including designating rights, preferences, designations and
limitations attaching to the preferred shares as they determine in
their discretion, without shareholder approval with respect to the
terms or the issuance. When issued, the rights, preferences,
designations and limitations of the preferred shares are set by the
Board and can operate to the disadvantage of the outstanding
ordinary shares the holders of which would not have any pre-emption
rights in respect of such an issue of preferred shares. Such terms
could include, among others, preferences as to dividends and
distributions on liquidation, or can be used to prevent possible
corporate takeovers.
The Company is no longer a Nasdaq listed company and, as a
result, the Company may not be required to, and may choose not to,
obey certain corporate governance requirements of
Nasdaq.
The Company’s ordinary shares have not been listed on the Nasdaq
since September 2019. As a result, the Company is no longer subject
to Nasdaq rules. While the Company plans to continue following
certain corporate governance requirements of Nasdaq, it has the
discretion not to and may elect to not obey any Nasdaq rules. Its
shareholders will not be afforded the same protections generally as
shareholders of Nasdaq-listed companies for so long as the Company
is not a Nasdaq listed company.
The Company may not be able to timely and effectively implement
controls and procedures required by Section 404 of the
Sarbanes-Oxley Act of 2002.
The
Company is required to establish and maintain internal controls
over financial reporting and disclosure controls and procedures and
to comply with other requirements of the Sarbanes-Oxley Act and the
rules promulgated by the SEC. The Company is required to provide
management’s attestation on internal controls. The standards
required for a public company under Section 404 of the
Sarbanes-Oxley Act of 2002 are significantly more stringent than
those required of a privately held company. Management may not be
able to effectively and timely implement controls and procedures
that adequately respond to the regulatory compliance and reporting
requirements, especially considering the new corporate structure
after the Lixin Acquisition. If we are not able to implement the
additional requirements of Section 404 in a timely manner or with
adequate compliance, we may not be able to assess whether our
internal controls over financial reporting are effective, which may
subject us to adverse regulatory consequences and could harm
investor confidence and the market price of our ordinary
shares.
The Company has material weaknesses in its controls and procedures
required by Section 404 of the Sarbanes-Oxley Act of 2002. This
material weakness may call into question the accuracy of our
financial statements which could harm our business and adversely
affect the trading price of our ordinary shares.
The Company is required to establish and maintain internal controls
over financial reporting and disclosure controls and procedures and
to comply with other requirements of the Sarbanes-Oxley Act and the
rules promulgated by the SEC. The Company is required to provide
management’s attestation on internal controls. The standards
required for a public company under Section 404 of the
Sarbanes-Oxley Act of 2002 are significantly more stringent than
those required of a privately held company. Based on our
assessment, as of December 31, 2021, we determined that there were
material weaknesses in our internal control over financial
reporting. We believe these material weaknesses mainly resulted
from our not having sufficient personnel with appropriate levels of
accounting knowledge and experience to address complex U.S. GAAP
accounting issues and to prepare and review financial statements
and related disclosures under U.S. GAAP. There can be no assurance
that the steps we have taken to remedy these material weaknesses
will be effective. Any continued material weakness may result in
investors believing they may not rely on the accuracy in our
financial statements. This could cause our stock price to decline
and any resulting material errors could cause us to have to restate
our financial statements which would be costly and could further
erode investor confidence.
There is no guarantee that our warrants will ever be in the money,
and they may expire worthless and the terms of our warrants may be
amended.
In
addition to the warrants issued before January 1, 2018, at an
exercise price of $6.00 per one-half of one share ($12.00 per whole
share), A Warrants at an exercise price of $2.60 per one share
which was adjusted to $1.18 per one share on January 19, 2019. All
warrants are subject to adjustments. Warrants may be exercised only
for a whole number of the Company’s ordinary shares. No fractional
shares will be issued upon exercise of the warrants. There is no
guarantee that the warrants will ever be in the money prior to
their expiration, and they may expire worthless. The Series A
Warrants are the Company’s only outstanding warrants prior to the
Reverse Split and such warrants will expire on July 9,
2022.
A market for the Company’s securities may not continue, which would
adversely affect the liquidity and price of our
securities.
The
price of the Company’s securities may fluctuate significantly due
to the market’s reaction and general market and economic
conditions. An active trading market for our securities may never
develop or, if developed, it may not be sustained. In addition, the
price of the Company’s securities can vary due to general economic
conditions and forecasts, our general business condition and the
release of our financial reports. Additionally, because the
Company’s ordinary shares were delisted from the Nasdaq Capital
Market in September 2019, and are quoted on the OTC Bulletin Board,
an inter-dealer automated quotation system for equity securities
that is not a national securities exchange, the liquidity and price
of our securities are more limited than when we were listed on the
Nasdaq Capital Market. You may be unable to sell your securities
unless a market can be established or sustained.
Because
the Nasdaq Capital Market delisted the Company’s ordinary shares
from trading on its exchange due to our failure to meet the Nasdaq
Capital Market’s initial and/or continued listing standards, we and
our security holders face significant material adverse consequences
including:
|
● |
a
limited availability of market quotations for our
securities; |
|
● |
a
determination that our ordinary shares are a “penny stock,” which
requires brokers trading in our ordinary shares to adhere to more
stringent rules, resulting in a reduced level of trading activity
in the secondary trading market for our ordinary
shares; |
|
● |
a
limited amount of analyst coverage; and |
|
● |
a
decreased ability to issue additional securities or obtain
additional financing in the future. |
Although we are making significant efforts to help our ordinary
shares be listed on the Nasdaq Capital Market again, there can be
no assurance that we will succeed or, if listed, that we will be
able to comply with the continued listing standards of
Nasdaq.
Our
ordinary shares were delisted from the Nasdaq Capital Market in
September 2019. To list the Company’s securities on the Nasdaq
Capital Market again, among other conditions, we will be required
to demonstrate compliance with Nasdaq’s initial listing standards,
which are more rigorous than Nasdaq’s continued listing
requirements. For instance, the Company must maintain a minimum
number of holders (300 round-lot holders). While we are working
hard and spending significant resources on applying for listing on
Nasdaq again, we cannot assure you that we will be able to meet
those initial listing standards and/or any other
conditions.
Risks
Related to Our Ordinary Shares, the Warrants and this
Offering
An active trading market for our ordinary shares and warrants has
not developed on the OTCQB and may not develop in the future
regardless of where our stock is quoted or listed. As a result, our
shareholders may not be able to resell their ordinary
shares.
Although
our ordinary shares are quoted on the OTCQB, an active trading
market for our ordinary shares has not developed. While we
intend to apply to have our ordinary shares and warrants listed on
The Nasdaq Capital Market, any such uplisting would likely require
that we conduct a substantial financing which we may be unable to
do. If we are unsuccessful in our uplisting, we would remain on the
OTCQB which could inhibit our ability to cause an active trading
market to develop. Even if we are successful in listing on the
Nasdaq Capital Market, an active trading market for our shares may
never develop or be sustained. We cannot predict the extent to
which an active market for our ordinary shares or warrants will
develop or be sustained if we are able to list such securities on
Nasdaq. If an active market for our ordinary shares or warrants
does not develop, it may be difficult for you to sell securities
you own without depressing the market price for the shares or
warrants, or at all.
Future issuance of our ordinary shares could dilute the interests
of existing shareholders.
We
may issue additional ordinary shares in the future. The issuance of
a substantial number of ordinary shares could have the effect of
substantially diluting the interests of our shareholders. In
addition, the sale of a substantial amount of ordinary shares in
the public market, in the initial issuance, in a situation in which
we acquire a company and the acquired company receives ordinary
shares as consideration and the acquired company subsequently sells
its ordinary shares, or by investors who acquired such ordinary
shares in a private placement, could have an adverse effect on the
market price of our ordinary shares.
We have some warrants outstanding, and while these warrants
are outstanding, it may be more difficult to raise additional
equity capital.
As of December 31, 2021, we had outstanding warrants to purchase
623,078 ordinary shares. The holders of these warrants have the
opportunity to profit from a rise in the market price of our
ordinary shares. We may find it more difficult to raise additional
equity capital while these warrants are outstanding. At any time
during which these warrants are likely to be exercised, we may be
unable to obtain additional equity capital on more favorable terms
from other sources. Additionally, the exercise of these warrants
will cause the increase of our outstanding ordinary shares, which
could have the effect of substantially diluting the interests of
our current shareholders.
Sales of a substantial number of shares of our ordinary shares in
the public market by our existing shareholders could cause our
share price to fall.
Sales of a substantial number of our
ordinary shares in the public market, or the perception that these
sales might occur, could depress the market price of our ordinary
shares and could impair our ability to raise capital through the
sale of additional equity securities. We are unable to predict the
effect that sales may have on the prevailing market price of our
ordinary shares. All of the shares owned by our directors, officers
and shareholders that own over 5% of our ordinary shares on a fully
diluted basis are subject to lock-up agreements with the
underwriters of this offering that restrict such shareholders’
ability to transfer our ordinary shares for at least six months
from the date of this prospectus. All of our outstanding shares
held by our directors, officers and shareholders that own over 5%
of our ordinary shares on a fully diluted basis will become
eligible for unrestricted sale upon expiration of the lockup
period, as described in the sections of this prospectus entitled
“Shares Eligible for Future Sale” and “Underwriting.” In addition,
shares issued or issuable upon exercise of options and warrants
vested as of the expiration of the lock-up period will be eligible
for sale at that time. Sales of shares by these shareholders could
have a material adverse effect on the trading price of our ordinary
shares. We intend to register the offering, issuance, and sale of
all ordinary shares that we may issue under our equity compensation
plans. Once we register these shares, they can be freely sold in
the public market upon issuance, subject to volume limitations
applicable to affiliates and the lock-up agreements described in
the “Underwriting” section of this prospectus. Also, we have
granted “piggyback” registration rights to certain investors
concurrently with the consummation of our IPO, in October 2014,
pursuant to a Registration Rights Agreement. Upon the effectiveness
of a future registration statement in which their shares are
included pursuant to the exercise of these piggyback rights, these
stockholders will be able to freely sell their ordinary shares in
the public market without restriction, which sales could materially
and adversely affect the trading price of our ordinary
shares.
We are a foreign private issuer and, as a result, we are not
subject to U.S. proxy rules and are subject to reporting
obligations that, to some extent, are more lenient and less
frequent than those applicable to a U.S. issuer.
Because
we qualify as a foreign private issuer under the Exchange Act, we
are exempt from certain provisions of the Exchange Act that are
applicable to U.S. publicly reporting companies, including (i) the
sections of the Exchange Act regulating the solicitation of
proxies, consents or authorizations in respect of a security
registered under the Exchange Act, (ii) the sections of the
Exchange Act requiring insiders to file public reports of their
stock ownership and trading activities and liability for insiders
who profit from trades made in a short period of time, and (iii)
the rules under the Exchange Act requiring the filing with the SEC
of quarterly reports on Form 10-Q containing unaudited financial
and other specified information, or current reports on Form 8-K,
upon the occurrence of specified significant events. In addition,
while U.S. domestic issuers that are not large accelerated filers
or accelerated filers are required to file their annual reports on
Form 10-K within 90 days after the end of each fiscal year,
foreign private issuers are not required to file their annual
report on Form 20-F until 120 days after the end of each fiscal
year. Foreign private issuers are also exempt from the Regulation
Fair Disclosure, aimed at preventing issuers from making selective
disclosures of material information.
We have not paid cash dividends on our capital stock since 2017 and
we do not anticipate paying any further dividends in the
foreseeable future. Consequently, any gains from an investment in
our ordinary shares will likely depend on whether the price of our
ordinary shares increases, which may not occur.
We have not paid cash dividends our ordinary shares since 2017 and
we currently intend to retain our future earnings, if any, to fund
the development and growth of our business. In addition, the BVI
Law imposes restrictions on our ability to declare and pay
dividends. As a result, capital appreciation, if any, of our
ordinary shares will be your sole source of gain for the
foreseeable future. Consequently, in the foreseeable future, you
will likely only experience a gain from your investment in our
ordinary shares if the price of our ordinary shares increases
beyond the price in which you originally acquired the ordinary
shares.
The current and potential future application of the SEC’s “penny
stock” rules to our ordinary shares could limit trading activity in
the market, and our shareholders may find it more difficult to sell
their shares.
If
our ordinary shares continue to trade at less than $5.00 per share
we will continue to be subject to the SEC’s penny stock rules.
Penny stocks generally are equity securities with a price of less
than $5.00. Penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules,
to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock
market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the
transaction, and monthly account statements showing the market
value of each penny stock held in the customer’s account. The
broker-dealer must also make a special written determination that
the penny stock is a suitable investment for the purchaser and
receive the purchaser’s written agreement to the transaction. These
requirements may have the effect of reducing the level of trading
activity, if any, in the secondary market for a security that
becomes subject to the penny stock rules. The additional burdens
imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in our securities, which
could severely limit their market price and liquidity of our
securities. These requirements may restrict the ability of
broker-dealers to sell our ordinary shares and may affect our
shareholders’ ability to resell their ordinary shares.
In the event a market develops for our ordinary shares, the market
price of our ordinary shares may be volatile.
In
the event a market develops for our ordinary shares, the market
price of our ordinary shares may be highly volatile. Some of the
factors that may materially affect the market price of our ordinary
shares are beyond our control, such as changes in financial
estimates by industry and securities analysts, conditions or trends
in the industry in which we operate or sales of our ordinary
shares. These factors may materially adversely affect the market
price of our ordinary shares, regardless of our performance. In
addition, the public stock markets have experienced extreme price
and trading volume volatility. This volatility has significantly
affected the market prices of securities of many companies for
reasons frequently unrelated to the operating performance of the
specific companies. These broad market fluctuations may adversely
affect the market price of our ordinary shares.
If we are or become classified as a passive foreign investment
company, our U.S. shareholders may suffer adverse tax
consequences as a result.
Generally,
for any taxable year, if at least 75% of our gross income is
passive income, or at least 50% of the value of our assets is
attributable to assets that produce passive income or are held for
the production of passive income, including cash, we would be
characterized as a passive foreign investment company, or PFIC, for
U.S. federal income tax purposes. For purposes of these tests,
passive income includes dividends, interest gains from commodities
and securities transactions, the excess of gains over losses from
the disposition of assets which produce passive income (including
amounts derived by reason of the temporary investment of funds
raised in offerings of our shares) and rents and royalties other
than rents and royalties which are received from unrelated parties
in connection with the active conduct of a trade or business. If we
are characterized as a PFIC, our U.S. shareholders may suffer
adverse tax consequences, including having gains realized on the
sale of our ordinary shares treated as ordinary income, rather than
capital gain, the loss of the preferential rate applicable to
dividends received on our ordinary shares by individuals who are
U.S. holders, and having interest charges apply to distributions by
us and gains from the sales of our shares.
Our status as a PFIC will depend on the nature and composition of
our income and the nature, composition and value of our assets
(which, assuming we are not a “controlled foreign corporation,” or
a CFC, under Section 957(a) of the Internal Revenue Code of 1986,
as amended, or the Code, for the year being tested, may be
determined based on the fair market value of each asset, with the
value of goodwill and going concern value determined in large part
by reference to the market value of our common shares, which may be
volatile). Our status may also depend, in part, on how quickly we
utilize the cash proceeds from this offering in our business. Based
upon the value of our assets, including any goodwill, and the
nature and composition of our income and assets, we do not believe
that we were classified as a PFIC for the taxable year ended
December 31, 2020 and we do not believe that we will be classified
as a PFIC for the taxable year ending December 31, 2021 or in the
immediately foreseeable future. Because the determination of
whether we are a PFIC for any taxable year is a factual
determination made annually after the end of each taxable year,
there can be no assurance that we will not be considered a PFIC in
any taxable year. Accordingly, our legal counsel expresses no
opinion with respect to our PFIC status for our taxable year ended
December 31, 2018, and also expresses no opinion with regard to our
expectations regarding our PFIC status in the future.
The
tax consequences that would apply if we were classified as a PFIC
would also be different from those described above if a U.S.
shareholder were able to make a valid qualified electing fund, or
QEF, election. At this time, we do not expect to provide U.S.
shareholders with the information necessary for a U.S. shareholder
to make a QEF election. Prospective investors should assume that a
QEF election will not be available.
The intended tax effects of our corporate structure and
intercompany arrangements depend on the application of the tax
laws of various jurisdictions and on how we operate our
business.
Significant
judgment is required in evaluating our tax positions and
determining our provision for income taxes. During the ordinary
course of business, there are many transactions and calculations
for which the ultimate tax determination is uncertain. For example,
our effective tax rates could be adversely affected by changes in
foreign currency exchange rates or by changes in the relevant tax,
accounting and other laws, regulations, principles and
interpretations. As we intend to operate in numerous countries and
taxing jurisdictions, the application of tax laws can be subject to
diverging and sometimes conflicting interpretations by tax
authorities of these jurisdictions. It is not uncommon for taxing
authorities in different countries to have conflicting views, for
instance, with respect to, among other things, the manner in which
the arm’s length standard is applied for transfer pricing purposes,
or with respect to the valuation of intellectual property. In
addition, tax laws are dynamic and subject to change as new laws
are passed and new interpretations of the law are issued or
applied. For example, on December 22, 2017, the Tax Cuts and Jobs
Act was enacted, which introduced a comprehensive set of tax
reforms. We continue to assess the impact of such tax reform
legislation on our business and may determine that changes to our
structure, practice or tax positions are necessary in light of the
Tax Cuts and Jobs Act. Certain impacts of this legislation have
been taken into account in our financial statements, including the
reduction of the U.S. corporate income tax rate from the previous
35 percent to 21 percent. The Tax Cuts and Jobs Act in conjunction
with the tax laws of other jurisdictions in which we operate,
however, may require consideration of changes to our structure and
the manner in which we conduct our business. Such changes may
nevertheless be ineffective in avoiding an increase in our
consolidated tax liability, which could adversely affect our
financial condition, results of operations and cash
flows.
If
tax authorities in any of the countries in which we operate were to
successfully challenge our transfer prices as not reflecting arms’
length transactions, they could require us to adjust our transfer
prices and thereby reallocate our income to reflect these revised
transfer prices, which could result in a higher tax liability to
us. In addition, if the country from which the income is
reallocated does not agree with the reallocation, both countries
could tax the same income, potentially resulting in double
taxation. If tax authorities were to allocate income to a higher
tax jurisdiction, subject our income to double taxation or assess
interest and penalties, it would increase our consolidated tax
liability, which could adversely affect our financial condition,
results of operations and cash flows.
If securities or industry analysts do not publish or cease
publishing research or reports about us, our business or our
market, or if they adversely change their recommendations or
publish negative reports regarding our business or our shares,
our share price and trading volume
could decline.
The
trading market for our ordinary shares will be influenced by the
research and reports that industry or securities analysts may
publish about us, our business, our market or our competitors. We
do not have any control over these analysts, and we cannot provide
any assurance that analysts will cover us or provide favorable
coverage. If any of the analysts who may cover us adversely change
their recommendation regarding our shares, or provide more
favorable relative recommendations about our competitors, our share
price would likely decline. If any analyst who may cover us were to
cease coverage of our company or fail to regularly publish reports
on us, we could lose visibility in the financial markets, which in
turn could cause our share price or trading volume to
decline.
ITEM
4. INFORMATION ON THE COMPANY
|
A. |
History
and Development of the Company |
Corporate
History and Structure of our PRC Operation
Roan
Holdings Group Co., Ltd. (formerly DT Asia Investments Limited, or
“DT Asia,” and subsequently China Lending Corporation) (the
“Company,” “Roan,” “we,” “us” or “our”) is a British Virgin Islands
company limited by shares. The Company was established on April 8,
2014 under the laws of the British Virgin Islands (“BVI”) as a
shell company with the purpose of acquiring, engaging in share
exchange, share reconstruction and amalgamation, purchasing all or
substantially all of the assets of, entering into contractual
arrangements, or engaging in any other similar business combination
with one or more businesses or entities. The address of our
principal executive offices is 147 Ganshui Lane, Yuhuangshannan
Fund Town, Shangcheng District, Hangzhou, Zhejiang, China. Our
current agent is SCS Secretarial Services Limited and its address
is Room 703, 7th Floor, Beautiful Group Tower, 77 Connaught Road
Central, Hong Kong.
The SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC and state the address of that
site (http://www.sec.gov). Our website is
www.roanholdingsgroup.com. The information contained on our website
is not incorporated by reference and does not form part of this
annual report on Form 20-F.
We refer to “Item 5. Operating and
Financial Review and Prospects” for the description of our recent
investments. Apart from these investments, there have been no
material capital expenditures in the last three years. The material
divestitures are listed below under the title “Dispositions of
China Roan Industrial-Financial Holdings Group Co., Limited and
subsidiaries”.
On
July 6, 2016, the Company consummated a business combination (the
“First Business Combination”) with Adrie Global Holdings Limited
(“Adrie”) and its subsidiaries and variable interest entity (“VIE”)
by acquiring from the shareholders of Adrie all of outstanding
equity interests of Adrie in exchange for 20 million ordinary
shares of DT Asia and a purchase price of $200.0 million. Adrie,
through its subsidiaries and VIE, was engaged in the business of
providing loan facilities to micro, small and medium sized
enterprises (“MSMEs”) and sole proprietors in Xinjiang Uyghur
Autonomous Region (“XUAR”) of the People’s Republic of China
(“PRC”). As a result of the business combination, shareholders of
Adrie became the controlling shareholders of the Company, and Adrie
became a subsidiary of the Company. For financial reporting
purpose, the consolidated assets, liabilities and results of
operations of Adrie became the historical financial statements of
the Company, and the Company’s assets, liabilities and results of
operations were consolidated with that of Adrie beginning on the
acquisition date. Immediately following the First Business
Combination, the Company’s name was changed from DT Asia to China
Lending Corporation (“CLDC”).
In
June through December 2019, the Company consummated a second
business combination with Lixin Financial Holdings Group Limited
(“Lixin Cayman”) and its subsidiaries, pursuant to which the
Company acquired a majority interest in Lixin Cayman (the “Second
Business Combination” or “Lixin Acquisition”) (discussed below). In
connection with the Second Business Combination, the Company was
renamed Roan Holdings Group Co., Ltd. (“Roan”) in November 2019.
Roan is a holding company and conducts business operations through
its direct and indirect subsidiaries.
ADRIE
Global Holding Limited (“Adrie”) was established under the laws of
the BVI as a company limited by shares on November 19, 2014 and
became a wholly-owned subsidiary of the Company after the First
Business Combination. Adrie is a holding company that has no
substantial operations and has no assets other than its ownership
of a wholly-owned subsidiary.
China
Roan Industrial-Financial Holdings Group Co., Ltd. (中国融安产融控股集团有限公司)
(“Roan HK” or “RAHK”) (formerly China Feng Hui Financial Holding
Group Co., Ltd, and subsequently, China Fenghui
Industrial-Financial Holding Group Co. Ltd.) is a wholly-owned
subsidiary of Adrie. It was established on February 11, 2015 under
the laws of the Hong Kong Special Administrative Region (“Hong
Kong”) of the PRC. It is a holding company and conducts business
through its direct and indirect subsidiaries. On September 30,
2021, the Company disposed Roan HK and its subsidiaries, Xinjiang
Feng Hui Jing Kai Direct Lending Limited (新疆丰汇经开小额贷款有限公司) (“Jing
Kai”).
Fortis
Industrial Group Limited (富通产业集团有限公司) (“Fortis” or “FIG”,formerly
called Fortis Health Industrial Group Limited or 富通健康产业集团有限公司) was
established on December 30, 2019 under the laws of Hong Kong. It is
a wholly owned subsidiary of Adrie. It is a holding company and
conducts business through its direct and indirect
subsidiaries.
Yifu Health Industry (Ningbo) Co., Ltd. (怡福健康产业（宁波）有限公司)
(“Yi Fu”) is a wholly-owned subsidiary of Fortis and is engaged in
healthcare related professional services business. Prior to August
7, 2020, Yi Fu conducted financial leasing business under its prior
corporate name of Ningbo Ding Tai Financial Leasing Co., Ltd.
(宁波鼎泰融资租赁有限公司)
(“Ding Tai”). Ding Tai was established in December 19, 2016 under
the laws of the PRC for the purpose of engaging in financial
leasing business. In July 2020, Roan HK transferred 100% of YiFu’s
equity interest to Fortis, which is 100% owned by the Company.
Hangzhou
Zeshi Investment Partnership (Limited Partnership)
(杭州泽时投资合伙企业(有限合伙) (“Hangzhou Zeshi”) was formed on November 29,
2018 under the laws of the PRC. It is a limited partnership with
98.04% of its interest owned by Yi Fu, its general partner, and the
remaining 1.96% is owned by Zeshi Insurance (discussed below). It
is primarily engaged in asset management business.
Through
Hangzhou Zeshi, we provide new supply chain financing services,
including a business factoring program, financing products design,
related corporate financing solutions, investments and asset
management, as part of our restructuring plan implemented in
2019.
Ningbo
Zeshi Insurance Technology Co., Ltd. (宁波泽时保险科技有限公司) (“Zeshi
Insurance”) was incorporated on February 28, 2020 under the laws of
the PRC. Yi Fu owns 99% of Zeshi Insurance equity interest with the
remaining 1% owned by Hangzhou Zeshi. Its principal business is
providing insurance technology services and related
services.
Zeshi
(Hangzhou) Health Management Co., Ltd. (泽时(杭州)健康管理有限公司) (“Zeshi
Health”) was incorporated on March 3, 2020 under the laws of the
PRC. Hangzhou Zeshi and Yi Fu own 99% and 1%, respectively, of its
interest. Zeshi Health provides services in health management,
health big data management and blockchain technology-based health
information management.
A
joint venture, Yijia Travel (Hangzhou) Digital Technology Co. Ltd.
(易佳行旅（杭州）数字科技有限公司) (“Yijia Travel”), was incorporated on August 2,
2021 under the laws of the PRC. The Company and the Company’s
business partner, Shuzhiyun Holdings (Beijing) Co., Ltd.
(“Shuzhiyun”), who signed an agreement with the Company to vote in
concert, own 35% and 30%, respectively, of its interest. Yijia
Travel (Hangzhou) Digital Technology Co. Ltd. (“Yijia Travel”) owns
the remaining 30% equity in the joint venture. Yijia Travel
provides business travel services.
A
joint venture, Fine C+ Health (Hangzhou) Technology Limited
(乐享未来健康科技（杭州）有限公司) (“FINE C+ Health”), was incorporated on October
14, 2021 under the laws of the PRC. The Company’s subsidiary, Yi Fu
and the Company’s business partner, Shuzhiyun, who signed an
agreement with the Company to vote in concert, own 40% and 30%,
respectively, of its interest. Shanghai Jingmu Information
Technology Co. Ltd. (“Jingmu”) owns the remaining 30% equity
in the joint venture. FINE C+ Health provides online medical
consultation and traditional Chinese medicine.
A
joint venture, FINE C+ Digital Technology (Hangzhou) Limited
(乐享未来数字科技（杭州）有限公司) (“FINE C+ Digital”), was incorporated on
November 8, 2021 under the laws of the PRC. The Company and the
Company’s business partner, Shuzhiyun, who signed an agreement with
the Company to vote in concert, own 45% and 30%, respectively, of
its interest. Shenzhen Geile Information Technology Co., Ltd.
(“Harvest”, formerly called “Shenzhen Harvest Business Ltd., Co.”),
owns the remaining 25% equity in the joint venture. FINE C+
Digital offers lifestyle consumer services including cross-platform
clearing and settlement services for consumer reward rights and
interests.
A joint venture, FINE C+ Interactive Technology (Hangzhou)
Limited (乐享未来互动科技（杭州）有限公司)
(“FINCE C+ Interactive”) was incorporated on November 8, 2021 under
the laws of the PRC. The Company and the Company’s business
partner, Shuzhiyun, who signed an agreement with the Company to
vote in concert, own 35% and 14%, respectively, of its interest.
Flourishing Technology Inc. (“Flourishing”) and media interactive
technology experts owns the remaining 51% equity in the joint
venture. FINE C+ Interactive provides cultural and tourism
services, education development industry business and personal
financial services.
A
joint venture, FINE C+ Entertainment Technology (Hangzhou)
Limited (乐享未来娱乐科技（杭州）有限公司) (“FINE C+ Entertainment”) was
incorporated on December 22, 2021 under the laws of the PRC. FINE
C+ Interactive and the Company’s business partner, Shuzhiyun, who
signed an agreement with the Company to vote in concert, own 35%
and 35%, respectively, of its interest. Harvest Horn (Beijing)
Marketing Co., Ltd. (“Harvest Horn”) owns the remaining 30%
equity in the joint venture. FINE C+ Entertainment provides theme
park designing service
As of the date of this report, the Company has not paid for this
investment of RMB 2,000,000 (approximately $313,844).
Dispositions of China Roan Industrial-Financial Holdings
Group Co., Ltd. and subsidiaries
Prior
to September 30, 2020, Feng Hui Ding Xin (Beijing) Financial
Consulting Co., Ltd. (“Ding Xin”) was a wholly-owned subsidiary of
Roan HK licensed to provide financial advisory services, and its
Urumqi branch office primarily provided financial services to
third-party direct lending companies in Xingjiang. Zhiyuan
Commercial Factoring (Guangzhou) Co., Ltd. (“Zhiyuan”) was a
99%-owned subsidiary of Ding Xin which had engaged in business
factoring program, financing products design, related corporate
financing solutions, investments and asset management.
Due to the slowdown of the Chinese economy and policy changes
related to loans to MSMEs, the direct loan business to MSMEs became
difficult in China and the Company determined to exit that
business. On September 30, 2020, Roan HK entered into an
agreement (the “Agreement”) with Urumqi Fengxunhui Management
Consulting Co., Ltd. (“Fengxunhui” or the “Purchaser”), pursuant to
which Roan HK transferred 100% of the equity of Ding Xin, including
Ding Xin’s interests in its Urumqi branch office and Zhiyuan, in
exchange for a total consideration of approximately $15,326 (RMB
100,000). As a result of the disposition, the Company no longer
conducted direct loan business. When Roan HK was disposed on
September 30, 2021, the purchase price had not been paid.
Xinjiang
Xin Quan Financial Leasing Co., Ltd. (“Xin Quan”) was a 60%-owned
subsidiary of Roan HK engaged in financial leasing service before
its dissolution on April 28, 2021. During the 2020 fiscal year, Xin
Quan ceased its operations.
On September 17, 2021, the Company signed an equity transfer
agreement to sell 100% of the equity interest it held in Roan
HK, a holding company that has no business operations, to Yuanjia
Asset Management Co. Ltd. (“Yuanjia”), a BVI company, for a total
of approximately $282 (HK$2,200). The transaction was closed
on September 30, 2021. The net assets of Roan HK were negative
$492,495 as of September 30, 2021, resulting in a gain on
deconsolidation of $492,777 and other comprehensive loss of $2,494.
Roan HK’s subsidiary, Jing Kai was disposed at the same time.
Lixin
Financial Holdings Group Limited and Subsidiaries
Lixin
Financial Holdings Group Limited (“Lixin Cayman”) was established
on October 25, 2017 under the laws of the Cayman Islands as an
exempt company. It is a holding company and does not have
substantial operations. It conducts its business through its direct
and indirect subsidiaries.
In
January 2019, the Company acquired 1% of the equity interest in
Zhejiang Lixin (defined below) for RMB 2,858,600. On June 14, 2019,
the Company entered into a Share Purchase Agreement (the “SPA”)
with Lixin Cayman and certain shareholders of Lixin Cayman to
acquire a controlling interest in Lixin Cayman. Pursuant to the
SPA, the Company acquired a 65.0177% interest in Lixin Cayman from
its selling shareholders in exchange for ordinary shares of the
Company to be issued to the selling shareholders for a total value
of RMB 276.00 million (later adjusted to $31.09 million (RMB 217.88
million) (“Lixin Acquisition”). On August 23, 2019, the
parties entered into a supplementary agreement to amend the form of
payment of the purchase price. Pursuant to the supplementary
agreement, Lixin shareholders agreed to receive non-voting
preferred shares that will have the right to be converted into
common shares after two years from the closing date of the
acquisition. The transaction was closed on December 20, 2019 upon
the Company’s issuance of 291,795,150 Class B convertible preferred
shares to the selling shareholders. These convertible preferred
shares are embedded with liquidation preference and dividend
preference but with no voting rights. Following the second
anniversary of the closing date, preferred shares may be
convertible to the equal number of ordinary shares or can be
redeemed at a conversion price calculated at the average closing
price per share for ninety consecutive trading days before the
conversion date. On December 22, 2021, the Board of
Directors passed the resolution which changed 2 years to 30 months.
As of the date of this report, there was no shares redeemed or
converted.
Lixin Cayman, through its subsidiaries, provides a wide range of
financing solutions and related peripheral services, including
financial leasing, commercial factoring, private funding, guarantee
and supply chain management, to individuals and MSMEs in the
Yangtze River Delta Region of China. Lixin Cayman conducts its
business through the following direct and indirect
subsidiaries.
Lixin
Financial Holdings (BVI) Limited (“Lixin BVI”) is a wholly-owned
subsidiary of Lixin Cayman. It was established on November 29, 2017
under the laws of the BVI as a company limited by shares. It is a
holding company and does not have business operations.
Lixin
Financial Holdings Group Limited (励信金融控股集团有限公司) (“Lixin HK”) was
established on January 15, 2018 under the laws of Hong Kong as a
wholly-owned subsidiary of Lixin BVI. It is a holding company and
does not have business operations.
Zhejiang
Lixin Enterprise Management Holding Group Co., Ltd.
(浙江励信企业管理集团有限公司) (“Zhejiang Lixin”) was incorporated on July 3,
2015 under the laws of the PRC. Lixin HK owns 99% of Zhejiang Lixin
equity interest and Fortis owns the remaining 1%. Following its
reorganization completed in 2018, it became the controlling
shareholder of Zhejiang Jingyuxin (discussed below). It is a
financial service company providing comprehensive financial
solutions and services including guarantee services and related
assessment and management services.
Zhejiang
Jing Yu Xin Financing Guarantee Co., Ltd. (浙江京虞信融资担保有限公司)
(“Zhejiang Jingyuxin”) was incorporated on January 5, 2013 under
the laws of the PRC. Zhejiang Lixin owns 93.4% of Zhejiang
Jingyuxin equity interest, with the remaining 6.6% interest owned
by an unrelated third party individual. It provides guarantee
services and related assessment and management services.
Lixin
(Hangzhou) Asset Management Co., Ltd. (励信(杭州)资产管理有限公司) (“LAM”) is a
wholly-owned subsidiary of Zhejiang Jingyuxin. It was incorporated
on March 21, 2017 under the laws of the PRC. LAM provides
consulting and assessment services to customers and facilitates
financial guarantee services between customers and
guarantors.
Lixin
Supply Chain Management (Tianjin) Co., Ltd. (励信供应链管理(天津)有限公司)
(“(“Lixin Supply Chain”) is a wholly-owned subsidiary of LAM. It
was incorporated on December 19, 2017 under the laws of the PRC and
its principal business is providing supply chain management
services.
Our
Business
We
are a financial, insurance and healthcare related solutions company
serving individuals and micro-, small- and medium-sized enterprises
(“MSMEs”) in China. In 2021, the Company expanded its
business to provide industrial operation services based on the
Company’s past experience, capability, customer resources, market
channels, relationships with institutional organizations and
government relations.
Our
business has experienced substantial changes in the recent years.
Following our business combination with Adrie, the original China
Lending Group was a PRC-based group of companies specializing in
providing loan facilities to MSMEs and sole proprietors in
Xinjiang. Due to the slowdown of the Chinese economy and
policy changes related to loans to MSMEs, since 2018, we have
adjusted our business models and substantially reduced direct loan
business starting in 2018 and didn’t renew any pre-existing loans
in 2019. In September 2020, we disposed the direct lending business
from the company.
In
2019, the Company acquired a 65.0177% interest in Lixin Financial
Holdings Group Limited (“Lixin Cayman”), through its subsidiaries,
provides a wide range of financing solutions and related peripheral
services, including financial management, assessment and consulting
services, debt collecting services, and financial guarantee
services to individuals and MSMEs in China. After the Lixin
Acquisition closed in December 2019, our customers were MSMEs and
individual proprietors located in Zhejiang Province and Guangdong
Province. Those customers were involved in the commerce and
service, real estate, technology promotion and application
services, construction, finance, wholesale and retail and other
industries.
For the year ended December 31, 2021, the Company conducted
management and assessment services, financial guarantee, financial
consulting business, healthcare service and industrial operation
services.
As of December 31, 2021, the Company had cash balance of $1,947,142
and a positive working capital of $51,940,172. In addition to the
cash balance, the working capital was mainly comprised of
restricted cash of $29,693,689, accounts receivable of $6,929,529,
loan receivable due from third parties of $23,751,471 and other
receivables of $656,835. The balances of these assets are expected
to be repaid on maturity dates and will also be used for working
capital.
COVID-19
Impact Update
In
December 2019, a novel strain of coronavirus (COVID-19) was
first identified in China and has since spread rapidly globally and
resulted in new variants. The outbreak of COVID-19 has resulted in
quarantines, travel restrictions, and the temporary closure of
offices and business facilities globally. In March 2020, the World
Health Organization declared the COVID-19 a pandemic. In 2020 and
2021, COVID-19 had a material impact on our business, financial
condition, and results of operations, including, but not limited
to, the following:
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● |
We
temporarily closed our offices from late January to March 2020, as
required by relevant PRC regulatory authorities. Our offices were
subsequently reopened pursuant to local guidelines. In the first
half of 2020, the pandemic caused disruptions in our operations,
which resulted in delays in our services to certain of our
customers. |
|
● |
Our
customers were negatively impacted by the pandemic, which reduced
the demand for our services. As a result, our revenue and income
were negatively impacted in the first half of 2020. |
|
● |
In
December 2021, Shangyu District, Shaoxing City, Zhejiang Province,
where the subsidiary company Zhejiang Jingyuxin Financing Guarantee
Co., Ltd. is located, was closed and suspended due to the epidemic,
resulting in delays in our services to some customers. After the
lockdown was lifted on December 31, 2021, operations
resumed. |
After
the second quarter of 2020, the COVID outbreak in China was
gradually controlled. Our business initially returned to normal
operations, although management assessed that our results of
operations had been negatively impacted for the year. In 2021,
Omicron variants emerged, resulting in continued disruption to our
business and the global economy and supply chain. COVID-19 could
continue to adversely affect our business and results of operations
in 2022 if any COVID resurgence causes significant disruptions to
our operations or the business of our customers, logistics and
service providers. If any new outbreak of COVID-19 is not
effectively and timely controlled, or if government responses to
outbreaks or potential outbreaks are severe or long-lasting, our
business operations and financial condition may be materially and
adversely affected as a result of the deteriorating market outlook,
the slowdown in regional and national economic growth, weakened
liquidity and financial condition of our customers or other factors
that we cannot foresee. Any of these factors and other factors
beyond our control could have a material adverse effect on the
overall business environment, cause uncertainties in the regions
where we conduct business, and could materially and adversely
impact our business, financial condition and results of
operations.
Our
Major Services
The followings are the major services and products provided by the
Company during fiscal year 2021:
1. Loans to third parties
Zhejiang Lixin, LAM, Hangzhou Zeshi and Yi Fu provide loans to
third parties and charge a fixed rate interest on the loans. The
Company recorded interest on third parties loans of $2,113,918, and
$2,131,447 for fiscal year 2021 and 2020, respectively.
2. Guarantee and consulting services: financial and
non-financial
(1) Guarantee services: financial and non-financial
These services are mainly conducted by Zhejiang Jingyuxin. Zhejiang
Jingyuxin received the commissions from guarantee services either
in full at inception or in instalments during the guarantee period.
Its guarantee services are divided into financial guarantee and
non-financial guarantee.
Financial guarantee service contracts provide guarantees which
protect the holder of a debt obligation against default in the
financing process. Pursuant to such guarantee, the Company makes
payments if the obligor responsible for making payments fails to do
so as scheduled. The contract amounts reflect the extent of
involvement Zhejiang Jingyuxin has in the guarantee transaction and
also represent the Company’s maximum exposure to credit loss in its
guarantee business.
To mitigate the potential credit risks exposure to the financial
guarantee services, Zhejiang Jingyuxin requires the guarantee
service customers to make a deposit to Zhejiang Jingyuxin of the
same amount as the deposit Zhejiang Jingyuxin pledged to the banks
for their loans if the customer does not pledge or collateralize
other assets with Zhejiang Jingyuxin. The deposit is returned to
the customer after the customer repays the bank loan and the
Zhejiang Jingyuxin’s guarantee obligation expires.
In addition, Zhejiang Jingyuxin also provides non-financial
guarantee services to clients by giving credit guarantee. It is
used to improve the contract enforcement. This business includes
litigation preservation guarantee, bid guarantee, project
performance guarantee and other contract performance business. This
is not its key business and it does not take the core resources. It
has lower risks.
(2)
Consulting services for financial guarantee customers
Zhejiang Lixin provided financial consulting services to financial
guarantee customers. Pursuant to the contracts with customers,
Zhejiang Lixin facilitated financial guarantee services between
customers and financial guarantors, and charged referral fees at a
fixed amount. The performance obligations are completed and control
of the service is transferred at the inception of financial
guarantee period. Transaction prices are generally paid upon
successful facilitation.
The Company recorded commission and fee income on guarantee
services of $399,527 and $285,606 for fiscal year 2021 and 2020,
respectively.
Under the financial guarantee service agreements, banks, other
financial institutions and creditors who provide loans to the
Company’s guarantee service customers, generally require the
Company, as the guarantor of the loans, to deposit cash of 10% to
20% of the guaranteed amount into an escrow account which is
restricted from use. The Company records interest received on the
restricted cash pledged as revenue. The Company recorded interest
on restricted cash of $300,749 and $348,389 for fiscal year 2021and
2020, respectively.
3. Management and assessment services
Hangzhou Zeshi and Zhejiang Lixin
provided the following management and assessment services for
the factoring and direct loan customers:
|
|
1) |
Asset management services focused on
providing account receivable collection plans, debt collection, due
diligence investigation for guaranty, litigation mitigation, and
asset preservation and management consultation. |
| |
2) |
Financing related services focus on financing
plan design and consultation, supply chain transaction participant
selection consultation, and financing project due
diligence. |
Revenue from management and assessment service was $440,254,
$19,676 for fiscal year 2021 and 2020, respectively.
The company will continuously develop management & assessment
services in 2022. Subsidiaries of both Adrie and Lixin Cayman
cooperate closely to expand business territories, share business
resources of each other and strengthen the Company’s
competitiveness.
4. Consulting services related to debt collection
Lixin Cayman subsidiaries also provides consulting services
relating to debt collection with certain factoring companies. The
debt collection services involved commitments of 1) assisting the
customers to obtain court judgments on outstanding debt, and the
Company recognized revenue over period towards completion of the
performance by using input method based on the staff cost incurred,
and 2) assisting the customers to receive repayment on outstanding
debt, the Company recognized revenues upon collection of
outstanding debts. The transaction price is allocated to each
performance obligation based on the relative standalone selling
prices of the services being provided to the customer.
In fiscal year 2021, our consulting services, especially deb
collection related operations, were affected by the pandemic. As a
result of the quarantines, office closings and travel restrictions,
asset auctions and the enforcement process presided by the courts,
asset valuations by valuation companies, and debt collections were
disrupted and delayed for some of our customers. Our services to
those customers and operating results were adversely impacted by
the pandemic related delays.
Revenue from debt collection service was $206,792 and $2,108,477
for fiscal year 2021 and 2020, respectively.
5. Industrial operation services
After nearly 10 years of development, the Company’s financing
service business has served more than 500 companies in various
industries, including finance, asset management, supply chain
management and financial advisory. This has enabled the Company to
better understand the growth of different industries, the policy
environment, industrial ecology, development trends, the potential
problems in operations and their solutions, capital, government
cooperation, market environment and other aspects. The Company has
also accumulated a wide range of customers, market resources,
financial institutions and capital service resources, and the
Company has significant experience in government liaison and
cooperation. At the same time, through continuous training of the
core management team, development of new business entities and team
integration, the Company has been able to set up an experienced
management team with experience in international companies, listed
companies, and top institutions in the field of science, technology
and consumer services.
In 2021, the Company expanded its business to provide industrial
operation services based on the Company’s past experience,
capability, customer resources, market channels, relationships with
institutional organizations and government relations.
On December 31, 2021, Hangzhou Zeshi, a wholly-owned subsidiary of
the Company, entered into an agreement with ZhongTan Future New
Energy Industry Development (Zhejiang) Co., Ltd. (“ZhongTan
Future”), which has an advanced international scientific and
technological R&D team in the field of new energy and
semiconductor materials for the marketing and growth of these
products. Pursuant to the agreement, Hangzhou Zeshi will provide
supply chain financial services, financial leasing services and
industrial operation services, etc. Revenue of $146,245 was
recognized during the year ended December 31, 2021 after the target
customer was located, due diligence and initial negotiation was
completed and requirements of ZhongTan Future were met.
6.
Health management, health insurance and other health related
services
In 2020, the Company began and expanded the provision of health
management, innovation insurance, healthcare and consumer financing
services to the employees of large institutions.
On
December 30, 2019, we incorporated Fortis Industrial Group Limited
(former name Fortis Health Industrial Group Limited) (“Fortis” or
“FIG”,) in Hong Kong. On February 28, 2020, we incorporated Zeshi
Insurance to conduct insurance technology business. On March 3,
2020, we incorporated Zeshi Health to conduct health management,
health big data management, and health information management based
on blockchain technology.
During 2020, the Company established long-term partnerships for
innovative insurance services, smart health medical services, data
mining, and operations with a variety of insurance service
partners, medical service partners, and technology and big data
partners. The Company also signed several cooperation agreements
with its business partners to jointly develop health insurance
products and markets for fetal and neonatal congenital heart
diseases, middle-aged and older adult cardiovascular and
cerebrovascular diseases, stroke and other diseases, newborn
deformity insurance
Due to the negative impact of Covid-19 pandemic, many of the
Company’s health projects was suspended or delayed. During 2021,
the Company continuously improved the accuracy of the algorithm
model for the artificial intelligence screening auxiliary system
for the diagnose of fetal and neonatal congenital heart disease.
The Company also optimized the newborn deformity insurance products
for these diseases.
On December 30, 2020, Zehshi
Health, the 100% subsidiary of the Company, signed an exclusive
distribution agreement with Furuikang to sell FuruiKang is a
related party with the Company whose shareholder is a beneficial
owner of the Company. The products are expected to launch in the
second half year of 2022.
On October 14, On June 8, 2021, the Company entered a ten-year
cooperation agreement with Furui Health Industry Development
(Zhejiang) Co, Ltd. (“Furui Health”) and Furuikang Biomedical
Technology (Zhejiang) Co, Ltd. (“Furuikang”) to promote the
transformation and industrialization of Furuikang’s technical
achievements in tumor adjuvant therapy and postoperative
rehabilitation of tumor patients in the Chinese market.
On June 20, 2021, the Company entered a ten-year cooperation
agreement with Shuzhiyun Holdings (Beijing) Co., Ltd. (“Shuzhiyun”)
to promote the transformation and industrialization of Shuzhiyun’s
birth defect screening technology achievements in the Chinese
market.
2021, the Company’s subsidiary, Yi Fu signed a cooperation
agreement with Shuzhiyun and Shanghai Jingmu Information Technology
Co. Ltd. (“Jingmu”), to set up a joint venture to provide online
medical consultation and traditional Chinese medicine, FINE C+
Health (Hangzhou) Technology Limited (“FINE C+ Health”). In January
2022, FINE C+ Health obtained the “drug information services on the
internet certificate” issued by the State Food and Drug
Administration of China and set up the Wechat service
application.
Business
Strategies
The Company acquired 65.0177% shares of Lixin Cayman in
December 2019, which provides financial services and disposed Roan
HK in September 2021, which was mainly involved in the direct
lending business. They were mainly involved in the direct lending
business. The Company now provides various financial services to
its MSME customers. The Company will continue focusing on capital
advisory services which require less assets, less capital
investment and lower-risk.
In 2021, the Company further optimized its strategic planning and
business layout based on the Company’s past experience, capability,
customer resources, market channels, relationships with
institutional organizations and government relations. The Company
also completed the restructuring of its operations, established a
new management team, optimized the decision-making ability of the
board of directors, integrated all resources, and upgraded the
businesses services and products to meet the needs for the
Company’s future development.
Through continuous optimization and improvement, the Company has
combined its industrial capital service experience, resources, and
its capabilities to industries which have good growth
prospects.
We
intend to implement the following three strategies to expand and
grow the size of our businesses:
a.
Continue to expand our financial services to different regions
We start from Zhejiang Province. Zhejiang Province is the frontline
of internet development in China and an economically active area.
We are based in Hangzhou, the capital city of Zhejiang and are
developing the new business in Zhejiang. We plan to continue to
expand our regional coverage. While based upon the Zhejiang market,
the Company plans to actively expand to economically developed
regions such as the Yangtze River Delta and the Pearl River
Delta.
b. Explore opportunities in industrial operation services
We are relying on our advantages in the financial services to
expand our industrial operation services. While providing financial
services to our customers, our management team has built up
managing experience in the fields of different industries. We have
also accumulated a wide range of customers, market resources,
financial institutions and capital service resources. Management’s
experience in customer relationships, government cooperation, the
management of resources and their ability to take an innovative
approach to products and services have enabled us to provide better
solutions and services to our partners, including companies and the
government.
We plan to provide industrial operation services to the companies
in technology industries with high growth and global market demand
and the urban life service industry which is closely related to
improving the quality of people’s life. The technology industry
focuses on the needs of the local government for industrial
economic development and the needs of the companies for the
commercialization of leading scientific and technological products
in the field of new energy and semiconductors, We believe this will
help further develop long-term and sustainable industrial capital
service customers and projects.
While firmly focusing on the target industries and maintaining
revenue growth, we will share operating income and industry
development opportunities through joint ventures and equity
participation, and will look for any listing opportunity for any
relevant projects in the capital markets.
Through the two strategic business sectors, we have obtained
the long-term operating rights for some new technologies, products
and services in the fields of new energy, health services,
semiconductor, culture and tourism. Our goal is to realize any
gains form capital and resource appreciation, and improve revenue
and profit sharing from operations
The Company’s financial service sales team works closely with other
financial institutions to provide financing services to its
customers. For loans to third parties, the Company receives monthly
interest. For guarantee and consulting services, the Company
receives fees and commissions either in full at inception or in
instalments during the guarantee period. For the management and
assessment services and consulting services related to debt
collection, the Company receives instalments service fees based on
the project progress and results.
The Company’s management team actively explores industrial
operation service opportunities while providing financial services
to its customers. Through long-term cooperation agreements, the
Company locks in close and long-term cooperation with its customer
and charges services fees according to project progress and
achievements;
The Company sells its health products directly to its customers.
The Company plans to sell the products through direct on-line
marketing and through off-line sales distributors in the
future.
Intellectual
Property
We
own and have the right to use the domain name
“www.roanholdingsgroup.com”.
We
have registered the following trademarks:
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Owner |
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Trademark |
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Issuance
Entity |
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Term |
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Lixin
Cayman |
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Trademark
Office of PRC State Administration for Industry and
Commerce |
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March
7, 2019 – March 6, 2029 |
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Lixin
HK |
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HK
Trade Marks Registry Intellectual Property Department |
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February
2, 2018 – February 1, 2028 |
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Zhejiang
Jingyuxin |
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Trademark
Office of PRC State Administration for Industry and
Commerce |
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July
28, 2016 – July 27, 2026 |
Certificates
Our
subsidiary Zhejiang Jingyuxin was issued a PRC Financing Guarantee
Organization Operation Permit by Zhejiang Commission of Economy and
Informatization on May 17, 2016 with a term of five years. We had
renewed and received the new permit in September 2021. The permit
authorizes Zhejiang Jingyuxin to operate the guarantee business,
and related financial consulting and consulting agent business in
China.
Competition
The
Company faces competition in the financial industry. We believe
that the financial industry is becoming more competitive as this
industry matures and begins to consolidate, especially under the
heavy regulation by policies and macroeconomic downturn. The
Company competes with other financial guarantee companies, other
financial consulting companies, and some cash-rich state-owned
companies or individuals that provide financial services to MSMEs.
Some of these competitors have larger and more established customer
bases and substantially greater financial, marketing and other
resources than we have. As a result, we could lose market share and
our revenues could decline, thereby adversely affecting our
earnings and potential for growth.
While
we plan to achieve a competitive advantage by adopting various
business strategies including exploring business in the Internet +
Healthcare area, we face the competition from the companies much
bigger than us and with a longer history. For example, Ping’an good
doctor service offering focuses on online diagnosis, consumption
diagnosis, health mall, health management and health interaction.
Ali Health started from online medicine, and is building a big
health closed loop by developing internet diagnosis, intelligent
treatment, consumption diagnosis and source tracking service.
Huarun Medicine, as a top medicine enterprise, has strong supply
chain and rich client resources and is developing its platform by
applying internet technology.
Seasonality
Our
main business does not have significant
seasonality.
Government
Regulation
The
Company’s operations are subject to extensive and complex state,
provincial and local laws, rules and regulations. We are supervised
by a variety of provincial and local government authorities,
including CBRC, PBOC, local tax bureaus, local Administration for
Market Regulation, local Bureau of Finance, local Administration of
Foreign Exchange and local employment departments. The areas
include Zhejiang Province and Tianjin City.
Summaries of Certain Key PRC Laws
Below
are summaries of the material terms of PRC laws applicable to our
businesses.
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No. |
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Regulation
name |
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Main
regulatory content |
| 1 |
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Civil
Code |
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Article
577 If a party fails to perform its obligations under a contract,
or its performance fails to satisfy the terms of the contract, it
shall bear the liabilities for breach of contract such as to
continue to perform its obligations, to take remedial measures, or
to compensate for losses.
Article
610. Where the subject matter does not meet quality requirements,
and as a result it is impossible to realise the objectives of the
contract, the purchaser may refuse to accept the subject matter or
may dissolve the contract. Where the buyer refuses to accept the
subject matter or rescinds the contract, the risk of damage to or
missing of the subject matter shall be borne by the
seller.
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| 2 |
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Company
Law |
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Article
6 To establish a company, an application for establishment
registration shall be filed with the company registration
authority. If the application meets the establishment requirements
of this Law, the company registration authority shall register the
company as a limited liability company or joint stock limited
company. If the application does not meet the establishment
requirements of this Law, it shall not be registered as a limited
liability company or joint stock limited company.
If
any law or administrative regulation provides that the
establishment of a company shall be subject to approval, and
relevant approval formalities shall be gone through prior to the
registration of the company.
The
general public may go to a company registration authority to search
and consult the registration information filed by a company and the
authority shall provide the research services for the
public.
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| 3 |
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Labor
Contract Law |
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Article
4 Employers shall establish and perfect labor bylaws so as to
ensure that workers can enjoy labor rights and perform labor
obligations.
Where
employers constitute, modify or determine such bylaws or
significant matters in direct relation to the real benefits of
workers as the remuneration, working time, rest and vacation, work
safety and health care, social insurance and welfare, job training,
job discipline or quota management, the draft thereof shall be
discussed at the workers’ congress or by all the workers, which
shall bring forward schemes and opinions. The aforesaid bylaws and
significant matters shall be determined after equal consultation by
employers and labor union or representatives of workers.
During
the process of the implementation of the aforesaid bylaws and
significant matters, the labor union or the workers is/are entitled
to require the employer to modify or improve them through
consultations if it/they find them improper.
The
employers shall publicize the bylaws and significant matters in
direct relation to the real benefits of the workers or inform the
workers.
Article
38 In the case of any of the following circumstances occurring to
an employer, workers may discharge the labor contract:
(3)
It fails to pay social security premiums for the workers according
to law;
Article
46 In the case of any of the following circumstances, employers
shall make an economic compensation to the workers:
(1)
Any worker discharges the labor contract according to Article 38 of
this Law;
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4 |
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Product
Quality Law |
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Article
43 If damages are done to the person or properties of others
due to the defects of products, the victims may claim for
compensation either from the producers or sellers. If the
responsibility rests with the producers and the compensation is
paid by the sellers, the sellers have the right to recover their
losses from the producers. If the responsibility rests with the
sellers and the compensation is paid by the producers, the
producers have the right to recover their losses. |
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| 5 |
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Foreign
Investment Law |
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Article
21 Foreign investors’ capital contribution, profits, capital gains,
assets disposal income, intellectual property license fees, legally
obtained damages or compensation, liquidation proceeds, etc., may
be freely remitted to overseas in RMB or foreign exchange according
to law.
Article
28 Foreign investors shall not invest in the areas where investment
is prohibited under the negative list for the admission of foreign
investment.
Foreign
investors shall meet the conditions set forth in the negative list
for the admission of foreign investment to invest in the areas
where investment is restricted under the negative list.
Management
of foreign investment in the areas beyond the negative list shall
be implemented in accordance with the principle of equality between
domestic and foreign investment.
Article
34 The State establishes a system for foreign investment
information reporting. Foreign investors or foreign-invested
enterprises shall submit investment information to the competent
commerce departments through the enterprise registration system and
the enterprise credit information publicity system.
The
content and scope of the foreign investment information report
shall be determined in accordance with the principle of necessity;
the investment information that can be obtained through the
inter-department information sharing system shall not be required
to be submitted again.
Article
36 Where a foreign investor invests in the areas, which are
specified by the negative list for the admission of
foreign-investment as prohibited areas, the relevant competent
department shall order it to stop the investment activities, and
dispose of the shares, assets or take other necessary measures
within a specified time limit, and restitute to the status before
the investment was made; If there is illegal income, it shall be
confiscated.
Where
the investment activities of a foreign investor violates the
special management measures for the admission of foreign-investment
regarding restricted areas in the negative list, the relevant
competent department shall order the correction within a specified
time limit and take necessary measures to meet the conditions set
forth by the special management measures for the admission of
foreign-investment; if no corrections have been made within the
time limit, the provisions of the preceding paragraph shall be
applied.
Where
the investment activities of a foreign investor violates the
special management measures for the admission of foreign-investment
in the negative list, in addition to the provisions of the
preceding two paragraphs, it shall also bear corresponding legal
liabilities under the law.
Article
37 If a foreign investor or a foreign-invested enterprise violates
the provisions of this Law and fails to submit investment
information in accordance with the requirements of the foreign
investment information reporting system, the competent commerce
department shall order it to make corrections within a specified
time limit; if no corrections have been made within the time limit,
a fine of more than 100,000 yuan and less than 500,000 yuan shall
be imposed.
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6 |
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Circular
of the SAFE on Issues Related to Foreign Exchange Administration in
Terms of Overseas Investment and Financing via Special Purpose
Companies and Return Investment by Domestic
Residents
（Huifa
No.37〔2014〕）
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XV.
If domestic residents or the domestic companies that they control,
directly or indirectly, remit capital to SPVs through false or
structured transactions, they shall be punished by the SAFE in
accordance with Article 39 of the Regulations on Foreign Exchange
Administration of the People’s Republic of China.
Domestic
residents who fail to carry out the foreign exchange registration,
to truthfully disclose information on the actual controller of the
companies that make the round-trip investments, or make false
commitments shall be punished by the SAFE in accordance with
Paragraph 5 of Article 48 of the Regulations on Foreign Exchange
Administration of the People’s Republic of China.
Domestic
residents who fail to carry out the foreign exchange registration,
to truthfully disclose information on the actual controller of the
companies that make the round-trip investments, or make false
commitments but have capital outflows shall be punished by the SAFE
in accordance with Article 39 of the Regulations on Foreign
Exchange Administration of the People’s Republic of China. If these
residents have capital inflows or foreign exchange settlements,
they shall be punished by the SAFE in accordance with Article 41 of
the Regulations on Foreign Exchange Administration of the People’s
Republic of China.
Domestic
residents and SPVs that fail to declare the required BOP statistics
for cross-border receipts and payments shall be punished by the
SAFE in accordance with Paragraph 1 of Article 48 of the
Regulations on Foreign Exchange Administration of the People’s
Republic of China.
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Circular
on Further Simplifying and Improving Policies for Foreign Exchange
Administration for Direct Investment
（Huifa
No.13〔2015〕）
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II.
Simplifying procedures for some transactions of foreign exchange
for direct investment
(I)
Simplifying registration management for confirmation of capital
contribution by a foreign investor under domestic direct
investment. The registration for confirmation of non-monetary
capital contribution by a foreign investor under domestic direct
investment and registration for confirmation of capital
contribution by a foreign investor for acquisition of a Chinese
shareholder’s equity are cancelled. The registration for
confirmation of monetary contribution by a foreign investor is
replaced with registration for accounting entry of monetary
contribution for domestic direct investment. If the foreign
investor makes capital contributions in cash (including
cross-border spot exchange and RMB), the opening bank can handle
registration for accounting entry of monetary contribution for
domestic direct investment upon receipt of relevant capital funds
directly through the capital accounting formation system of the
SAFE, and the capital funds can be used only after the
registration.
(II)
Canceling filing of foreign exchange for overseas reinvestment.
Foreign exchange filing will no longer be required for overseas
reinvestment for establishment of or control over another overseas
enterprise by an overseas enterprise established or controlled by a
domestic investment entity.
(III)
Canceling annual check of foreign exchange for direct investment
and replacing it with registration for accumulated equity. Data on
accumulated equity in domestic direct investment and/or overseas
direct investment (collectively, the accumulated equity in direct
investment) as at the end of the last year shall be reported
through the capital account information system of the SAFE by
relevant market entity itself or by an accounting firm or a bank
before and on September 30 every year.
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| 8 |
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Measures
for Registration for the Record of Foreign Trade
Operators |
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Article
2 Foreign trade operators that engage in the import and export of
goods or technology shall handle record filing and registration
with the Ministry of Commerce of the People’s Republic of China
（MOFCOM） or an authority appointed by MOFCOM, except where laws,
administrative regulations and MOFCOM stipulate that no record
filing or registration is required.
If a
foreign trade operator fails to handle record filing and
registration in accordance with these Procedures, customs shall not
carry out the procedures for declaration， and inspection and
release of the imports and exports.
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9 |
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Guidelines
for Business Cooperation between Banking Financial Institutions and
Financial Guarantee Companies |
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Article
9 both parties of banks and financial guarantee companies may agree
to carry out business cooperation within the following
scope:
(1)
Financial guarantee business: including loan guarantee, bill
acceptance guarantee, letter of credit guarantee and other
financial guarantee business;
(2)
Non-financial guarantee business: including bid guarantee, project
performance guarantee, litigation preservation guarantee and other
non-financial guarantee business;
(3)
Other legal compliance business.
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| 10 |
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Regulations
on the Supervision and Administration of Medical
Devices |
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Article
40. To engage in medical device business activities, there should
be business premises and storage conditions commensurate with the
business scale and scope, and a quality management system and
personnel.
Article
41. For Class II medical device business, the business enterprise
shall file with the food and drug regulatory department of the
municipal people’s government at the districted level and submit
the certification materials that it meets the conditions specified
in Article 40 of these regulations.
Article
45. When purchasing medical devices, the medical device business
enterprises and users shall check the qualification of suppliers
and the qualification certificates of medical devices, and
establish a record system for purchase inspection. The enterprises
engaged in wholesale business of class II and class III medical
devices and retail business of class III medical devices shall also
establish a sales record system. The record items include: (1)
name, model, specification and quantity of medical devices, (2) the
production batch number, validity period and sales date of medical
devices, (3) the name of the production enterprise, (4) the name,
address and contact information of the supplier or the buyer, (5)
relevant license document number, etc. Purchase inspection records
and sales records shall be true and shall be kept within the time
limit specified by the Food and Drug administration under the State
Council. The State encourages the use of advanced technical means
for recording.
Article
47. The transportation and storage of medical devices shall meet
the requirements of the instructions and labels of medical devices.
If there are special requirements for temperature, humidity and
other environmental conditions, corresponding measures shall be
taken to ensure the safety and effectiveness of medical
devices.
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Article
55. The medical device business enterprises and users shall not
operate or use medical devices that have not been registered in
accordance with the law, have no qualification certificates, and
have expired, invalid or eliminated. |
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Article 60 The medical device advertisements shall be true and
legal, and shall not contain false, exaggerated or misleading
contents.
The medical device advertisement shall be examined and approved by
the Food and Drug Administration Department of the People’s
Government of the province, autonomous region or municipality
directly under the central government where the medical device
manufacturer or the imported medical device agent is located and
the approval document for the medical device advertisement shall be
obtained. When the advertisement publisher publishes advertisement
for medical device, it shall check the approval document and its
authenticity in advance. It shall not publish advertisement for
medical device that has not been approved, the authenticity of the
approval document has not been verified, or the content of the
advertisement is inconsistent with the approval document. The Food
and Drug Administration Departments of the People’s Governments of
provinces, autonomous regions and municipalities directly under the
central government shall publish and timely update the approved
medical device advertisement catalogue and the approved
advertisement content.
The Food and Drug Administration Department of the People’s
Government at or above the provincial level shall order to suspend
the production, sale, import and use of medical devices, and shall
not publish advertisements involving the medical devices during the
period of suspension.
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The measures for the examination of medical device advertisements
shall be formulated by the Food and Drug Administration Department
of the State Council and Administration Department for Industry and
Commerce of the State Council.
Article 62. Medical device manufacturers and users shall monitor
the adverse events of the medical devices they produce, operate or
use. If any adverse event or suspicious adverse event of medical
devices is found, it shall be reported to the technical institution
for monitoring adverse events of medical devices in accordance with
the provisions of the Food and Drug Administration Department of
the State Council.
Article 81. Under any of the following circumstances, the Food and
Drug Administration Department of the People’s Government at or
above the county level shall confiscate the illegal income, the
medical devices illegally produced and operated, and the tools,
equipment, raw materials and other goods used for illegal
production and operation. If the value of medical devices illegally
produced and operated is less than RMB 10,000, a fine of not less
than RMB 50,000 but not more than RMB 100,000 shall be imposed. If
the value of the goods is more than RMB10,000 yuan, a fine of not
less than 15 times but not more than 30 times the value of the
goods shall be imposed. If the circumstances are serious, the
medical device license applications submitted by relevant
responsible persons and enterprises will not be accepted within 10
years confiscate the income of the legal representative, the
primary person in charge, the directly responsible person in
charge, and other liable persons of the illegal entity obtained
from the entity during the period of the illegal act, impose a fine
of not less than 30% of but not more than 3 times the income
obtained, and prohibit them from engaging in production and
operation of medical devices for life: (1) Producing or operating
class II or class III medical devices without medical device
registration certificate, (2) Engaging in the production of class
II or class III medical devices without permission, and (3)
Engaging in the business activities of class III medical devices
without permission. In case of serious circumstances mentioned in
the first item of the preceding paragraph, the original license
issuing department shall revoke the medical device production
license or the medical device operation license.
Article 84 Under any of the following circumstances, the department
in charge of drug supervision and administration shall public the
name of the entity and its products, and order it to make
corrections within a time limit; if the entity fails to take
corrective actions within the time limit, its illegal gains and
illegally produced and traded medical devices shall be confiscated;
impose a fine of not less than RMB 10,000 nor more than RMB 50,000
if the amount of the value of the medical devices produced or
distributed in violation of laws is less than RMB 10,000, or impose
a fine of not less than five times nor more than 20 times the
amount of the value if the amount of the value of medical devices
is RMB 10,000 or more; and, if the circumstances are serious,
confiscate the income of the legal representative, the primary
person in charge, the directly responsible person in charge, and
other liable persons of the illegal entity obtained from the entity
during the illegal act, impose a fine of not less than 30% of nor
more than twice the income obtained, and prohibit them from
engaging in production and operation of medical devices within five
years:
(1) Production and operation of unrecorded Class I medical
devices;
(2) Engaging in the production of Class I medical devices without
filing;
(3) The business of Class II medical devices shall be filed but not
filed;
(4) The materials that have been filed fail to meet the
requirements.
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Article 85 Where any
entity provides false materials during filing, the department in
charge of drug supervision and administration shall public the name
of the entity and its products, and confiscate the illegal income
and the medical devices produced or distributed illegally; impose a
fine of not less than RMB 20,000 nor more than RMB 50,000 if the
amount of the value of the medical devices produced or operated
illegal is less than RMB 10,000, or impose a fine of not less than
five times nor more than 20 times the amount of the value of the
medical devices if the amount of the value of the medical devices
is RMB 10,000 or more; and, if the circumstances are serious, it
shall be ordered to suspend production and business, confiscate the
income of the legal representative, main responsible person,
directly responsible person in charge, and other liable persons of
the illegal entity obtained from the entity during the illegal act,
impose a fine of not less than 30% of nor more than three times the
income obtained, and prohibit them from engaging in medical devices
production and operation within 10 years.
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Article 86. Under any of the following circumstances, the Food and
Drug Administration Department of the People’s Government at or
above the county level shall order the enterprise to make
corrections and confiscate the medical devices illegally produced,
operated and used. If the value of medical devices illegally
produced and operated is less than RMB 10,000, a fine of not less
than RMB 20,000 but not more than RMB 50,000 shall be imposed. If
the value of the goods is more than RMB 10,000, a fine of not less
than 5 times but not more than 20 times the value of the goods
shall be imposed. If the circumstances are serious, it shall be
ordered to suspend production until the original license issuing
department revokes the registration certificate, production license
and operation license of medical devices confiscate the income of
the legal representative, the primary person in charge, the
directly responsible person in charge, and other liable persons of
the illegal entity obtained from the entity during the period of
the illegal act, impose a fine of not less than 30% of nor more
than three times the income obtained, and prohibit them from
engaging in production and distribution of medical devices within
ten years: (1) Producing, operating or using medical devices that
do not meet the mandatory standards or the registered or filed
product technical requirements; and (3) Operating or using medical
devices without qualification certificate, expired, invalid or
eliminated, or using medical devices not registered according to
law.
Article 89. Under any of the following circumstances, the
department in charge of drug supervision and administration and the
health department shall order correction and give a warning
according to their respective duties. The enterprise refuse to make
corrections shall be fined not less than RMB 10,000 but not more
than RMB 100,000. If the circumstances are serious, it shall be
ordered to suspend production until the original license issuing
department revokes the registration certificate, production license
and operation license of medical devices and impose a fine of not
less than RMB 10,000 nor more than RMB 30,000 on the legal
representative, the primary person in charge, the directly
responsible person in charge, and other liable persons of the
illegal entity: (4) The enterprise engaged in the wholesale
business of the class II or class III of medical devices and the
retail business of the class III medical devices fails to establish
and implement the sales record system in accordance with the
regulations.
Article 97 Anyone who violates the regulations on the
administration of medical device advertisements shall be punished
in accordance with the provisions of the Advertising Law of the
People’s Republic of China.
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Measures
for the Supervision and Administration of Medical Device
Operation |
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Article 4. According to the risk degree of medical devices, the
operation of medical devices is managed by classification. The
operation of class I medical devices does not need making a license
and filing. The operation of class II medical devices is subject to
filing management, and the operation of class III medical devices
is subject to licensing management.
Article 7. The enterprise engaging in the business of medical
devices shall meet the following conditions: (1) it shall have a
quality management organization or quality management personnel
suitable for the business scope and scale. And the quality
management personnel shall have relevant professional
qualifications or professional titles recognized by the state. It
shall have business and storage sites suitable for its business
scope and scale. (2) It shall have business and storage place
suitable for the business scope and scale. (3) It shall have the
storage conditions suitable for the business scope and scale. If
all the medical devices are entrusted to other medical device
business enterprises for storage, the storage room may not be set
up. (4) It shall have a quality management system suitable for the
medical devices. (5) It shall have the ability of professional
guidance, technical training and after-sales service corresponding
to the medical devices operation, or agree to provide technical
support by relevant institutions. The enterprise engaged in the
operation of class III medical devices shall also have a computer
information management system that meets the quality management
requirements for the operation of medical devices, so as to ensure
the traceability of products. Enterprises engaged in the operation
of class I and class II medical devices are encouraged to establish
computer information management systems that meet the quality
management requirements of medical device business.
Article 8. For those engaged in the operation of class III medical
devices, the enterprise shall apply to the Food and Drug
Administration Department of the city divided into districts where
it is located, and submit the following materials: (1) Copies of
business license. (2) Copies of identification certificate,
education or title certificate of legal representative, leading
cadres and quality director. (3) Organization and department
setting up description. (4) Description of Operation scope and
Operation mode. (5) Copies of the geographical location map, plan
and house property certificate or lease agreement (with the
certificate of the property right of the house attached) of the
business place and warehouse. (6) Catalogue of business facilities
and equipment. (7) Catalogue of business quality management system,
working procedures and other documents. (8) Introduction and
function description of computer information management system. (9)
Authorization certificate of the operator. and (10) Other
supporting materials.
Article 12. The enterprises engaged in the business of class II
medical devices shall file with the Food and Drug Administration
Department of the city divided into districts where it is located,
and fill in the business record form of class II medical devices.
Meanwhile, it shall submit the materials specified in Article 8 of
these measures (except item 8).
Article 23. If the enterprise name, legal representative, leading
cadres, residence, business place, business mode, business scope,
warehouse address and other record items change in the business
record certificate of medical devices, the record shall be changed
in time.
Article 30. Medical device business enterprises shall establish an
operation and management system covering the whole process of
quality management in accordance with the requirements of medical
device operation quality management standards, and make relevant
records to ensure that the operation conditions and operation
behaviors continue to meet the requirements.
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Article 31. The medical device business enterprise shall bear legal
responsibility for the purchase and sale of medical devices
undertaken by its offices or sales personnel in the name of the
enterprise. Sales personnel of medical device business enterprises
selling medical devices shall provide an authorization letter with
the official seal of the enterprise. The authorization letter shall
specify the type, region, and time limit for authorized sales, and
indicate the ID number of the sales personnel.
Article 32. The medical device business enterprise shall establish
and implement a record system for purchase inspection. The
enterprise engaged in the wholesale business of the class II or
class III of medical devices and the retail business of the class
III medical devices shall establish the sales record system.
Purchase inspection records and sales records shall be true,
accurate and complete. For the enterprise engaged in the wholesale
business of medical devices, its purchase, storage, and sales
records shall meet the traceability requirements. The purchase
inspection record and sales record shall be kept for 2 years after
the validity period of medical devices. If there is no validity
period, it shall not be less than 5 years. Purchase inspection
records and sales records of implantable medical devices shall be
kept permanently. Other medical device enterprises shall be
encouraged to establish a sales record system.
Article 33. The medical device business enterprises shall purchase
medical devices from qualified manufacturing enterprises or trading
enterprises. The medical device business enterprise shall agree on
the quality responsibility and after-sales service responsibility
with the supplier to ensure the safe use of the medical device
after-sales. The medical device business enterprise that has agreed
with the supplier or the corresponding organization to be
responsible for product installation, maintenance, and technical
training services may not have a department for technical training
and after-sales service, but shall have corresponding management
personnel.
Article 34. The medical device business enterprise shall take
effective measures to ensure that the transportation and storage of
medical devices meet the requirements of medical device
instructions or labels, and make corresponding records to ensure
the quality and safety of medical devices. If the instructions and
labels require low temperature and cold storage, it shall be
transported and stored with low temperature and cold storage
facilities and equipment in accordance with relevant
regulations.
Article 35. If the medical device business enterprise entrusts
other carriers to transport the medical devices, it shall conduct
an assessment of the carrier’s quality assurance ability to
transport medical devices, clarify the quality responsibility in
the process of transportation, and ensure the quality and safety in
the process of transportation.
Article 36. If the medical device business enterprise provides
storage and distribution services for other medical device
production and business enterprises, it shall sign a written
agreement with the entrusting party to clarify the rights and
obligations of both parties, It shall also have equipment and
facilities suitable for the conditions and scale of product storage
and distribution, and a computer information management platform
and technical means to carry out real-time electronic data exchange
with the entrusting party and realize the traceability of the whole
process of product operation.
Article 37. The business enterprise engaged in wholesale business
of medical devices shall sell them to qualified business
enterprises or users.
Article 38. The medical device business enterprise shall be
equipped with full-time or part-time personnel responsible for
after-sales management. The quality problems of the customer
complaints shall be identified. And it shall be take effective
measures to deal with and feedback in time, and make records. If
necessary, the supplier and medical device manufacturer shall be
informed.
Article 53. Under any of the following circumstances, the Food and
Drug Administration Department at or above the county level shall
order the enterprise to make corrections within a time limit and
give a warning. If the enterprise refuses to make corrections, it
shall be fined not less than RMB 5,000 but not more than RMB
20,000: (1)The medical device business enterprise fails to change
the registration items in accordance with the measures. (2) The
medical device business enterprise sends sales personnel to sell
medical devices, but fails to provide authorization letters in
accordance with the requirements of the measures. (3) The class III
medical device business enterprise fails to submit the annual
self-inspection report to the Food and Drug Administration
Department before the end of each year.
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Article 54. Under any of the following circumstances, the Food and
Drug Administration Department at or above the county level shall
order the enterprise to make corrections. And the enterprise shall
be fined not less than RMB 10,000 but not more than RMB 30,000: (1)
The operating conditions of the medical device business enterprise
have changed, no longer meet the requirements of the medical device
business quality management standards, and the rectification has
not been carried out in accordance with the provisions. (2) The
medical device business enterprise changes the business site or
warehouse address, expands the business scope or establishes the
warehouse without authorization. (3) The business enterprise
engaged in the wholesale business of medical devices sells product
to an unqualified business enterprise or user. (4) The medical
device business enterprise purchases medical devices from an
unqualified production or business enterprise.
Article 55. If the enterprise engages in the business activities of
medical devices without permission, or fails to renew the medical
device operating license and continue to engage in medical device
business after the expiry of the validity period, it shall be
punished in accordance with Article 63 of the regulations on the
supervision and administration of medical devices.
Article 58. If the enterprise fails to file or provides false
information in accordance with the measures, it shall be punished
in accordance with Article 65 of the regulations on the supervision
and administration of medical devices.
Article 59. Under any of the following circumstances, the Food and
Drug Administration Department at or above the county level shall
order the enterprise to make corrections within a time limit, and
punish the enterprise in accordance with Article 66 of the
regulations on the supervision and administration of medical
devices: (1) The enterprise operates medical devices that do not
meet the mandatory standards or meet the technical requirements of
the products registered or filed. (2) The enterprise operates
medical devices that are qualified, expired, invalid or eliminated.
(3) The enterprise still refuses to stop the operation of medical
devices after being ordered to stop operation by the Food and Drug
Administration Department.
Article 60. Under any of the following circumstances, the Food and
Drug Administration Department at or above the county level shall
order the enterprise to make corrections, and punish the enterprise
in accordance with Article 67 of the regulations on the supervision
and administration of medical devices: (1) The instructions and
labels of the medical devices are not in conformity with the
relevant provisions. (2) Failing to transport and store the medical
device according to the requirements of the instructions and labels
of the medical device.
Article 61. Under any of the following circumstances, the Food and
Drug Administration Department at or above the county level shall
order the enterprise to make corrections, and punish the enterprise
in accordance with Article 68 of the regulations on the supervision
and administration of medical devices: (1) The business enterprise
fails to establish and implement the record system for the purchase
inspection of medical devices in accordance with the provisions of
the measures. (2) The business enterprise engages in the wholesale
business of the class II or class III of medical devices and the
retail business of the class III medical devices fail to establish
and implement the sales record system in accordance with the
measures.
|
|
C. |
Organizational
Structure |
The following is an organizational chart setting forth our
corporate structure as of December 31, 2021 and as of the date of
this report:
The following table lists the major holders of our Ordinary
Shares:
| |
|
Record
Holder |
|
Ownership
Percentage |
|
|
Beneficial
Owner* |
|
Beneficial
Ownership in Record Holder |
|
|
1 |
|
Ruiheng
Global Limited |
|
|
24.7590 |
% |
|
Yuan
Shen |
|
|
40.637 |
% |
| 2 |
|
Yangwei
Global Limited |
|
|
13.7746 |
% |
|
Qian
Li |
|
|
87.291 |
% |
| 3 |
|
Jiyi
Global Investments Limited |
|
|
8.0453 |
% |
|
Qian
Li |
|
|
75.05 |
% |
| 4 |
|
Zhan
Zhao Limited |
|
|
5.0927 |
% |
|
|
|
|
|
|
|
* |
Beneficial
owners of 30% or more of applicable record holders, where record
holder is not an individual. |
|
D. |
Property,
Plants and Equipment |
A summary of our leased properties as of the date of this report is
shown below:
|
Subsidiary
Name |
|
City |
|
Address |
|
Size
(m2) |
|
Usage |
|
Term |
|
|
LAM |
|
Hangzhou,
Zhejiang |
|
First
floor of No. 147 Ganshui lane, Shangcheng District |
|
330.60 |
|
Office |
|
April
1, 2022-March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LAM |
|
Hangzhou,
Zhejiang |
|
Room
802, Unit 1, Building 5, Puyuewan, Binjiang District |
|
88.59 |
|
Staff
Apartment |
|
July
15, 2021-July 14,2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LAM |
|
Hangzhou,
Zhejiang |
|
Hangzhou
Poly NPUB Qianjiang New Town United Community, Building 11,
Intersection of Tonggu Road and Wenchao Road, Hangzhou |
|
|
|
Staff Apartment
|
|
August
15, 2021-August 14,2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zhejiang
Jingyuxin |
|
Shaoxing,
Zhejiang |
|
48th
floor of Baiguan Square, Baiguan Street |
|
1,700 |
|
Office
|
|
May
1, 2020-April 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zheshi
Health |
|
Hangzhou,
Zhejiang |
|
First
floor of No. 147 Ganshui Lane, Shangcheng District |
|
148.78 |
|
Office |
|
April
1, 2022-March 31, 2023 |
|
The Company does not have any plants, but has office equipment in
each office.
We believe that the facilities that we currently lease are adequate
to meet our needs for the foreseeable future and we will be able to
obtain adequate facilities, principally through leasing of
additional properties, to accommodate our future expansions when
needed.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion and analysis of our
financial condition and results of operations in conjunction with
our consolidated financial statements and the related notes
included elsewhere in this annual report on Form 20-F. This
discussion may contain forward-looking statements based upon
current expectations that involve risks and uncertainties. Our
actual results may differ materially from those anticipated in
these forward-looking statements as a result of various factors,
including those set forth under “Item 3. Key Information—D. Risk
Factors” or in other parts of this annual report on Form
20-F.
Overview
Roan Holdings Group Co., Ltd. (formerly known as China Lending
Corporation or DT Asia Investments Limited) (“Roan”, or the
“Company”) is a holding company incorporated on April 8, 2014,
under the laws of the British Virgin Islands. The Company
historically engaged in providing loan facilities to individuals,
micro, small and medium-sized enterprises (“MSMEs”) and sole
proprietors in the Xinjiang province in China. Due to the slowdown
of the Chinese economy and policy changes related to loans to
MSMEs, the Company has transformed its business from a direct loan
business, to a financial, insurance and healthcare related
solutions company serving MSMEs in China. The Company also provides
health management, asset management, insurance services, healthcare
and consumer financing services to the employees of large
institutions.
In 2019, the Company acquired a 65.0177% interest in Lixin
Financial Holdings Group Limited (“Lixin Cayman”), through its
subsidiaries, provides a wide range of financing solutions and
related peripheral services, including financial management,
assessment and consulting services, debt collecting services, and
financial guarantee services to individuals and MSMEs in China.
In 2020, the Company began and expanded its services in the health
industry. The Company plans to provide a variety of health care
related services, including health management, health big data
management, and health information management based on blockchain
technology, innovation insurance, health products and healthcare
services. Due to the negative impact of Covid-19 pandemic, many of
the Company’s health projects was suspended or delayed.
In 2021, the Company expanded its business to provide industrial
operation services based on the Company’s past experience,
capability, customer resources, market channels, relationships with
institutional organizations and government relations.
On December 31, 2021, Hangzhou Zeshi Investment Partnership
(Limited Partnership) (“Hangzhou Zeshi”), a wholly-owned subsidiary
of the Company, entered into an agreement with ZhongTan Future New
Energy Industry Development (Zhejiang) Co., Ltd. (“ZhongTan
Future”). Pursuant to the agreement, Hangzhou Zeshi will provide
supply chain financial services, financial leasing services and
industrial operation services, etc.
Among the Company’s subsidiaries, Zhejiang Lixin Enterprise
Management Holding Group Co., Ltd. (浙江励信企业管理集团有限公司) (“Zhejiang
Lixin”), Lixin (Hangzhou) Asset Management Co., Ltd.
(励信(杭州)资产管理有限公司) (“LAM”) and Hangzhou Zeshi Investment Partnership
(Limited Partnership) (杭州泽时投资合伙企业(有限合伙)) (“Hangzhou Zeshi”) are
financial service companies, which provide comprehensive financial
solutions and services including financial consulting services,
consulting services relating to debt collection, management and
assessment and financial guarantee services.
Financial Consulting
Services
The Company provides financial consulting services to its customers
who have financing needs. The Company designs financing plans for
its customers, facilitates the financing services between customers
and financing providers, and charges a fixed referral fee for its
services.
For the year ended December 31, 2021, 2020 and 2019, the Company
generated $nil, $nil and $9,503 in consulting services for
financial guarantee customers.
Consulting services
relating to debt collection
The Company provides consulting services relating to debt
collection to its customers. The debt collection services involved
commitments of 1) assisting the customers to obtain court judgments
on outstanding debt, and 2) assisting the customers to receive
repayment on outstanding debt.
For the year ended December 31, 2021 and 2020, the Company
generated consulting services relating to debt collections of
$206,792 and $ 2,108,477. For the period from the closing of Lixin
Acquisition on December 20, 2019 to December 31, 2019, the Company
generated consulting services relating to debt collections of
$176,984 through Lixin.
In addition, the Company’s another subsidiary, Hangzhou Zeshi
Investment Partnership (Limited Partnership) (“Hangzhou Zeshi”) was
involved in consulting service relating to debt collection with one
factoring company. The debt collection service involved one
performance obligation which is to assist the customer to receive
repayment on outstanding debt, and the Company recognized revenues
upon completion of the performance obligation. For the year ended
December 31, 2021, 2020 and 2019, Hangzhou Zeshi recognized revenue
of $nil, $nil and $316,795 respectively.
Management and
assessment services
The Company commenced its management and assessment services in
December 2018. The Company provided management and assessment
services during the loan period to its customers who borrowed
direct loans from the Company.
|
|
1) |
Asset
management services focus on providing account receivable
collection plans, collection, investigation on assets such as
guaranty, assisting litigation mitigation, process assets and asset
supervision; |
|
|
2) |
Financing
services focus on designing financing plans, recommending fund
sources and assisting funds to arrange project due diligence;
and |
| |
|
|
| |
3) |
Factoring
business focuses on financing invoices from businesses that have
cash flow problems due to slow-paying customers. The client gets
immediate funds for the receivable. We hold the invoice and make
certain profit when the invoice is paid by the clients’ customers.
In this process, we also provide related services such as assessing
the buyers’ credit risks. |
For the years ended December 31, 2021, 2020 and 2019, we provided
management and assessment services to four customers, generating
revenues of $440,254, $19,676, and $135,938, respectively. Revenue
for the year ended December 31, 2020, were mainly for the contracts
obtained in 2019 which were recognized during fiscal year 2020. In
the year ended December 31, 2021, we entered into some new
contracts with our customers and the revenue increased as compared
to the previous year.
Financial guarantee
services
The Company’s subsidiary, Zhejiang Jing Yu Xin Financing Guarantee
Co., Ltd. (浙江京虞信融资担保有限公司) (“Zhejiang Jingyuxin”), which the Company
owns 93.4% of the equity, provides financial guarantee services to
its customers.
The Company receives financial guarantee commission by providing a
financial guarantee service to customers. Pursuant to the financial
guarantee service contracts, the Company is obligated to make
payments if the customers fail to make payments to financial
institutions as scheduled. Accordingly, the financial institutions
providing capital to customers and will claim the defaulted amount
against the Company if any customer default occurs. The contract
amounts reflect the extent of credit losses to which the Company is
exposed.
Credit risk is controlled by the application of credit approvals,
limits and monitoring procedures including due-diligence visits and
post-lending visits to the clients. The Company manages credit risk
through in-house research and analysis of the Chinese economy, the
underlying obligors and transaction structures. To minimize credit
risk, the Company requires collaterals in the form of cash or
pledges of securities or property and equipment.
As part of its financial guarantee services, the Company provides
loan guarantees. The customer’s cash deposits or other assets are
held as collaterals for the repayment of each loan. As of December
31, 2021 and 2020, the amount of outstanding loans and related
interest that the Company has guaranteed was approximately
$47,020,055 and $51,318,310, respectively.
The Company generated financial guarantee commissions of $456,944
and $375,471 for December 31, 2021 and 2020, respectively. For
the period from acquisition of Lixin on December 20, 2019 to
December 31, 2019, the Company generated financial guarantee
commission of $8,797.
Revenue from Interest
and fees
Zhejiang Lixin, LAM, Hangzhou Zeshi, Zeshi Insurance and Yi Fu
provide loans to third parties and charge a fixed rate interest on
the loans. For the year ended December 31, 2021, 2020 and 2019, the
Company recorded interest on third parties loans of $2,113,918,
$2,131,447, and 34,707, respectively.
Under the financial guarantee service agreements, banks, other
financial institutions and creditors who provide loans to the
Company’s guarantee service customers, generally require the
Company, as the guarantor of the loans, to deposit cash of 10% to
20% of the guaranteed amount into an escrow account which is
restricted from use. The Company records interest received on the
restricted cash pledged as revenue. For the year ended December 31,
2021, 2020 and 2019, the Company recorded interest on restricted
cash of $300,749, $348,389, and $64,636, respectively.
Prior to September 30, 2020, through Feng Hui Ding Xin (Beijing)
Financial Consulting Co., Ltd. (“Ding Xin”), which was sold on
September 30, 2020, we also entered into financing arrangements
with our customers through Zhiyuan Commercial Factoring (Guangzhou)
Co., Ltd. (“Zhiyuan”), which is engaged in business factoring
program. We earned interest income from these financing
arrangements. For the years ended December 31, 2020 and 2019, we
earned interest income from factoring programs of $nil and
$2,782,332.
Healthcare service
packages
On December 30, 2019, the Company incorporated Fortis Health
Industrial Group Limited (former name Fortis Health Industrial
Group Limited) (“Fortis” or “FIG”,) in Hong Kong. On February 28,
2020, the Company incorporated Zeshi Insurance to conduct insurance
technology business. On March 3, 2020, the Company incorporated
Zeshi Health to conduct health management, health big data
management, and health information management based on blockchain
technology.
In April 2020, the Company officially launched a one-stop internet
insurance and health care service platform after nearly eight
months of preparation and systems development. The platform aims to
provide modern households with one-stop systematic “customized
insurance + health management + family doctor + home medical
testing” health management service solutions. This platform will
enable households and employees of medium to large-sized
enterprises to access cost-effective, customized health care and
insurance solutions, customized insurance products, as well as data
management and operational services.
In July 2020, the Company changed the principal business operations
of Ningbo Ding Tai Financial Leasing Co., Ltd. in order to expand
and enhance its services in the health industry in Zhejiang
Province and renamed it Yifu Health Industry (Ningbo) Co., Ltd.
The Company has established long-term partnerships for innovative
insurance services, smart health medical services, data mining, and
operations with a variety of insurance service partners, medical
service partners, and technology and big data partners.
The Company had initially planned to officially launch our newborn
deformity diagnosis and treatment insurance project at the end of
2020 or early 2021. Due to a COVID outbreak in Hebei province in
early 2021, the project was temporarily suspended. The revenue
generated from the health care service was minimal during the year
ended December 30, 2021 and 2020.
Industrial operation services
In
the year ended December 31, 2021, the Company began to provide
industrial operations services to its customers, which includes
transformation, incubation and commercialization of scientific and
technological achievements; investment and development of projects
for new technology, products and related operating
service.
On
December 31, 2021, Hangzhou Zeshi investment partnership (Limited
Partnership) (“Hangzhou Zeshi”), a wholly-owned subsidiary of the
Company, entered into an agreement with ZhongTan Future New Energy
Industry Development (Zhejiang) Co., Ltd. (“ZhongTan Future”).
Pursuant to the agreement, Hangzhou Zeshi will provide supply chain
financial services, financial leasing services and industrial
operation services, etc. Revenue of $146,245 was recognized during
the year ended December 31, 2021 after the target customer was
located, due diligence and initial negotiation was completed and
requirements of ZhongTan Future were met.
COVID-19
Impact
Our business operations have been
affected and may continue to be affected by the ongoing COVID-19
pandemic. After the second quarter of 2020, the COVID outbreak in
China was gradually controlled. Our business initially returned to
normal operations, although management assessed that our results of
operations had been negatively impacted for the year. In 2021,
Omicron variants emerged, resulting in continued disruption to our
business and the global economy and supply chain. If any new
outbreak of COVID-19 is not effectively and timely controlled, or
if government responses to outbreaks or potential outbreaks are
severe or long-lasting, it could negatively affect the execution of
customer contracts, the collection of customer payments, or disrupt
our supply chain, and the continued uncertainties associated with
COVID 19 may cause our revenue and cash flows to underperform in
the next 12 months. The extent of the future impact of the COVID-19
pandemic on our business and results of operations is still
uncertain.
Recent developments
Dispositions of China Roan
Industrial-Financial Holdings Group Co., Ltd. and
subsidiaries
On September 17, 2021, the Company signed an equity transfer
agreement to sell 100% of the equity interest it held in Roan HK, a
holding company that has no business operations, to Yuanjia Asset
Management Co. Ltd. (“Yuanjia”), a BVI company, for a total of
approximately $282 (HK$2,200). The transaction was closed on
September 30, 2021. The net assets of Roan HK were negative
$492,495 as of September 30, 2021, resulting in a gain on
deconsolidation of $492,777 and other comprehensive loss of $2,494.
Roan HK’s subsidiary, Jing Kai was disposed at the same time.
Setup of joint
ventures
On July 27, 2021, the Company signed a cooperation agreement with
Beijing Auvgo International Travel Technology Co. Ltd. (“Auvgo
International”), to form a joint venture, Yijia Travel (Hangzhou)
Digital Technology Co. Ltd. (“Yijia Travel”), to jointly develop
business travel services. Pursuant to the agreement, the Company
and Auvgo International will invest and hold 35% of the equity in
the joint venture, respectively, and the Company’s business
partner, Shuzhiyun Holdings (Beijing) Co., Ltd. (“Shuzhiyun”), who
signed an agreement with the Company to vote in concert, will make
capital contributions for the remaining 30% equity in the joint
venture.
On September 30, 2021, the Company signed a cooperation agreement
with Shenzhen Geile Information Technology Co., Ltd. (“Harvest”,
formerly called “Shenzhen Harvest Business Ltd., Co.”), to jointly
set up a consumer payment technology joint venture, FINE C+ Digital
Technology (Hangzhou) Limited (“FINE C+ Digital”), to offer
lifestyle consumer services including cross-platform clearing and
settlement services for consumer reward rights and interests.
Pursuant to the agreement, the Company and Harvest will invest and
hold 45% and 25% of the equity in the joint venture, respectively,
and the Company’s business partner, Shuzhiyun, who signed an
agreement with the Company to vote in concert, will make capital
contributions for the remaining 30% equity in the joint
venture.
On October 14, 2021, the Company’s subsidiary, Yifu Health Industry
(Ningbo) Co., Ltd. (“Yi Fu”) signed a cooperation agreement with
Shuzhiyun and Shanghai Jingmu Information Technology Co. Ltd.
(“Jingmu”), to set up a joint venture to provide online medical
consultation and traditional Chinese medicine, FINE C+ Health
(Hangzhou) Technology Limited (“FINE C+ Health”). Pursuant to the
agreement, Yi Fu and Shuzhiyu will invest and hold 40% and 30% of
the equity in the joint venture, respectively, and Jingmu will make
capital contributions for the remaining 30% equity in the joint
venture. Shuzhiyun signed an agreement with the Company to vote in
concert.
On October 18, 2021, the Company signed a cooperation agreement
with Flourishing Technology Inc. (“Flourishing”) and media
interactive technology experts to set up a joint venture, FINE C+
Interactive Technology (Hangzhou) Limited (“FINE C+ Interactive”),
to jointly develop cultural and tourism services, education
development industry business and personal financial services.
Pursuant to the agreement, the Company and Flourishing and media
interactive technology experts will invest and hold 35% and 51 % of
the equity in the joint venture, respectively, and the Company’s
business partner, Shuzhiyun, who signed an agreement with the
Company to vote in concert, will make capital contributions for the
remaining 14% equity in the joint venture.
As of the date of this report, the Company had not paid the
investment.
On November 18, 2021, the Company signed a cooperation agreement
with Harvest Horn (Beijing) Marketing Co., Ltd. (“Harvest Horn”) to
set up an entertainment technology joint venture focusing on the
theme park industry. Pursuant to the agreement, the Company’s
subsidiary, FINE C+ Interactive and Roan’s partners will hold 70%
equity jointly, and Harvest Horn’s subsidiary, Beijing Liuxinghuoyu
Technology Co., Ltd. (“Liuxinghuoyu”), will hold the remaining 30%
equity. As of the date of this report, the Company has not paid for
this investment.
On November 24, 2021, Hangzhou Zeshi Shuzhhiyun and another
individual set up Hangzhou Future New Energy Enterprise Management
Partnership (Limited Partnership) (“Future New Energy”). Hanzhou
Zeshi held 1% of the equity of Future New Energy. The registered
capital of Future New Energy is RMB 10,000,000 (approximately
$1,569,218). As of the date of this report, Hangzhou Zeshi has not
paid for this investment of RMB100,000 (approximately $15,692).
On December 16, 2021, Hangzhou Zeshi, Future New Energy Partnership
(Limited Partnership) and another four unrelated parties set up
Zhongtan Future New Energy Industry Development (Zhejiang) Co.,
Ltd., (“Zhongtan Future”). Hangzhou Zeshi held 2% its equity
and Future New Energy held 20% its equity. The registered
capital of Zhongtan Future is RMB 100,000,000 (approximately
$15,692,182). As of the date of this report, the Company has not
paid for this investment of RMB 2,000,000 (approximately
$313,844).
Key Factors Affecting Our Results of Operation
We have a limited operating history of our current businesses. We
commenced management and assessment consulting services in December
2018, and acquired financial guarantee and consulting business in
late December 2019. We believe our future success depends on our
ability to significantly expand financial market and channels, and
apply latest technology related to healthcare big data, artificial
intelligence and block chain to the combination of medical and
healthcare management and insurance. Our limited operating history
makes it difficult to evaluate our business and future prospects.
You should consider our future prospects in light of the risks and
challenges encountered by a company with a limited operating
history in an emerging and rapidly evolving industry. These risks
and challenges include, among other things,
|
|
● |
our
ability to integrate financial guarantee and financial consulting
business; |
|
|
● |
our
ability to expand financial market and channels, especially in
individual financial area services: insurance + consumption
finance; and |
|
|
● |
our
ability to build the insurance technology and health management
platform. |
In addition, our business requires a significant amount of capital
in large part due to needing to continuously grow financial
guarantee services, and expand our business in existing markets and
to additional markets where we currently do not have operations. We
do not know if we will receive the amount of capital needed for our
business growth and expansion.
Results of Operations
The following table sets forth a summary of our consolidated
results of operations for the periods presented. This information
should be read together with our consolidated financial statements
and related notes included elsewhere in this annual report. The
results of operations in any period are not necessarily indicative
of our future trends.
| |
|
For the Years Ended
December 31, |
|
| |
|
2021 |
|
|
2020 |
|
|
2019 |
|
| |
|
|
|
|
|
|
|
|
|
| Revenues from services |
|
$ |
793,291 |
|
|
$ |
2,128,153 |
|
|
$ |
639,220 |
|
| Revenues from healthcare service
package |
|
|
- |
|
|
|
55,301 |
|
|
|
- |
|
| Cost of revenues |
|
|
- |
|
|
|
(50,774 |
) |
|
|
(8,080 |
) |
| Net revenues of services |
|
|
793,291 |
|
|
|
2,132,680 |
|
|
|
631,140 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Commissions and fees on financial guarantee
services |
|
|
456,944 |
|
|
|
375,471 |
|
|
|
8,797 |
|
| Provision for financial guarantee
services |
|
|
(57,417 |
) |
|
|
(89,865 |
) |
|
|
(5,008 |
) |
| Commission and fee income on guarantee
services, net |
|
|
399,527 |
|
|
|
285,606 |
|
|
|
3,789 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest and fees income |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest and fees on direct loans |
|
|
- |
|
|
|
- |
|
|
|
1,153 |
|
| Interest income on loans due from third
parties |
|
|
2,113,918 |
|
|
|
2,131,447 |
|
|
|
34,707 |
|
| Interest income from factoring
business |
|
|
- |
|
|
|
- |
|
|
|
2,782,332 |
|
| Interest income on deposits with
banks |
|
|
300,749 |
|
|
|
348,389 |
|
|
|
64,636 |
|
| Total interest and fee income |
|
|
2,414,667 |
|
|
|
2,479,836 |
|
|
|
2,882,828 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expenses and fees on secured
loans |
|
|
- |
|
|
|
- |
|
|
|
(2,218,815 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net interest income |
|
|
2,414,667 |
|
|
|
2,479,836 |
|
|
|
664,013 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Provision for loan losses |
|
|
- |
|
|
|
- |
|
|
|
(2,244,601 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net interest (loss) income after provision for
loan losses |
|
|
2,414,667 |
|
|
|
2,479,836 |
|
|
|
(1,580,588 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating (loss) income |
|
|
3,607,485 |
|
|
|
4,898,122 |
|
|
|
(945,659 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| Salaries and employee surcharge |
|
|
(1,054,509 |
) |
|
|
(1,116,482 |
) |
|
|
(512,314 |
) |
| Other
operating expenses |
|
|
(2,241,069 |
) |
|
|
(2,995,098 |
) |
|
|
(1,385,259 |
) |
| Changes in fair value of warrant
liabilities |
|
|
(3,021 |
) |
|
|
5,961 |
|
|
|
530,863 |
|
| Total operating expenses |
|
|
(3,298,599 |
) |
|
|
(4,105,619 |
) |
|
|
(1,366,710 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Other income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
| Deconsolidation gain (loss) |
|
|
490,283 |
|
|
|
(1,953,248 |
) |
|
|
- |
|
| Other
income (expense) |
|
|
554,167 |
|
|
|
76,406 |
|
|
|
- |
|
| Interest income (expenses), net |
|
|
(267,184 |
) |
|
|
- |
|
|
|
- |
|
| Total other expenses |
|
|
777,266 |
|
|
|
(1,876,842 |
) |
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Income (loss) before income
taxes |
|
|
1,086,152 |
|
|
|
(1,084,339 |
) |
|
|
(2,312,369 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Income tax (expenses) recovery |
|
|
(328,851 |
) |
|
|
229,733 |
|
|
|
(244,741 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net income (loss) from continuing
operations |
|
|
757,301 |
|
|
|
(854,606 |
) |
|
|
(2,557,110 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net income (loss) from discontinued operations,
net of income tax |
|
|
- |
|
|
|
- |
|
|
|
26,846,018 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net income (loss) |
|
$ |
757,301 |
|
|
$ |
(854,606 |
) |
|
$ |
24,288,908 |
|
Year ended December 31, 2021 compared to year ended
December 31, 2020
Revenues
Our revenues from services decreased by $1,334,862 or 63%, from
$2,128,153 for the year ended December 31, 2020, to $793,291 for
the year ended December 31, 2021. The following table sets forth a
breakdown of our revenue by services offered for the years ended
December 31, 2021 and 2020:
| |
|
For the years ended
December 31, |
|
|
Variance |
|
| |
|
2021 |
|
|
2020 |
|
|
Amount |
|
|
% |
|
| Management and assessment services |
|
$ |
440,254 |
|
|
$ |
19,676 |
|
|
$ |
420,578 |
|
|
|
2138 |
% |
| Consulting services relating to debt
collection |
|
|
206,792 |
|
|
|
2,108,477 |
|
|
|
(1,901,685 |
) |
|
|
(90 |
)% |
| Industrial operation services |
|
|
146,245 |
|
|
|
- |
|
|
|
146,245 |
|
|
|
100 |
% |
| Revenues from services |
|
$ |
793,291 |
|
|
$ |
2,128,153 |
|
|
$ |
(1,334,862 |
) |
|
|
(63 |
)% |
Management and assessment services
Revenue from management and assessment services was $440,254 and
$19,676 for the year ended December 31, 2021 and 2020,
respectively. Revenue for the year ended December 31, 2020,
were mainly for the contracts obtained in 2019 which were
recognized during fiscal year 2020. In the year ended December 31,
2021, we entered into some new contracts with our customers and the
revenue increased as compared to the previous year.
Consulting services relating to debt collection
The Company provides consulting services relating to debt
collection with certain factoring companies, through the subsidiary
of Lixin Cayman which were acquired in late December 2019. The debt
collection services involved two performance obligations and the
service fee for each performance obligation are fixed and reflected
the stand-alone selling price. In addition, a collected-amount
based incentive is rewarded to the Company upon collection of
outstanding debt.
|
|
1) |
assisting
the customers to get court judgements on outstanding debt, and the
Company recognized revenues over the period towards the completion
of the performance obligation; and |
|
|
2) |
assisting
the customers to receive repayment on outstanding debt, and the
Company recognized revenues upon completion of the performance
obligation. |
Revenue from consulting services relating to debt collection
$206,792 for the year ended December 31, 2021, a decrease of
1,901,685, or 90%, as compared to and $2,108,477 for the year ended
December 31, 2020, which was mainly due to the negative impact of
the COVID pandemic. We had less contracts for debt collection
service during the year ended December 31, 2021.
Industrial operation services
On December 31, 2021, Hangzhou Zeshi Investment Partnership
(Limited Partnership) (“Hangzhou Zeshi”), a wholly-owned subsidiary
of the Company, entered into an agreement with ZhongTan Future New
Energy Industry Development (Zhejiang) Co., Ltd. (“ZhongTan
Future”). Pursuant to the agreement, Hangzhou Zeshi will provide
supply chain financial services, financial leasing services and
industrial operation services, etc. Revenue of $146,245 was
recognized during the year ended December 31, 2021 after the target
customer was located, due diligence and initial negotiation was
completed and requirements of ZhongTan Future were met.
Commissions and fees on financial guarantee services
Commission and fees on financial guarantee services was $456,944
for the year ended December 31, 2021, an increase of $81,473, or
22% as compared to $375,471 for fiscal year 2020, reflecting an
increase for business development.
Provision for financial guarantee services
The provisions for financial guarantee services are related to
financial guarantee service business as per the requirement of
local government. Provisions for financial guarantee services was
$57,417 for the year ended December 31, 2021, as compared to
$89,865 for last fiscal year.
Interest and fees income
Interest and fee income primarily consisted of interest and fee
income generated from loans due from third parties. Interest and
fee income was $2,414,667, a decrease of $65,169, or 3% for the
year ended December 31, 2021 as compared to $2,479,836 for fiscal
year 2020. The decrease was mainly due to a decrease of $17,529 in
interest income from loans due from third parties and a decrease of
$47,640 in interest income on deposits with banks.
Operating expenses
Operating expense mainly consisted of salary and employee
surcharges, office expenses, travel costs, entertainment expenses,
depreciation of equipment, current expected credit losses,
write-off of receivables, professional fees and office supplies.
Operating expenses in total decreased by $807,020, or 20% to
$3,298,599 for year ended December 31, 2021 compared to $4,105,619
for the year ended December 31, 2020. The decrease was primarily
attributable by a decrease of $61,973 in salaries and employee
surcharges and a decrease of $754,029 in other operating expenses.
The decreases in both of these expenses were primarily the result
of our cost control strategies. Operating expenses also include
change in fair value of warrant liabilities. The loss from the fair
value change in warrant liabilities was $3,021 during the year
ended December 31, 2021, as compared to a gain of $5,961 for last
fiscal year.
Income tax expenses
We had income tax expenses of $328,851 for the year ended December
31, 2021 as compared to a recovery of $229,733 for the year ended
December 31, 2020.
Current income tax expenses decreased by $177,367 from $
771,639 for the year ended December 31, 2020 to $594,272 for
the year ended December 31, 2021. The decrease was primarily caused
by the reversal of the accrued tax payables in the previous
years.
Deferred income tax recovery was $265,421 or the year ended
December 31, 2021 as compared to $ 1,001,372 for the ended December
31, 2020. The higher tax recovery in 2020 was mainly due to the
reversal of deferred income tax liabilities in connection with the
changes in temporary differences.
Net income (loss) from discontinued operations, net of income
tax
During the year ended December 31, 2020, the net income from
discontinued corporation, net of income tax was $Nil. The Company,
however, recorded a derecognition loss of $1,953,248 from the
disposition of Ding Xin in September 2020.
Net income
As a result of the foregoing, we had a net income of $757,301 for
the year ended December 31, 2021, as compared to a net loss of
$854,606 for the year ended December 31, 2020.
Year ended December 31, 2020 compared to year ended
December 31, 2019
Revenues
Our revenues from services increased by $1,488,933 or 233%, from
$639,220 for the year ended December 31, 2019, to $2,128,153
for the year ended December 31, 2020. The following table sets
forth a breakdown of our revenue by services offered for the years
ended December 31, 2020 and 2019:
| |
|
For the years ended
December 31, |
|
|
Variance |
|
| |
|
2020 |
|
|
2019 |
|
|
Amount |
|
|
% |
|
|
Management and assessment services |
|
$ |
19,676 |
|
|
$ |
135,938 |
|
|
$ |
(116,262 |
) |
|
|
(86 |
)% |
| Consulting
services relating to debt collection |
|
|
2,108,477 |
|
|
|
493,779 |
|
|
|
1,614,698 |
|
|
|
327 |
% |
|
Consulting services relating to financial guarantee services |
|
|
- |
|
|
|
9,503 |
|
|
|
(9,503 |
) |
|
|
(100 |
)% |
|
Revenues from services |
|
$ |
2,128,153 |
|
|
$ |
639,220 |
|
|
$ |
1,488,933 |
|
|
|
233 |
% |
Management and assessment services
Revenues from management and assessment services decreased by
$116,262 or 86%. The primary reason of the decrease was due to
a majority of revenues from the contracts obtained in 2018 were
recognized in the year ended December 31, 2019. In the year ended
December 31, 2020, we did not engage in much management and
assessment services due to the change of our business focus.
Therefore, there was minimal revenue from Management and assessment
services.
Consulting services relating to debt collection
The Company provides consulting services relating to debt
collection with certain factoring companies, through Lixin group
which were acquired in late December 2019. The debt collection
services involved two performance obligations, and the service fee
for each performance obligation are fixed and reflected the
stand-alone selling price. In addition, a collected-amount based
incentive is rewarded to the Company upon collection of outstanding
debt.
|
|
1) |
assisting
the customers to get court judgements on outstanding debt, and the
Company recognized revenues over the period towards the completion
of the performance obligation; and |
|
|
2) |
assisting
the customers to receive repayment on outstanding debt, and the
Company recognized revenues upon completion of the performance
obligation. |
The significant increase of $1,614,698 or 327% was due to we
consolidated a full year of Lixin’s operations in 2020, whereas in
2019, we only consolidated Lixin’s operation from December 20, 2019
to December 31, 2019.
Commissions and fees on financial guarantee services
Commissions and fees on financial guarantee services increased by
$366,674 or 4,168% for the year ended December 31, 2020 compared to
the same period of 2019. This was due to we consolidated a full
year of Lixin’s operations in 2020, whereas in 2019, we only
consolidated Lixin’s operation from December 20, 2019 to December
31, 2019.
Interest and fees income
Interest and fee income primarily consisted of interest and fee
income generated from factoring business and from loans due from
third parties. Interest and fee income decreased by $402,992 or 14%
for the year ended December 31, 2020 compared to the same period of
2019. The decrease was mainly due to our subsidiary, Zhiyuan, which
provided our only factoring business did not conduct any factoring
business due to the Company’s change of business plan. Zhiyuan was
later disposed of in September 2020. As a result, interest income
and fee from factoring business decreased by $2,782,332. The
decrease in interest income from factoring business was offset by
the increase of $2,131,447 in interest income from loans advanced
to third parties through our Lixin’s operations after our
acquisition of Lixin in December 2019.
Interest expenses and fees on secured loans
Interest expenses and fees on secured loans decreased by $2,218,815
or 100% from $2,218,815 for the year ended December 31, 2019 to
$Nil for the year ended December 31, 2020.
The significant decrease of interest expenses and fees on secured
loans was due to all secured loans were repaid during the year
ended December 31, 2019. Our secured loans were issued through
Zhiyuan in previous years. There were no new secured loans issued
in fiscal 2020 and we later disposed of Zhiyuan in September
2020.
Provision for loan losses
The provisions for loan losses related to our direct loan and
secured loan lending business conducted through Ding Xin before
2020. There were no new direct loans and secured loans issued in
fiscal 2020 and we disposed of Ding Xing in September 30, 2020.
Therefore, provisions for loan losses decreased by $2,244,601, or
100%, from $2,244,601 for the year ended December 31, 2019 to $Nil
for the year ended December 31, 2020.
Operating expenses
Operating expense mainly consisted of salary and employee
surcharges, office expenses, travel costs, entertainment expenses,
depreciation of equipment, current expected credit losses,
write-off of receivables, professional fees and office supplies.
Operating expenses in total increased by $2,738,909, or 200% for
year ended December 31, 2020 compared to $1,366,710 for the year
ended December 31, 2019. The increase was primarily
attributable by an increase of $604,168 in salaries and
employee surcharges and an increase of $ 1,609,839 in other
operating expenses. The increases in both of these expenses were
primarily due to the consolidation of Lixin’s operating expenses
for the full year in 2020, whereas the consolidation Lixin’s
operating expenses was only from December 20, 2019 to December 31,
2019. Operating expenses also include change in fair value of
warrant liabilities. There was a minimal change in fair value in
2020 compared to 2019, resulting in a decrease of $524,902 in gain
from fair value change in warrant liabilities.
Income tax expenses
We had income tax recovery of $229,733 for the year ended December
31, 2020, as compared with income tax expense of $244,741 for the
year ended December 31, 2019.
Current income tax expenses increased by $526,898 from $187,067 for
the year ended December 31, 2019 to $771,639 for the year ended
December 31, 2020. The increase was primarily caused by the full
year consolidation of Lixin’s operations in 2020 compared to the
consolidation of Lixin’s operations for only a small stub period in
2019.
Deferred income tax expenses changed from deferred tax expense of
$57,674, for the year ended December 31, 2019 to deferred tax
recovery of $1,001,372 for the ended December 31, 2020. The change
was mainly due to the reversal of deferred income tax liabilities
in connection with the changes in temporary differences.
Net income (loss) from discontinued operations, net of income
tax
During the year ended December 31, 2020, the net income from
discontinued corporation, net of income tax is $nil. The Company,
however, recorded a derecognition loss of $1,953,248 from the
disposition of Ding Xin in September 2020.
During the year ended December 31, 2019, the net income was
comprised of a net loss of $27,904,790 from discontinued operations
of Feng Hui and a gain of $54,750,808 from disposal of the
discontinued operations of Feng Hui.
Net income
As a result of the foregoing, we had a net loss of $854,606 for the
year ended December 31, 2020, as compared to a net income of
$24,288,908 for the year ended December 31, 2019.
Taxation
British Virgin Islands
Under the current tax laws of the British Virgin Islands, the
Company is not subject to tax on income or capital gains.
Additionally, upon payments of dividends to the shareholders, no
British Virgin Islands withholding tax will be imposed.
Cayman Islands
Under the current tax laws of the Cayman Islands, the Company’s
subsidiary incorporated in the Cayman Islands is not subject to tax
on income or capital gain.
Hong Kong
Roan HK and Lixin HK are incorporated in Hong Kong and are subject
to Hong Kong Profits Tax on the taxable income as reported in its
statutory financial statements adjusted in accordance with relevant
Hong Kong tax laws. The applicable tax rate for the first HKD$2
million of assessable profits is 8.25% and assessable profits above
HKD$2 million will continue to be subject to the rate of 16.5% for
corporations in Hong Kong, effective from the year of assessment
2018/2019. Before that, the applicable tax rate was 16.5% for
corporations in Hong Kong. The Company did not make any provisions
for Hong Kong profit tax as there were no assessable profits
derived from or earned in Hong Kong since inception. Under Hong
Kong tax laws, Roan HK and Lixin HK are exempted from income tax on
its foreign-derived income and there are no withholding taxed in
Hong Kong on remittance of dividends.
PRC
PRC subsidiaries are subject to PRC Enterprise Income Tax (“EIT”)
on the taxable income in accordance with the relevant PRC income
tax laws. The EIT rate for companies operating in the PRC is
25%.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with
U.S. GAAP, which requires us to make judgments, estimates and
assumptions that affect (i) the reported amounts of assets and
liabilities, (ii) disclosure of contingent assets and liabilities
at the end of each reporting period and (iii) the reported amounts
of revenues and expenses during each reporting period. We
continually evaluate these estimates and assumptions based on
historical experience, knowledge and assessment of current business
and other conditions, expectations regarding the future based on
available information and reasonable assumptions, which together
form a basis for making judgments about matters not readily
apparent from other sources. The use of estimates is an integral
component of the financial reporting process, though actual results
could differ from those estimates. Some of our accounting policies
require higher degrees of judgment than others in their
application. Please refer to Note 3 of consolidated financial
statements included in this 20-F annual report for the accounting
policies critical to an understanding of our consolidated financial
statements as their application places the most significant demands
on the judgment of our management.
Recent Accounting Pronouncements
A list of recently issued accounting pronouncements that are
relevant to us is included in Note 3(ll) of our audited
consolidated financial statements included elsewhere in this annual
report.
|
B. |
Liquidity
and capital resources |
In assessing our liquidity, we monitor and analyze our cash on-hand
and our operating and capital expenditure commitments. To date, we
have financed our operations primarily through cash flows from
operations, bank borrowings, and equity financing.
In assessing the Company’s liquidity, the Company monitors and
analyzes its cash and its ability to generate sufficient cash flow
in the future to support its operating and capital expenditure
commitments. The Company’s liquidity needs are to meet its working
capital requirements and operating expenses obligations.
As of December 31, 2021, the Company had cash balance of $1,947,472
and a positive working capital of $51,940,172. In addition to the
cash balance, the working capital was mainly comprised of
restricted cash of $29,693,689, accounts receivable of 6,629,529,
loan receivable due from third parties of $23,751,471 and other
receivables of $656,835. The balances of these assets are expected
to be repaid on maturity dates and will also be used for working
capital.
In addition, the management estimated the operating expenses
obligation for the next twelve months after issuance of the
consolidated financial statements to be $3,786,344, which will be
covered by the cash flows of $4,185,518 generated from financial
guarantee services, financial services and interest income. The
Company’s shareholder also committed to provide continuous
financial support to the Company whenever necessary.
The Company plans to fund its operations through revenue generated
from its revenues of management and assessment services, financial
guarantee services and financial consulting services, private
placements from investors, and financial support commitments from
the Company’s shareholders.
Based on above operating plan, the management believes that the
Company will continue as a going concern in the following 12
months.
The Company’s ability to support its operating and capital
expenditure commitments will depend on its future performance,
which will be subject in part to general economic, competitive and
other factors beyond its control. The impacts of COVID-19 may cause
lockdowns, quarantines, travel restrictions, and closures of
businesses and schools. As a result, the Company may experience
delay of outstanding receivables from customers and limited access
to cash to expand its operations. The extent to which the
coronavirus impacts the Company’s operation results for year 2022
will depend on certain future developments, including the duration
of the COVID-19 pandemic, emerging information concerning the
severity of the coronavirus and the actions taken by governments
and private businesses to attempt to contain the coronavirus, all
of which is uncertain at this point.
Current foreign exchange and other regulations in the PRC may
restrict our PRC entities in their ability to transfer their net
assets to the Company and its subsidiaries in Cayman Islands, and
Hong Kong. However, these restrictions have no impact on the
ability of these PRC entities to transfer funds to us as we have no
present plans to declare dividend which we plan to retain our
retained earnings to continue to grow our business. In addition,
these restrictions have no impact on the ability for us to meet our
cash obligations as all of our current cash obligations are due
within the PRC.
A majority of our future revenues are likely to continue to be in
the form of Renminbi. Under existing PRC foreign exchange
regulations, Renminbi may be converted into foreign exchange for
current account items, including profit distributions, interest
payments and trade-and service-related foreign exchange
transactions.
We expect that a substantial majority of our future revenues will
be denominated in Renminbi. Under existing PRC foreign exchange
regulations, payments of current account items, including profit
distributions, interest payments and trade and service-related
foreign exchange transactions, can be made in foreign currencies
without prior SAFE approval as long as certain routine procedural
requirements are fulfilled. Therefore, our PRC subsidiaries are
allowed to pay dividends in foreign currencies to us without prior
SAFE approval by following certain routine procedural requirements.
However, approval from or registration with competent government
authorities is required where the Renminbi is to be converted into
foreign currency and remitted out of China to pay capital expenses
such as the repayment of loans denominated in foreign currencies.
The PRC government may at its discretion restrict access to foreign
currencies for current account transactions in the future.
Cash Flows
The following table sets forth a summary of our cash flows for the
years ended December 31, 2021, 2020 and 2019.
| |
|
For the Years Ended
December 31, |
|
| |
|
2021 |
|
|
2020 |
|
|
2019 |
|
| Net
Cash Provided by (Used in) Operating Activities |
|
$ |
8,717,975 |
|
|
$ |
(7,461,511 |
) |
|
$ |
(1,101,143 |
) |
| Net Cash (Used
in) Provided by Investing Activities |
|
|
(5,684,489 |
) |
|
|
6,332,631 |
|
|
|
85,965,056 |
|
| Net Cash (Used
in) Provided by Financing Activities |
|
|
(3,114,478 |
) |
|
|
7,853,152 |
|
|
|
(64,138,838 |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
914,219 |
|
|
|
1,937,807 |
|
|
|
119,326 |
|
|
Net increase in cash and cash equivalents, and restricted cash in
banks |
|
$ |
833,227 |
|
|
$ |
8,662,079 |
|
|
$ |
20,844,401 |
|
Operating activities
Years Ended December 31,
2021 and 2020
Net cash provided by operating activities was $8,717,975 for the
year ended December 31, 2021, an increase of $16,179,486 from net
cash used in operating activities of $7,461,511 for the year ended
December 31, 2020. Net income for the year ended December 31, 2021
was $757,301, an increase of 1,611,907 from a net loss of $854,606
for the year ended December 31, 2020. The increase was primarily
due to an increase in net income.
In addition to the increase in net income, the increase in net cash
provided by operating activities was the result of the following
major changes in our working capital and non-cash items:
|
|
● |
A cash outflow of $7,495 from
change in accounts receivable for the year ended December 31, 2021,
as compared with a cash outflow of $3,116,533 for the year ended
December 31, 2020. |
| |
|
|
| |
● |
A cash inflow of $3,431,640 from
changes in other current assets for the year ended December 31,
2021, as compared with a cash outflow of $3,215,702 for the year
ended December 31, 2020. |
| |
|
|
| |
● |
A cash inflow of $2,425,003 in other
receivable for the year ended December 31, 2021, as compared with a
cash outflow of 3,268,571 for the year ended December 31,
2020. |
| |
|
|
|
|
● |
A cash inflow of $411,015 from change
in pledged deposits and other non-current assets for the year ended
December 31, 2021, as compared with a cash inflow of $328,854 for
the year ended December 31, 2020. |
| |
|
|
| |
● |
A
cash inflow of $847,043 from change in tax payable for the year
ended December 31, 2021, as compared with a cash inflow of
$1,029,919 for the year ended December 31, 2020. |
| |
|
|
| |
● |
A cash inflow of $449,971 from change
in other liabilities for the year ended December 31, 2021, as
compared with a cash outflow of $1,079,811 for the year ended
December 31, 2020. |
Years Ended December 31,
2020 and 2019
Net cash used in operating activities was $7,461,511 for the year
ended December 31, 2020, an increase of $6,360,368 from net cash
used in operating activities of $1,101,143 for the year ended
December 31, 2019.
For the year ended December 31, 2020, we generated a net income of
$Nil from discontinued operation and had net cash used in
discontinued operation of $Nil, a change of $26,846,018 and $26,564
from net income of $26,846,018 and net cash used in discontinued
operation of $26,564 for the year ended December 31, 2019.
We had net cash used in operating activities from continuing
operations of $7,461,511 for the year ended December 31, 2020, an
increase of $6,386,932 from $1,074,579 for the year ended December
31, 2019. We incurred a net loss from continuing operations of
$854,606 for the year ended December 31, 2020, a decrease of
$1,702,504 from a net loss of $2,557,110 for the year ended
December 31, 2019. The decrease was primarily due to the full year
consolidation of Lixin’s positive net income in 2020 compared to
consolidation of Lixin’s positive net income only for the period
from December 20, 2019 to December 31, 2019.
In addition to the change in net loss, the increase in net cash
used in operating activities was the result of the following major
changes in our working capital and non-cash items:
|
|
● |
A cash outflow of $ 3,116,533 from
change in accounts receivable for the year ended December 31, 2020,
as compared with a cash outflow of $206,442 for the same period
ended December 31, 2019. |
| |
|
|
| |
● |
A cash outflow of $3,215,702 in other
current assets for the year ended December 31, 2020, as compared
with a cash outflow of $289,604 for the same period ended December
31, 2019. |
| |
|
|
| |
● |
A cash outflow of $3,268,571 from
change in other receivable for the year ended December 31, 2020, as
compared with a decrease of $Nil for the same period ended December
31, 2019. |
| |
|
|
|
|
● |
A cash inflow of $359,202 from change
in pledged deposits and other non-current assets for the year ended
December 31, 2020, as compared with an increase of $Nil for the
same period ended December 31, 2019. |
| |
|
|
| |
● |
A cash inflow of $1,029,919 from
change in tax payable for the year ended December 31, 2020, as
compared with a cash inflow of $273,589 for the same period ended
December 31, 2019. |
| |
|
|
| |
● |
A cash outflow of $1,079,811 from
change in other liabilities for the year ended December 31, 2020,
as compared with a decrease of $Nil for the same period ended
December 31, 2019. |
Holding Company Structure
Roan Holdings Group Co., Ltd. (“Roan”) is a holding company with no
material operations of its own. We conduct our operations primarily
through our PRC subsidiaries. As a result, Roan’s ability to pay
dividends depends upon dividends paid by our PRC subsidiaries. If
our existing PRC subsidiaries or any newly formed ones incur debt
on their own behalf in the future, the instruments governing their
debt may restrict their ability to pay dividends to us. In
addition, our wholly foreign-owned subsidiaries in China are
permitted to pay dividends to us only out of its retained earnings,
if any, as determined in accordance with PRC accounting standards
and regulations. Under PRC law, each of our subsidiaries in China
is required to set aside at least 10% of its after-tax profits each
year, if any, to fund certain statutory reserve funds until such
reserve funds reach 50% of their registered capital. In addition,
our wholly foreign-owned subsidiaries in China may allocate a
portion of their after-tax profits based on PRC accounting
standards to enterprise expansion funds and staff bonus and welfare
funds at their discretion. The statutory reserve funds and the
discretionary funds are not distributable as cash dividends.
Remittance of dividends by a wholly foreign-owned company out of
China is subject to examination by the banks designated by SAFE.
Our PRC subsidiaries have not paid dividends and will not be able
to pay dividends until they generate accumulated profits and meet
the requirements for statutory reserve funds.
|
C. |
Research
and development, Patents and License, etc. |
As a financial company, our business does not rely on research and
development. Accordingly, we have not incurred research and
development expenses for the years ended December 31, 2021, 2020
and 2019.
For our intellectual property and license, please see “Item 4.
Information on the Company-B. Business Overview.”
Other than as disclosed elsewhere in this Form 20-F, we are not
aware of any trends, uncertainties, demands, commitments or events
that are reasonably likely to have a material effect on our net
revenues, income from continuing operations, profitability,
liquidity or capital resources, or that would cause reported
financial information not necessarily to be indicative of future
operating results or financial condition.
|
E. |
Off-balance
Sheet Arrangements |
We have not entered into any derivative contracts that are indexed
to our shares and classified as shareholders’ equity or that are
not reflected in our consolidated financial statements.
Furthermore, we do not have any retained or contingent interest in
assets transferred to an unconsolidated entity that serves as
credit, liquidity or market risk support to such entity. We do not
have any variable interest in any unconsolidated entity that
provides financing, liquidity, market risk or credit support to us
or that engages in leasing, hedging or research and development
services with us.
|
F. |
Tabular
Disclosure of Contractual Obligations |
Contingencies
From time to time, the Company may be subject to certain legal
proceedings, claims and disputes that arise in the ordinary course
of business. Although the outcomes of these legal proceedings
cannot be predicted, the Company does not believe these actions, in
the aggregate, will have a material adverse impact on its financial
position, results of operations or liquidity.
Lease
commitments
As of December 31, 2021, only Zhejiang Jingyuxin had an
operating lease, which had 0.33 years. . The Company considers
those renewal or termination options that are reasonably certain to
be exercised in the determination of the lease term and initial
measurement of right of use assets and lease liabilities. Lease
expense for operating lease is recognized on a straight-line basis
over the lease term. The Company’s lease agreements do not contain
any material residual value guarantees or material restrictive
covenants.
In calculating the initial values of right of use assets and
liabilities at inception date, the Company uses the rate implicit
in the lease, when available or readily determinable, to discount
lease payments to present value. When the leases do not provide a
readily determinable implicit rate, the Company discount lease
payments based on an estimate of its incremental borrowing
rate.
The table below presents the operating lease related assets and
liabilities recorded on the balance sheets.
| |
|
December 31,
2021 |
|
|
|
|
|
|
|
Right of use assets |
|
$ |
37,313 |
|
| |
|
|
|
|
| Operating lease liabilities, current
portion |
|
$ |
65,498 |
|
| Operating lease liabilities, noncurrent
portion |
|
|
- |
|
|
Total operating lease
liabilities |
|
$ |
65,498 |
|
As of December 31, 2021, the weighted average remaining lease
term was 0.33 years, and discount rates were 4.75% for the
operating lease.
Rental expense for the years ended December 31, 2021, 2020 and 2019
was $146,498, 134,457 and $78,756, respectively.
The following is a schedule, by years, of maturities of lease
liabilities as of December 31, 2021:
| Twelve months ended December 31,
2022 |
|
$ |
65,758 |
|
| Total
lease payments |
|
|
65,758 |
|
| Less: imputed interest |
|
|
(260 |
) |
| Present value of lease liabilities |
|
$ |
65,498 |
|
This annual report on Form 20-F contains forward-looking
statements. These statements are made under the “safe harbor”
provisions of Section 21E of the Securities Exchange Act of
1934, as amended. These forward-looking statements can be
identified by terminology such as “will,” “expects,” “anticipates,”
“future,” “intends,” “plans,” “believes,” “estimates,” “may,”
“intend,” “is currently reviewing,” “it is possible,” “subject to”
and similar statements. Among other things, the sections titled
“Item 3. Key Information—D. Risk Factors,” “Item 4. Information on
the Company,” and “Item 5. Operating and Financial Review and
Prospects” in this annual report on Form 20-F, as well as our
strategic and operational plans, contain forward-looking
statements. We may also make written or oral forward-looking
statements in our filings with the SEC, in our annual report to
shareholders, in press releases and other written materials and in
oral statements made by our officers, directors or employees to
third parties. Statements that are not historical facts, including
statements about our beliefs and expectations, are forward-looking
statements and are subject to change, and such change may be
material and may have a material and adverse effect on our
financial condition and results of operations for one or more prior
periods. Forward-looking statements involve inherent risks and
uncertainties. A number of important factors could cause actual
results to differ materially from those contained, either expressly
or impliedly, in any of the forward-looking statements in this
annual report on Form 20-F. All information provided in this
annual report on Form 20-F and in the exhibits is as of the
date of this annual report on Form 20-F, and we do not
undertake any obligation to update any such information, except as
required under applicable law.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
A. |
Directors
and senior management |
Below are the names of and certain information regarding the
Company’s current executive officers and directors.
|
Name |
|
Age |
|
Position |
|
Junfeng
Wang |
|
43 |
|
Chairman
of the Board of Directors |
|
Guiling
Sun |
|
47 |
|
Director |
|
Xiaoliang
Liang |
|
49 |
|
Independent
Director |
|
John
Chen |
|
50 |
|
Independent
Director |
|
Yiguo
Xu |
|
49 |
|
Independent
Director |
|
Zhiyong
Tang |
|
46 |
|
Chief
Executive Officer |
|
Wenhao
Wang |
|
34 |
|
Chief
Financial Officer |
The principal occupation and business experience during the past
five years for our executive officers and directors is as
follows:
Mr. Junfeng Wang was appointed as the Company’s Chairman of
the Board, effective August 10, 2021. He was appointed as the
Company’s Chief Executive Officer from August 10, 2020 to August
10, 2021. Mr. Wang served as a Technical Director with Beijing
Chenglianxin Technology Co., Ltd., Internet in Logistics Platform
section from 2016 to July 2020. From 2015 to 2016, he held the
technical director position with Juewei Group Beijing Digital
Marketing Center in the Food Processing Department. Mr. Wang holds
an MBA degree from Beijing University of Posts and
Telecommunications.
Ms. Guiling Sun was appointed as an executive director of
the Company on December 20, 2021. Ms. Sun was the Deputy General
Manager of the Beijing Ming De Ya Xing Cultural Development Co.,
Ltd. from September 2019 to September 2021. As the Deputy General
Manager of Operations, she was in charge of the company’s public
affairs responsible for education consulting and facilitating
cultural and artistic exchanges. From September 2019, Ms. Sun
serves as a Rural Education Support Project Consultant for the Holt
International Foundation of China, and Guangxi Holt Philanthropic
Foundation. As the Rural Education Support Project Consultant, Ms.
Sun is responsible for project design, training, and education
consulting. Prior to that position, she was Vice-Chancellor at
Canvard College, Beijing Technology and Business University, from
October 2013 to September 2019. Ms. Sun holds a Master’s degree in
business management from Xiamen University, Xiamen, China.
Mr. Xiaoliang Liang was appointed as an independent director
of the Company on December 20, 2021 and serves as the Chairman of
our Corporate Governance and Nominating Committee. Mr. Liang is the
General Manager of Chongqing Yuhong Chuangneng IOT Technology Co.,
Ltd. and has held that position since July 2021. As the General
Manager, he is responsible for the hydrogen fuel cell truck
demonstration application, renewable energy hydrogen production,
hydrogen refueling station construction and operation, vehicle big
data platform construction and operation, and carbon finance and
business related matters. Prior to that position, he was the
General Manager of Beijing Qingshui Youyang New Energy Technology
Co., Ltd. from January 2020 to July 2021. Mr. Liang was the Chief
Financial Officer of Zhejiang Yuhui Sola Energy Resource Co., Ltd.
from January 2018 to December 2019. Mr. Liang served as a Vice
President of Tunghsu Azure Renewable Energy Co., Ltd. from May 2015
to December 2017. Mr. Liang holds a postgraduate degree in
engineering management from the Beijing Graduate Institute of North
China University of Water Resources and Electric Power, Beijing,
China.
Mr. John Chen is an independent director and serves as
Chairman of the Company’s Audit Committee. Mr. Chen is California
Certified Public Accountant. Mr. Chen is Executive President of
Zhangjiagang Zhongbaojin Enterprise Management Consulting Co., Ltd.
and was the Chief Financial Officer of General Steel Holding Inc.
(OTCBB: GSIH) from 2004 to 2019. From 1997 to 2003, Mr. Chen was a
Senior Accountant at Moore Stephens Frazer and Torbet. Mr. Chen
received his Bachelor of Science degree in Business Administration,
Accounting from California State Polytechnic University.
Mr. Yiguo Xu is an independent director appointed on March
26, 2019, and serves as Chairman of our Compensation
Committee. Mr. Xu is the Secretary General of the National
Institution for Finance and Development, the Dean of the Finance
Faculty of the Graduate School of Chinese Academy of Social
Sciences, the Deputy Director of the Finance Policy Research Centre
of the Chinese Academy of Social Sciences and the Secretary General
of Beijing CBD International Finance Research Academy. He writes
extensively on finance policies and conducts researches in various
topics. He earned his master’s degree from the School of Finance of
Renmin University of China and his PhD in finance from the Graduate
School of Chinese Academy of Social Sciences.
Mr. Zhiyong Tang was appointed as the Company’s Chief
Executive Officer, effective August 25, 2021. Mr. Tang is currently
serving as President of Zhejiang Lixin Enterprise Management Group
Co., Ltd. Prior to that, Mr. Tang served as General Manager of
Zhejiang Jing Yu Xin Financing Guarantee Co., Ltd. from 2015 to
2018; President of Zhongchuang International Finance Leasing Co.,
Ltd. from 2013 to 2015; Executive Vice President of China Financial
Services Holdings Ltd. from 2010 to 2012; General Manager of Huale
Tongda (Beijing) International Investment Management Registrant
from 2004 to 2010. In addition, Mr. Tang worked in the Northern
Investment Group Co., Ltd. from 1999 to 2004. Mr. Tang earned a
master’s degree in accounting and finance science from Hongkong
Baptist University in 2015 and a master’s degree in public
administration from Liaoning University in 2012.
Mr. Wenhao Wang was appointed as the Company’s Acting Chief
Financial Officer, effective August 25, 2021. Mr. Wang served as a
managing director of investment banking of Southwest Securities
Co., Ltd. from 2015 to 2021. Before joining the Company, he has
worked in securities brokerage, equity investment and banking
businesses. His experience includes leadership roles in internal
control and compliance practices in the process of corporate
operations and proficiency in China’s capital market and financing
practices. Prior to joining us, Mr. Wang served 33 large-scale
companies in the financial field over 11 years and managed more
than RMB 4 billion in equity investment and RMB 500 million in fund
investment as a financial advisor. Mr. Wang earned his bachelor’s
degree in economics from Southwest University of Science and
Technology in 2014.
Arrangements Concerning Election of Directors; Family
Relationships
Our current board of directors consists of five directors. We are
not a party to, and are not aware of, any voting agreements among
our shareholders. In addition, there are no family relationships
among our executive officers and directors.
The aggregate compensation paid and share-based compensation and
other payments expensed by us to our directors and executive
officers with respect to the year ended December 31, 2021 was
$95,438. Due to the negative impact of Covid-19, the Company did
not reach its performance goal for the year ended December 31,
2021. The Company did not pay the wage for the Chief Executive
Officer, Chief Financial Officer, Senior Executive President and
Senior Vice President for the months from August to December 2021
as agreed by the management. This amount does not include business
travel, professional and business association dues and expenses
reimbursed to office holders, and other benefits commonly
reimbursed or paid by companies in our industry. We do not
currently have a stock option or other equity incentive plan. We
may adopt one or more such programs in the future. We do not have
any written agreements with any director providing for benefits
upon the termination of such director’s relationship with us.
Board of Directors
Our Board of Directors consists of five (5)
members. Previously we had a practice of appointing Directors
to staggered three (3) year terms. On March 17, 2020, with the
shareholders’ consent, we changed all the directors’ terms to one
year. Each director holds office for one year, or until his or her
earlier death, resignation or removal.
Director Independence
Even if we elect to be a controlled company, a majority of our
Board is independent. An “independent director” is defined under
the Nasdaq rules generally as a person other than an officer or
employee of the company or its subsidiaries or any other individual
having a relationship which in the opinion of the company’s board
of directors, would interfere with the director’s exercise of
independent judgment in carrying out the responsibilities of a
director. Our Board has determined that John Chen, Yiguo Xu and
Jianfeng Yin (term ended on December 20, 2021) and Xiaoliang Liang
(newly elected on December 20, 2021) are “independent directors” as
defined in the Nasdaq listing standards and applicable SEC rules.
Our independent directors will have regularly scheduled meetings at
which only independent directors are present.
Leadership Structure and Risk Oversight
The Board does not have a lead independent director. Mr. Junfeng
Wang has been the Chairman of the Board since August 10, 2021. Mr.
Liu Zhigang was the Chairman of the Board from March 18. 2020 to
August 10, 2021 and was a co-chair of the Board and authorized to
execute documents on behalf of the Company on December 15,
2019.
Policy Regarding Board Attendance
Our directors are expected to attend Board meetings as frequently
as necessary to properly discharge their responsibilities and to
spend the time needed to prepare for each meeting. Our directors
are expected to attend annual meetings of shareholders, but we do
not have a formal policy requiring them to do so.
Committees of the Board of Directors
The standing committees of our Board currently consists of an Audit
Committee, a Compensation Committee and a Nominating and Corporate
Governance Committee.
Audit Committee
We have established an Audit Committee of the board of directors.
As of December 31, 2021, Messrs. John Chen, Yiguo Xu, and Xiaoliang
Liang served as members of our Audit Committee and they are all
independent. Dr. Jianfeng Yin’s term ended on December 20, 2021 and
succeeded by Mr. Xiaoliang Liang on December 20, 2021. Mr. John
Chen served as chairman of the Audit Committee.
Each member of the Audit Committee is financially literate and our
board of directors has determined that Mr. John Chen qualifies as
an “Audit Committee financial expert” as defined in applicable SEC
rules.
We have adopted an Audit Committee charter, which details the
responsibilities of the Audit Committee, including:
|
|
● |
the
appointment, compensation, retention, replacement, and oversight of
the work of the independent auditors and any other independent
registered public accounting firm engaged by us; |
| |
|
|
| |
● |
pre-approving
all audit and non-audit services to be provided by the independent
auditors or any other registered public accounting firm engaged by
us, and establishing pre-approval policies and
procedures; |
| |
|
|
| |
● |
reviewing
and discussing with the independent auditors all relationships the
auditors have with us in order to evaluate their continued
independence; |
| |
|
|
| |
● |
setting
clear hiring policies for employees or former employees of the
independent auditors; |
| |
|
|
| |
● |
setting
clear policies for audit partner rotation in compliance with
applicable laws and regulations; |
| |
|
|
| |
● |
obtaining
and reviewing a report, at least annually, from the independent
auditors describing (i) the independent auditor’s internal
quality-control procedures and (ii) any material issues raised by
the most recent internal quality-control review, or peer review, of
the audit firm, or by any inquiry or investigation by governmental
or professional authorities, within, the preceding five years
respecting one or more independent audits carried out by the firm
and any steps taken to deal with such issues; |
| |
|
|
| |
● |
reviewing
and approving any related party transaction required to be
disclosed pursuant to Item 404 of Regulation S-K promulgated by the
SEC prior to us entering into such transaction; and |
| |
|
|
| |
● |
reviewing
with management, the independent auditors, and our legal advisors,
as appropriate, any legal, regulatory or compliance matters,
including any correspondence with regulators or government agencies
and any employee complaints or published reports that raise
material issues regarding our consolidated financial statements or
accounting policies and any significant changes in accounting
standards or rules promulgated by the Financial Accounting
Standards Board, the SEC or other regulatory
authorities. |
Compensation Committee
As of December 31, 2021, the members of our Compensation Committee
were Messrs. John Chen, Yiguo Xu and Xiaoliang Liang, succeeding
Dr. Jianfeng Yin whose term ended on December 20, 2021. Mr. Yiguo
Xu served as Chairman of the Compensation Committee. We have
adopted a Compensation Committee charter, which details the
principal functions of the Compensation Committee, including:
|
|
● |
reviewing
and approving on an annual basis the corporate goals and objectives
relevant to our Chief Executive Officer’s compensation, evaluating
our Chief Executive Officer’s performance in light of such goals
and objectives and determining and approving the remuneration (if
any) of our Chief Executive Officer’s based on such evaluation in
executive session at which the Chief Executive Officer is not
present; |
| |
|
|
| |
● |
reviewing
and approving the compensation of all of our other executive
officers; |
| |
|
|
| |
● |
reviewing
our executive compensation policies and plans; |
| |
|
|
| |
● |
implementing
and administering our incentive compensation equity-based
remuneration plans; |
| |
|
|
| |
● |
assisting
management in complying with our proxy statement and annual report
disclosure requirements; |
| |
|
|
| |
● |
approving
all special perquisites, special cash payments and other special
compensation and benefit arrangements for our executive officers
and employees; |
| |
|
|
| |
● |
producing
a report on executive compensation to be included in our annual
proxy statement; and |
| |
|
|
| |
● |
reviewing,
evaluating and recommending changes, if appropriate, to the
remuneration for directors. |
The charter also provides that the Compensation Committee may, in
its sole discretion, retain or obtain the advice of a compensation
consultant, legal counsel or other adviser and will be directly
responsible for the appointment, compensation and oversight of the
work of any such adviser. However, before engaging or receiving
advice from a compensation consultant, external legal counsel or
any other adviser, the compensation committee will consider the
independence of each such adviser, including the factors required
by Nasdaq and the SEC.
Corporate Governance and Nominating Committee
Our Corporate Governance and Nominating Committee will be
responsible for, among other matters:
|
|
● |
identifying
individuals qualified to become members of our board of directors,
consistent with criteria approved by our board of
directors; |
| |
|
|
| |
● |
overseeing
the organization of our board of directors to discharge the board’s
duties and responsibilities properly and efficiently; |
| |
|
|
| |
● |
identifying
best practices and recommending corporate governance principles;
and |
| |
|
|
| |
● |
developing
and recommending to our board of directors a set of corporate
governance guidelines and principles applicable to us. |
As of December 31, 2021, our Corporate Governance and Nominating
Committee consisted of Messrs. John Chen, Yiguo Xu and Xiaoliang
Liang, with Mr. Xiaoliang Liang serving as the Chairman of the
Corporate Governance and Nominating Committee, succeeding Dr.
Jianfeng Yin whose term ended on December 20, 2021.
As of December 31, 2021, the Company had 35 full time employees,
including 4 members of Senior Management Team employed by Roan
Holdings Group Co., Ltd., 6 employees employed by Zeshi Health, and
25 employees employed by Zehjiang Jingyuxin and Zhejiang Lixin.
They have executed employment contracts with its employees in
accordance with PRC Labor Law and Labor Contract Law. There are no
collective bargaining contracts covering any of its employees. The
Company believes its relationship with its employees is
satisfactory.
| |
|
Number of
employees |
|
|
% of total |
|
| Sales and
marketing |
|
|
5 |
|
|
|
14.29 |
% |
| Business operation |
|
|
8 |
|
|
|
22.86 |
% |
| Management
and administration |
|
|
22 |
|
|
|
62.85 |
% |
|
Total |
|
|
35 |
|
|
|
100.00 |
% |
We are required under PRC law to make contributions to employee
benefit plans at specified percentages of our after-tax profit. In
addition, we are required by PRC law to cover employees in China
with various types of social insurance. For the years ended
December 31, 2021, 2020 and 2019, we contributed approximately
$131,949, $61,296, and $31,012, respectively, to the employee
benefit plans. The effect on our liquidity by the payments for
these contributions is immaterial. We believe that we are in
material compliance with the relevant PRC employment laws.
For information concerning the beneficial ownership of our ordinary
shares by our executive officers and directors, see the table in
Item 7A. “Major Shareholders and Related Party Transactions—Major
shareholders.”
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS
The following table sets forth information relating to the
beneficial ownership of our Ordinary Shares as of April 22, 2022,
by:
|
|
● |
Each
of our directors and named executive officers; |
|
|
|
|
|
|
● |
All
of our directors and executive officers as a group; |
|
|
|
|
|
|
● |
each
person, or group of affiliated persons, known by us to beneficially
own more than 5% of our outstanding ordinary shares; |
The number of ordinary shares beneficially owned by each entity,
person, director or executive officer is determined in accordance
with the rules of the SEC, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any ordinary shares over
which the individual has sole or shared voting power or investment
power as well as any ordinary shares that the individual has the
right to acquire within 60 days of April 22, 2022 through the
exercise of any stock options, warrants or other rights. Except as
otherwise indicated, and subject to applicable community property
laws, the persons named in the table have sole voting and
investment power with respect to all ordinary shares held by that
person.
Ordinary shares that a person has the right to acquire within 60
days of April 22, 2022 are deemed outstanding for purposes of
computing the percentage ownership of the person holding such
rights, but are not deemed outstanding for purposes of computing
the percentage ownership of any other person, except with respect
to the percentage ownership of all directors and executive officers
as a group. Unless otherwise indicated in the footnotes to the
table, the information presented in this table is based on based on
25,287,851 outstanding ordinary shares on April 22, 2022.
| Named
Executive Officers and Directors |
|
Amount
of
Beneficial
Ownership(1) |
|
|
Percentage
Ownership |
|
|
Percentage
Voting
Power(2) |
|
| Directors
and Named Executive Officers: |
|
|
|
|
|
|
|
|
|
| Junfeng
Wang, Chairman(3) |
|
613,000 |
|
|
2.42 |
% |
|
2.36 |
% |
| Guiling,
Sun, Director |
|
- |
|
|
- |
|
|
- |
|
| Yiguo
Xu, Director |
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Xiaoliang
Liang, Director |
|
|
- |
|
|
|
- |
|
|
|
- |
|
| John
Chen, Director |
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Jianfeng
Yin, Director |
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
| Zhigang
Liu, Chairman(4) |
|
|
500,000 |
|
|
|
1.98 |
% |
|
|
1.92 |
% |
| Qingliang
Yang, Director(5) |
|
|
419,900 |
|
|
|
1.66 |
% |
|
|
1.61 |
% |
| Zhiyong
Tang, Chief Executive Officer |
|
|
- |
|
|
|
- |
|
|
|
- |
|
| Wenhao
Wang, Chief Financial Officer |
|
|
- |
|
|
|
- |
|
|
|
- |
|
| All
directors and executive officers as a group (10
persons) |
|
|
1,532,900 |
|
|
|
6.06 |
% |
|
|
5.89 |
% |
| 5%
Beneficial Owners: |
|
|
|
|
|
|
|
|
|
|
|
|
| Ruiheng
Global Limited(6) |
|
|
6,261,055 |
|
|
|
24.76 |
% |
|
|
24.08 |
% |
| Qian
Li (7) |
|
|
6,157,881 |
|
|
|
24.35 |
% |
|
|
23.68 |
% |
| Yuan
Shen(8) |
|
|
3,506,732 |
|
|
|
13.87 |
% |
|
|
13.49 |
% |
| Yangwei
Global Limited(9) |
|
|
3,483,312 |
|
|
|
13.77 |
% |
|
|
13.40 |
% |
| Jiyi
Global Investments Limited(10) |
|
|
2,034,501 |
|
|
|
8.05 |
% |
|
|
1.32 |
% |
| Zhan
Zhao Limited(11) |
|
|
1,287,830 |
|
|
|
5.09 |
% |
|
|
4.95 |
% |
|
* |
Less
than 1%. |
| |
|
| (1) |
Beneficial
ownership is determined in accordance with the rules of the SEC and
includes voting or investment power with respect to the ordinary
shares. All shares represent only ordinary shares held by
shareholders as no options are issued or outstanding. |
| |
|
|
(2) |
Ordinary
Shares have one vote per share, and Class A Convertible Preferred
Shares have one vote per share. |
|
|
|
|
(3) |
Consists
of 4,467 Ordinary Shares held by Jiyi Global Investments Limited in
which Mr. Wang owns a 0.22% interest, 265,533 Ordinary Shares held
by Zhan Zhao Limited in which Mr. Wang owns a 20.619% interest, and
343,000 Ordinary Shares held by Zhong Yun Holdings Limited in which
Mr. Wang owns a 68.125% interest. All of the above shares were
acquired in connection with the Business Combinations. |
|
|
|
|
(4) |
Consists
of 60,667 Ordinary Shares held by Yangwei Global Limited in which
Mr. Liu owns a 1.74% interest, 334,333 Ordinary Shares held by Jiyi
Global Investments Limited in which Mr. Liu owns a 16.43% interest,
105,000 Ordinary Shares held by Ruiheng Global Limited in which Mr.
Liu owns a 1.67% interest. All of the above shares were acquired in
connection with the Business Combinations. Mr. Liu resigned the
Chairman of the Board on August 10, 2021. |
|
(5) |
Consist
of 411,010 Ordinary Shares held by Favour Plus Global Limited in
which Mr. Yang owns 40% interest and 8,890 Ordinary Shares held by
Ruiheng Global Limited in which Mr. Yang owns 0.142% interest. Mr.
Qingliang Yang was appointed as an executive director on April 2,
2021, succeeding Ms. Shuangping Feng who was a director during the
2020 fiscal year. Prior to Ms. Feng’s resignation effective on
April 2, 2021, she was deemed as beneficially owning 766,410
ordinary shares directly held by Qixiang Global Limited, a company
in which Mr. Mengshi Feng owned 3.03% of the equity interest and
500,000 Class A preferred shares Mr. Feng owned directly because
Mr. Mengshi Feng is the son of Shuangping Feng who may be deemed to
beneficially own the 766,410 ordinary shares held by Qixiang Global
Limited and the Class A preferred shares. Mr. Yang resigned the
Director on December 20, 2021. |
|
(6) |
The
Ordinary Shares held by Ruiheng Global Limited, a BVI company, are
beneficially owned by Ms. Yuan Shen, the controlling shareholder,
and Mr. Zhisan Yang, Ms. Wen Qi, Ms. Wen Li, Ms. Guixiang Luo, Mr.
Quan Zhou, Ms. Shiping Gao, Mr. Qingliang Yang and Mr.
Zhigang Liu. |
|
|
|
|
(7) |
Consists
of (i) 20,549 ordinary shares directly held by Qixiang Global
Limited, a company in which Qian Li owns 2.174%
interest; (ii) 1,526,903 ordinary shares directly held by Jiyi
Global Investment Limited, a company in which Qian Li owns 75.05%
interest; (iii) 1,236,907 ordinary shares directly held by Ruiheng
Global Limited, a company in which Qian Li owns 19.756% interest;
(iv) 3,040,604 ordinary shares directly held by Yangwei Global
Limited, a company in which Qian Li owns 87.291% interest; (v)
332,918 ordinary shares directly held by Zhan Zhao Limited, a
company in which Qian Li owns 25.851% interest. The above shares
are held by Ms. Shiping Gao on behalf of Qian Li through a
contractual arrangement and Qian Li may be deemed to be the
beneficial owner of such shares. |
|
|
|
|
(8) |
Consists
of (i) 936,354 ordinary shares directly held by Changman Limited, a
company in which Yuan Shen owns 94.6% interest; (ii) 616,515
ordinary shares directly held by Favour Plus Global Limited, a
company in which Yuan Shen owns 60.0% interest; (iii) 676,667
ordinary shares directly held by Xinglin Limited, a company in
which Yuan Shen owns 68.1% interest; (iv) 770,000 ordinary shares
directly held by Yimao Enterprises Limited, a company in which Yuan
Shen owns 68.1% interest; (v) 158,363 ordinary shares directly held
by Qixiang Global Limited, a company in which Yuan Shen owns 16.8%
interest; (vi) 135,333 ordinary shares directly held by Yangwei
Global Limited, a company in which Yuan Shen owns 3.9% interest;
and (vii) 213,500 ordinary shares directly held by Zhan Zhao
Limited, a company in which Yuan Shen owns 16.6%
interest. |
|
|
|
|
(9) |
The
Ordinary Shares held by Yangwei Global Limited, a BVI company, are
beneficially owned by Ms. Qian Li, the controlling
shareholder, Ms. Zhihong Zhang, Ms. Yunzhu Chi, Ms. Yuan Shen, Ms.
Guifang Li, Ms. Shiping Gao, Mr. Shuai Guo, Mr. Qiang Jin,
and Mr. Zhigang Liu. Ms. Gao exercises voting and dispositive power
over the Ordinary Shares held by such
entity. |
|
|
|
|
(10) |
The
Ordinary Shares held by Jiyi Global Investments Limited, a BVI
company, are beneficially owned by Ms. Shiping Gao, the controlling
shareholder, and Mr. Cheng Sui, Mr. Jianfeng Zhang, Ms. Yuhua Liu,
Ms. Cuiping Liu, Mr. Zhigang Liu, Mr. Wei Liu and Mr. Junfeng Wang.
Ms. Gao exercises voting and dispositive power over the Ordinary
Shares held by such entity. |
|
|
|
|
(11) |
The
Ordinary Shares held by Zhan Zhao Limited, a BVI company, are
beneficially owned by Ms. Zhihong Zhang, Ms. Yuquan Zhang, Ms.
Xiaolan Zhao, Ms. Lulu Chen, Mr. Wei Liu, Ms. Yuan Shen, Ms.
Shiping Gao and Mr. Junfeng Wang. |
Change of Control
In January 2020, our prior Chief Financial Officer, Ms. Jingping
Li, resigned from such position. In March 2020, Ms. Li ceased to
serve on the Board of Directors, and an original shareholder and
former director, Shuangping Feng, was elected to the Board to
replace Ms. Li. As a result of such departures, Ms. Li has ceased
to exercise control over our Company. Our current largest
shareholders and Board of Directors exercise effective control of
our Company as of the date of this filing. Although we have issued
an aggregate of 291,795,150 Class B convertible preferred shares in
connection with our acquisition of Lixin Cayman and its
subsidiaries, such shares have no voting rights. Such Class B
convertible shares may be converted into ordinary shares at the
holders’ election after June 19, 2022 (revised from December 20,
2021), or the Company could redeem those Class B convertible
shares. If the Class B convertible preferred shares are converted
into ordinary shares, the holders of such ordinary shares would
likely control our Company. Except as described in this report, no
arrangements or understandings exist among present or former
controlling shareholders with respect to the election of members of
our Board and, to our knowledge, no other arrangements exist that
might result in a change of control of the Company.
|
B. |
Related
Party Transactions |
During fiscal year 2020, the Company advanced a loan of $91,954 to
a shareholder, Mr. Yuan Shen. The loan is interest free and due on
demand as of December 31, 2020. The Company has agreed to offset
this loan with the other related party balance due to this same
shareholder subsequent to yearend. (Refer to Note 18.2) below for
balance due to this related party.
During fiscal year 2021, the Company purchased health products of
$3,907 from Furuikang Biomedical Technology (Zhejiang) Co.,
Ltd. (“FuruiKang”). The shareholder of Furuikang is a beneficial
owner of the Company. The transactions are arm-length transactions.
As of December 31, 2021, the amount due from Mr. Zhiyong Tang, the
Company’s Chief Executive Officer, was $5,941. This amount was
advanced travel fees and non-interest bearing. During the fiscal
year 2021, the Company and Ms. Yuan Shen had agreed to offset the
advanced loan of $91,954 provided in fiscal year 2020 with the
balance due to Ms. Yuan Shen. After the offsetting, the amount due
to Ms. Yuan Shen was $119,210 (Refer to Note 18.2). The amount was
non-interest bearing and due on demand.
As of December 31, 2021, the balance of due from related
parties of $5,941 consisted of an advance of $5,941 to Mr. Zhiyong
Tang.
As of December 31, 2021, the balance of due to related parties
of $123,117 consisted of an advanced fund of $119,210 provided by
Ms. Yuan Shen, and a payable of $3,907 to Furuikang.
|
C. |
Interests
of Experts and Counsel |
Not applicable.
ITEM 8. FINANCIAL INFORMATION
|
A. |
Consolidated
Statements and Other Financial Information. |
Financial Statements
See Item 18 “Financial Statements” included in this Annual
Report.
Legal Proceedings
We are currently not a party to any material legal or
administrative proceedings and are not aware of any pending or
threatened material legal or administrative proceedings against us.
We may from time to time become a party to various legal or
administrative proceedings arising in the ordinary course of our
business.
Dividend Policy
On March 21, 2017, the Company announced a dividend of $0.036 per
ordinary share which represents an amount equal to twenty-five
percent (25%) of (i) the Company’s consolidated net income for the
period beginning October 1, 2016 through December 31, 2016, less
(ii) the amount of dividends paid, payable or otherwise accrued as
preferred dividends with respect to the Company’s Class A preferred
shares for such period. The dividend was paid on April 24, 2017 to
holders of record of the Company’s ordinary shares on March 31,
2017. The dividend was paid in ordinary shares. No fractional
shares were issued. All dividends were rounded up to the nearest
whole number of ordinary shares. No cash payments were made for any
fractional shares.
On May 26, 2017, the Company announced a dividend of $0.047 per
ordinary share which represents an amount equal to twenty-five
percent (25%) of (i) the Company’s consolidated net income for the
period beginning January 1, 2017 through March 31, 2017, less (ii)
the amount of dividends paid, payable or otherwise accrued as
preferred dividends with respect to the Company’s Class A preferred
shares for such period. The dividend was paid on June 23, 2017 to
holders of record of the Company’s ordinary shares on June 5, 2017.
The dividend was payable in ordinary shares. No fractional shares
were issued. All dividends were rounded up to the nearest whole
number of ordinary shares. No cash payments were made for any
fractional shares.
The Company may pay quarterly dividends dependent on its revenues
and earnings, if any, capital requirements and general financial
conditions, at the discretion of the Board of Directors. In
addition, the Company intends to provide for an 8% dividend each
year for the Class A Preferred shares. Under the Company’s articles
of association, the Company may pay such dividends in cash, in
additional Class A Preferred shares, or in ordinary shares.
Except as disclosed elsewhere in this Annual Report, there have
been no other significant changes since December 31, 2021, until
the date of the filing of this Annual Report.
ITEM 9. THE OFFER AND LISTING
|
A. |
Offer
and Listing Details |
Our ordinary shares and warrants have been listed on the OTC Pink
Open Market (“OTC Market”) since January 8, 2020 under the symbols
“RAHGF” and “RONWF,” respectively. Prior to January 8, 2020, our
warrants were quoted under the symbol “CLDCF.” Our ordinary shares
were listed on the Nasdaq Capital Market (the “Nasdaq Stock
Market”) under the symbol “CLDC” before being delisted on September
6, 2019, and had since been quoted on the OTC Market under the
symbol “CLDOF” until the symbol was changed to “RAHGF.”
The transfer agent for our ordinary shares and warrants is
Continental Stock Transfer & Trust Company, 17 Battery Place,
New York, New York 10004.
Not applicable.
Our ordinary shares and warrants are currently quoted on the OTC
Market under the symbols “RAHGF” and “RONWF,” respectively.
Not applicable.
Not applicable.
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
Not applicable.
|
B. |
Memorandum
and Articles of Association |
General
We are a company incorporated in the British Virgin Islands as a
BVI business company (company number 1819503) and our affairs are
governed by our memorandum and articles of association, the BVI
Business Companies Act, 2004, as amended, (the “Companies Act”) and
the common law of the British Virgin Islands. We are authorized to
issue an unlimited number of both ordinary shares of no par value
and preferred shares of no par value.
Ordinary Shares
As of December 31, 2021, there were 25,287,851 ordinary shares
outstanding. Under the Companies Act, the ordinary shares are
deemed to be issued when the name of the shareholder is entered in
our register of members.
At any general meeting on a show of hands every ordinary
shareholder who is present in person (or, in the case of a
shareholder being a corporation, by its duly authorized
representative) or by proxy will have one vote for each share held
on all matters to be voted on by shareholders. Voting at any
meeting of the ordinary shareholders is by show of hands unless a
poll is demanded. A poll may be demanded by shareholders present in
person or by proxy if the shareholder disputes the outcome of the
vote on a proposed resolution and the chairman shall cause a poll
to be taken. Pursuant to the amended Memorandum and Articles of
Association approved by the board of directors on December 22,
2021, our shareholders may pass resolutions in writing without a
meeting.
Our Board of Directors consists of one class of directors. There is
no cumulative voting with respect to the election of directors,
with the result that the holders of more than 50% of the shares
voted for the election of directors can elect all of the directors
(provided that, holders of at least 75% of the shares can remove a
director with or without cause).
Our shareholders are entitled to receive ratable dividends when, as
and if declared by the Board of Directors out of funds legally
available therefor.
In the event of a liquidation or winding up of the Company, our
shareholders are entitled to share ratably in all assets remaining
available for distribution to them after payment of liabilities and
after provision is made for each class of shares, if any, having
preference over the ordinary shares. Our shareholders have no
preemptive or other subscription rights. There are no sinking fund
provisions applicable to the ordinary shares, except that we will
provide our shareholders with the redemption rights set forth
above. The shareholders of our ordinary shares do not have
liability to further capital calls by us and there are no
provisions discriminating against any existing or prospective
holder of securities as a result of the shareholder owning a
substantial number of shares.
Preferred Shares
Our charter authorizes the issuance without shareholder approval of
an unlimited number of preferred shares divided into five classes,
Class A through Class E, each with such designation, rights and
preferences as are set out in the memorandum and articles of
association or as may be determined by a resolution of our Board of
Directors to amend the charter to create such designations, rights
and preferences. We have five classes of preferred shares to give
us flexibility as to the terms on which each class is issued.
Accordingly, starting with five classes of preference shares will
allow us to issue shares at different times on different terms. Our
Board of Directors is empowered, without shareholder approval, to
issue preferred shares with dividend, liquidation, redemption,
voting or other rights, which could adversely affect the voting
power or other rights of the holders of ordinary shares. These
preferred shares could be utilized as a method of discouraging,
delaying or preventing a change in control of us.
The rights of preferred shareholders may only be amended by a
resolution to amend our charter, provided such amendment is also
approved by a separate resolution of a majority of the votes of
preferred shareholders who being so entitled attend and vote at the
class meeting of the relevant preferred class. If our preferred
shareholders want us to hold a meeting of preferred shareholders
(or of a class of preferred shareholders), they may requisition the
directors to hold one upon the written request of preferred
shareholders entitled to exercise at least 30 percent of the voting
rights in respect of the matter (or class) for which the meeting is
requested. Under BVI law, we may not increase the required
percentage to call a meeting above 30 percent.
As of December 31, 2021, there were 715,000 Class A Convertible
Preferred Shares and 291,795,150 Class B Convertible Preferred
Shares issued and outstanding.
Class A Convertible Preferred Shares
On July 6, 2016, in connection with of the First Business
Combination, we issued 715,000 shares of Class A Convertible
Preferred Shares in a PIPE offering. The total amount raised from
issuance of Class A Convertible Preferred Shares was $8,580,000.
Pursuant to the terms of the Share Exchange Agreement, immediately
prior to the consummation of the Business Combination, the Company
consummated a private placement of 715,000 shares of newly created
Class A Convertible Preferred Shares. The Class A Convertible
Preferred Shares were sold at a purchase price of $12.00 per share
and the Company has treated its Class A Convertible Preferred
Shares as being entitled to a dividend of 8% per annum. Each Class
A Convertible Preferred Shares are convertible at any time into one
ordinary share at an initial conversion price of $12.00 per share,
subject to adjustment; provided, however that the Class A
Convertible Preferred Shares shall automatically convert at such
time that the average closing price of the ordinary shares is at
least $6.00. In the event of any liquidation, winding-up or
dissolution of the Company, whether voluntary or involuntary, each
holder of a Class A Convertible Preferred Shares shall be entitled
to receive a liquidation preference of $12.00 per share, plus an
amount equal to accumulated and unpaid dividends on such shares to
(but excluding) the date fixed for liquidation, winding-up or
dissolution to be paid out of the assets of the Company available
for distribution to its members, after satisfaction of liabilities
owed to the Company’s creditors and holders of any senior shares
and before any payment or distribution is made to holders of any
ordinary shares or other junior shares.
Each Class A Preferred Share confers upon the Member (unless waived
by such Member): (a) the right to one vote at a meeting of the
Members of the Company or on any Resolution of Members; (b) the
right to be redeemed on the Redemption Date; (c) the right to the
dividends on Class A Preferred Shares; (d) the right to the
liquidation preference; and (e) the right to convert to Ordinary
Shares and the obligation to convert to Ordinary Shares, pursuant
to the provisions of the Company’s memorandum and articles of
association.
On December 6, 2019, we amended our Memorandum and Articles of
Association to (a) create a new class of shares designated as the
Class B Preferred Shares, and (b) amend the rights of the existing
Class A Preferred Shares, among other things, to allow for the new
Class B Preferred Shares to rank senior to the Class A Preferred
Shares on a liquidation.
Pursuant to the Amended and Restated Memorandum and Articles of
Association (the “Amended M&A I”), the Class A Members shall
have the right to convert their Class A Preferred Shares, in whole
or in part, into Ordinary Shares at a rate of one Ordinary Share
for each Class A Preferred Share (the “Early Conversion Rate”),
subject to adjustment and satisfaction of the conversion
procedures. The Directors shall have the right to convert any or
all of the Class A Preferred Shares, in whole or in part, into
Ordinary Shares at the Early Conversion Rate, subject to adjustment
and satisfaction of the conversion procedures.
Upon the occurrence of any reorganization event, the Directors
shall have the right: (a) to convert any or all of the Class A
Preferred Shares, in whole or in part, into Ordinary Shares at the
Early Conversion Rate subject to adjustment; or (b) to repurchase
or redeem any or all of the Class A Preferred Shares, in whole or
in part, for a cash amount equal to the value of the Class A
Preferred Shares being repurchased or redeemed on an as-converted
basis.
In the event of any liquidation, winding-up or dissolution of the
Company, whether voluntary or involuntary, each Class A Member
shall be entitled to receive the Liquidation Preference per Class A
Preferred Share, plus an amount (the Liquidation Dividend
Amount) equal to accumulated and unpaid dividends on such shares to
(but excluding) the date fixed for liquidation, winding-up or
dissolution to be paid out of the assets of the Company available
for distribution to its Members, after satisfaction of liabilities
owed to the Company’s creditors and holders of any Senior Shares
and before any payment or distribution is made to holders of any
Junior Shares, including, without limitation, Ordinary Shares. None
of the sale of all or substantially all of the assets or business
of the Company and its subsidiaries taken as a whole (other than in
connection with the liquidation, winding-up or dissolution of the
Company), the merger or consolidation of the Company into or with
any other person, the sale of a majority of the outstanding equity
interests of the Company, nor other Reorganization Event or other
similar transaction that results in a change in control of the
Company shall be deemed to be a liquidation, winding-up or
dissolution, voluntary or involuntary, of the Company.
The Memorandum and Articles of Association do not include sinking
fund provisions, liability to further capital calls by the Company
and there are no provisions discriminating against any existing or
prospective holder of securities as a result of the shareholder
owning a substantial number of shares with regards to the Class A
Preferred Shares.
As of December 31, 2021, dividend of $686,400 was accrued for Class
A Preferred Shares. The balance for Class A Preferred Shares was
$11,025,327.
Class B Convertible Preferred Share
On December 20, 2019, in connection with of the Second Business
Combination, we issued 291,795,150 Class B convertible preferred
shares in the acquisition of Lixin Cayman and its subsidiaries.
Pursuant to the Share Purchase Agreement with Lixin Cayman and
certain selling shareholders entered into on June 13, 2019, the
Company acquired a 65.0177% interest in Lixin Cayman from its
selling shareholders in exchange for ordinary shares of the Company
to be issued to the selling shareholders for a total consideration
of RMB 276.00 million (later adjusted to $31.09 million (RMB 217.88
million). On August 23, 2019, the parties entered into a
supplementary agreement to amend the payment term of the purchase
price. Pursuant to the supplementary agreement, Lixin shareholders
will receive non-voting preferred shares that will have the right
to convert into common shares at the holders’ election after two
years from the closing date of the acquisition. The transaction was
closed on December 20, 2019 upon the Company’s issuance of
291,795,150 Class B convertible preferred shares as the
consideration to the selling shareholders for the 65.0177% equity
interest in Lixin Cayman. The Class B convertible preferred shares
are embedded with liquidation preference and dividend preference
but with no voting rights. Upon the second anniversary of the
closing date, the preferred shares may be convertible to ordinary
shares at a conversion price calculated at the average closing
price per share for ninety consecutive trading days before June 20,
2022.
Pursuant to the Amended M&A I, each Class B Preferred Share
confers upon the Member (unless waived by such Member): (a) no
right to vote at a meeting of the Members of the Company or on any
Resolution of Members; (b) no right to receive any dividends
declared on any Shares of the Company; (c) the right to be
converted on the Class B Conversion Date; and (d) the right to a
liquidation preference specified in the Amended M&A I. The
Class B Preferred Shares shall automatically convert into Ordinary
Shares of the Company on the Class B Conversion Date at a rate of
one Ordinary Share per Class B Preferred Share, provided that the
Directors shall be entitled to amend the definition of ‘Class B
Conversion Date’ to alter the date on which each Class B Preferred
Share is converted and thereby extending or reducing the term after
which each Class B Preferred Share is converted. Upon the
occurrence of any reorganization event, the Directors shall have
the right: (a) to convert any or all of the Class B Preferred
Shares, in whole or in part, into Ordinary Shares at a rate of 1
Ordinary Share per Class B Preferred Share; or (b) to repurchase or
redeem any or all of the Class B Preferred Shares, in whole or in
part, for a cash amount equal to the value of the Class B Preferred
Shares being repurchased or redeemed on an as-converted basis.
In the event of any liquidation, winding-up or dissolution of the
Company, whether voluntary or involuntary, each Class B Member
shall be entitled to receive, in priority to the holders of any
other class of Shares in the Company, an amount equal to their pro
rata share of the Class B Liquidation Preference Amount (calculated
by reference to the number of Class B Preferred Shares held by the
relevant Class B Member as a percentage of all issued Class B
Preferred Shares held by all Class B Members). In the event that
the assets of the Company are insufficient to pay in full the Class
B Liquidation Preference Amount, the entitlement of each Class B
Member shall be reduced ratably. For the liquidation purposes, the
Class B Shares shall be considered Senior Shares. After the payment
to any Class B Member of their full entitlement to their pro rata
share of the Class B Liquidation Preference Amount for each of such
Class B Member’s Class B Preferred Shares, such Class B Member as
such shall have no right or claim to any of the remaining assets of
the Company.
The Memorandum and Articles of Association do not include sinking
fund provisions, redemption provisions, liability to further
capital calls by the Company and there are no provisions
discriminating against any existing or prospective holder of
securities as a result of the shareholder owning a substantial
number of shares with regards to the Class B Preferred Shares.
On December 22, 2021, the Board of Directors of the Company
unanimously passed a resolution to amend the Memorandum and
Articles of Association (the “Amended M&A II”) to amend the
definition of “Class B Conversion Date” of Class B preferred
shares, on which the Class B preferred shares of the Company shall
automatically convert into ordinary shares of the Company. Under
the Amended M&A II, the “Class B Conversion Date” has been
extended from two years after the date on which the Class B
Preferred Shares were issued to thirty months after such issuance
date.
As of December 31, 2021, there were 291,795,150 Class B preferred
shares issued and outstanding.
Warrants
As of December 31, 2021, there were 623,078 warrants of the Company
outstanding, of which 576,924 warrant were issued to investors of
private placement in July 2018 and 46,154 warrants issued to
placement agent of the private placement. These warrants will
expire on July 9, 2022.
In connection with the private placement closed on July 10, 2018,
the Company issued Series A warrants to investors to purchase a
total of 576,924 ordinary shares with a warrant term of four (4)
years. The Series A Warrants have an exercise price of $2.60 per
share. On January 9, 2019, the Board of the Company approved a
downward adjustment of exercise price from $2.6 to $1.18. The
Series A Warrants have customary anti-dilution protections
including a “full ratchet” anti-dilution adjustment provision which
are triggered in the event the Company sells or grants any
additional shares of common stock, options, warrants or other
securities that are convertible into common stock at a price lower
than $2.60 per share. The anti-dilution adjustment provision is not
triggered by certain “exempt issuances” which among other
issuances, includes the issuance of shares of common stock, options
or other securities to officers, employees, directors, consultants
or service providers.
In connection with the private placement closed on July 10, 2018,
the investors also received Series B warrants with an initial face
amount of 200,000 ordinary shares, which are subject to adjustment
not in excess of an aggregate of 462,843 ordinary shares (the
“Series B Warrants”) for nominal consideration. If on the 30th day
after the closing date of the transaction (the “Adjustment Date”),
the closing bid price of the Company’s ordinary shares is less than
$2.60, the investors shall have the right to exercise the Series B
Warrants and the number of ordinary shares to be issued to the
investors upon exercise of the Series B Warrants shall be adjusted
(upward or downward, as necessary) based on the closing bid price
of the Company’s ordinary shares on such date. On August 9, 2018,
the closing bid price of the Company’s ordinary shares was $1.29,
and thus the investors exercised the Series B Warrant for 390,579
ordinary shares at $391.
On April 6, 2018, the Company entered into a letter agreement with
FT Global Capital, Inc., as exclusive placement agent (the
“Placement Agent”), pursuant to which the Placement Agent has
agreed to act as placement agent on a best efforts basis in
connection with the above offering. In addition to the cash
payments, the Company has also agreed to issue to the Placement
Agent a warrant to purchase a number of ordinary shares equal to
6.0% of the aggregate number of ordinary shares sold in this
offering, which warrant will have the same term as Series A
Warrants, including exercise price, vesting period and
anti-dilution terms.
The Company had issued 9,280,323 warrants, of which 6,860,063 were
designated “public warrants,” 33,134 are designated “private
warrants”, 1,387,126 were designated “Sponsor warrants”, and
1,000,000 warrants were transferred to employees of the Company
from DeTiger. These warrants have all expired on July 6, 2021
at 5:00 p.m., New York City time.
Purchase Option
EarlyBird (and/or its designees) was issued an option to purchase
up to 600,000 units at $11.75 per unit. The option represented the
right to purchase up to 660,000 ordinary shares and 600,000
warrants to purchase 300,000 full shares. The purchase option may
be exercised for cash or on a cashless basis, at the holder’s
option, at any time prior to September 30, 2019, the five-year
anniversary of the effective date of the IPO registration
statement. Notwithstanding anything to the contrary, neither the
option nor the warrants underlying the option shall be exercisable
after September 30, 2019. The option grants to holders demand
and “piggy back” rights for periods of five and seven years,
respectively, from September 30, 2014 (the effective date of
the IPO registration statement) with respect to the registration
under the Securities Act of the securities directly and indirectly
issuable upon exercise of the option. We will bear all fees and
expenses attendant to registering the securities, other than
underwriting commissions, which will be paid for by the holders
themselves. The exercise price and number of units issuable upon
exercise of the option may be adjusted in certain circumstances
including in the event of a stock dividend, or our
recapitalization, reorganization, merger or consolidation. However,
the option will not be adjusted for issuances of ordinary shares at
a price below its exercise price. We will have no obligation to net
cash settle the exercise of the purchase option or the rights or
warrants underlying the purchase option. The holder of the purchase
option will not be entitled to exercise the purchase option or the
warrants underlying the purchase option unless a registration
statement covering the securities underlying the purchase option is
effective or an exemption from registration is available. If the
holder is unable to exercise the purchase option or underlying
warrants, the purchase option or warrants, as applicable, will
expire worthless. The purchase option was not exercised by the
option holder prior to September 30, 2019 and, therefore, was
expired in the year ended December 31, 2019.
Registration Rights
Concurrently with the consummation of our IPO, in
October 2014, the Company granted certain investors
registration rights pursuant to a Registration Rights Agreement.
The holders of 25% of the securities subject to the Registration
Rights Agreement are entitled to make up to three demands,
excluding short form registration demands, that we register such
securities for sale under the Securities Act. In addition, the
holders have certain “piggy-back” registration rights with respect
to registration statements filed subsequent to our Business
Combination.
We
have agreed to use commercially reasonable efforts to have a
registration statement registering the resale of the Company’s
ordinary shares issuable upon conversion of the Class A Convertible
Preferred Shares under the Securities Act declared effective within
one hundred eighty (180) days after the closing of the Business
Combination.
On
July 6, 2016 and in connection with the Business Combination,
the Company entered into a Registration Rights Agreement with the
Sellers. Under the Registration Rights Agreement, the Sellers hold
registration rights that will obligate the Company to register for
resale under the Securities Act, all or any portion of the shares
held by them issued in connection with the share exchange so long
as such shares are not then restricted under the Lock-Up Agreement.
Subject to certain exceptions, if any time after the closing of the
Business Combination, the Company proposes to file a registration
statement under the Securities Act with respect to its securities,
under the Registration Rights Agreement, the Company shall give
notice to the Sellers as to the proposed filing and offer the
Sellers an opportunity to register the sale of such number of
shares as requested by the Sellers in writing. In addition, subject
to certain exceptions, Sellers will be entitled under the
Registration Rights Agreement to request in writing that the
Company register the resale of their shares on Form F-3 and any
similar short-form registration that may be available at such
time.
Pursuant
to a registration statement on Form F-1 declared effective on
December 21, 2017, we registered 2,229,572 Ordinary Shares,
2,420,260 Warrants to purchase Ordinary Shares and 1,210,130
Ordinary Shares issuable upon exercise of our warrants.
Escrow
Agreements
On
July 6, 2016 and in connection with the Business Combination,
the Company and the seller representative (on behalf of the
Sellers) entered into an Escrow Agreement with Continental Stock
Transfer & Trust Company. Pursuant to the Escrow Agreement, the
escrow agent will hold the escrow shares in a segregated escrow
account, to be held and disbursed as agreed to in the Share
Exchange Agreement.
Differences
in Corporate Law
The
Companies Act and the laws of the British Virgin Islands affecting
British Virgin Islands companies like us and our shareholders
differ from laws applicable to U.S. corporations and their
shareholders. Set forth below is a summary of the material
differences between the provisions of the laws of the British
Virgin Islands applicable to us and the laws applicable to
companies incorporated in the United States and their
shareholders.
Mergers and Similar Arrangements
Under
the laws of the British Virgin Islands, two or more companies may
merge or consolidate in accordance with Section 170et seq.
of the Companies Act. A merger means the merging of two or more
constituent companies into one of the constituent companies and a
consolidation means the uniting of two or more constituent
companies into a new company. In order to merge or consolidate, the
directors of each constituent company must approve a
written
Shareholders
not otherwise entitled to vote on the merger or consolidation may
still acquire the right to vote if the plan of merger or
consolidation contains any provision which, if proposed as an
amendment to the memorandum or articles of association, would
entitle them to vote as a class or series on the proposed
amendment. In any event, all shareholders must be given a copy of
the plan of merger or consolidation irrespective of whether they
are entitled to vote at the meeting to approve the plan of merger
or consolidation.
The
shareholders of the constituent companies are not required to
receive shares of the surviving or consolidated company but may
receive debt obligations or other securities of the surviving or
consolidated company, other assets, or a combination thereof.
Further, some or all of the shares of a class or series may be
converted into a kind of asset while the other shares of the same
class or series may receive a different kind of asset. As such, not
all the shares of a class or series must receive the same kind of
consideration.
After
the plan of merger or consolidation has been approved by the
directors and authorized by a resolution of the shareholders,
articles of merger or consolidation (containing the plan of merger
or consolidation) are executed by each company and filed with the
Registrar of Corporate Affairs in the British Virgin
Islands.
A
shareholder may dissent from a mandatory redemption of his shares,
an arrangement (if permitted by the court), a merger (unless the
shareholder was a shareholder of the surviving company prior to the
merger and continues to hold the same or similar shares after the
merger) or a consolidation. A shareholder properly exercising his
dissent rights is entitled to a cash payment equal to the fair
value of his shares.
A
shareholder dissenting from a merger or consolidation must object
in writing to the merger or consolidation before the vote by the
shareholders on the merger or consolidation, unless notice of the
meeting was not given to the shareholder, or it was approved by
written resolution without a meeting. This objection must include a
statement that the shareholder proposes to demand payment for their
shares in the action is taken. If the merger or consolidation is
approved by the shareholders, the company must give notice of this
fact to each shareholder within 20 days who gave written objection.
These shareholders then have 20 days to give to the company their
written election in the form specified by the Companies Act to
dissent from the merger or consolidation, provided that in the case
of a merger, the 20 days starts when the plan of merger is
delivered to the shareholder.
Upon
giving notice of his election to dissent, a shareholder ceases to
have any shareholder rights except the right to be paid the fair
value of his shares. As such, the merger or consolidation may
proceed in the ordinary course notwithstanding his
dissent.
Within
seven days of the later of the expiration of the period within
which shareholders may give their notice of election to dissent and
the effective date of the merger or consolidation, the company must
make a written offer to each dissenting shareholder to purchase his
shares at a specified price per share that the company determines
to be the fair value of the shares. The company and the shareholder
then have 30 days to agree upon the price. If the company and a
shareholder fail to agree on the price within the 30 days, then the
company and the shareholder shall, within 20 days immediately
following the expiration of the 30-day period, each designate an
appraiser and these two appraisers shall designate a third
appraiser. These three appraisers shall fix the fair value of the
shares as of the close of business on the day prior to the
shareholders’ approval of the transaction without taking into
account any change in value as a result of the
transaction.
Anti-takeover provisions in our memorandum and articles of
association
Some
provisions of our memorandum and articles of association may
discourage, delay or prevent a change in control of our company or
management that shareholders may consider favorable. Under British
Virgin Islands law, our directors may only exercise the rights and
powers granted to them under our memorandum and articles of
association, as amended and restated from time to time, as they
believe in good faith to be in the best interests of our
company.
Directors’
Interests
While a director may, subject to the constitutional documents of
the relevant company, vote on the plan of merger or consolidation
even if he has a financial interest in the plan, the interested
director must disclose the interest to all other directors of the
company promptly upon becoming aware of the fact that he is
interested in the transaction entered into or to be entered into by
the company.
(a) a director’s power to vote on a proposal, arrangement or
contract in which the director is materially interested;
Any director of the Company who has an interest in any transaction
entered into or to be entered into by the Company, must forthwith
disclose that interest to all other directors of the Company. A
disclosure to all other directors to the effect that a director is
a member, director or officer of another named entity or has a
fiduciary relationship with respect to the entity or a named
individual and is to be regarded as interested in any transaction
which may, after the date of the entry or disclosure, be entered
into with that entity or individual, is a sufficient disclosure of
interest in relation to that transaction.
A transaction entered into by our Company in respect of which a
director is interested is voidable by us unless the
director’s interest was
(a) disclosed to the board prior to the transaction or (b) the
transaction is (i) between the director and the Company and (ii)
the transaction is in the ordinary course of the
Company’s
business and on usual terms and conditions.
Notwithstanding an interest in a transaction, and subject to the
discussion below, a director of the Company who is interested in a
transaction entered into or to be entered into by the Company
may:
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(a) |
vote on a matter relating to the
transaction; |
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attend a meeting of directors at
which a matter relating to the transaction arises and be included
among the directors present at the meeting for the purposes of a
quorum; and |
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sign a document on behalf of the
Company, or do any other thing in his capacity as a director, that
relates to the transaction, |
and, subject to compliance with the Companies Act and the Company’s
articles of association shall not, by reason of his office be
accountable to the Company for any benefit which he derives from
such transaction and no such transaction shall be liable to be
avoided on the grounds of any such interest or benefit.
In addition to the above, prior to the consummation of any
transaction with:
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(a) |
any affiliate of the Company; |
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(b) |
any shareholder owning an interest
in the voting power of the Company that gives such shareholder a
significant influence over the Company; |
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(c) |
any director or executive officer
of the Company and any relative of such director or executive
officer; and |
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(d) |
any person in which a substantial
interest in the voting power of the Company is owned, directly or
indirectly, by a person referred to in (b) and (c) or over which
such a person is able to exercise significant influence, |
such transaction must be approved by a majority of the members of
the board of directors who do not have an interest in the
transaction, such directors having been provided with access (at
the Company’s expense) to the Company’s attorney or independent
legal counsel, unless the disinterested directors determine that
the terms of such transaction are no less favourable to the Company
than those that would be available to the Company with respect to
such a transaction from unaffiliated third parties.
(b) the directors’ power, in the
absence of an independent quorum, to vote compensation to
themselves or any members of their body;
The emoluments of our directors are set by resolution of directors,
and are therefore subject to the limitations on the abilities of
directors to act with respect to transactions in which they have an
interest. In the absence of an independent quorum, a director may
not vote compensation to themselves, their relatives, or any body
in which they have an interest.
(c) borrowing powers exercisable by the directors and how such
borrowing powers can be varied; and
Our articles of association provide that the directors of the
Company may, by resolution of directors, exercise all the powers of
the Company to incur indebtedness, liabilities or obligations and
to secure indebtedness, liabilities or obligations whether of the
Company or of any third party. Any variation to this power would
require our articles of association to be amended to include such
variation.
(d) retirement or non-retirement of directors under an age limit
requirement.
There is no age at which our directors must retire from their
positions with the Company.
Shareholder action by written consent
Under
the Delaware General Corporation Law, a corporation may eliminate
the right of shareholders to act by written consent by amendment to
its certificate of incorporation. British Virgin Islands law
provides that, subject to the memorandum and articles of
association of a company, that company’s shareholders may approve
corporate matters by way of a written resolution without a meeting
signed by or on behalf of shareholders sufficient to constitute the
requisite majority of shareholders who would have been entitled to
vote on such matter at a general meeting; provided that if the
consent is less than unanimous, notice must be given to all
non-consenting shareholders. Our memorandum and articles of
association permit shareholders to act by written
consent.
Shareholder proposals
Under
the Delaware General Corporation Law, a shareholder has the right
to put any proposal before the annual meeting of shareholders,
provided it complies with the notice provisions in the governing
documents. A special meeting may be called by the board of
directors or any other person authorized to do so in the governing
documents, but shareholders may be precluded from calling special
meetings. British Virgin Islands law allows shareholders holding
not less than 30% of the votes of the outstanding voting shares to
requisition a shareholders’ meeting. We are not obliged by law to
call shareholders’ annual general meetings, but our memorandum and
articles of association do permit the directors to call such a
meeting.
Cumulative voting
Under
the Delaware General Corporation Law, cumulative voting for
elections of directors is not permitted unless the corporation’s
certificate of incorporation specifically provides for it.
Cumulative voting potentially facilitates the representation of
minority shareholders on a board of directors since it permits the
minority shareholder to cast all the votes to which the shareholder
is entitled on a single director, which increases the shareholder’s
voting power with respect to electing such director. As permitted
under British Virgin Islands law, our memorandum and articles of
association do not provide for cumulative voting. As a result, our
shareholders are not afforded any less protections or rights on
this issue than shareholders of a Delaware corporation.
Removal of directors
Under
the Delaware General Corporation Law, a director of a corporation
with a classified board may be removed only for cause with the
approval of a majority of the outstanding shares entitled to vote,
unless the certificate of incorporation provides otherwise. Under
our memorandum and articles of association, directors can be
removed from office, with or without cause, by a resolution of
shareholders passed at a meeting of shareholders called for the
purposes of removing the Director, by a written resolution passed
by at least 75% of our shareholders or by a resolution of directors
passed at a meeting of directors.
Transactions with interested shareholders
The
Delaware General Corporation Law contains a business combination
statute applicable to Delaware public corporations whereby, unless
the corporation has specifically elected not to be governed by such
statute by amendment to its certificate of incorporation, it is
prohibited from engaging in certain business combinations with an
“interested shareholder” for three years following the date that
such person becomes an interested shareholder. An interested
shareholder generally is a person or group who or which owns or
owned 15% or more of the target’s outstanding voting shares within
the past three years. This has the effect of limiting the ability
of a potential acquirer to make a two-tiered bid for the target in
which all shareholders would not be treated equally. The statute
does not apply if, among other things, prior to the date on which
such shareholder becomes an interested shareholder, the board of
directors approves either the business combination or the
transaction which resulted in the person becoming an interested
shareholder. This encourages any potential acquirer of a Delaware
public corporation to negotiate the terms of any acquisition
transaction with the target’s board of directors. British Virgin
Islands law has no comparable statute. Our Memorandum and Articles
of Association allows interested party transactions to be approved
by a majority of the members of the Board of Directors who do not
have an interest in the transaction, if such directors having been
provided with access to the Company’s attorney or independent legal
counsel, unless the disinterested directors determine that the
terms of such transaction are no less favorable to the Company than
those that would be available to the Company with respect to such a
transaction from unaffiliated third parties.
Dissolution; Winding Up
Under
the Delaware General Corporation Law, unless the board of directors
approves the proposal to dissolve, dissolution must be approved by
shareholders holding 100% of the total voting power of the
corporation. Only if the dissolution is initiated by the board of
directors may it be approved by a simple majority of the
corporation’s outstanding shares. Delaware law allows a Delaware
corporation to include in its certificate of incorporation a
supermajority voting requirement in connection with dissolutions
initiated by the board. Under the Companies Act and our memorandum
and articles of association, we may appoint a voluntary liquidator
by a resolution of the shareholders or a resolution of the
directors.
Variation of rights of shares
Under
the Delaware General Corporation Law, a corporation may vary the
rights of a class of shares with the approval of a majority of the
outstanding shares of such class, unless the certificate of
incorporation provides otherwise. Under our memorandum and articles
of association, if at any time our shares are divided into
different classes of shares, the rights attached to any class may
only be varied, whether or not our company is in liquidation, with
the consent in writing of or by a resolution passed at a meeting by
the holders of not less than 50 percent of the issued shares in
that class that are entitled to vote on the variation and actually
vote thereon.
Amendment of governing documents
Under
the Delaware General Corporation Law, a corporation’s governing
documents may be amended with the approval of a majority of the
outstanding shares entitled to vote, unless the certificate of
incorporation provides otherwise. As permitted by British Virgin
Islands law, our memorandum and articles of association may be
amended by a resolution of shareholders and, subject to certain
exceptions, by a resolution of directors. Any amendment is
effective from the date it is registered at the Registry of
Corporate Affairs in the British Virgin Islands.
We
have not entered into any material contracts other than in the
ordinary course of business and other than those described in “Item
4. Information on the Company” or elsewhere in this Annual
Report.
The
principal regulations governing foreign currency exchange in the
PRC are the Foreign Exchange Administration Regulations promulgated
by the State Council, as amended on August 5, 2008, or the Foreign
Exchange Regulations. Under the Foreign Exchange Regulations, the
RMB is freely convertible for current account items, as long as
true and lawful transaction basis is provided, but not for capital
account items, such as capital transfer, direct investments, loans,
repatriation of investments, investments in securities and
derivatives outside of the PRC, unless the prior approval of the
State Administration of Foreign Exchange, or the SAFE, is obtained
and prior registration with the SAFE is made.
The
following description is not intended to constitute a complete
analysis of all tax consequences relating to the ownership and
disposition of our securities. You should consult your own tax
advisor concerning the tax consequences of your particular
situation, as well as any tax consequences that may arise under the
laws of any state, local, foreign or other taxing
jurisdiction.
British
Virgin Islands Taxation
Under
the law of the British Virgin Islands as currently in effect, a
holder of our shares who is not a resident of the British Virgin
Islands is not liable for British Virgin Islands income tax on
dividends paid with respect to our shares, and all holders of our
securities are not liable to the British Virgin Islands for income
tax on gains realized on the sale or disposal of such securities.
The British Virgin Islands does not impose a withholding tax on
dividends paid by a company incorporated or re-registered under the
Companies Act.
There
are no capital gains, gift or inheritance taxes levied by the
British Virgin Islands on companies incorporated or re-registered
under the Companies Act, unless the relevant company has an
interest in land located in the British Virgin Islands. In
addition, and subject to the same caveat, In addition, securities
of companies incorporated or re-registered under the Companies Act
are not subject to transfer taxes, stamp duties or similar
charges.
There
is no income tax treaty or convention currently in effect between
the United States and the British Virgin Islands, although a Tax
Information Exchange Agreement is in force.
U.S.
Federal Income Taxation
General
The
following is a summary of the material U.S. federal income tax
consequences of the acquisition, ownership and disposition of our
ordinary shares. The discussion below of the U.S. federal income
tax consequences to “U.S. Holders” will apply to a beneficial owner
of our ordinary shares that is for U.S. federal income tax
purposes:
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an
individual citizen or resident of the United States; |
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a
corporation (or other entity treated as a corporation) that is
created or organized (or treated as created or organized) in or
under the laws of the United States, any state thereof or the
District of Columbia; |
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an
estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source; or |
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a
trust if (i) a U.S. court can exercise primary supervision over the
trust’s administration and one or more U.S. persons are authorized
to control all substantial decisions of the trust, or (ii) it has a
valid election in effect under applicable U.S. Treasury regulations
to be treated as a U.S. person. |
A
beneficial owner of our ordinary shares that is described above is
referred to herein as a “U.S. Holder.” If a beneficial owner of our
ordinary shares is not described as a U.S. Holder and is not an
entity treated as a partnership or other pass-through entity for
U.S. federal income tax purposes, such owner will be considered a
“Non-U.S. Holder.” The material U.S. federal income tax
consequences applicable specifically to Non-U.S. Holders are
described below under the heading “Non-U.S. Holders.”
This
summary is based on the Internal Revenue Code of 1986, as amended
(the “Code”), its legislative history, Treasury regulations
promulgated thereunder, published rulings and court decisions, all
as currently in effect. These authorities are subject to change or
differing interpretations, possibly on a retroactive
basis.
This
discussion does not address all aspects of U.S. federal income
taxation that may be relevant to any particular holder based on
such holder’s individual circumstances. In particular, this
discussion considers only holders that own and hold our ordinary
shares as capital assets within the meaning of Section 1221 of the
Code, and does not discuss the potential application of the
alternative minimum tax or the U.S. federal income tax consequences
to holders that are subject to special rules, including:
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financial
institutions or financial services entities; |
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broker-dealers; |
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persons
that are subject to the mark-to-market accounting rules under
Section 475 of the Code; |
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tax-exempt
entities; |
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governments
or agencies or instrumentalities thereof; |
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insurance
companies; |
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regulated
investment companies; |
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real
estate investment trusts; |
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certain
expatriates or former long-term residents of the United
States; |
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persons
that actually or constructively own 5% or more of our voting
shares; |
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persons
that acquired our ordinary shares pursuant to an exercise of
employee options, in connection with employee incentive plans or
otherwise as compensation; |
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persons
that hold our ordinary shares as part of a straddle, constructive
sale, hedging, conversion or other integrated
transaction; |
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persons
whose functional currency is not the U.S. dollar; |
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controlled
foreign corporations; or |
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passive
foreign investment companies. |
This
discussion does not address any aspect of U.S. federal non-income
tax laws, such as gift or estate tax laws, or state, local or
non-U.S. tax laws or, except as discussed herein, any tax reporting
obligations applicable to a holder of our ordinary shares.
Additionally, this discussion does not consider the tax treatment
of partnerships or other pass-through entities or persons who hold
our ordinary shares through such entities. If a partnership (or
other entity classified as a partnership for U.S. federal income
tax purposes) is the beneficial owner of our ordinary shares, the
U.S. federal income tax treatment of a partner in the partnership
generally will depend on the status of the partner and the
activities of the partnership. This discussion also assumes that
any distribution made (or deemed made) in respect of our ordinary
shares and any consideration received (or deemed received) by a
holder in connection with the sale or other disposition of such
ordinary shares will be in U.S. dollars. In addition, this
discussion assumes that we will be treated as a foreign corporation
for U.S. federal income tax purposes.
We
have not sought, and will not seek, a ruling from the Internal
Revenue Service (“IRS”) or an opinion of counsel as to any U.S.
federal income tax consequence described herein. The IRS may
disagree with the description herein, and its determination may be
upheld by a court. Moreover, there can be no assurance that future
legislation, regulations, administrative rulings or court decisions
will not adversely affect the accuracy of the statements in this
discussion.
THIS
DISCUSSION IS ONLY A SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME
TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF
OUR ORDINARY SHARES. IT IS NOT TAX ADVICE. EACH HOLDER OF OUR
ORDINARY SHARES IS URGED TO CONSULT ITS OWN TAX ADVISOR IN RESPECT
TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, AND
NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL TAX LAWS AND ANY
APPLICABLE TAX TREATIES.
U.S.
Holders
Taxation
of Cash Distributions Paid on Ordinary Shares
Subject
to the passive foreign investment company (“PFIC”) rules discussed
below, a U.S. Holder generally will be required to include in gross
income as ordinary income the amount of any cash dividend paid on
our ordinary shares. A cash distribution on such ordinary shares
generally will be treated as a dividend for U.S. federal income tax
purposes to the extent the distribution is paid out of our current
or accumulated earnings and profits (as determined for U.S. federal
income tax purposes). Such dividend generally will not be eligible
for the dividends-received deduction generally allowed to U.S.
corporations in respect of dividends received from other U.S.
corporations. The portion of such cash distribution, if any, in
excess of such earnings and profits will be applied against and
reduce (but not below zero) the U.S. Holder’s adjusted tax basis in
our ordinary shares. Any remaining excess generally will be treated
as gain from the sale or other taxable disposition of such ordinary
shares.
With
respect to non-corporate U.S. Holders, any such dividends may be
subject to U.S. federal income tax at the lower applicable regular
long term capital gains tax rate (see “— Taxation on the
Disposition of Ordinary Shares” below) provided that (1) our
ordinary shares are readily tradable on an established securities
market in the United States, (2) we are not a PFIC, as discussed
below, for either the taxable year in which such dividend was paid
or the preceding taxable year, and (3) certain holding period
requirements are met. Under published IRS authority, ordinary
shares are considered for purposes of clause (1) above to be
readily tradable on an established securities market in the United
States only if they are listed on certain exchanges, which
presently include the Nasdaq Capital Market. Although our ordinary
shares are currently listed on the Nasdaq Capital Market, U.S.
Holders nevertheless should consult their own tax advisors
regarding the availability of the lower rate for any dividends paid
in respect to our ordinary shares.
Taxation
on the Disposition of Ordinary Shares
Upon
a sale or other taxable disposition of our ordinary shares, and
subject to the PFIC rules discussed below, a U.S. Holder generally
will recognize capital gain or loss in an amount equal to the
difference between the amount realized and the U.S. Holder’s
adjusted tax basis in the ordinary shares.
The
regular U.S. federal income tax rate on capital gains recognized by
U.S. Holders generally is the same as the regular U.S. federal
income tax rate on ordinary income, except that long-term capital
gains recognized by non-corporate U.S. Holders generally are
subject to U.S. federal income tax at a maximum regular rate of
20%. Capital gain or loss will constitute long-term capital gain or
loss if the U.S. Holder’s holding period for the ordinary shares
exceeds one year. The deductibility of capital losses is subject to
various limitations.
Passive
Foreign Investment Company Rules
A
foreign (i.e., non-U.S.) corporation will be a PFIC if either (a)
at least 75% of its gross income in a taxable year of the foreign
corporation, including its pro rata share of the gross income of
any corporation in which it is considered to own at least 25% of
the shares by value, is passive income, or (b) at least 50% of its
assets in a taxable year of the foreign corporation, ordinarily
determined based on fair market value and averaged quarterly over
the year, including its pro rata share of the assets of any
corporation in which it is considered to own at least 25% of the
shares by value, are held for the production of, or produce,
passive income. Passive income generally includes dividends,
interest, rents and royalties (other than certain rents or
royalties derived from the active conduct of a trade or business),
and gains from the disposition of passive assets.
Based
on the composition (and estimated values) of the assets and the
nature of our income and that of our subsidiaries during the
taxable year ended December 31, 2018, we believe that we may be
treated as a PFIC for such year. However, because we have not
performed a definitive analysis as to our PFIC status for such
taxable year, there can be no assurance in respect to our PFIC
status for such taxable year. There also can be no assurance in
respect to our status as a PFIC for our current taxable year or any
future taxable year.
If we
are determined to be a PFIC for any taxable year (or portion
thereof) that is included in the holding period of a U.S. Holder of
our ordinary shares, and such U.S. Holder did not make either a
timely qualified electing fund (“QEF”) election for our first
taxable year as a PFIC in which the U.S. Holder held (or was deemed
to hold) our ordinary shares, a QEF election along with a purging
election or a mark-to-market election, each as described below,
such holder generally will be subject to special rules for regular
U.S. federal income tax purposes in respect to:
| |
● |
any
gain recognized by the U.S. Holder on the sale or other disposition
of its ordinary shares; and |
| |
|
|
| |
● |
any
“excess distribution” made to the U.S. Holder (generally, any
distributions to such U.S. Holder during a taxable year of the U.S.
Holder that are greater than 125% of the average annual
distributions received by such U.S. Holder in respect of the
ordinary shares during the three preceding taxable years of such
U.S. Holder or, if shorter, such U.S. Holder’s holding period for
the ordinary shares). |
Under
these rules,
| |
● |
the
U.S. Holder’s gain or excess distribution will be allocated ratably
over the U.S. Holder’s holding period for the ordinary
shares; |
| |
|
|
| |
● |
the
amount allocated to the U.S. Holder’s taxable year in which the
U.S. Holder recognized the gain or received the excess
distribution, or to the period in the U.S. Holder’s holding period
before the first day of our first taxable year in which we
qualified as a PFIC, will be taxed as ordinary income; |
| |
|
|
| |
● |
the
amount allocated to other taxable years (or portions thereof) of
the U.S. Holder and included in its holding period will be taxed at
the highest tax rate in effect for that year and applicable to the
U.S. Holder; and |
| |
|
|
| |
● |
the
interest charge generally applicable to underpayments of tax will
be imposed in respect of the tax attributable to each such other
taxable year of the U.S. Holder. |
In
general, if we are determined to be a PFIC, a U.S. Holder may avoid
the PFIC tax consequences described above in respect to our
ordinary shares by making a timely QEF election (or a QEF election
along with a purging election). Pursuant to the QEF election, a
U.S. Holder will be required to include in income its pro rata
share of our net capital gains (as long-term capital gain) and
other earnings and profits (as ordinary income), on a current
basis, in each case whether or not distributed, in the taxable year
of the U.S. Holder in which or with which our taxable year ends. A
U.S. Holder may make a separate election to defer the payment of
taxes on undistributed income inclusions under the QEF rules, but
if deferred, any such taxes will be subject to an interest
charge.
The
QEF election is made on a shareholder-by-shareholder basis and,
once made, can be revoked only with the consent of the IRS. A U.S.
Holder generally makes a QEF election by attaching a completed IRS
Form 8621 (Information Return by a Shareholder of a Passive Foreign
Investment Company or Qualified Electing Fund), including the
information provided in a PFIC annual information statement, to a
timely filed U.S. federal income tax return for the taxable year to
which the election relates. Retroactive QEF elections generally may
be made only by filing a protective statement with such return and
if certain other conditions are met or with the consent of the
IRS.
In
order to comply with the requirements of a QEF election, a U.S.
Holder must receive certain information from us. Upon request from
a U.S. Holder, we will endeavor to provide to the U.S. Holder no
later than 90 days after the request such information as the IRS
may require, including a PFIC annual information statement, in
order to enable the U.S. Holder to make and maintain a QEF
election. However, there is no assurance that we will have timely
knowledge of our status as a PFIC in the future or of the required
information to be provided.
If a
U.S. Holder has made a QEF election in respect to our ordinary
shares, and the special tax and interest charge rules do not apply
to such ordinary shares (because of a timely QEF election for our
first taxable year as a PFIC in which the U.S. Holder holds (or is
deemed to hold) such shares or a QEF election along with a purge of
the PFIC taint pursuant to a purging election, as described below),
any gain recognized on the sale or other taxable disposition of
such ordinary shares generally will be taxable as capital gain and
no interest charge will be imposed. As discussed above, for regular
U.S. federal income tax purposes, U.S. Holders of a QEF are
currently taxed on their pro rata shares of the QEF’s earnings and
profits, whether or not distributed. In such case, a subsequent
distribution of such earnings and profits that were previously
included in income generally should not be taxable as a dividend to
such U.S. Holders. The adjusted tax basis of a U.S. Holder’s
ordinary shares in a QEF will be increased by amounts that are
included in income, and decreased by amounts distributed but not
taxed as dividends, under the above rules. Similar basis
adjustments apply to property if by reason of holding such property
the U.S. Holder is treated under the applicable attribution rules
as owning ordinary shares in a QEF.
Although
a determination as to our PFIC status will be made annually, an
initial determination that we are a PFIC generally will apply for
subsequent years to a U.S. Holder who held our ordinary shares
while we were a PFIC, whether or not we meet the test for PFIC
status in those subsequent years. A U.S. Holder who makes the QEF
election discussed above for our first taxable year as a PFIC in
which the U.S. Holder holds (or is deemed to hold) our ordinary
shares, however, will not be subject to the PFIC tax and interest
charge rules discussed above in respect to such ordinary shares. In
addition, such U.S. Holder will not be subject to the QEF inclusion
regime in respect to such ordinary shares for any of our taxable
years that end within or with a taxable year of the U.S. Holder and
in which we are not a PFIC. On the other hand, if the QEF election
is not effective for each of our taxable years in which we are a
PFIC and during which the U.S. Holder holds (or is deemed to hold)
our ordinary shares, the PFIC rules discussed above will continue
to apply to such shares unless the holder files on a timely filed
U.S. income tax return (including extensions) a QEF election and a
purging election to recognize under the rules of Section 1291 of
the Code any gain that it would otherwise recognize if the U.S.
Holder sold shares for their fair market value on the
“qualification date.” The qualification date is the first day of
our tax year in which we qualify as a QEF with respect to such U.S.
Holder. The purging election can only be made if such U.S. Holder
held shares on the qualification date. The gain recognized by the
purging election generally will be subject to the special tax and
interest charge rules treating the gain as an excess distribution,
as described above. As a result of the purging election, the U.S.
Holder generally will increase the adjusted tax basis in its shares
by the amount of gain recognized and will also have a new holding
period in the shares for purposes of the PFIC rules.
Alternatively,
if a U.S. Holder, at the close of its taxable year, owns ordinary
shares in a PFIC that are treated as marketable stock, the U.S.
Holder may make a mark-to-market election in respect to such
ordinary shares for such taxable year. If the U.S. Holder makes a
valid mark-to-market election for the first taxable year of the
U.S. Holder in which the U.S. Holder holds (or is deemed to hold)
our ordinary shares and for which we are determined to be a PFIC,
such holder generally will not be subject to the PFIC rules
described above in respect to its ordinary shares as long as such
shares continue to be treated as marketable stock. Instead, in
general, the U.S. Holder will include as ordinary income for each
year that we are treated as a PFIC the excess, if any, of the fair
market value of its ordinary shares at the end of its taxable year
over the adjusted tax basis in its ordinary shares. The U.S. Holder
also will be allowed to take an ordinary loss in respect of the
excess, if any, of the adjusted tax basis of its ordinary shares
over the fair market value of its ordinary shares at the end of its
taxable year (but only to the extent of the net amount of
previously included income as a result of the mark-to-market
election). The U.S. Holder’s adjusted tax basis in its ordinary
shares will be adjusted to reflect any such income or loss amounts,
and any further gain recognized on a sale or other taxable
disposition of the ordinary shares in a taxable year in which we
are treated as a PFIC will be treated as ordinary income. Special
tax rules may also apply if a U.S. holder makes a mark-to-market
election for a taxable year after the first taxable year in which
the U.S. Holder holds (or is deemed to hold) its ordinary shares
and for which we are determined to be a PFIC.
The
mark-to-market election is available only for stock that is
regularly traded on a national securities exchange that is
registered with the Securities and Exchange Commission, including
the Nasdaq Capital Market, or on a foreign exchange or market that
the IRS determines has rules sufficient to ensure that the market
price represents a legitimate and sound fair market value. Although
our ordinary shares are currently listed on the Nasdaq Capital
Market, U.S. Holders nevertheless should consult their own tax
advisors regarding the availability and tax consequences of a
mark-to-market election in respect to our ordinary
shares.
If we
are a PFIC and, at any time, have a foreign subsidiary that is
classified as a PFIC, a U.S. Holder of our ordinary shares
generally should be deemed to own a portion of the shares of such
lower-tier PFIC, and generally could incur liability for the
deferred tax and interest charge described above if we receive a
distribution from, or dispose of all or part of our interest in, or
the U.S. Holder were otherwise deemed to have disposed of an
interest in, the lower-tier PFIC. Upon request, we will endeavor to
cause any lower-tier PFIC to provide to a U.S. Holder no later than
90 days after the request the information that may be required to
make or maintain a QEF election in respect to the lower-tier PFIC.
However, there is no assurance that we will have timely knowledge
of the status of any such lower-tier PFIC or will be able to cause
the lower-tier PFIC to provide the required information. A
mark-to-market election generally would not be available in respect
to such a lower-tier PFIC. U.S. Holders are urged to consult their
own tax advisors regarding the tax issues raised by lower-tier
PFICs.
A
U.S. Holder that owns (or is deemed to own) ordinary shares in a
PFIC during any taxable year of the U.S. Holder may have to file an
IRS Form 8621 (whether or not a QEF election or mark-to-market
election is or has been made) with such U.S. Holder’s U.S. federal
income tax return and provide such other information as may be
required by the U.S. Treasury Department.
The
rules dealing with PFICs and with the QEF and mark-to-market
elections are very complex and are affected by various factors in
addition to those described above. Accordingly, U.S. Holders of our
ordinary shares should consult their own tax advisors concerning
the application of the PFIC rules to our ordinary shares under
their particular circumstances.
Additional
Taxes
U.S.
Holders that are individuals, estates or trusts and whose income
exceeds certain thresholds generally will be subject to a 3.8%
Medicare contribution tax on unearned income, including, without
limitation, dividends on, and gains from, the sale or other taxable
disposition of, our ordinary shares, subject to certain limitations
and exceptions. Under applicable regulations, in the absence of a
special election, such unearned income generally would not include
income inclusions under the QEF rules discussed above under “—
Passive Foreign Investment Company Rules,” but would include
distributions of earnings and profits from a QEF. U.S. Holders
should consult their own tax advisors regarding the effect, if any,
of such tax on their ownership and disposition of our ordinary
shares.
Non-U.S.
Holders
Cash
dividends paid to a Non-U.S. Holder in respect to our ordinary
shares generally will not be subject to U.S. federal income tax
unless such dividends are effectively connected with the Non-U.S.
Holder’s conduct of a trade or business within the United States
(and, if required by an applicable income tax treaty, are
attributable to a permanent establishment or fixed base that such
holder maintains or maintained in the United States).
In
addition, a Non-U.S. Holder generally will not be subject to U.S.
federal income tax on any gain attributable to a sale or other
taxable disposition of our ordinary shares unless such gain is
effectively connected with its conduct of a trade or business in
the United States (and, if required by an applicable income tax
treaty, is attributable to a permanent establishment or fixed base
that such holder maintains or maintained in the United States) or
the Non-U.S. Holder is an individual who is present in the United
States for 183 days or more in the taxable year of such sale or
other disposition and certain other conditions are met (in which
case, such gain from U.S. sources generally is subject to U.S.
federal income tax at a 30% rate or a lower applicable tax treaty
rate).
Cash
dividends and gains that are effectively connected with the
Non-U.S. Holder’s conduct of a trade or business in the United
States (and, if required by an applicable income tax treaty, are
attributable to a permanent establishment or fixed base that such
holder maintains or maintained in the United States) generally will
be subject to regular U.S. federal income tax at the same regular
U.S. federal income tax rates as applicable to a comparable U.S.
Holder and, in the case of a Non-U.S. Holder that is a corporation
for U.S. federal income tax purposes, may also be subject to an
additional branch profits tax at a 30% rate or a lower applicable
tax treaty rate.
Backup
Withholding and Information Reporting
In
general, information reporting for U.S. federal income tax purposes
will apply to cash distributions made on our ordinary shares within
the United States to a U.S. Holder (other than an exempt recipient)
and to the proceeds from sales and other dispositions of our
ordinary shares by a U.S. Holder (other than an exempt recipient)
to or through a U.S. office of a broker. Payments made (and sales
and other dispositions effected at an office) outside the United
States will be subject to information reporting in limited
circumstances. In addition, certain information concerning a U.S.
Holder’s adjusted tax basis in its ordinary shares and adjustments
to that tax basis and whether any gain or loss with respect to such
ordinary shares is long-term or short-term also may be required to
be reported to the IRS, and certain holders may be required to file
an IRS Form 8938 (Statement of Specified Foreign Financial Assets)
to report their interest in our ordinary shares.
Moreover,
backup withholding of U.S. federal income tax at a rate of 28%,
generally will apply to cash dividends paid on our ordinary shares
to a U.S. Holder (other than an exempt recipient) and the proceeds
from sales and other dispositions of our ordinary shares by a U.S.
Holder (other than an exempt recipient), in each case
who:
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● |
fails
to provide an accurate taxpayer identification number; |
| |
|
|
| |
● |
is
notified by the IRS that backup withholding is required;
or |
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|
|
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● |
in
certain circumstances, fails to comply with applicable
certification requirements. |
A
Non-U.S. Holder generally may eliminate the requirement for
information reporting and backup withholding by providing
certification of its foreign status, under penalties of perjury, on
a duly executed applicable IRS Form W-8 or by otherwise
establishing an exemption.
Backup
withholding is not an additional tax. Rather, the amount of any
backup withholding will be allowed as a credit against a U.S.
Holder’s or a Non-U.S. Holder’s U.S. federal income tax liability
and may entitle such holder to a refund, provided that certain
required information is timely furnished to the IRS. Holders are
urged to consult their own tax advisors regarding the application
of backup withholding and the availability of and procedures for
obtaining an exemption from backup withholding in their particular
circumstances.
| F. |
Dividends
and paying agents |
Not
applicable.
Not
applicable.
You
may inspect our securities filings, including this Annual Report
and the exhibits and schedules thereto, without charge at the
offices of the SEC at 100 F Street, N.E., Washington, D.C. 20549.
You may obtain copies of all or any part of the Annual Report from
the Public Reference Section of the SEC, 100 F Street, NE,
Washington, D.C. 20549 upon the payment of the prescribed fees. You
may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a
website at www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants like us that
file electronically with the SEC. You can also inspect the Annual
Report on this website.
A
copy of each document (or a translation thereof to the extent not
in English) concerning our company that is referred to in this
Annual Report is available for public view (subject to confidential
treatment of certain agreements pursuant to applicable law) at our
principal executive offices.
| I. |
Subsidiary
Information |
See
“Item 4. Information on the Company – C. Organizational
Structure.”
ITEM
11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
Credit
Risk
Credit
risk is one of the most significant risks for the Company’s
business. Credit risk exposures arise principally in financial
guarantee activities which is an off-balance sheet financial
instrument.
Credit
risk is controlled by the application of credit approvals, limits
and monitoring procedures including due-diligence visits and
post-lending visits to the clients. The Company manages credit risk
through in-house research and analysis of the Chinese economy and
the underlying obligors and transaction structures. To minimize
credit risk, the Company requires collateral in the form of rights
to cash, securities or property and equipment. The Company
identifies credit risk collectively based on industry, geography
and customer type. This information is monitored regularly by
management.
| - |
Financial
guarantee activities |
In
measuring the credit risk of financial guarantee services with
customers, the Company mainly reflects the “probability of default”
by the customer on its contractual obligations and considers the
current financial position of the customer and the exposures to the
customer and its likely future development.
The
Company manages their credit risk guarantee exposure by performing
preliminary credit checks of each guarantee customer and ongoing
monitoring of payments each month. Management periodically reviews
the probability of default of guarantee customer and will accrue a
guarantee liability when necessary.
In
addition, the Company calculates the provision amount as
below:
| |
1. |
General
Reserve - is based on total balance of off-balance-sheet guarantee
and to be used to cover unidentified probable loan loss. According
to management assessment, the General Reserve is required to be no
less than 1% of total loan guarantee balance. |
| |
|
|
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2. |
Specific
Reserve – is based on a guarantee by guarantee basis covering
losses due to risks related to the ability and intention of
repayment of guarantee commissions by each customer. The reserve
rate was individually assessed based on management estimate of
guarantee fee commission collectability. According to management
assessment, the Specific Reserve is no less than 50% of guarantee
fee commission earned during the year. |
The
Company has been providing the financial guarantees of loans for
limited history. The customer deposits or other assets are held as
collateral for the repayment of each loan. As of December 31,
2021, the amount of outstanding loans and related interests that
the Company has guaranteed is approximately $47,020,055. The
Company estimates the fair market value of the collateral to be
approximately $43,269,000 as of December 31, 2021.
| - |
Other
operating activities |
Assets
that potentially subject the Company to significant concentration
of credit risk primarily consist of cash and cash equivalents. The
maximum exposure of such assets to credit risk is their carrying
amount as at the balance sheet dates. As of December 31, 2021,
the Company had no deposits with a bank in the United States. As of
December 31, 2021, cash of $1,947,142 and restricted cash of
$29,693,689, respectively, were primarily deposited in banks
located in Mainland China, which were uninsured by the government
authority. To limit exposure to credit risk relating to deposits,
the Company primarily place cash deposits with large financial
institutions in China which management believes are of high credit
quality.
The
Company’s operations are carried out in Mainland China.
Accordingly, the Company’s business, financial condition and
results of operations may be influenced by the political, economic
and legal environments in the PRC as well as by the general state
of the PRC’s economy. In addition, the Company’s business may be
influenced by changes in governmental policies with respect to laws
and regulations, anti-inflationary measures, currency conversion
and remittance abroad, rates and methods of taxation, and the
extraction of mining resources, among other factors.
Liquidity
Risk
The
Company is also exposed to liquidity risk which is risk that it is
unable to provide sufficient capital resources and liquidity to
meet its commitments and business needs. Liquidity risk is
controlled by the application of financial position analysis and
monitoring procedures. When necessary, the Company will turn to
other financial institutions and the shareholders to obtain
short-term funding to meet the liquidity shortage.
Foreign
Currency Risk
Substantially
all of the Company’s operating activities and the Company’s assets
and liabilities are denominated in RMB, which is not freely
convertible into foreign currencies. All foreign exchange
transactions take place either through the Peoples’ Bank of China
(“PBOC”) or other authorized financial institutions at exchange
rates quoted by PBOC. Approval of foreign currency payments by the
PBOC or other regulatory institutions requires submitting a payment
application form together with suppliers’ invoices and signed
contracts. The value of RMB is subject to changes in central
government policies and to international economic and political
developments affecting supply and demand in the China Foreign
Exchange Trading System market.
Other
risk
The
Company’s business, financial condition and results of operations
may also be negatively impacted by risks related to natural
disasters, extreme weather conditions, health epidemics and other
catastrophic incidents, such as the COVID-19 outbreak and spread,
which could significantly disrupt the Company’s
operations.
In
December 2019, a novel strain of coronavirus (COVID-19) was first
identified in China and has since spread rapidly globally. The
outbreak of COVID-19 has resulted in quarantines, travel
restrictions, and the temporary closure of offices and business
facilities globally. In March 2020, the World Health Organization
declared the COVID-19 a pandemic. In 2020 and 2021, COVID-19 had a
material impact on our business, financial condition, and results
of operations. After the second quarter of 2020, the COVID outbreak
in China has gradually been controlled. Our business has also
returned to normal operations, although management assessed that
our results of operations had been negatively impacted for the
year. In 2021, Omicron variants emerged, resulting in continued
disruption to our business and the global economy and supply chain.
COVID-19 could continue to adversely affect our business and
results of operations in 2022 if any COVID resurgence causes
significant disruptions to our operations or the business of our
customers, logistics and service providers. COVID-19 could
adversely affect our business and results of operations in 2021 if
any COVID resurgence causes significant disruptions to our
operations or the business of our customers, logistics and service
providers. If any new outbreak of COVID-19 is not effectively and
timely controlled, or if government responses to outbreaks or
potential outbreaks are severe or long-lasting, our business
operations and financial condition may be materially and adversely
affected as a result of the deteriorating market outlook, the
slowdown in regional and national economic growth, weakened
liquidity and financial condition of our customers or other factors
that we cannot foresee. Any of these factors and other factors
beyond our control could have an adverse effect on the overall
business environment, cause uncertainties in the regions where we
conduct business, and could materially and adversely impact our
business, financial condition and results of operations.
ITEM
12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES
Not
applicable.
PART
II
ITEM
13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not
applicable.
ITEM
14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS
See
“Item 10. Additional Information” for a description of the changes
to the rights of shareholders.
ITEM
15. CONTROLS AND PROCEDURES
| (a) |
Disclosure
controls and procedures |
Material
weaknesses and significant deficiencies consist of the
following:
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● |
The
Company does not have a U.S. GAAP full-time designated professional
accountant with U.S. GAAP experience to oversee daily accounting
functions and handle non-routine or complex accounting
transactions;. |
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|
|
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● |
Financial reporting system needs to be improved
|
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|
|
| |
● |
The
Company does not have adequate cut off/period end closing
procedures. |
(b)-(c)
Management’s annual report on internal control over financial
reporting and attestation report of the registered public
accounting firm
Management’s Annual Report on Internal Control Over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined
in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the
supervision and with the participation of our management, including
our CEO and CFO, we conducted an evaluation of the effectiveness of
our internal control over financial reporting. Our management
assessed the effectiveness of our internal control over financial
reporting as of December 31, 2021. In making this assessment,
it used the criteria established in the updated framework in the
Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission in 1992 and
updated in May 2013 issued by the Committee of Sponsoring
Organizations of the Treadway Commission, or COSO. Based on our
assessment, as of December 31, 2021, our internal control over
financial reporting is ineffective.
The material weaknesses identified mainly because that we do not
have sufficient personnel with appropriate levels of accounting
knowledge and experience to address complex U.S. GAAP accounting
issues and to prepare and review financial statements and related
disclosures under U.S. GAAP.
To remedy identified material weakness, we have undertaken and will
continue to undertake steps to strengthen our internal
control over financial reporting. These measures include the
following:
| |
● |
We
have hired new accounting staff and consultant with appropriate
U.S. GAAP and SEC reporting experience and qualifications to
strengthen the financial reporting function and to set up a
financial and system control framework; |
| |
|
|
| |
● |
We
have and will continue providing U.S. GAAP training to accounting
department staff; |
| |
|
|
| |
● |
We
have taken steps to improve internal audit function and internal
control policies, and monitoring controls, to ensure our operating
processes follow our control procedures; |
| |
|
|
| |
● |
We
have assigned, and plan to continue to improve, clear oversight
roles and responsibilities for accounting and financial reporting
staff to address accounting and financial reporting
issues. |
| |
|
|
Our
management, including our Chief Executive Officer, believes the
measures described above and others that will be implemented will
remediate the control deficiencies identified and will strengthen
our internal control over financial reporting. Management is
committed to continuous improvement of the Company’s internal
control processes and will continue to diligently review our
financial reporting controls and procedures.
We do
not expect that our disclosure controls and procedures or our
internal controls will prevent all errors and all
fraud.
Attestation report of the registered public accounting
firm
This
Annual Report does not include an attestation report of our
registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to
attestation by our registered public accounting firm pursuant to
the rules of the SEC.
| (d) |
Change
in internal control over financial reporting: |
Except
for the matters described above, there have been no changes in our
internal control over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act) that occurred during the year ended
December 31, 2021 that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial
reporting.
ITEM
16. [RESERVED]
ITEM
16A. AUDIT COMMITTEE FINANCIAL EXPERT.
Our
Board of Directors has determined that Mr. John Chen, a member of
our audit committee is an audit committee financial expert as
defined by rules of the U.S. Securities and Exchange Commission and
is an independent director under NASDAQ Listing Rules. Although we
are not currently listed on the Nasdaq, we have opted to
voluntarily comply with the Nasdaq Listing Rules.
ITEM
16B. CODE OF ETHICS.
We
have adopted a Code of Ethics that applies to all of our employees,
including our Chief Executive Officer, Chief Financial Officer and
Principal Accounting Officer. Our Code of Ethics is available on
our corporate website. If we amend or grant a waiver of one or more
of the provisions of our Code of Ethics, we intend to satisfy the
requirements under Form 6-K regarding the disclosure of amendments
to or waivers from provisions of our Code of Ethics that apply to
our principal executive officer, principal financial officer and
principal accounting officer by posting the required information on
our website at the above address. We will provide any
person, free of charge, a copy of our code of ethics upon written
request to our registered office.
ITEM
16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
ZH CPA LLP (“ZH CPA”) was appointed by the Company on January 21,
2021 to serve as its independent registered public accounting firm
for the year ended December 31, 2021.
The
following table represents aggregate fees billed to us for
professional services rendered for the fiscal years ended December
31, 2021 by ZH CPA:
| |
|
2021 |
|
|
2020 |
|
| Audit
Fees(1) |
|
$ |
145,000 |
|
|
$ |
110,000 |
|
| Audit-Related
Fees(2) |
|
|
- |
|
|
|
- |
|
| Tax
Fees(3) |
|
|
- |
|
|
|
- |
|
| Total |
|
$ |
145,000 |
|
|
$ |
110,000 |
|
|
(1) |
The
audit fees for the year ended December 31, 2021 and 2020 were for
professional services rendered for the audit of our annual
consolidated financial statements, review of the financial
information included in our interim reports for the respective
periods, the registration statement and other required filings with
the SEC. |
|
(2) |
Audit-related
fees for the year ended December 31, 2021 and 2020 were for
assurance and related services that are reasonably related to
performance of the audit or review of our consolidated financial
statements and are not reported under “Audit Fees”. |
|
(3) |
Tax
fees for the year ended December 31, 2021 and 2020 were for
services related to tax compliance, including the preparation of
tax returns and tax planning and tax advice. |
The Audit Committee’s policy is to pre-approve all audit services
and all non-audit services that our independent accountants are
permitted to perform for us under applicable federal securities
regulations. The Audit Committee’s policy utilizes an annual review
and general pre-approval of certain categories of specified
services that may be provided by the independent accountant, up to
pre-determined fee levels. Any proposed services not qualifying as
a pre-approved specified service, and pre-approved services
exceeding the pre-determined fee levels, require further specific
pre-approval by the Audit Committee. The Audit Committee has
delegated to the Chairman of the Audit Committee the authority to
pre-approve audit and non-audit services proposed to be performed
by the independent accountants.
ITEM
16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES.
Not
applicable.
ITEM
16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS.
Not
applicable.
ITEM
16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.
See
Item 16.C of this Annual Report on Form 20-F.
ITEM
16G. CORPORATE GOVERNANCE.
While
the Company is not currently listed on the Nasdaq, it has opted to
comply with the Nasdaq Listing Rules with respect to corporate
governance as stated below. Pursuant to Nasdaq Listing Rule
5615(a)(3), the Company has amended its Articles of Association by
resolution of its Board of Directors to remove the obligation to
hold annual general meetings and shall follow British Virgin
Islands practices in lieu of the requirements of Nasdaq Listing
Rule 5620. Except as stated above, we currently intend to comply
with all other rules generally applicable to U.S. domestic
companies listed on NASDAQ.
ITEM
16H. MINE SAFETY DISCLOSURE.
Not
applicable.
ITEM
16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS.
PART
III
ITEM
17. FINANCIAL STATEMENTS
Financial
Statements are set forth under Item 18.
ITEM
18. FINANCIAL STATEMENTS
Our
Financial Statements beginning on pages F-1 through F-45, as set
forth in the following index. These Financial Statements are filed
as part of this Annual Report.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS