RAHGF

As filed with the Securities and Exchange Commission on January 6, 2023

Registration No. 333 -         

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM F-1

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

ROAN HOLDINGS GROUP CO., LTD.

(Exact name of Registrant as specified in its charter)

 

British Virgin Islands		6159		Not Applicable
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code)		(I.R.S. Employer Identification No.)

 

147 Ganshui Lane, Yuhuang Shannan Fund Town

Shangcheng District Hangzhou, Zhejiang

The People’s Republic of China

+86-571-8662-1775

(Address and telephone number of Registrant’s principal executive offices)

 

Zhiyong Tang

Chief Executive Officer

147 Ganshui Lane, Yuhuang Shannan Fund Town

Shangcheng District Hangzhou, Zhejiang

The People’s Republic of China

+86-571-8662-1775

(Name, address, including zip code, and telephone number,
including area code, of agent for service)

 

Copies to:

 

Stephen Wurzburg, Esq. Pillsbury Winthrop Shaw Pittman LLP 2550 Hanover Street Palo Alto, CA 94304 Telephone: (650) 233-4500 Facsimile: (650) 233-4545

Elliot H. Lutzker, Esq. Davidoff Hutcher & Citron LLP 605 Third Avenue, 34th Floor New York, NY 10158 Telephone: (212) 557-7200 Facsimile: (212) 286-1884

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

 

If any securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box: ☐

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

 

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 7(a)(2)(B) of the Securities Act. ☐

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

† 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.

 

 

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS

 

SUBJECT TO COMPLETION, DATED JANUARY 6, 2023

 

ROAN HOLDINGS GROUP CO. LTD

 

[__________________] Ordinary Shares

 

at $        Per Share

 

This prospectus relates to our public offering of [___________] ordinary shares of Roan Holdings Group Co. Ltd. (“Roan”), at an assumed offering price of $       per share. Our ordinary shares, no par value, are currently quoted on the U.S. OTCQB marketplace of OTC Link® ATS, or OTCQB under the symbol “RAHGF”. On [_____________], 2022, the closing price of our ordinary shares, as reported on the OTCQB, was $[____] per share. We are in the process of applying to list our ordinary shares on the Nasdaq Capital Market under the symbol “[____].” The closing of this offering is conditioned upon Nasdaq’s final approval of Roan’s listing application. No assurance can be given that our application will be approved.

 

Investing in our ordinary shares involves a high degree of risk. See “Risk Factors” beginning on page 10 of this prospectus.

 

		Per Share				Total
Public offering price		$				$
Underwriting discounts and commissions(1)		$				$
Proceeds to Roan Holdings Group Co. Ltd., before expenses		$				$

 

(1)

Represents underwriting discounts and commissions equal to seven (7%) percent per ordinary share, which is the underwriting discount we have agreed to pay on all investors in this offering. Does not include an expense allowance payable to the underwriters or the reimbursement of certain expenses of the underwriters. See “Underwriting” for additional information regarding underwriting compensation.

 

The underwriters have the option to purchase up to an additional [_________] ordinary shares from us at the public offering price less the underwriting discount.

 

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

 

The underwriters expect to deliver the ordinary shares against payment in New York, New York on or about          , 2023. 

 

______________________________

 

JOSEPH STONE CAPITAL, LLC

 

______________________________

 

The date of this prospectus is [_______________], 2023

 

 

TABLE OF CONTENTS

 

MARKET, INDUSTRY AND OTHER DATA	iii
PROSPECTUS SUMMARY	1
RISK FACTORS	10
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS	36
USE OF PROCEEDS	37
DILUTION	38
DIVIDEND POLICY	40
CAPITALIZATION	41
PRICE RANGE OF OUR ORDINARY SHARES	42
ENFORCEABILITY OF CIVIL LIABILITIES	42
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	44
BUSINESS	65
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS	89
PRINCIPAL SHAREHOLDERS	94
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	96
DIRECTOR AND EXECUTIVE COMPENSATION	98
DESCRIPTION OF SHARE CAPITAL	99
SHARES ELIGIBLE FOR FUTURE SALE	107
TAXATION	108
UNDERWRITING	116
EXPERTS AND LEGAL MATTERS	126
WHERE YOU CAN FIND ADDITIONAL INFORMATION	126
EXPENSES OF THIS OFFERING	127
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	F-1

 

 

Neither we nor the underwriters have authorized anyone to provide you with information that is different from that contained in this prospectus, any amendment or supplement to this prospectus, or in any free writing prospectus we may authorize to be delivered or made available to you. Neither we nor the underwriters take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are offering to sell ordinary shares and seeking offers to purchase ordinary shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on the front of this prospectus, regardless of the time of delivery of this prospectus or any sale of ordinary shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.

 

Neither we nor any of the underwriters have taken any action to permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

 

Unless the context otherwise requires, references in this prospectus to the terms the “Company,” “Roan,” “we,” “us” “and “our” refer to Roan Holdings Group Co., Ltd., a company limited by shares incorporated under the laws of the British Virgin Islands, and all references to “China” or “PRC” and the “Chinese government” refer to the People’s Republic of China and its government. In this prospectus, 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.

 

Our functional currency is the U.S. Dollar (“USD”). The functional currency of our PRC operating subsidiaries is Chinese Yuan (“RMB”). For financial reporting purposes, the financial statements of our PRC operating subsidiaries were prepared using RMB and translated into our functional currency, the 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 unaudited financial statements for the six months ended June 30, 2022 and 2021 and the audited financial statements for the years ended December 31, 2021, 2020 and 2019, included in this prospectus have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All references to “shares” in this prospectus refer to the pre-reverse split ordinary shares of Roan Holdings Group Co. Ltd., no par value.

 

 

MARKET, INDUSTRY AND OTHER DATA

 

This prospectus contains estimates, projections and other information concerning our industry, our business, and the markets for our products. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from our own internal estimates and research as well as from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources.

 

In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Cautionary Statement Regarding Forward-Looking Statements.”

 

 

RISK FACTORS

 

An investment in our ordinary shares involves a high degree of risk. You should carefully consider the following factors and other information in this prospectus before deciding to invest in us. If any of the following risks actually occur, our business, financial condition, results of operations and prospects for growth would likely suffer. As a result, you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may materially and adversely affect our business, financial condition and results of operations. See also “Cautionary Statement Regarding Forward-Looking Statements.”

 

Risks Related to Doing Business in China 

 

A slowdown of China’s economy could materially adversely affect our business.

 

All of our businesses are conducted entirely in China. Although China’s economy has grown in recent years, the pace of growth has slowed, and that rate of growth may not continue. The annual rate of growth in China declined from 6.6% in 2018 to 6.1% in 2019. Due to the negative impact of the COVID-19 pandemic, China’s economic growth rate in 2020 slowed to 2.3%, which is the lowest level since 1990. In 2021, the growth rate improved to 8.1%, which benefited from the COVID-19 pandemic control measures and the resumption of production and operations. However, the recent outbreaks of the pandemic in many parts of China has reduced the growth rate in the first half of 2022 to just 2.5% and has caused lock-downs, shelter-in-place orders and travel restrictions mandated by the PRC government. Moreover, the global spread of the COVID-19 pandemic in many countries around the world has caused and may exacerbate the global economic difficulties. A slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in China may materially reduce the demand for our industrial operation services and could have a significant adverse impact on our business.

 

Future inflation in China could curb economic activity and adversely affect our operations.

 

China’s economy has experienced a period of rapid expansion in recent years, which could lead to high inflation. This has led to occasional efforts to develop various corrective measures designed to limit the supply of credit or regulate growth and curb inflation. High inflation could lead the Chinese government to regulate credit and/or prices again, or to act otherwise, in the future, which could curb China’s economic activity. Any action by the Chinese government trying to control credit and / or prices may adversely affect our lending operations.

 

The uncertainties of the PRC government’s policies could negatively impact our business.

 

China’s economy is, in many ways, different from that of most other countries, especially the degree of government participation in the economy. Although China’s economy has grown significantly over the past few decades, this growth remains unbalanced between different periods, regions and sectors of the economy. The Chinese government also imposes significant controls over China’s economic growth by allocating resources, controlling the payment of foreign currency debt, formulating monetary policies, and providing preferential treatment to specific industries or companies. Some actions and policies taken by the Chinese government may have a negative impact on the Chinese economy or that in the region we serve, and thus may have a significant adverse impact on our business.

 

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 which may lead to some of our business operating decisions that may occasionally be surprising.

 

Our business is widely regulated by both national and local government departments, which may interfere with the way we conduct our business and may negatively affect our financial performance. In addition, the Chinese government exerts substantial influence and control over the manner in which we conduct our business activities. We conduct our business in the financial industry which is highly regulated. Our business is subject to extensive and complex state, provincial and local laws, rules and regulations with regard to our financing guaranties, capital structure, and asset management, among other things. Further, the 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 rules and regulations may not be clear or consistent and occasionally we must depend on oral inquiries with local government authorities. As a result of the complexity, uncertainties and constant changes in these rules and regulation, including changes in interpretation and implementation of them, our business activities and growth may be adversely affected if we do not respond to the changes in a timely manner. We may be subject to sanctions by regulatory authorities, monetary penalties and/or reputation damage, which could have a material adverse effect on our business operations and profitability.

 

 

PRC legal system is constantly improving, with new laws being introduced and some previous laws being repealed. There are certain uncertainties in the interpretation and application of PRC laws which could negatively impact our business.

 

PRC economic reform is ongoing so there have been lots of new laws introduced and some previous laws have been repealed. There are uncertainties regarding the interpretation and application of PRC laws. Only after 1979 did the Chinese government begin to promulgate a comprehensive system of laws that regulated economic affairs in general, dealt with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade, as well as encouraging foreign investment in China. Although the influence of the law has been increasing, China has still not developed a fully integrated legal system and recently enacted laws may not sufficiently cover all aspects of economic activities in China. Also, because these laws 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 involve significant uncertainties. New laws that affect existing and proposed future businesses may also be applied retrospectively. In addition, there have been constant changes and amendments of laws over the past 40 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 our business. Consequently, we cannot predict the future direction of Chinese legislative activities with respect to either businesses with foreign investment or the effectiveness of enforcement of the laws and regulations in China. The uncertainties, including new laws and regulations and changes to existing laws, as well as judicial interpretation by inexperienced officials in the agencies and courts in certain areas, may cause possible problems to our business.

 

The recent enhanced Chinese government oversight of data security, especially the increased scrutiny of companies seeking a foreign listing, could adversely affect our business and our business.

 

On February 15, 2022, the amended Cybersecurity Review Measures came into effect effective which was published by the Cyberspace Administration of China (the “CAC”), and 12 other relevant PRC government authorities on December 28, 2021. The final Cybersecurity Review Measures provide that a “network platform operator” that possesses personal information of more than one million users and seeks a listing in a foreign country must apply for a cybersecurity review. Further, the relevant PRC governmental authorities may initiate a cybersecurity review against any company if they determine certain network products, services, or data processing activities of such company effects or may effect national security. As of the date of this prospectus, we have not received any notice from any authority indicating that we are a critical information infrastructure operator, or requiring us to pass the CAC’s cyber security review. We believe that, based on the present situation, our operations and listings will not be affected, We do not expect a CAC cybersecurity review, because: (1) our current business model is unlikely to be listed as a key information infrastructure operator by Chinese regulators; (2) As of the date of issuance of this prospectus, the number of our individual customers is far less than 1 million. We do not have any plan to collect personal information from more than one million users in the near future, otherwise, we may be affected by the draft Network security Review Measures; (3) The data processed in our business is unlikely to have a significant impact on critical information infrastructure supply chain security, network security, and data security, nor is it likely to have a significant impact on national security. It is therefore unlikely to be classified as core or important data by the authorities. However, there remains uncertainty about the interpretation or implementation of the measures and whether Chinese regulators including the CAC can adopt new laws, regulations, rules, or detailed implementation and interpretation related to the review method. If any such new laws, regulations, and rules are implemented and interpreted to affect us, we will take all reasonable measures and actions to comply with and minimize the adverse impact of these laws on us. However, we cannot guarantee that we will not be subject to cyber-security scrutiny in the future. We may be required to suspend operations or experience other business disruptions during the review period, which may have significant and adverse effects on our business, financial position, and results of operations.

 

 

The China Securities Regulatory Commission is preparing to strengthen supervision over overseas listing, and has issued Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), including unified supervision and management, strengthening regulatory coordination and cross-border regulatory cooperation. Although not yet in effect, we are not currently affected by it. However, it is not clear about the future impact on us after it officially comes into force.

 

On December 24, 2021, the China Securities Regulatory Commission, (the “CSRC”), issued Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Administration Provisions”), and the Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Measures”), which were open for public comments by January 23, 2022. The Administration Provisions and Measures for overseas listings lay out specific requirements for filing documents and include unified regulation management, strengthening regulatory coordination, and cross-border regulatory cooperation. Domestic companies seeking to list abroad must carry out relevant security screening procedures if their businesses involve supervisions such as foreign investment security and cyber security reviews. Companies endangering national security are among those off-limits for overseas listings. As the Administration Provisions and Measures have not yet come into effect, we are currently unaffected by them. It is uncertain when the Administration Provision and the Measures will take effect or if they will take effect as currently drafted. However, if the current regulations come into effect, our Company may incur the following adverse effects: (1) greater compliance with reporting procedures for data security and security reviews, etc.; (2) increased compliance work may give rise to more operating costs and have a negative impact on our profits; (3) government may increase the approval procedures for future refinancing in the capital market, which could increase our operating costs and uncertainty.

 

The Draft Rules Regarding Overseas Listing stipulate that the Chinese-based companies, or the issuer, shall fulfill the filing procedures within three business days after the issuer makes an application for initial public offering and listing in an overseas market. The required filing materials for an initial public offering and listing shall include, but are not limited to, record-filing report and related undertakings; regulatory opinions, record-filing, approval and other documents issued by competent regulatory authorities of relevant industries (if applicable); and security assessment opinion issued by relevant regulatory authorities (if applicable); PRC legal opinion; and prospectus. In addition, an overseas offering and listing is prohibited under any of the following circumstances: (1) if the intended securities offering and listing is specifically prohibited by national laws and regulations and relevant provisions; (2) if the intended securities offering and listing may constitute a threat to or endangers national security as reviewed and determined by competent authorities under the State Council in accordance with law; (3) if there are material ownership disputes over the equity, major assets, and core technology, etc. of the issuer; (4) if, in the past three years, the domestic enterprise or its controlling shareholders or actual controllers have committed corruption, bribery, embezzlement, misappropriation of property, or other criminal offenses disruptive to the order of the socialist market economy, or are currently under judicial investigation for suspicion of criminal offenses, or are under investigation for suspicion of major violations; (5) if, in past three years, directors, supervisors, or senior executives have been subject to administrative punishments for severe violations, or are currently under judicial investigation for suspected criminal offenses, or are under investigation for suspected major violations; or (6) other circumstances as prescribed by the State Council. The Draft Administration Provisions defines the legal liabilities of breaches such as failure in fulfilling filing obligations or fraudulent filing conducts, imposing a fine between RMB 1 million and RMB 10 million, and in cases of severe violations, a parallel order to suspend relevant business or halt operation for rectification, revoke relevant business permits or operational license.

 

The continuous update of The Special Administrative Measures for Foreign Investment Access (Negative List) will not enable us to guarantee that our industry will not be included in the government’s negative list for foreign investment access in the future.

 

The Special Administrative Measures for Foreign Investment Access (Negative List) (2021 edition) promulgated by the Ministry of Commerce of PRC (“MOFCOM”) and the National Development and Reform Commission of the People’s Republic of China (“NDRC”) stipulates that industries prohibiting foreign investment and industries where foreign investment is allowed but cannot be majority controlled. At present, this regulation has no negative impact on our operations. However, we cannot guarantee that in the future, our industry will not be listed by the government on the negative list for foreign investment. If this happens, it may seriously affect our operations and cause losses to investors.

 

 

The failure to comply with PRC regulations relating to mergers and acquisitions of domestic enterprises by offshore special purpose vehicles may subject us to severe fines or penalties and create other regulatory uncertainties regarding our corporate structure.

 

On August 8, 2006, MOFCOM joined by the 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 our 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 are not required in the context of the Business Combination (for more information see History and Development of the Company - Corporate History and Structure of our PRC Operation) and the Lixin Acquisition because we did not acquire Urumqi Feng Hui Direct Lending Limited ’s equity or assets and Xinjiang Fenghui Jing Kai Direct Lending Co., Ltd. (新疆丰汇经开小额贷款有限公司) (“Jing Kai”) and Feng Hui Ding Xin (Beijing) Financial Consulting Co., Limited (“Ding Xin”) and Lixin Group were already foreign owned. However, we are not certain that the relevant PRC government agencies, including the CSRC and MOFCOM, would reach the same conclusion, and we are not 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 was required and not obtained, we may face severe regulatory actions or other sanctions from MOFCOM, the CSRC or other PRC regulatory agencies. In such an event, those regulatory agencies may impose fines or other penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from overseas financing into the PRC, restrict or prohibit payment or remittances of dividends 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 our 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. However, as advised by our PRC counsel, Beijing Dongwei Law Firm, under the current policy, our future offshore financing or acquisitions will not be substantially affected. Our listing does not need approval by CSRC and MOFCOM.

 

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, 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, as these foreign exchange regulations are still relatively new, 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 our 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 our subsidiaries’ 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 further capital 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.

 

 

On March 30, 2015, the SAFE promulgated the Circular on Reforming the Management Approach Regarding the Foreign Exchange Capital Settlement of Foreign- Invested Enterprises, or SAFE Circular 19, which took effect as of June 1, 2015. SAFE Circular 19 launched a nationwide reform of the administration of the settlement of the foreign exchange capitals of FIEs and allowed FIEs to settle their foreign exchange capital at their discretion, but continues to prohibit FIEs from using the Renminbi funds converted from their foreign exchange capital for expenditure beyond their business scopes, providing guarantees for loans or repaying loans between nonfinancial enterprises. The SAFE issued the Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or SAFE Circular 16, effective in June 2016. Pursuant to SAFE Circular 16, enterprises registered in China may also convert their foreign debts from foreign currency to Renminbi on a discretionary basis. SAFE Circular 16 provides an integrated standard for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) on a discretionary basis which applies to all enterprises registered in China. SAFE Circular 16 reiterates the principle that Renminbi converted from foreign currency-denominated capital of a company may not be directly or indirectly used for purposes beyond its business scope or prohibited by PRC laws or regulations, while such converted Renminbi shall not be provided as loans to its non-affiliated entities. Violations of these Circulars could result in severe monetary or other penalties. SAFE Circular 19 and SAFE Circular 16 may significantly limit our ability to use Renminbi converted from the net proceeds of this offering to fund our PRC operating subsidiaries, to invest in or acquire any other PRC companies through our PRC subsidiaries, which may adversely affect our business, financial conditions and results of 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 us 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, were issued in August 2011. These 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 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. In addition, PRC Measures for the Security Review of Foreign Investment which was already in force in January 2021 require acquisitions by foreign investors of PRC companies engaged in military-related or certain other industries that are crucial to national security to be subject to security reviews before any such acquisition. 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 we seek to acquire falls into the scope of security review, we may not be able to successfully acquire such company either by equity or asset acquisition, capital contribution or through any VIE Agreement. We may grow our business in part by acquiring other companies operating in our 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 our ability to complete such transactions, which could affect our ability to maintain or expand our market share.

 

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 are 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 people 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 people, 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.

 

 

Second, 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.

 

Third, 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.

 

Lastly, 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, 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 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 our 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.

 

 

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 retrospective 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%.

 

On October 17, 2017, the State Administration of Taxation issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or Announcement 37, which came into effect on December 1, 2017. Announcement 37 further clarifies the practice and procedures of withholding of non-resident enterprise income tax.

 

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 and/or Announcement 37 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 be at risk of being subject to taxation under Announcement 7 and/or Announcement 37, and may be required to expend valuable resources to comply with Announcement 7 and/or Announcement 37 or to establish that we and our non-resident enterprises should not be taxed under Announcement 7 and/or Announcement 37, 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.

  

 

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%, but appreciated during 2020 and 2021 (Source: website of National Bureau of Statistics Annual Statistic Report, dated September 1, 2022). 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 we fail to timely renew our registration certificates, it may adversely affect our reputation, financial conditions and results of operations.

 

Some of our operating subsidiaries located in PRC are engaged in the sales of medical devices. All those sales activities must comply with relevant Chinese laws and regulations. Pursuant to the Measures for the Administration of Registration of Medical Devices promulgated on June 27, 2012 and effective on October 1, 2014, as amended from time to time, Class I medical devices are subject to recordation administration with Class II and Class III medical devices subject to registration administration. We are in the business of manufacturing and sales of Class I and II medical devices. We have obtained the Business Record Certificate of Type II Medical Devices on January 7, 2021, which is valid for 5 years. If we fail to timely re-apply for our certificate, our financial conditions and results of operations will be adversely affected.

 

Non-compliance with labor-related laws and regulations of the PRC may have an adverse impact on our financial conditions and results of operations.

 

We have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and childbearing insurance to designated government agencies for the benefit of our employees. Pursuant to the PRC Labor Contract Law, or the Labor Contract Law, that became effective in January 2008 and its implementing rules that became effective in September 2008 and was amended in July 2013, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations. We believe our current practice complies with the Labor Contract Law and its amendments. However, the relevant governmental authorities may take a different view and impose fines on us.

 

 

As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our employment practice does not and will not violate labor-related laws and regulations in China. This may subject us to labor disputes or government investigations. If we are deemed to have violated relevant labor laws and regulations, we may be required to provide additional compensation to our employees and our business, financial conditions and results of operations may be adversely affected.

 

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 on 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 have sharply decreased in value and, in some cases, have 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 business operations will be severely hampered and your investment in our ordinary shares and other securities 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.

 

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 an 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.

 

 

On August 26, 2022, the PCAOB announced that it had signed a Statement of Protocol (the “SOP”) with the China Securities Regulatory Commission and the Ministry of Finance of China. The SOP, together with two protocol agreements governing inspections and investigations (together, the “SOP Agreement”), establishes a specific, accountable framework to make possible complete inspections and investigations by the PCAOB of audit firms based in mainland China and Hong Kong, as required under U.S. law.  The SOP Agreement remains unpublished and is subject to further explanation and implementation. Pursuant to the fact sheet with respect to the SOP Agreement disclosed by the SEC, the PCAOB shall have sole discretion to select any audit firms for inspection or investigation and the PCAOB inspectors and investigators shall have a right to see all audit documentation without redaction. Under the PCAOB’s rules, a reassessment of a determination under the HFCA Act may result in the PCAOB reaffirming, modifying or vacating the determination. Although the PCAOB issued a Determination Report on December 15, 2022, determining that the PCAOB secured complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong, and vacating the 2021 Determinations to the contrary; the PCAOB further noted that it will act immediately to consider the need to issue a new determination if the PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access.

 

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 in 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 us 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

 

Risks Related to our Business and Industry

 

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, Shaoxing, 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 Jing Yu Xin 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 2023, including if current 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 current resurgence.

 

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 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.

 

 

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 for the six months ended June 30, 2022 of $322,005 and the fiscal year 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 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 Ding Xin and its direct loan business in September 2020 and disposition of China Roan Industrial-Financial Holdings Group Co., Ltd. in September 2021. We have transformed our business from a direct loan business, to a financial, insurance, healthcare and industrial operation service-related solution provider serving MSMEs in China.

 

In addition, we have substantially expanded our health management and other health related services and industrial operation services. As we have a 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. We 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 our registered capital to support expansion of our 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 our operations;

 

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expand our customer base;

 

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maintain adequate control of default risks and expenses allowing us to realize anticipated revenue growth;

 

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implement our 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 our competitors, and other significant competitive and market dynamics.

 

If we are unable to address any or all of the foregoing risks, our 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 was formed in November 2018 and commenced financial services. Yifu Health Industry (Ningbo) Co., Ltd. （怡福健康产业（宁波）有限公司）(“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. (泽时(杭州)健康管理有限公司) (“Zeshi Health”) and Ningbo Zeshi Insurance Technology Co., Ltd. (宁波泽时保险科技有限公司) (“Zeshi Insurance”) began their operations in 2020. Zhongtan Industrial Operation was formed in June 2022 and Zhongtan Industrial Operation (JX) was formed in August 2022, both of which engage the industrial operation services.

 

 

The operating subsidiaries under Lixin also have a limited operating history. While 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 in 2013 and 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 in 2015, Lixin (Hangzhou) Asset Management Co., Ltd. (励信(杭州)资产管理有限公司) (“LAM”) and Lixin Supply Chain Management (Tianjin) Co., Ltd. (励信供应链管理(天津)有限公司) (“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 either 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 during the fiscal year 2021. 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 effect on our revenue and profitability.

 

We have extended loans or purchased loans aggregating in excess of $26 million as of June 30, 2022. The default in any of such loans could materially and adversely impact our financial results and condition.

 

We have extended loans, or purchased loans made by other lenders, from five third party customers aggregating approximately $26.47 million as of June 30, 2022, comprised of interest-bearing loans of approximately $9.27 million, $6.30 million, $5.70 million, $0.15 million, and $5.04 million. These interest-bearing loans have a fixed interest rate of ranging from 4.35% to 14%. Approximately one-half of the aggregate outstanding loan balance is backed by the pledge of either real estate assets or trade receivables of the customers. There can be no assurance that such customers were or with the recession remain credit worthy, that such customers will not default under such loans, that if the customers were to default that full or any value can be realized from the pledged collateral, or that the interest rates on such loans represent or will continue to represent market interest. We have only reserved approximately $0.1 million as of June 30, 2022 against such outstanding loans. The default of any of the four larger loans will materially reduce the value of the loan receivables shown on our books and result in material operating expenses and potentially corresponding losses for us.

 

We have guaranteed loans aggregating approximately $34.23 million as of June 30, 2022, which were backed by our approximately $26.4 million of restricted cash. The default in any of such loans could materially and adversely impact our financial results and condition.

 

We have guaranteed loans made by third parties to its customers aggregating approximately $34.23 million as of June 30, 2022. The banks, other financial institutions, or other guaranteed creditors providing loans to our guarantee service customers generally require us, as the guarantor of the loans, to pledge a cash deposit usually in the range of 10% to 20% of the guaranteed amount and the other financial institutions require a cash deposit of 50% of the guaranteed amount. At the same time, we require the guarantee service customers to make a deposit to us (shown on our balance sheet as restricted cash) of the same amount as the deposit we pledged to the banks, other financial institutions, and other guaranteed creditors for their loans to the extent the customer does not pledge or collateralize other assets with us. The restricted cash deposits are released after the guaranteed loans are paid off and our guarantee obligation expires, which is usually within 12 months. There can be no assurance that such customers were or with the recession remain credit worthy, that such customers will not default under such guaranteed loans, that if the customers were to default that full or any value can be realized from the pledged collateral and/or that the amount in default would be less than the restricted cash held by us. We had approximately $26.4 million of restricted cash as of June 30, 2022 against such outstanding loan guarantees. The default of any of the larger loans will materially reduce any corresponding restricted cash shown on our books and/or result in a reduction of our unrestricted cash and will result in material operating expenses and potentially corresponding losses for us.

 

As of June 30, 2022, approximately 75% of our approximately $7.12 million of accounts receivable are aged more than six months. The failure to collect such accounts receivable in full could materially and adversely impact our financial results and conditions.

 

As of June 30, 2022, we had approximately $7.1 million of accounts receivable, of which approximately $2.5 million are aged more than one year and another approximately $1.9 million are aged more than six months. As of June 30, 2022, our reserve for uncollectible accounts receivable was approximately $0.7 million. The default of our customers to pay their accounts receivable in excess of such reserves could materially reduce our current assets and result in a material operating expense for us.

 

Our current operations in China are geographically limited to certain areas.

 

Our business focuses on the Yangtze River Delta region and Pearl River Delta region China. Our 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 our 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 our profitability and business. Although we are working to develop business in more areas, we need more time to expand our business geographically.

 

 

Regarding its financial guarantee services to MSMEs, we are subject to greater credit risks than larger guarantee providers, which could adversely affect our 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 us 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 us 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 we believe that the financial industry is becoming more competitive as the industry matures and begins to consolidate. We 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, we could lose market share and our revenues could decline, thereby adversely affecting our earnings and potential for growth.

 

Fluctuations in real estate prices may adversely affect our business.

 

A decline in the value of real estate may adversely affect the value of real estate used as collateral in the financial security business. The decline in regional real estate value may have a negative impact on customers’ ability to repay loans and their value as collateral, which, in turn, may adversely affect our operating performance and financial position.

 

Our business development depends on high-quality personnel, we may lack effective means to attract or retain talents, may lead to the expansion of new business can be not effectively realized

 

Our future success depends on its ability to attract and retain high-quality 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 requires additional managers and employees with relevant industry experience, and its success is 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. We may incur additional expenses to recruit and retain qualified replacements and our businesses may be disrupted and our 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. 

  

Communication and information systems may be unstable, resulting in our business being disrupted.

 

We rely on communications and information systems to conduct our business to some extent, and in general our ability to protect our systems against damage from fire, power loss, telecommunication failure, severe weather, natural disasters, terrorism or other factors is important to our operations. Our computer systems and network infrastructure could be vulnerable to unforeseen problems. While we have 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 our reputation or result in a loss of clients, which could have a material adverse effect on our results of operations.

 

We have no material insurance coverage, which could expose us to significant costs and business disruption.

 

Risks associated with our 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. We do not maintain any credit insurance, business interruption insurance, general third-party liability insurance, nor do we maintain key-man life insurance or any other insurance coverage except the mandatory social insurance for employees. If we incur any loss that is not covered by reserves, our business, financial condition and results of operations could be materially and adversely affected.

 

We maintain 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 we are otherwise unable to withdraw funds, we could lose the cash on deposit with that particular bank or trust company.

 

 

We use 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.

 

We generally use 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 following: (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, we may have more difficulty enforcing guarantees from privately-owned guarantors than from state-owned or public guarantors. Finally, having a 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 our 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 our efficiency as a whole. For example, Hangzhou Zeshi has commenced operations of asset management from 2019. 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 we plan to allocate the resources from a strategic level, this structure may not allow us to allocate resources to their most efficient use and may require redundant or additional expenses.

 

One director of our one affiliated company was punished by the local CSRC while working for a different company.

 

Long Lifei, director of Zhejiang Lixin and Zhejiang Jingyuxin, was subject to administrative penalties (warnings and fines) imposed by the Anhui Securities Regulatory Bureau. Long Lifei, then the supervisor of Zhonghong Holding Co., Ltd, signed all or part of the regular reports of Zhonghong in 2016 and 2017 to ensure the authenticity, accuracy and completeness of the information disclosed in the regular reports, and was directly responsible for several information disclosure-related offenses of Zhonghong. According to the explanations of Zhejiang Lixin and Zhejiang Jingyuxin, the punishment imposed on Long Lifei has nothing to do with Zhejiang Lixin and Zhejiang Jingyu Xin, and is not a violation of laws and regulations in the management of Zhejiang Lixin or Zhejiang Jingyuxin. This punishment does not disqualify him from holding the position of director, supervisor or senior manager of a company as prescribed in Article 146 of PRC Company Law, and does not affect his qualification for holding the position of director of Zhejiang Lixin and Zhejiang Jingyuxin. However, we believe that it will not have a significant impact on our operations.

 

The 6.6007% equity of Zhejiang Jingyuxin held by Dong Shuirong (paid for by a capital contribution of RMB 20 million) has been frozen by the judiciary.

 

The 6.6007% equity of Zhejiang Jingyuxin held by Dong Shuirong (paid for by a capital contribution of RMB 20 million) has been frozen by the judiciary. It currently has no significant impact on our operations. In this matter, the judiciary has not come to a clear decision yet. There is a possibility that such equity may be confiscated by the judiciary and auctioned if appropriate. If this happens, it may adversely affect our operations. However, as the shareholding of 6.6007% in Zhejiang Jingyuxin’s equity is not material to us, we do not expect it would have a significant impact on our operations.

 

 

 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.

 

Our 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 Market, 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.

 

Our management team 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.

 

Risks related to product quality responsibility and personal claims.

 

Our 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 an adverse effect on our business reputation and efficiency, further, affect or interrupt our operations and revenue.

 

Risks arising from reliance on third-party service providers and intellectual property rights.

 

Our 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 cannot 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. We depend on third parties to a large extent and are unable feasibly monitor their behavior to reasonably avoid contractual risks. Further, because intellectual property rights are owned by a third party, it is difficult for us to restrain third parties from infringing on intellectual property or disclosing 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.

 

 

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.

  

Any 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 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 (“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 tax 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.

 

Future equity financing may result in dilution.

 

As of June 30, 2022, our unaudited cash holdings were $1,035,674. We believe that our currently available capital resources, together with the net proceeds of this offering, will be sufficient to fund our operations and meet our obligations for the foreseeable future. However, we may conduct financings in the future to raise cash for acquisitions and as a cash reserve.

 

We cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all, and the terms of any financing may adversely affect the interests or rights of our shareholders. Even if we believe that we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations. The issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline.

 

 

In addition, the sale of a substantial amount of ordinary shares in the public market, in a situation in which we acquire a company and the original shareholders of the company receive our ordinary shares as consideration and these shareholders subsequently sells 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.

 

If financial performance does not meet the expectations of investors, shareholders or financial analysts, the market price of our 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 our securities may decline. If an active market for our 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 our 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 our securities may include:

 

	●	actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;
	●	changes in the market’s expectations about our operating results;
	●	success of competitors;
	●	our operating results failing to meet the expectation of securities analysts or investors in a particular period;
	●	changes in financial estimates and recommendations by securities analysts concerning us or the lending market in general;
	●	operating and stock price performance of other companies that investors deem comparable to us;
	●	our ability to market new and enhanced services on a timely basis;

 

	●	changes in laws and regulations affecting our business;
	●	commencement of, or involvement in, litigation involving us;
	●	our ability to access the capital markets as needed;
	●	changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
	●	the volume of ordinary shares available for public sale;
	●	any major change in our Board of Directors or management;
	●	sales of substantial amounts of ordinary shares by our directors, executive officers or significant shareholders or the perception that such sales could occur; and
	●	general economic and political conditions such as recessions, interest rates, fuel prices, international currency fluctuations and acts of war or terrorism.

Broad market and industry factors may materially harm the market price of our 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 us 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.

 

 

Our business and share price may suffer as a result of our insufficient public company operating experience, and, if securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our ordinary shares adversely, the price and trading volume of our ordinary shares could decline.

 

We have been a public company for a limited number of years. Our insufficient public company operating experience may make it difficult to forecast and evaluate our future prospects. If we are unable to execute our business strategy, either as a result of our inability to effectively manage our business in a public company environment or for any other reason, our business, prospects, financial condition and operating results may be harmed.

 

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. Securities and industry analysts do not currently, and may never, publish research on us. If no securities or industry analysts commence coverage of us, our ordinary share price and trading volume would likely be negatively impacted. If any of the analysts who may cover us change their recommendation regarding our shares adversely, or provide more favorable relative recommendations about our competitors, the price of our ordinary shares would likely decline. If any analyst who may cover us were to cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share prices or trading volume to decline.

 

A market for our securities may not continue, which would adversely affect the liquidity and price of our securities.

 

The price of our 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 our securities can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. Additionally, because our 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 our 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.

 

Risks Related to Our Ordinary Shares and this Offering

 

An active trading market for our ordinary shares 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 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. It is a condition to completing this offering that our listing application be approved by Nasdaq. 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 will develop or be sustained if we are able to list such securities on Nasdaq. If an active market for our ordinary shares does not develop, it may be difficult for you to sell securities you own without depressing the market price for the shares, or at all.

 

 

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 resale 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 conversion of our Class A preferred shares 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. 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, in October 2014, we granted “piggyback” registration rights to certain investors concurrently with the consummation of our initial public offering (“IPO”), 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 dividends on our ordinary shares 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 increase, which may not occur.

 

We have not paid dividends on our ordinary shares since 2017, at such time we paid dividends in the form of ordinary shares. 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, which 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 you purchase our ordinary shares in this offering, you will incur immediate and substantial dilution in the book value of your shares.

 

The public offering price of the units offered by us in this offering will be substantially higher than the net tangible book value per share of our ordinary shares. Therefore, if you purchase units in this offering, you will pay a price per unit that substantially exceeds our net tangible book value per share after this offering. Based on the public offering price of $[__] per ordinary share, you will experience immediate dilution of $ per share, representing the difference between our as adjusted net tangible book value per share after giving effect to this offering at the assumed initial public offering price. In addition, purchasers of units in this offering will have contributed approximately % [__] of the aggregate price paid by all purchasers of our shares but will own only approximately % [__] of our ordinary shares outstanding after this offering.

 

The trading price of our ordinary shares may be reduced as a result of our grant of registration rights.

 

In October 2014, we granted “piggyback” registration rights to certain investors concurrently with the consummation of our IPO, 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. This means that they will have the right to require us to register their shares for resale under the Securities Act in the event we file a registration statement with the SEC following the filing of the Registration Statement on Form F-1 of which this prospectus forms a part. Registration of those shares for resale under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of such registration. Any sales of the registered securities by these shareholders could adversely affect the trading price of our ordinary shares.

 

 

Our management will have broad discretion in the use of the net proceeds from this offering and may allocate the net proceeds from this offering in ways that you and other shareholders may not approve.

 

Our management will have broad discretion in the use of the net proceeds, including for any of the purposes described in the section titled “Use of Proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. The failure of our management to use these funds effectively could harm our business. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities and depositary institutions. These investments may not yield a favorable return to our shareholders.

 

Certain of our stockholders own or have the right to acquire a significant portion of our stock and could ultimately control decisions regarding our company and impact our stock price.

 

Certain of our stockholders own large blocks of our ordinary shares. Any sales by these stockholders could substantially lower the market price of our ordinary shares. Three of our shareholders, Gedun Investment Limited, Yinxiang Capital Limited and Aoyuan Investment Limited, control approximately 65% of our shares. Future sales of large blocks of our ordinary shares owned by Gedun Investment Limited, Yinxiang Capital Limited and Aoyuan Investment Limited may substantially adversely affect our share price and alter who ultimately has control of us.

 

Despite contractual obligations to do so, hawse have not registered any of our ordinary shares underlying our Class A Preferred Shares under the Securities Actor state securities laws at this time, and such registration may not be in place when an investor desires to convert such Class A Preferred Shares to ordinary shares.

 

We have not registered any of our ordinary shares underlying the Class A 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 Lixin Acquisition in 2019 and cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto. We may have potential liability to the holders of the Class A Preferred Shares for such failure to register the ordinary shares underlying the Class A Preferred Shares if our stock price rises, causing that the Class A Preferred Shares to automatically convert into ordinary shares or if the holders of Class A Preferred Shares elect to convert their shares into ordinary shares.

 

Our charter permits the Board of Directors 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.

 

Our charter permits the Board of Directors 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 of Directors and can operate to the disadvantage of the outstanding ordinary shares the holders of which would not have any preemptive 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.

 

 

We have material weaknesses in our controls and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002. These material weaknesses 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.

 

We are 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. We are 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.

 

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.

 

Although we have recently listed our ordinary shares on the Nasdaq Capital Market after having been re-listed for over three years, there can be no assurance 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. The listing of our securities on the Nasdaq Capital Market again is a condition to completing this offering, which was accomplished on [____]. We cannot assure you that we will be able to continue to meet the listing standards of Nasdaq.

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus 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 prospectus include, without limitation, statements relating to:

 

	●	our goals and strategies;

	●	our future business development, results of operations and financial condition;

	●	our estimates regarding expenses, future revenues, capital requirements and our need for additional financing;

	●	our estimates regarding the market opportunity for our services;

	●	the impact of government laws and regulations

	●	our ability to recruit and retain qualified personnel

	●	our failure to comply regulatory guidelines;

	●	uncertainty in industry demand;

	●	general economic conditions and market conditions in the finance industry;

	●	future sales of large blocks or our securities, which may adversely impact our share price; and

●

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.

 

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.

 

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section titled “Risk Factors”, that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In addition, you are directed to factors discussed in the “Business” section , the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section , as well as those discussed elsewhere in this prospectus.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

 

USE OF PROCEEDS

 

We estimate that the net proceeds from the sale of ordinary shares in this offering will be approximately $        million, after deducting the estimated underwriting discount and estimated offering expenses payable by us, based on the public offering price of $        per share. If the underwriters exercise their option in full to purchase up to an additional [____________] ordinary shares, we estimate that the net proceeds to us from this offering will be approximately $        million, after deducting the estimated underwriting discount and estimated offering expenses payable by us.

 

We intend to use the net proceeds from this offering for general corporate purposes, including general and administrative expenses and working capital.

 

We may also use a portion of the net proceeds from this offering to acquire or invest in complementary products, technologies or businesses, although we have no present agreements or commitments to do so.

 

Although we currently anticipate that we will use the net proceeds from this offering as described above, there may be circumstances where a reallocation of funds is necessary. We have not yet estimated the exact amounts of the net proceeds from this offering that may be used for any of the above purposes on a stand-alone basis. Amounts and timing of our actual expenditures will depend upon a number of factors, including our sales, marketing and integration efforts, regulatory approval and demand for our product candidates, operating costs and other factors described under “Risk Factors” in this prospectus. Accordingly, our management will have flexibility in applying the net proceeds from this offering. An investor will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use the proceeds.

 

Pending our application of the net proceeds from this offering, we plan to invest such proceeds in in short-term, investment-grade, interest-bearing securities and depositary institutions.

 

 

DILUTION

 

If you invest in our securities in this offering, your interest will be immediately diluted to the extent of the difference between the public offering price per ordinary share in this offering and the as further adjusted net tangible book value per ordinary share after this offering. Dilution results from the fact that the public offering price per ordinary share is substantially in excess of the net tangible book value per ordinary share. As of June 30, 2022 we had a historical net tangible book value of $52.81 million, or $2.09 per ordinary share, respectively. Our net tangible book value per share represents total tangible assets less total liabilities, divided by the number of ordinary shares outstanding on June 30, 2022.

 

After giving effect to the sale of ordinary shares in this offering at the public offering price of $        per ordinary share, after deducting the estimated underwriting discount and estimated offering expenses, our as adjusted net tangible book value at June 30, 2022 would have been $        per share. This represents an immediate increase in as adjusted net tangible book value of $              per share to existing shareholders and immediate dilution of $        per ordinary share to new investors.

 

The following table illustrates this dilution per ordinary share:

 

Public offering price per share						$
Historical net tangible book value per ordinary share as of June 30, 2022		$	2.09
Increase in as adjusted net tangible book value per ordinary share			$
As adjusted net tangible book value per ordinary share after this offering							$
Dilution per ordinary share to new investors participating in this offering							$

  

If the underwriters exercise in full their option to purchase additional ordinary shares, the as adjusted net tangible book value will increase to $        per ordinary share, representing an immediate increase in as adjusted net tangible book value to existing shareholders of $        per ordinary share and an immediate dilution of $           per ordinary share to new investors participating in this offering.

 

We may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our equity holders.

 

 

The following table shows, as of June 30, 2022, on an as adjusted basis, the number of ordinary shares purchased from us, the total consideration paid to us and the average price paid per share by existing shareholders and by new investors purchasing ordinary shares in this offering at the public offering price of $           per ordinary share, before deducting the estimated underwriting discount and estimated offering expenses payable by us:

 

(in thousands, except share and per share amounts and percentages)		Shares Purchased								Total Consideration								Average Price
		Number				Percent				Number				Percent				per Share
Existing shareholders (June 30, 2022)								%		$						%		$
Investors participating in this offering								%
Total							100	%						$	100.0	%

 

Unless otherwise indicated, the information above is based on 25,287,851 ordinary shares outstanding as of December 29, 2022 and excludes:

 

●

715,000 ordinary shares issuable upon the conversion of 715,000 Class A Preferred Shares outstanding as of December 29, 2022; and

 

●

291,795,150 ordinary shares issuable upon the conversion of 291,795,150 Class B Preferred Shares outstanding as of December 29, 2022.

 

Unless otherwise indicated, the information above assumes no exercise of the underwriter’s option to purchase up to an additional [_________] ordinary shares.

 

 

DIVIDEND POLICY

 

On August 29, 2016, we announced a dividend of $0.09 per ordinary share. The dividend was paid in cash on October 18, 2016.

 

On December 19, 2016, we announced a dividend of $0.148 per ordinary share. 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 March 21, 2017, we announced a dividend of $0.036 per ordinary share. 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, we announced a dividend of $0.047 per ordinary share. 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.

 

In 2017, we paid $686,400 to holders of Class A Preferred Shares as the dividend from July 6, 2016 to July 6, 2017.

 

We intend to continue to provide a cumulative dividend on the Class A Preferred Shares of 8% on the liquidation preference of $12 per share for each year outstanding. Under our articles of association, we may accrue such dividends and may elect to pay such dividends in cash, in additional Class A Preferred shares, or in ordinary shares. As of June 30, 2022 and December 31, 2021, the balance of the liquidation preference for the Class A Preferred Shares was $12,052,106 and $11,711,727, respectively.

 

 

CAPITALIZATION

 

The following table sets forth our consolidated capitalization as of June 30, 2022:

 

●

on an actual basis, as determined in accordance with U.S. GAAP; and

 

●

on an as adjusted basis to reflect the net proceeds from our sale of [___________] ordinary shares in this offering at the public offering price of $        per share, after deducting the underwriting discounts and commissions and the estimated offering expenses.

 

This table should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Use of Proceeds” sections, as well as our audited financial statements, included elsewhere in this prospectus. The following table assumes no exercise by the underwriters of the overallotment option to purchase additional ordinary shares in this offering.

 

		June 30, 2022 (Actual)				June 30, 2022 (As Adjusted)
Cash and cash equivalents		$	1,035,674
Shareholders’ Equity
Ordinary shares, no par value, unlimited shares authorized; 25,287, shares issued and outstanding as of June 30, 2022 and [______] as adjusted, respectively			—
Class A convertible preferred shares, no par value, unlimited shares authorized; 715,000 shares issued and outstanding as of June 30,2022 and as adjusted, respectively		$	12,052,106
Class B convertible preferred shares, no par value, unlimited shares authorized; 291,795,150 shares issued and outstanding as of June 30, 2022 and as adjusted, respectively			31,087,732
Additional paid-in capital			3,312,189
Statutory reserve			362,797
Accumulated deficit			(14,824,176	)
Accumulated other comprehensive income			1,437,234
Total Roan Holdings Group Co., Ltd.’s Shareholders’ Equity		$	33,427,882
Noncontrolling interests			19,386,460
Total Equity			52,814,342
Total Liabilities and Equity		$	64,665,668

 

Unless otherwise indicated, the information above is based on 25,287,851 ordinary shares outstanding as of June 30, 2022 and excludes:

 

●

715,000 ordinary shares issuable upon the conversion of 715,000 Class A Preferred Shares outstanding as of June 30 , 2022; and

 

●

291,795,150  ordinary shares issuable upon the conversion of 291,795,150 Class B Preferred Shares outstanding as of June 30, 2022; and

 

●

623,078 ordinary shares issuable upon the exercise of 576,924 Series A Warrants and 46,154 ordinary share warrants issued to the private placement agent in connection with the July 2018 private placement, which expired on July 9, 2022..

 

Unless otherwise indicated, the information above assumes no exercise of the underwriter’s option to purchase up to an additional [_________] ordinary shares.

 

 

PRICE RANGE OF OUR ORDINARY SHARES

 

Our ordinary shares 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 is Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New York 10004. The OTCQB is a regulated quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter equity securities. The OTCQB is a quotation medium for subscribing members, not an issuer listing service, and should not be confused with The NASDAQ Stock Market.

 

On [________], 2023, the last reported sale price of our ordinary shares on the OTCQB was $[___] per ordinary share.

 

Record Holders

 

Based upon a review of the information provided to us by our transfer agent, as of December 29, 2022, there were a total of 55 holders of record of our shares, of which 14 record holders who hold 3,132,088 shares, or approximately 12.4% of our outstanding shares, had a registered address in the U.S., 7 holders had registered addresses in Hong Kong and 34 holders had registered addresses in China.

 

ENFORCEABILITY OF CIVIL LIABILITIES

 

We are incorporated in the British Virgin Islands to take advantage of certain benefits associated with being a British Virgin Islands business company, such as:

 

●

political and economic stability;

 

●

an effective judicial system;

 

●

a favorable tax system;

 

●

the absence of exchange controls or currency restrictions; and

 

●

the availability of professional and support services.

 

However, certain disadvantages accompany incorporation in the British Virgin Islands. These disadvantages include, but are not limited to:

 

●

the British Virgin Islands has a less developed body of securities laws as compared to the United States and these securities laws provide significantly less protection to investors as compared to the United States; and

 

●

British Virgin Islands companies may not have standing to sue before the federal courts of the United States.

 

Our memorandum and articles of association do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated.

 

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

 

 

There is uncertainty as to whether the courts of the BVI or China would (i) recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States or (ii) entertain original actions brought in the BVI or China against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

 

There is uncertainty with regard to British Virgin Islands law as to whether a judgment obtained from the United States courts under civil liability provisions of the securities laws will be determined by the courts of the British Virgin Islands as penal or punitive in nature. If such a determination is made, the courts of the British Virgin Islands are also unlikely to recognize or enforce the judgment against a British Virgin Islands company. Because the courts of the British Virgin Islands have yet to rule on whether such judgments are penal or punitive in nature, it is uncertain whether they would be enforceable in the British Virgin Islands. Although there is no statutory enforcement in the British Virgin Islands of judgments obtained in the federal or state courts of the United States, in certain circumstances a judgment obtained in such jurisdiction may be recognized and enforced in the courts of the British Virgin Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Commercial Division of the Eastern Caribbean Supreme Court in the British Virgin Islands, provided such judgment:

 

●

is given by a foreign court of competent jurisdiction;

 

●

imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given;

 

●

is final;

 

●

is not in respect of taxes, a fine, a penalty or similar fiscal or revenue obligations of us; and

 

●

was not obtained in a fraudulent manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the British Virgin Islands.

  

In appropriate circumstances, a British Virgin Islands court may give effect in the British Virgin Islands to other kinds of final foreign judgments such as declaratory orders, orders for performance of contracts and injunctions.

 

Recognition and enforcement of foreign judgments are provided for under China’s Civil Procedure Law. China’s courts may recognize and enforce foreign judgments in accordance with the requirements of the Civil Procedure Law based either on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions. There are no treaties between China and the United States for the mutual recognition and enforcement of court judgments, thus making the recognition and enforcement of a U.S. court judgment in China difficult.

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

 

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements based upon our current plans, expectations and beliefs, which involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including, but not limited to, those set forth under “Risk Factors” and elsewhere in this prospectus. We report financial information under U.S. GAAP and our financial statements were prepared in accordance with U.S. GAAP. The functional currency of our PRC operating subsidiaries is Chinese Yuan, or RMB. Our assets and liabilities are translated into United States dollars from RMB at period-end exchange rates, while our revenues and expenses are translated at the average exchange rate during the period. Capital accounts are translated at their historical exchange rates when the capital transactions occurred. The relevant exchange rates are listed below: 

 

		June 30, 2022				December 31, 2021				December 31, 2020
Balance sheet items, except for equity accounts			6.6981				6.3726				6.5250

 

		For the Six Months Ended June 30,				For the Years Ended December 31,
		2022				2021				2020				2019
Items in the statements of operations and comprehensive income (loss), and statements of cash flows			6.4791				6.4508				6.9042				6.9088

 

Overview

 

We are a holding company incorporated on April 8, 2014, under the laws of the British Virgin Islands. We historically engaged in providing loan facilities to individuals, MSMEs and sole proprietors in the Xinjiang Uygur Autonomous Regions in China. Due to the slowdown of the Chinese economy and policy changes related to loans to MSMEs, hawse have transformed our business from a direct loan business to a financial, insurance and healthcare related solutions company serving MSMEs in China. We also provide health management, asset management, insurance services, healthcare and consumer financing services to the employees of large institutions, state-owned enterprises and other organizations.

 

In 2019, we acquired a 65.0177% interest in Lixin, which, 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, we began and expanded our services in the health industry. We plan 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 our health projects were suspended or delayed.

 

In 2021, we expanded our business to provide industrial operation services, including industrialization project and solution services, production base construction and management services and market operation services, by leveraging our experience, customer resources, market channels and relationships with institutional organizations and government entities.

 

 

On June 23, 2022, Zhongtan Industrial Operation, our wholly-owned subsidiary, was incorporated under the laws of the PRC. Zhongtan Industrial Operation provides services in industrial operation services focusing on new storage energy, New Materials, and semiconductor products. On July 19, 2022, Zhongtan Industrial Operation subscribed RMB 30 million (approximately $4,630,273) as registered capital to Zhongtan New Energy (HZ), a joint venture, and held 60% of its equity. On August 30, 2022, Zhongtan New Energy (HZ) increased its registered capital from RMB 50 million to RMB 100 million, and Zhongtan Industrial Operation’s interest in Zhongtan New Energy (HZ) was decreased from 60% to 30% accordingly.

 

On August 25, 2022, Zhongtan Industrial Operation (JX), our wholly-owned subsidiary, was incorporated under the laws of the PRC. Zhongtan Industrial Operation (JX) provides industrial operation services focusing on new energy storage New Materials, and semiconductor industry.

 

Among our subsidiaries, Zhejiang Lixin, LAM and 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

 

We provide financial consulting services to our customers who have financing needs. We design financing plans for our customers, facilitates the financing services between customers and financing providers, and charge a fixed referral fee for our services.

 

Revenue from financial consulting services was $165,212 and $126,659 for the six months ended June 30, 2022 and 2021, respectively. For the years ended December 31, 2021, 2020 and 2019, we generated $nil, $nil and $9,503, respectively, in consulting services for financial guarantee customers.

 

Consulting services relating to debt collection

 

Prior to fiscal year 2022, we provided consulting services relating to debt collection to our customers. Our debt collection consulting services involved assisting customers in obtaining court judgments on outstanding debt, and (ii) receiving repayment on outstanding debt.

 

Revenue from financial consulting services relating to debt collection was $nil and $204,129 for the six months ended June 30, 2022 and 2021, respectively. For the years ended December 31, 2021 and 2020, we generated revenue from consulting services relating to debt collections of $206,792 and $2,108,477, respectively. For the period from the closing of the Lixin Acquisition on December 20, 2019 to December 31, 2019, we generated consulting services relating to debt collections of $176,984 through Lixin.

 

In addition, one of our subsidiaries, Hangzhou Zeshi Investment Partnership (Limited Partnership) 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 we recognized revenues upon completion of the performance obligation. For the years ended December 31, 2021, 2020 and 2019, Hangzhou Zeshi recognized revenue of $nil, $nil and $316,795 respectively.

 

 

Management and assessment services

 

We commenced our management and assessment services in December 2018. We provide management and assessment services during the loan period to our customers who borrow direct loans from us.

 

Management and assessment services included:

 

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. There was no revenue generated from management and assessment services for the six months ended June 30, 2022 and 2021, respectively.

 

Financial guarantee services

 

Our subsidiary, Zhejiang Jingyuxin, in which we own 93.4% of the equity, provides financial guarantee services to its customers.

 

We receive financial guarantee commission by providing a financial guarantee service to customers. Pursuant to the financial guarantee service contracts, we are obligated to make payments if the customers fail to make payments to financial institutions as scheduled. Accordingly, the financial institutions providing capital to customers will claim the defaulted amount against us if any customer default occurs. The contract amounts reflect the extent of credit losses to which we are 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. We manage credit risk through in-house research and analysis of the Chinese economy, the underlying obligors and transaction structures. To minimize credit risk, we require collaterals in the form of cash or pledges of securities or property and equipment.

 

As part of our financial guarantee services, we provide loan guarantees. The customer’s cash deposits, or other assets, are held as collaterals for the repayment of each loan. As of June 30, 2022 and December 31, 2021, the amount of outstanding loans and related interest that we guaranteed was approximately $34,230,602 and $47,020,055, respectively. As of December 31, 2021 and 2020, the amount of outstanding loans and related interest that we guaranteed was approximately $47,020,055 and $51,318,310, respectively.

 

We generated financial guarantee commissions of $185,634 and $191,920 for the six months ended June 30, 2022 and 2021, respectively. We generated financial guarantee commissions of $456,944 and $375,471 for the years ended December 31, 2021 and 2020, respectively. For the period from the Lixin Acquisition on December 20, 2019 to December 31, 2019, we generated financial guarantee commission of $8,797. 

 

Revenue form 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. We record interest received on the restricted cash pledged as revenue. We recorded interest on third parties loans of $1,112,816 and $998,827 for the six months ended June 30, 2022 and 2021, respectively.  For the years ended December 31, 2021, 2020 and 2019, we recorded interest on third party 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 our guarantee service customers, generally require that we, as the guarantor of the loans, deposit cash in a range from 10% to 20% of the guaranteed amount into an escrow account which is restricted from use. We record interest received on the restricted cash pledged as revenue. We recorded interest on restricted cash with banks of $178,214 and $271,212 for the six months ended June 30, 2022 and 2021, respectively. For the years ended December 31, 2021, 2020 and 2019, we recorded interest on restricted cash of $300,749, $348,389, and $64,636, respectively.

 

Prior to September 30, 2020, through 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, respectively.

 

Healthcare services and insurance packages

 

On December 30, 2019, we incorporated Fortis Industrial Group Limited (富通产业集团有限公司) (“Fortis”) (formerly Fortis Health Industrial Group Limited (富通健康产业集团有限公司)) 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.

 

In April 2020, we officially launched a one-stop internet insurance and health care service platform after nearly eight months of preparation and systems development. The platform aimed to provide modern households with one-stop systematic “customized insurance + health management + family doctor + home medical testing” health management service solutions. The platform enabled households and employees of medium to large-sized enterprises to access cost-effective, customized health care and insurance solutions and insurance products, as well as data management and operational services. We no longer operates the platform.

 

In July 2020, we changed the principal business operations of Ningbo Ding Tai Financial Leasing Co., Ltd. to expand and enhance its services in the health industry in Zhejiang Province and renamed it Yifu Health Industry (Ningbo) Co., Ltd.

 

We have 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.

  

We initially planned to launch our newborn deformity diagnosis and treatment insurance project at the end of 2020 or early 2021. However, due to a COVID-19 outbreak in Hebei province in early 2021, the project was temporarily suspended. The revenue generated from the health care service was $26,209 and minimal during the six months ended June 30, 2022 and 2021, respectively. 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, we began providing industrial operations services to our customers, which includes incubation of innovated companies, commercialization of the proven technologies and investment and development of projects for new technology, products and related operating services. To grow our industrial operations services business, we entered into two strategic cooperation agreements with local governments. Through these agreements, we gained government support for the setup of a new energy storage battery manufacturing headquarters in Jiaxing Economic and Technological Development Zone and an energy storage system equipment manufacturing industry park in Zhejiang Shangyu Cao’e River Economic Development Zone. Additionally, Hangzhou Zeshi, our wholly-owned subsidiary, entered into an agreement with each of Zhongtan Future and ZhongXin, in 2021 and 2022, respectively, pursuant to which it provides the entities with a variety of industrial operational services, including supply chain financial, financial leasing, industrial operation, and related services. See Business—History and Development of the Company—Corporate History and Structure of our PRC Operation for a description of Hangzhou Zeshi’s agreements with Zhongtan Future and ZhongXin.

 

 

COVID-19 Impact

 

Our business operations have been affected and are expected to continue to be affected by the ongoing COVID-19 pandemic. After the second quarter of 2020, the COVID-19 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 the current 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.

 

Key Factors Affecting Our Results of Operation

 

Our current business has a limited operating history. We commenced management and assessment consulting services in December 2018, and acquired the financial guarantee and consulting businesses in late December 2019. We believe our future success depends on our ability to significantly expand financial markets 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 services. 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 the financial guarantee and financial consulting business;

 

●

our ability to expand financial markets and channels, especially in individual financial area services, insurance and consumption finance; and

 

●

our ability to build our 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 sufficient capital for our projected 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 prospectus. The results of operations in any period are not necessarily indicative of our future trends.

 

		For the Six Months Ended June 30,
		2022				2021
		(Unaudited)				(Unaudited)
Revenue from services		$	1,111,651			$	330,788
Revenue from healthcare service packages			26,209				-
Cost of revenue			(18,616	)			-
Net revenue of services			1,119,244				330,788
Commission and fees on financial guarantee services			185,634				191,920
(Provision) recovery of provision for financial guarantee services			195,915				(15,586	)
Commission and fee income on guarantee services, net			381,549				176,334
Interest and fees income
Interest income on loans due from third parties			1,112,816				998,827
Interest income on deposits with banks			178,214				271,212
Total interest and fees income			1,291,030				1,270,039
Operating income			2,791,823				1,777,161
Operating expenses
Salaries and employee surcharges			658,544				564,110
Other operating expenses			1,184,588				1,514,281
Changes in fair value of warrant liabilities			(16,998	)			27,729
Total operating expenses			1,826,134				2,106,120
Other income (expenses)
Other income (expenses), net			(147,823	)			(155,633	)
Interest income (expenses), net			91,887				11,127
Total other expenses			(55,936	)			(144,506	)
Income (loss) before income taxes			909,753				(473,465	)
Income tax (expenses) benefit			(346,381	)			13,068
Net (loss) income			563,372				(460,397	)
Less: Net income attributable to noncontrolling interests			241,367				67,030
Net income (loss) attributable to Roan Holding Group Co., Ltd.’s shareholders		$	322,005			$	(527,427	)
Comprehensive income (loss)
Net income (loss)			563,372				(460,397	)
Foreign currency translation			(2,698,710	)			529,793
Less: Comprehensive income (loss) attributable to noncontrolling interests			(766,491	)			226,482
Total comprehensive loss attributable to Roan Holdings Group Co., Ltd.’s shareholders		$	(1,368,847	)		$	(157,086	)
Weighted average number of ordinary share outstanding
Basic and Diluted*			25,287,887				25,287,887
Loss per share
Net income (loss) per share – Basic and Diluted		$	0.01			$	(0.02	)

 

 

		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

 

Comparison of Six Months Ended June 30, 2022 and 2021

 

Revenues

 

The following table presents our consolidated revenues for our main services for the six months ended June 30, 2022 and 2021, respectively:

 

		For the Six Months ended June 30,								Variance
		2022 (Unaudited)				2021 (Unaudited)				Amount				%
Financial consulting service		$	165,212			$	126,659			$	38,553				30	%
Consulting services relating to debt collection			-				204,129				(204,129	)			(100	)%
Healthcare service packages			26,209				-				26,209				100	%
Industrial Operation Service			946,439				-				946,439				100	%
Cost of revenue			(18,616	)			-				(18,616	)			100	%
Revenues from services		$	1,119,244			$	330,788			$	788,456				238	%

 

Financial consulting service

 

Revenue from financial consulting services was $165,212 for the six months ended June 30, 2022, an increase of $38,553, or 30%, as compared to $126,659 for the same period of last fiscal year as the result of stronger sales efforts.

 

Consulting services relating to debt collection

 

Revenue from consulting services relating to debt collection was $nil for the six months ended June 30, 2022, as compared to $204,129 for the same period of last fiscal year. Due to the negative impact of COVID-19, the Chinese economy deteriorated, which increased the risk of debt collection and sale ability of collateral guaranteed for these debts. To avoid these risks, we did not renew or sign any consulting services contracts relating to debt collection during the six months ended June 30, 2022.

 

Revenue from healthcare service packages 

 

Revenue from the health care service packages was $26,209 and minimal for the six months ended June 30, 2022 and 2021, respectively. Zeshi Health sold COVID-19 related health service packages to its customers in the first quarter of 2022 when COVID-19 broke in Shangyu and Hangzhou.

 

Industrial operation services 

 

Revenue from industrial operation services was $946,439 for the six months ended June 30, 2022. Revenue of $655,227 related to the industrial operation service provided to Zhongtan Future in connection with the setup of new energy storage battery manufacturing headquarters in Jiaxing Economic and Technological Development Zone and the energy storage system equipment manufacturing industry park in Zhejiang Shangyu Cao’e River Economic Development Zone. The remaining revenue of $291,212 related to the industrial operation service provided to ZhongXin, which consisted of $145,606 for due diligence services and $145,606 in connection with the setup of a semiconductor and New Materials industrial park in the Zhejiang Shangyu Cao’e River Economic Development Zone.

 

Commissions and fees on financial guarantee services

 

Commissions and fees on financial guarantee services was $185,634 and $191,920 for the six months ended June 30, 2022 and 2021, respectively. The decrease in commission was primarily due to a slowdown in our financial guarantee business development in the first half fiscal year of 2022. We strengthened our due diligence and risk control on the financial guarantee services during the six months ended June 30, 2022 to avoid the financing risks caused by COVID-19. As a result, we provided less financing guarantee services during the six months ended June 30, 2022 as compared to the same period of last year, which in turn caused a decrease in commissions and fees on financial guarantee services.

 

 

Provision for financial guarantee services

 

The provisions for financial guarantee services are related to the financial guarantee service business as per certain requirements of the local governments. We recovered provisions for financial guarantee services which were reversed of $195,915 during the six months ended June 30, 2022, as compared to recovery of provisions for financial guarantee services of $15,586 for the same period of last fiscal year.

 

Interest and fee income

 

Interest and fee income primarily consisted of interest and fee income generated from loans due from third parties. Interest and fee income was $1,291,030, an increase of $20,991, or 1.65% for the six months ended June 30, 2022 as compared to $1,270,039 for the same period of 2021. The increase was mainly due to an increase of $113,989 in interest income from loans due from third parties, which was offset by a decrease of $92,998 in the interest income on deposits with banks.

 

Operating expenses

 

Operating expenses decreased by $279,986, or 13.29%, to $1,826,134 for the six months ended June 30, 2022, as compared to $2,106,120 for the same period of last fiscal year, which was mainly due to a decrease of $329,693 in other operating expenses. Other operating expenses mainly include general and administrative expenses and selling expenses. The decrease in other operating expenses was primarily the result of our cost control strategies. Operating expenses also included change in fair value of warrant liabilities. The loss from the fair value change in warrant liabilities was $16,998 during the six months ended June 30, 2022, as compared to a gain of $27,729 for the same period of last fiscal year. 

 

Other expenses (income), net

 

Other expenses decreased by $88,570, to $55,936 for the six months ended June 30, 2022, as compared to other expenses of $144,506 for the same period of last fiscal year 2021. The decrease in other expenses for the six months ended June 30, 2022 was mainly due to an increase of $80,760 interest income and a decrease of $27,098 of finance cost.

 

Income/loss from Operations 

 

Income from operations was $909,753 for the six months ended June 30, 2022, an increase of $1,383,218, compared to a loss of $473,465 for the same period of fiscal year 2021.

 

Income tax benefit(expenses)

 

Income tax expenses was $346,381 for the six months ended June 30, 2022, an increase of $359,449 as compared to income tax benefit $13,068 for the same period of last fiscal year, which was mainly due to an increase in operating income before current income tax.

 

Noncontrolling interest

 

Non-controlling interests represent our equity interests in our subsidiaries, including Zhejiang Jingyuxin and Lixin, that are not attributable, either directly or indirectly, to us. As of June 30, 2022, we held a 93.3994% interest in Zhejiang Jingyuxin and a 65.0177% interest in Lixin. Our noncontrolling interest in the net income of these subsidiaries for the six months ended June 30, 2022 was $241,367, a decrease of $174,337, as compared to $67,030 for the same period in 2021, as the result of an increase in net income generated by Zhejiang Jingyuxin as compared to the same period in 2021.

 

Net loss

 

As a result of the foregoing, we had a net income of $322,005 for the six months ended June 30, 2022, as compared to a net loss of $527,427 for the same period of last fiscal year. 

 

 

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 years 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

 

Prior to fiscal year 2022, we provided consulting services relating to debt collection to our customers with certain factoring companies, through Lixin’s subsidiary, which we acquired in December 2019 through the Lixin Acquisition. The debt collection services involved two performance obligations and the service fees for each performance obligation are fixed and reflected the stand-alone selling price. In addition, a collected-amount based incentive is rewarded to us upon collection of outstanding debt.

 

Consulting services relating to debt collection include:

 

1)

assisting the customers to get court judgements on outstanding debt, and we recognized revenues over the period towards the completion of the performance obligation; and

 

2)

assisting the customers to receive repayment on outstanding debt, and we recognized revenues upon completion of the performance obligation.

 

Revenue from consulting services relating to debt collection amounted to $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-19 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, our wholly-owned subsidiary, entered into an agreement with Zhongtan Future, pursuant to which Hangzhou Zeshi provides supply chain financial, financial leasing, industrial operation, and related services. Revenue of $146,245 was recognized during the year ended December 31, 2021 after the target customer was located, due diligence and initial negotiation were 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 in the growth of our financial guarantee business.

 

 

Provision for financial guarantee services

 

The provisions for financial guarantee services are related to financial guarantee service business as per certain requirements of the local governments. Provisions for financial guarantee services was $57,417 for the year ended December 31, 2021, as compared to $89,865 for the last fiscal year.

 

Interest and fee 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 the 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. We, 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 being 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

 

Prior to fiscal year 2022, we provided consulting services relating to debt collection with certain factoring companies, through Lixin’s subsidiary, which we acquired in December 2019 through the Lixin Acquisition. The debt collection services involved two performance obligations, and the service fees for each performance obligation are fixed and reflect the stand-alone selling price. In addition, a collected-amount based incentive is rewarded to us upon collection of outstanding debt.

 

Consulting services relating to debt collection include:

 

1)

assisting the customers to get court judgements on outstanding debt, and we recognized revenues over the period towards the completion of the performance obligation; and

 

2)

assisting the customers to receive repayment on outstanding debt, and we 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 our 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 year 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 operations, net of income tax is $nil. We, 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, we are 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, our 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. We 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 our consolidated financial statements included in this prospectus 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 prospectus.

 

Liquidity and Capital Resources

 

Comparison of Six Months Ended June 30, 2022 and 2021

 

Our total assets decreased by $1,977,310 from $6,642,978 as of December 31, 2021 compared to $64,665,668 as of June 30, 2022. The decrease in total assets was primarily due to a decrease in cash and cash equivalent of $911,468 and a decrease in restricted cash of $3,353,981, which was partially offset by an increase in loan receivables due from third parties, net of $2,623,547.

 

Cash and cash equivalents were $1,035,674 as of June 30, 2022, reflecting a decrease of $911,468 from $1,947,142 as of December 31, 2021, primarily due to repayment of loans to third parties of $3,962,433 during the six months ended June 30, 2022. Restricted cash in banks and other financial institutions decreased by $3,353,981, from $29,693,689 as of December 31, 2021 to $26,339,708 as of June 30, 2022.

 

In assessing our liquidity, we monitor and analyzes our cash and our ability to generate sufficient cash flow in the future to support our operating and capital expenditure commitments. Our liquidity needs are to meet our working capital requirements and operating expenses obligations. Our working capital was $50,361,534 as of June 30, 2022, a decrease of $1,578,638, as compared to $51,940,172 as of December 31, 2021, mainly due to a decrease in current assets during the six months ended June 30, 2022.

 

We plan to fund our operations through revenue generated from our revenue streams of industrial financial services including, but not limited to, financial guarantee services and financial consulting services, industrial operation services in new storage energy, New Materials, and semiconductor products. We also intends to generate funds from private placements from investors, and financial support commitments from our shareholders. Management believes that we will continue as a going concern in the following 12 months.

 

 

Our ability to support our operating and capital expenditure commitments will depend on our future performance, which will be subject in part to general economic, competitive and other factors beyond our control. The impacts of COVID-19 may cause lockdowns, quarantines, travel restrictions, and closures of businesses and schools. As a result, we may experience delays of outstanding receivables from customers and limited access to cash to expand our operations. The extent to which the coronavirus impacts our operation results for the future periods will depend on certain future developments, including the duration of the COVID-19 pandemic, emerging information concerning the severity of the coronavirus variants 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 us and our subsidiaries in the Cayman Islands, and Hong Kong. However, these restrictions have no immediate impact on the ability of these PRC entities to transfer funds to us as we have no present plans to declare dividends as 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.

 

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 six months ended June 30, 2022 and June 30, 2021.

 

		For the Six Months Ended June 30,
		2022				2021
Net Cash Provided by  Operating Activities		$	1,370,088			$	8,221,396
Net Cash Used in Investing Activities			(3,957,149	)			(3,444,941	)
Net Cash Used in Financing Activities			(62,562	)			(2,955,472	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents			(1,615,826	)			564,020
Net Increase (decrease) in Cash and Cash Equivalents, and Restricted Cash in Banks		$	(4,265,449	)		$	2,385,003

 

Net cash provided by operating activities was $1,370,088 for the six months ended June 30, 2022, a decrease of $6,851,308 from $8,221,396 for the same period of last fiscal year. The decrease was mainly due to an increase in cash outflow from changes in accounts receivables, other current assets and other receivables, which was partially offset by an increase in net income.

 

Net cash used in investing activities was $3,957,149 for the six months ended June 20, 2022, as compared to $3,441,941 for the same period of the last fiscal year. The increase in cash used in investing activities was primarily due to an increase in repayment of loans to third parties.

 

Net cash used in financing activities for the six months ended June 30, 2022, was $62,562, representing a decrease of $2,892,910, as compared to $2,955,472 for the same period of last fiscal year. The decrease in cash used in financing activates was mainly attributable to a decrease in repayment of bank loans and lease liabilities.

 

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.

 

As of June 30, 2022 and 2021, there were no off-balance sheet arrangements.

 

 

Comparison of Fiscal Years Ended December 31, 2021 and 2020

 

As of December 31, 2021, we 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. Our shareholders also committed to provide continuous financial support to us whenever necessary.

 

We plan to fund our operations through revenue generated from our revenues of management and assessment services, financial guarantee services and financial consulting services, private placements from investors, and financial support commitments from our shareholders. 

 

Based on above operating plan, the management believes that we will continue as a going concern in the following 12 months.

 

Our ability to support its operating and capital expenditure commitments will depend on our future performance, which will be subject in part to general economic, competitive and other factors beyond our control. The impacts of COVID-19 may cause lockdowns, quarantines, travel restrictions, and closures of businesses and schools. As a result, we may experience delay of outstanding receivables from customers and limited access to cash to expand our operations. The extent to which the coronavirus impacts our 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.

 

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 $414,265 from change in pledged deposits and other non-current assets for the year ended December 31, 2021, as compared with a cash inflow of $359,202 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, respectively, 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 net income in 2020 compared to consolidation of Lixin’s 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

 

We are a holding company with no material operations of our own. We conduct our operations primarily through our PRC subsidiaries. As a result, our 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 subsidiaries that are wholly foreign-owned enterprises (“WFOE”) 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 WFOE 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.

 

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 “Business-Regulations Relating to Intellectual Property.”

 

Trend information

 

Other than as disclosed elsewhere in this prospectus, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.

 

Tabular Disclosure of Contractual Obligations

 

Contingencies

 

From time to time, we may be subject to certain legal proceedings, claims and disputes that arise in the ordinary course of business. Although the outcome of these legal proceedings cannot be predicted, we do not believe these actions, in the aggregate, will have a material adverse impact on our financial position, results of operations or liquidity.

 

 

Lease commitments

 

As of June 30, 2022, we lease offices space under a number of non-cancellable operating lease arrangements, one of which had a term of over 12 months. We consider 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.

 

In calculating the initial values of right of use assets and liabilities at inception date, we use 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, we 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. 

 

		June 30, 2022				December 31, 2021
Right of use assets		$	103,801			$	37,313
Operating lease liabilities, current portion		$	58,269			$	65,498
Operating lease liabilities, noncurrent portion			61,172				-
Total operating lease liabilities		$	119,441			$	65,498

 

As of June 30, 2022, the weighted average remaining lease term was 1.75 years, and discount rates were 4.75% for the operating lease.

 

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 six months ended June 30, 2022 and 2021 was $59,287 and $84,344, respectively. Depreciation expenses were $49,733 and $62,356 for the six months ended June 30, 2022 and 2021, respectively. 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 June 30, 2022:

 

Six months ended June 30, 2023		$	62,562
Twelve months ended June 30, 2024			62,562
Total lease payments			125,124
Less: imputed interest			5,683
Present value of lease liabilities		$	119,441

 

Safe Harbor

 

This prospectus on Form F-1 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 “Risk Factors,” “Business - Information on the Company,” and “Management’s Business and Analysis of Financial Condition and Results of Operations’” in this prospectus on Form F-1, 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 prospectus on Form F-1. All information provided in this prospectus on Form F-1 and in the exhibits is as of the date of this prospectus on Form F-1, and we do not undertake any obligation to update any such information, except as required under applicable law.

 

 

Quantitative and Qualitative Disclosure About Market Risk

 

Credit Risk

 

Credit risk is one of the most significant risks for our 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. We manage credit risk through our in-house research and analysis of the Chinese economy and the underlying obligations and transaction structures. To minimize credit risk, we require collateral in the form of rights to cash, securities or property and equipment. We identify 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, we mainly reflect the “probability of default” by the customer on our contractual obligations and consider the current financial position of the customer and the exposures to the customer and its likely future development.

 

We manage our credit risk guarantee exposure by performing preliminary credit checks of each guarantee customer and ongoing monitoring of payments each month. Our management periodically reviews the probability of default of a guarantee customer and will apply a guarantee liability when necessary.

 

In addition, we calculate the provision amount as below:

 

●

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.

 

●

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.

 

We have been providing the financial guarantees of loans for a limited history. The customer deposits or other assets are held as collateral for the repayment of each loan. As of June 30, 2022 and December 31, 2021, the amount of outstanding loans and related interest that hawse have guaranteed was approximately $34,230,602 and $47,020,055, respectively. We estimate the fair market value of the collateral to be approximately $20.1 million and $43.3 million as of June 30, 2022 and December 31, 2021, respectively.

 

Other operating activities

 

Assets that potentially subject us 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 June 30, 2022, we had no deposits with a bank in the United States. As of June 30, 2022, cash of $1,035,674 and restricted cash of $26,339,708, 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, we primarily place cash deposits with large financial institutions in China which management believes are of high credit quality.

 

Our operations are carried out in Mainland China. Accordingly, our 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, our 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

 

We are also exposed to liquidity risk which is the risk that we will be unable to provide sufficient capital resources and liquidity to meet our commitments and business needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary, we 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 our operating activities and our 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 Risks

 

Our 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 our operations.

 

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-19 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 the current 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. 

 

 

BUSINESS

 

Overview

 

We are a comprehensive solution provider for industrial operations and capital market services in China and focus our services on the new energy, New Materials, and semiconductor industries. We provide our industrial operations services to industrial parks under development, in some instances partnering with governments. These industrial operations services include initial planning, regulatory approvals and compliance, government relations, and construction management. We also intend to assist our project partners to manage the industrial parks when completed, to set up an industrial chain in the industrial parks, and to build a sustainable industrial ecosystem involving industrial park occupants and their customers and vendors. Our capital market services in the past have involved making loans to MSMEs and purchasing loans made by other lenders to MSMEs, providing loan guarantees to our customers, and providing associated assessment services and debt collection services to our customers. Going forward, capital market services are planned to involve attempting to arrange debt and equity financing for companies occupying those industrial parks we provide services to and for the customers and supply chain of such companies. We also engage in providing financial, insurance, and healthcare related solutions to individuals and MSMEs in China. We serve institutional and local government clients across the entire industrial chain and have offices in Hangzhou and Beijing.

 

Our business has experienced substantial changes in recent years. We were originally incorporated under the name DT Asia Investment Limited. Following our Business Combination with Adrie, we changed our name from DT Asia Investment Limited to China Lending Group and operated as holding company for 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, government regulations 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 we did not renew any pre-existing loans in 2019. In September 2020, we disposed of the direct lending business that we had acquired from Adrie.

 

In 2019, we acquired a 65.0177% interest in Lixin. Lixin, through its subsidiaries, provides a wide range of financing solutions and related peripheral services, including financial management, assessment and consulting services, debt collection services, and financial guarantee services to individuals and MSMEs in China. Through Lixin, as of June 30, 2022, we have substantial direct loans outstanding to third parties, we have purchased and service additional loans to third parties originally made by other lenders, and we have guaranteed loans of third parties made by other lenders. Following the Lixin Acquisition, our customers are MSMEs and individual proprietors located in Zhejiang Province and Guangdong Province. Those customers are involved in commerce and service businesses, including real estate, technology promotion and application services, construction, finance, wholesale and retail industries, among others. In 2021, we successfully expanded our business to provide industrial operation services based on our past experiences, capability, customer resources, market channels, and relationships with institutional organizations and government. In our role as the future operator and developer of industrial parks, we plan to organize land reserves for the industrial parks, devise solutions for the tenants in the industrial parks, work with tenants in the implementation of our strategic production solutions, negotiate with related governments for subsidies and other forms of government assistance, and provide construction and management services to these projects. As of the date of this prospectus, we have not developed any industrial parks.

 

 

For the six months ended June 30, 2022 and the year ended December 31, 2021, we conducted management and assessment services, made and guaranteed loans to third parties and purchased and serviced outstanding loans made to third parties by other lenders, and provided financial consulting, healthcare, and industrial operation services.

 

As of June 30, 2022, we had a cash balance of $1,035,674 and a positive working capital of $50,361,534. In addition to the cash balance, the working capital was mainly comprised of restricted cash of $26,339,708, accounts receivable of $7,122,604, loan receivable due from third parties of $26,375,018 and other receivables of $745,964. The balances of these assets are expected to be repaid on maturity dates and will also be used for working capital.]

 

Reverse Split

 

At our annual general meeting of shareholders held on [___], 2023 our shareholders voted to approve the Reverse Split of our ordinary shares within a range of [1:10 to 1:150], to be effective at the ratio and on a date to be determined by the Board of Directors. Although the shareholders approved the Reverse Split, all per share amounts and calculations in this prospectus and the accompanying consolidated financial statements do not reflect the effects of the Reverse Split, as our Board of Directors has not determined the ratio or the effective date of the Reverse Split.

 

History and Development of the Company

 

Corporate History and Structure of our PRC Operation

 

We are a British Virgin Islands company limited by shares. We were established on April 8, 2014 under the laws of the 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.

 

On July 6, 2016, we consummated the Business Combination with Adrie and its subsidiaries and VIE by acquiring all of the outstanding equity interests of Adrie in exchange for 20 million ordinary shares of DT Asia (our pre-Business Combination name) and cash consideration, with a deal value of approximately $200 million. Adrie, through its subsidiaries and VIE, was engaged in the business of providing loan facilities to MSMEs and sole proprietors in Xinjiang region of the PRC.

 

As a result of the Business Combination, shareholders of Adrie gained a controlling interest in us, and Adrie became our subsidiary. For financial reporting purpose, the consolidated assets, liabilities and results of operations of Adrie became our historical financial statements, and our assets, liabilities and results of operations were consolidated with that of Adrie beginning on the acquisition date. Immediately following the Business Combination, we changed our name from DT Asia to China Lending Corporation (“CLDC”).

 

In June through December 2019, we consummated the Lixin Acquisition with Lixin and its subsidiaries, pursuant to which we acquired a majority interest in Lixin (discussed below). In connection with the Lixin Acquisition, we changed our name to Roan Holdings Group Co., Ltd. in November 2019. Today, we are a holding company and conduct business operations through our direct and indirect subsidiaries.

 

On November 19, 2014 Adrie was established under the laws of the BVI as a company limited by shares and became our wholly-owned subsidiary following the 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., Limited (中国融安产融控股集团有限公司) (“Roan HK”) (formerly China Feng Hui Financial Holding Group Co., Ltd, and subsequently, China Fenghui Industrial-Financial Holding Group Co. Limited) was 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 was a holding company and conducted business through its direct and indirect subsidiaries. It was disposed in September 2021.

 

Fortis was established on December 30, 2019 under the laws of Hong Kong. It is an indirect wholly-owned subsidiary of Adrie. It is a holding company and conducts business through its direct and indirect subsidiaries.

 

Jing Kai was a wholly-owned subsidiary of Roan HK. It was established on May 14, 2015 under the laws of the PRC with the stated purpose of providing direct loans to the MSMEs and sole-proprietors in Xinjiang. Jing Kai had no substantial operations since its inception and it was disposed in September 2021 with Roan HK.

 

Yi Fu is a wholly-owned subsidiary of Roan HK 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.

 

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. 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. We also provide industrial operation services.

 

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 and related services.

 

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.

 

On August 2, 2021, Yijia Travel (Hangzhou) Digital Technology Co. Ltd. (易佳行旅（杭州）数字科技有限公司) (“Yijia Travel”), a joint venture providing business travel services, was incorporated under the laws of the PRC. We, our business partner, Shuzhiyun Technology (Beijing) Co., Ltd. (“Shuzhiyun”), and Yijia Travel owned 35%,30% and 30%, respectively, of Yijia Travel. Pursuant to an agreement, Shuzhiyun agreed to vote its interest in Yijia Travel as directed by us. Yijia Travel was dissolved on July 7, 2022.

 

On October 14, 2021, Fine C+ Health (Hangzhou) Technology Limited (乐享未来健康科技（杭州）有限公司) (“Fine C+ Health”), a joint venture providing online medical consultation and traditional Chinese medicine, was incorporated under the laws of the PRC. Shuzhiyun and Yifu, our subsidiary, own 30% and 40%, respectively, of Fine C+ Health. Shanghai Jingmu Information Technology Co. Ltd. (“Jingmu”), owns the remaining 30% of Fine C+ Health. Pursuant to an agreement, Shuzhiyun agreed to vote its interest in Fine C+ Health as directed by us.

 

On November 8, 2021, FINE C+ Digital Technology (Hangzhou) Limited (乐享未来数字科技（杭州）有限公司) (“FINE C+ Digital”), a joint venture offering lifestyle consumer services, including cross-platform clearing and settlement services for consumer reward rights and interests, was incorporated under the laws of the PRC. We and Shuzhiyun owned 45% and 30%, respectively, of FINE C+ Digital. Shenzhen Geile Information Technology Co., Ltd. (“Harvest”, formerly called Shenzhen Harvest Business Ltd., Co.), owned the remaining 25% equity FINE C+ Digital. Pursuant to an agreement, Shuzhiyun agreed to vote its interest in FINE C+ Digital as directed by us. FINE C+ Digital was dissolved on July 7, 2022.

 

 

On November 8, 2021, FINE C+ Interactive Technology (Hangzhou) Limited (乐享未来互动科技（杭州）有限公司) (“FINE C+ Interactive”), a joint venture providing cultural and tourism services and education development industry business and personal financial services, was incorporated under the laws of the PRC. We and Shuzhiyun own 35% and 14%, respectively, of FINE C+ Interactive. Flourishing Technology Inc. (“Flourishing”) and media interactive technology experts owns the remaining 51% of FINE C+ Interactive. Pursuant to an agreement, Shuzhiyun agreed to vote its interest in FINE C+ Interactive as directed by us.

 

On December 22, 2021, FINE C+ Entertainment Technology (Hangzhou) Limited_ (乐享未来娱乐科技（杭州）有限公) (“FINE C+ Entertainment”), a joint venture providing provides theme park designing services, was incorporated under the laws of the PRC. FINE C+ Interactive and Shuzhiyun, own 35% and 35%, respectively, of FINE C+ Entertainment. Harvest Horn (Beijing) Marketing Co., Ltd. (“Harvest Horn”) owns the remaining 30% of FINE C+ Entertainment. Pursuant to an agreement, Shuzhiyun and FINE C+ Interactive agreed to vote their interest in FINE C+ entertainment jointly.

 

On November 24, 2021, Hangzhou Zeshi, Shuzhhiyun and another individual set up  Hangzhou Future New Energy Enterprise Management Partnership (Limited Partnership) (杭州未来新能企业管理合伙企业（有限合伙)) (“Future New Energy”). Hanzhou Zeshi held 1% of the equity of Future New Energy. The registered capital of Future New Energy was RMB 10,000,000 (approximately $1,569,218).

 

On December 16, 2021, Hangzhou Zeshi, Future New Energy and four unrelated parties set up Zhongtan Future. Hangzhou Zeshi held 2% of its equity and Future New Energy held 20% of its equity. The registered capital of Zhongtan Future was RMB 100,000,000 (approximately $15,692,182).

 

On December 16, 2021, Hangzhou Zeshi also invested RMB 2 million (approximately $0.31 million) in Zhongtan Future, and held a 2% equity interest in Zhongtan Future. Zhongtan Future will develop new energy storage battery manufacturing headquarters in Jiaxing Economic and Technological Development Zone and an energy storage system equipment manufacturing industry park in Zhejiang Shangyu Cao’e River Economic Development Zone. Hangzhou Zeshi also entered into an agreement with Zhongtan Future, under which Hangzhou Zeshi provides supply chain financial, financial leasing, industrial operation, and related services to Zhongtan Future.

 

On April 2, 2022, Hangzhou Zeshi subscribed RMB 22 million (approximately $3.41 million) as registered capital to ZhongXin, a joint venture, and held a 22% equity interest in ZhongXin. ZhongXin plans to develop industrial parks by collaborating with local governments in multiple areas in the Yangtze River Delta of China for the manufacturing, marketing and distribution of semiconductor products and new ecofriendly and high technology materials. Hangzhou Zeshi also entered into an agreement with ZhongXin, under which provides supply chain financial , industrial operation, and related services to ZhongXin.

 

On June 23, 2022, Zhongtan Industrial Operation, our wholly-owned subsidiary, was incorporated under the laws of the PRC. Zhongtan Industrial Operation provides services in industrial operation services focusing on new storage energy, New Materials, and semiconductor products.

 

On July 19, 2022, Zhongtan Industrial Operation subscribed RMB 30 million (approximately $4,630,273) as registered capital to, Zhongtan New Energy (HZ), a joint venture, and held 60% of its equity. On August 30, 2022, Zhongtan New Energy (HZ) increased the registered capital from RMB 50 million to RMB 100 million, and the shares held by Zhongtan Industrial Operation were decreased to 30% accordingly.

 

On August 25, 2022, Zhongtan Industrial Operation (JX), our wholly-owned subsidiary, was incorporated under the laws of the PRC, which provides industrial operation services focusing on new energy storage, New Materials, and semiconductor products.

 

On August 30, 2022, Zhongtan Industrial Operation subscribed RMB 200 million (approximately $30.87 million) as registered capital to Zhongtan Energy Storage (JX), a joint venture, and held 40% of its equity.

 

 

On September 13, 2022, Yangtze River Delta Energy Storage Technology Industrial Group (Jiaxing) Co., Ltd.（长三角储能科技产业集团（嘉兴）有限公司） (“Yangtze River Delta Energy Storage”) was set up under the laws of PRC. Zhongtan Future New Energy Industry Development (Zhejiang) Co., Ltd. subscribed the capital contribution of RMB 200 million for 66.66667%; Zhongtan Future Industry Operation (Hangzhou) Co., Ltd. subscribed the capital contribution of RMB 100 million (approximately $15.43 million) for 33.33333% of its equity. We have not paid for the capital and have not begun operating.

 

The registered capital of the joint ventures above have not been paid as of the date of this prospectus.

 

Dispositions of Feng Hui Ding Xin (Beijing) Financial Consulting Co., Limited and China Roan Industrial-Financial Holdings Group Co., Ltd. and subsidiaries

 

Prior to September 30, 2020, 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 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.

 

On September 30, 2020, Roan HK entered into an agreement (the “Agreement”) with Urumqi Fengxunhui Management Consulting Co., Ltd., 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, we no longer conduct financial advisory and other related financial services. When Roan HK was disposed on September 30, 2021, the purchase price was not paid, and still remains unpaid.

 

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, we 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 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, we acquired 1% of the equity interest in Zhejiang Lixin (defined below) for RMB 2,858,600. On June 14, 2019, we entered into a Share Purchase Agreement with Lixin and certain shareholders of Lixin to acquire a controlling interest in Lixin, pursuant to which we acquired a 65.0177% interest in Lixin from its selling shareholders in exchange for our ordinary shares of 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).  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 ordinary shares after two years from the closing date of the acquisition. The transaction closed on December 20, 2019 upon our issuance of 291,795,150 Class B Preferred Shares to the selling shareholders. These convertible preferred shares are embedded with liquidation preference and dividend preference but with no voting rights.

 

Lixin, 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 conducts its business through the following direct and indirect subsidiaries.

 

Lixin Financial Holdings (BVI) Limited (“Lixin BVI”) is a wholly-owned subsidiary of Lixin. 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 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 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.

 

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 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.

 

 

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:

 

●

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 Jing Yu Xin 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-19 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 2023 if the current COVID-19 resurgence causes significant disruptions to our operations or the business of our customers, logistics and service providers. If the current 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 us during the six months ended June 30, 2022 and the year ended December 31, 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. We recorded interest on third parties loans of $1,112,816 and $998,827 for the six months ended June 30, 2022 and 2021, respectively. We recorded interest on third party 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, we make 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 our maximum exposure to credit loss in our 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 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. 

 

We generated financial guarantee commissions of $185,634 and $191,920 for the six months ended June 30, 2022 and 2021, respectively. We 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 our guarantee service customers, generally require us, 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. We record interest received on the restricted cash pledged as revenue.

 

We recorded interest on restricted cash of $178,214 and $271,212 for the six months ended June 30, 2022 and 2021, respectively. We 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.

 

During fiscal year 2020, we disposed of Feng Hui Ding Xin (Beijing) Financial Consulting Co., Limited and its direct loan business and its subsidiaries. As a result of the disposition, we no longer conduct direct loan business and its related services.

 

Revenue from management and assessment service was $440,254, $19,676 for fiscal year 2021 and 2020, respectively, and it was $165,212 and $125,977 for the six months ended June 30, 2022 and 2021, respectively.

 

4. Consulting services related to debt collection

 

Prior to fiscal year 2022, Lixin’s subsidiaries also provided 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 we 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, we 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 debt 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 financial consulting services relating to debt collection was $nil and $204,129 for the six months ended June 30, 2022 and 2021, respectively. 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, our 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 us 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. We have also accumulated a wide range of customers, market resources, financial institutions and capital service resources, and we have 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, hawse have 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, we expanded our business to provide industrial operation services based on our past experience, capability, customer resources, market channels, relationships with institutional organizations and government relations.

 

On August 2, 2021, we set up a joint venture company, Yijia Travel (, to develop business travel services. We and our business partner, Shuzhiyun, hold 35% and 30% of the equity in the joint venture, respectively.

 

On October 14, 2021, our subsidiary, Yi Fu set up a joint venture company, FINE C+ Health, to provide online medical consultation and traditional Chinese medicine. Yi fu and our business partner, Shuzhiyun, hold 40% and 30% of the equity in the joint venture, respectively.

 

On November 8, 2021, we set up a joint venture company, FINE C+ Digital to offer lifestyle consumer services including cross-platform clearing and settlement services for consumer reward rights and interests. We and our business partner, Shuzhiyun, hold 45% and 30% of the equity in the joint venture, respectively.

 

On December 31, 2021, Hangzhou Zeshi, our wholly-owned subsidiary, entered into an agreement with Zhongtan Future, pursuant to which Hangzhou Zeshi provides supply chain financial, financial leasing, industrial operation, and related services. Revenue of $146,245 was recognized during the year ended December 31, 2021 after the target customer was located, due diligence and initial negotiation were completed and the requirements of Zhongtan Future were satisfied. Revenue of $655,227 was recognized during the six months ended June 30, 2022 for the industrial operations services that we provided to Zhangtan related with the setup of new energy storage battery manufacturing headquarters in Jiaxing Economic and Technological Development Zone and the energy storage system equipment manufacturing industry park in Zhejiang Shangyu Cao’e River Economic Development Zone.

 

On April 7, 2022, Hangzhou Zeshi entered into an agreement with ZhongXin. Pursuant to the agreement, Hangzhou Zeshi provides supply chain management services and industrial operation services. We recognized revenue of $291,212 for the industrial operation services provided for ZhongXin during the six months ended June 30, 2022, consisting of $145,606 from the due diligence services we provided to ZhongXin and $145,606 from the industrial operation service we provided to ZhongXin related to the setup of a semiconductor and New Materials industrial park in the Zhejiang Shangyu Cao’e River Economic Development Zone.

 

6. Health management, health insurance and other health related services

 

In 2020, we 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 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, we 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. We also signed several cooperation agreements with our business partners to jointly develop health insurance products 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 our health projects were suspended or delayed. During 2021, we 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. We also optimized the newborn deformity insurance products for these diseases.

 

On December 30, 2020, Zehshi Health, a 100%-owned subsidiary of ours, signed an exclusive distribution agreement with Furuikang Biomedical Technology (Zhejiang) Co, Ltd. to sell tumor adjuvant therapy. FuruiKang is a related party of ours whose shareholder is a beneficial owner of our securities. The products are expected to launch in the second half of 2022.

 

On June 8, 2021, we entered a ten-year cooperation agreement with Furui Health Industry Development (Zhejiang) Co, Ltd. 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, we entered a ten-year cooperation agreement with Shuzhiyun to promote the transformation and industrialization of Shuzhiyun’s birth defect screening technology applications in the Chinese market.

 

In 2021, our 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. In January 2022, FINE C+ Health obtained a “drug information services on the internet certificate” from the State Food and Drug Administration of China and set up a service application using WeChat , an instant messaging, social media, and mobile payment app.

 

We 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-19 outbreak in Hebei province in early 2021, the project was temporarily suspended. The revenue generated from the healthcare service was $26,209 and minimal during the six months ended June 30, 2022 and 2021, respectively.

 

 

Business Strategies

 

Pursuant to the Lixin Acquisition, we acquired 65.0177% shares of Lixin in December 2019, which provides financial services, and disposed of Roan HK in September 2021. They were both mainly involved in the direct lending business. We now provide various financial services to Lixin’s MSME customers. We will continue focusing on capital advisory services which require less assets, less capital investment and lower-risk.

 

In 2021, we further optimized its strategic planning and business layout based on our past experience, capability, customer resources, market channels, relationships with institutional organizations and government relations. We 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 our future development.

 

Through continuous optimization and improvement, we have combined our industrial capital service experience, resources, and its capabilities to industries which have good growth prospects.

 

To grow the size of our businesses, we intend to continue to expand our financial services to different regions and explore opportunities in industrial operation services.

 

For example, we plan to start expanding our financial services in the Zhejiang Province while we continue to expand our regional coverage. 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. While based upon the Zhejiang market, we plan to actively expand to economically developed regions such as the Yangtze River Delta and the Pearl River Delta.

 

We rely 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 management experience in different industries. We have also accumulated a wide range of customers, market resources, financial institutions and capital service resources. Our 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.

  

Our financial service sales team works closely with other financial institutions to provide financing services to our customers. For loans to third parties, we receive monthly interest. For guarantee and consulting services, we receive 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, we receive instalments service fees based on the project progress and results.

 

 

Our management team actively explores industrial operation service opportunities while providing financial services to our customers. Through long-term cooperation agreements, we lock in close and long-term cooperation with our customer and charges services fees according to project progress and achievements;

 

We sell our health products directly to our customers. We plan 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:

 

Owner		Trademark		Issuance Entity		Term
Lixin				Trademark Office of PRC State Administration for Industry and Commerce		March 7, 2019 – March 6, 2029
Lixin HK				HK Trade Marks Registry Intellectual Property Department		February 2, 2018 – February 1, 2028
Zhejiang Jingyuxin				Trademark Office of PRC State Administration for Industry and Commerce		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

 

We face 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. We compete 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 and healthcare area, we face the competition from the companies much bigger than us and with a longer history. For example, Ping’an Good Doctor, a healthcare software company, focuses on online diagnosis, consumption diagnosis, health mall, health management and health interaction. Alibaba’s healthcare subsidiary 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

 

Our 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 of Industry and Commerce, local Bureau of Finance, local Administration of Foreign Exchange and local employment departments. The areas include Zhejiang Province, Guangdong Province, Tianjin City and Xinjiang Uyghur Autonomous Region.

 

 

Summaries of Certain Key PRC Laws

 

This section sets forth a summary of the most significant rules and regulations that affect our business activities in China.

 

Regulations Related to Foreign Investment

 

The establishment, operation and management of companies in China are mainly governed by the PRC Company Law, as most recently amended in 2018, which applies to both PRC domestic companies and foreign-invested companies. On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, and on December 26, 2019, the State Council promulgated the Implementing Rules of the PRC Foreign Investment Law, or the Implementing Rules, to further clarify and elaborate the relevant provisions of the Foreign Investment Law. The Foreign Investment Law and the Implementing Rules both took effect on January 1, 2020 and replaced three major previous laws on foreign investments in China, namely, the Sino-foreign Equity Joint Venture Law, the Sino-foreign Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, together with their respective implementing rules. Pursuant to the Foreign Investment Law, “foreign investments” refer to investment activities conducted by foreign investors (including foreign natural persons, foreign enterprises or other foreign organizations) directly or indirectly in the PRC, which include any of the following circumstances: (i) foreign investors setting up foreign-invested enterprises in the PRC solely or jointly with other investors, (ii) foreign investors obtaining shares, equity interests, property portions or other similar rights and interests of enterprises within the PRC, (iii) foreign investors investing in new projects in the PRC solely or jointly with other investors, and (iv) investment in other methods as specified in laws, administrative regulations, or as stipulated by the State Council. The Implementing Rules introduce a see-through principle and further provide that foreign-invested enterprises that invest in the PRC shall also be governed by the Foreign Investment Law and the Implementing Rules.

 

The Foreign Investment Law and the Implementing Rules provide that a system of pre-entry national treatment and negative list shall be applied for the administration of foreign investment, where “pre-entry national treatment” means that the treatment given to foreign investors and their investments at market access stage is no less favorable than that given to domestic investors and their investments, and “negative list” means the special administrative measures for foreign investment’s access to specific fields or industries, which will be proposed by the competent investment department of the State Council in conjunction with the competent commerce department of the State Council and other relevant departments, and be reported to the State Council for promulgation, or be promulgated by the competent investment department or competent commerce department of the State Council after being reported to the State Council for approval. Foreign investment beyond the negative list will be granted national treatment. Foreign investors shall not invest in the prohibited fields as specified in the negative list, and foreign investors who invest in the restricted fields shall comply with the special requirements on the shareholding, senior management personnel, etc. In the meantime, relevant competent government departments will formulate a catalogue of industries for which foreign investments are encouraged according to the needs for national economic and social development, to list the specific industries, fields and regions in which foreign investors are encouraged and guided to invest. The current industry entry clearance requirements governing investment activities in the PRC by foreign investors are set out in two categories, namely the Special Entry Management Measures (Negative List) for the Access of Foreign Investment (2021 version), or the 2021 Negative List, promulgated by the National Development and Reform Commission and the Ministry of Commerce, or the MOFCOM, on December 27, 2021 and took effect on January 1, 2022, and the Encouraged Industry Catalogue for Foreign Investment (2020 version), or the 2020 Encouraged Industry Catalogue, promulgated by the MOFCOM on December 27, 2020 and took effect on January 27, 2021. Industries not listed in these two categories are generally deemed “permitted” for foreign investment unless specifically restricted by other PRC laws. None of our businesses are on the 2021 Negative List, nor on the 2020 Negative List and therefore we are not subject to any restriction or limitation on foreign ownership.

 

 

According to the Implementing Rules, the registration of foreign-invested enterprises shall be handled by the SAMR or its authorized local counterparts. Where a foreign investor invests in an industry or field subject to licensing in accordance with laws, the relevant competent government department responsible for granting such license shall review the license application of the foreign investor in accordance with the same conditions and procedures applicable to PRC domestic investors unless it is stipulated otherwise by the laws and administrative regulations, and the competent government department shall not impose discriminatory requirements on the foreign investor in terms of licensing conditions, application materials, reviewing steps and deadlines, etc. However, the relevant competent government departments shall not grant the license or permit enterprise registration if the foreign investor intends to invest in the industries or fields as specified in the negative list without satisfying the relevant requirements. In the event that a foreign investor invests in a prohibited field or industry as specified in the negative list, the relevant competent government department shall order the foreign investor to stop the investment activities, dispose of the shares or assets or take other necessary measures within a specified time limit, and restore to the status prior to the occurrence of the aforesaid investment, and the illegal gains, if any, shall be confiscated. If the investment activities of a foreign investor violate the special administration measures for access restrictions on foreign investments as stipulated in the negative list, the relevant competent government department shall order the investor to make corrections within the specified time limit and take necessary measures to meet the relevant requirements. If the foreign investor fails to make corrections within the specified time limit, the aforesaid provisions regarding the circumstance that a foreign investor invests in the prohibited field or industry shall apply.

 

Pursuant to the Foreign Investment Law and the Implementing Rules, and the Information Reporting Measures for Foreign Investment jointly promulgated by the MOFCOM and the SAMR, which took effect on January 1, 2020, a foreign investment information reporting system shall be established and foreign investors or foreign-invested enterprises shall report investment information to competent commerce departments of the government through the enterprise registration system and the enterprise credit information publicity system, and the administration for market regulation shall forward the above investment information to the competent commerce departments in a timely manner. In addition, the MOFCOM shall set up a foreign investment information reporting system to receive and handle the investment information and inter-departmentally shared information forwarded by the administration for market regulation in a timely manner. The foreign investors or foreign-invested enterprises shall report the investment information by submitting reports including initial reports, change reports, deregistration reports and annual reports.

 

Furthermore, the Foreign Investment Law provides that foreign-invested enterprises established according to the previous laws regulating foreign investment prior to the implementation of the Foreign Investment Law may maintain their structure and corporate governance within five years after the implementation of the Foreign Investment Law. The Implementing Rules further clarify that such foreign-invested enterprises established prior to the implementation of the Foreign Investment Law may either adjust their organizational forms or organizational structures pursuant to the Company Law or the Partnership Law, or maintain their current structure and corporate governance within five years upon the implementation of the Foreign Investment Law. Since January 1, 2025, if a foreign-invested enterprise fails to adjust its organizational form or organizational structure in accordance with the laws and go through the applicable registrations for changes, the relevant administration for market regulation shall not handle other registrations for such foreign-invested enterprise and shall publicize the relevant circumstances. However, after the organizational forms or organizational structures of a foreign-invested enterprise have been adjusted, the original parties to the Sino-foreign equity or cooperative joint ventures may continue to process such matters as the equity interest transfer, the distribution of income or surplus assets as agreed by the parties in the relevant contracts.

 

In addition, the Foreign Investment Law and the Implementing Rules also specify other protective rules and principles for foreign investors and their investments in the PRC, including, among others, that local governments shall abide by their commitments to the foreign investors; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; mandatory technology transfer is prohibited, etc.

 

 

Regulations on Dividend Distributions

 

The principal laws, rule and regulations governing dividends distribution by companies in the PRC are the PRC Company Law, which applies to both PRC domestic companies and foreign-invested companies, and the Foreign Investment Law and its implementing rules, which apply to foreign-invested companies. Under these laws, regulations and rules, both domestic companies and foreign-invested companies in the PRC are required to set aside as general reserves at least 10% of their after-tax profit, until the cumulative amount of their reserves reaches 50% of their registered capital. PRC companies are not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.

 

Regulations Relating to Intellectual Property

 

China has adopted comprehensive legislation governing intellectual property rights, including copyrights, trademarks, patents and domain names. China is a signatory to the primary international conventions on intellectual property rights and has been a member of the Agreement on Trade Related Aspects of Intellectual Property Rights since its accession to the World Trade Organization in December 2001.

 

Copyright

 

On September 7, 1990, the SCNPC promulgated the Copyright Law of the People’s Republic of China, or the Copyright Law, effective on June 1, 1991 and amended on October 27, 2001, February 26, 2010 and November 11, 2020, respectively. The amended Copyright Law extends copyright protection to internet activities, products disseminated over the Internet and software products. In addition, there is a voluntary registration system administered by the Copyright Protection Center of China.

 

Under the Regulations on the Protection of the Right to Network Dissemination of Information that took effect on July 1, 2006 and was amended on January 30, 2013, it is further provided that an Internet information service provider may be held liable under various situations, including that if it knows or should reasonably have known a copyright infringement through the Internet and the service provider fails to take measures to remove or block or disconnect links to the relevant content, or, although not aware of the infringement, the Internet information service provider fails to take such measures upon receipt of the copyright holder’s notice of such infringement.

 

In order to further implement the Regulations on Computer Software Protection, promulgated by the State Council on December 20, 2001 and amended on January 8, 2011 and January 30, 2013, respectively, the National Copyright Administration issued the Measures for the Registration of Computer Software Copyright on February 20, 2002, which specify detailed procedures and requirements with respect to the registration of software copyrights.

 

Trademark

 

According to the Trademark Law of the People’s Republic of China promulgated by the SCNPC in August 1982, and amended in 1993, 2001, 2013 and 2019, respectively, the Trademark Office of the SAIC is responsible for the registration and administration of trademarks in China. The SAIC under the State Council has established a Trademark Review and Adjudication Board for resolving trademark disputes. Registered trademarks are valid for ten years from the date the registration is approved. A registrant may apply to renew a registration within twelve months before the expiration date of the registration. If the registrant fails to apply in a timely manner, a grace period of six additional months may be granted. If the registrant fails to apply before the grace period expires, the registered trademark shall be deregistered. Renewed registrations are valid for ten years. In April 2014, the State Council issued the revised the Implementing Regulations of the Trademark Law of the People’s Republic of China, which specified the requirements of applying for trademark registration and renewal.

 

Patent

 

According to the Patent Law of the People’s Republic of China, or the Patent Law, promulgated by the SCNPC on March 12, 1984 and amended on September 4, 1992, August 25, 2000, December 27, 2008 and October 17, 2020, respectively, and the Implementation Rules of the Patent Law of the People’s Republic of China, or the Implementation Rules of the Patent Law, promulgated by the State Council on June 15, 2001 and revised on December 28, 2002 and January 9, 2010, the patent administrative department under the State Council is responsible for the administration of patent-related work nationwide and the patent administration departments of provincial or autonomous regions or municipal governments are responsible for administering patents within their respective administrative areas. The Patent Law and Implementation Rules of the Patent Law provide for three types of patents, namely “inventions”, “utility models” and “designs”. Invention patents are valid for twenty years, while utility model patents and design patents are valid for ten years, from the date of application. The Chinese patent system adopts a “first come, first file” principle, which means that where more than one person files a patent application for the same invention, a patent will be granted to the person who files the application first. An invention or a utility model must possess novelty, inventiveness and practical applicability to be patentable. Third Parties must obtain consent or a proper license from the patent owner to use the patent. Otherwise, the unauthorized use constitutes an infringement on the patent rights.

 

 

Domain Names

 

In May 2012, the China Internet Network Information Center, or the CNNIC, issued the Implementing Rules for Domain Name Registration setting forth the detailed rules for registration of domain names. On August 24, 2017, the MIIT promulgated the Administrative Measures for Internet Domain Names, or the Domain Name Measures, which took effect on November 1, 2017. The Domain Name Measures regulate the registration of domain names, such as the China’s national top-level domain name “.CN”. The CNNIC issued the Measures of the China Internet Network Information Center for the Resolution of Country Code Top-Level Domain Name Disputes on September 9, 2014, which took effect on November 21, 2014, pursuant to which domain name disputes shall be accepted and resolved by the dispute resolution service providers as accredited by the CNNIC.

 

Regulations Relating to Foreign Exchange

 

 Pursuant to the Foreign Exchange Administration Regulations, as amended in August 2008, the RMB is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside the PRC, unless SAFE’s prior approval is obtained and prior registration with SAFE is made. In May 2013 SAFE promulgated the Circular of the SAFE on Printing and Distributing the Administrative Provision on Foreign Exchange in Domestic Direct Investment by Foreign Investors and Relevant Supporting Documents which provides for and simplifies the operational steps and regulations on foreign exchange matters related to direct investment by foreign investors, including foreign exchange registration, account opening and use, receipt and payment of funds, and settlement and sales of foreign exchange.

 

Pursuant to the Circular on Relevant Issues concerning Foreign Exchange Administration of Overseas Investment and Financing and Return Investments Conducted by Domestic Residents through Overseas Special Purpose Vehicles or the SAFE Circular 37, promulgated by SAFE and which became effective on July 4, 2014, (a) a PRC resident shall register with the local SAFE branch before he or she contributes assets or equity interests in an overseas special purpose vehicle, or Overseas Special Purpose Vehicles (SPV), that is directly established or controlled by the PRC Resident for the purpose of conducting investment or financing; and (b) following the initial registration, the PRC Resident is also required to register with the local SAFE branch for any major change, in respect of the Overseas SPV, including, among other things, a change of the Overseas SPV’s PRC Resident shareholder(s), name of the Overseas SPV, term of operation, or any increase or reduction of the Overseas SPV’s registered capital, share transfer or swap, and merger or division. Pursuant to SAFE Circular 37, failure to comply with these registration procedures may result in penalties.

 

Pursuant to the Circular of the State Administration of Foreign Exchange on Further Simplifying and Improving the Direct Investment-related Foreign Exchange Administration Policies, or the SAFE Notice 13, which was promulgated on February 13, 2015 and with effect from June 1, 2015, the foreign exchange registration under domestic direct investment and the foreign exchange registration under overseas direct investment is directly reviewed and handled by banks in accordance with the SAFE Notice 13, and the SAFE and its branches shall perform indirect regulation over the foreign exchange registration via banks.

 

Regulations Relating to Offshore Special Purpose Companies Held by PRC Residents

 

SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents on May 10, 2013, which took effect on May 13, 2013 and which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches.

 

SAFE promulgated Notice on Issues Relating to Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or the SAFE Circular 37, on July 4, 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC citizens or residents, name and term of operation), capital increase or capital reduction, transfers or exchanges of shares, or mergers or divisions. SAFE Circular 37 was issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purposes Vehicles.

 

SAFE further enacted the Notice of the State Administration of Foreign Exchange on Further Simplifying and Improving the Foreign Exchange Management Policies for Direct Investment, or the SAFE Circular 13, which allows PRC residents or entities to register with qualified banks in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing. However, remedial registration applications made by PRC residents that previously failed to comply with the SAFE Circular 37 continue to fall under the jurisdiction of the relevant local branch of SAFE. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfil the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from distributing profits 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.

 

On January 26, 2017, SAFE issued the Notice on Improving the Check of Authenticity and Compliance to Further Promote Foreign Exchange Control, or the SAFE Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records and audited financial statements; and (ii) domestic entities shall hold income to account for previous years’ losses before remitting the profits. Moreover, pursuant to SAFE Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment.

 

 

Regulations Relating to Private Lending

 

The transfer of funds among companies are subject to the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases, or the Provisions on Private Lending Cases, which was issued by the Supreme People’s Court of the People’s Republic of China on August 25, 2015 and amended on August 19, 2020 and December 29, 2020, respectively, to regulate the private lending activities between natural persons, legal persons and unincorporated organizations. The Provisions on Private Lending Cases do not apply to the disputes arising from relevant financial services such as loan disbursement by financial institutions and their branches established upon approval by the financial regulatory authorities to engage in lending business.

 

The Provisions on Private Lending Cases set forth that private lending contracts will be upheld as invalid under the circumstance that (i) the lender swindles loans from financial institutions for relending; (ii) the lender relends the funds obtained by means of a loan from another profit-making legal person, raising funds from its employees, illegally taking deposits from the public; (iii) the lender who has not obtained the lending qualification according to the law lends money to any unspecified object of the society for the purpose of making profits; (iv) the lender lends funds to a borrower when the lender knows or should have known that the borrower intended to use the borrowed funds for illegal or criminal purposes; (v) the lending is violations of public orders or good morals; or (vi) the lending is in violations of mandatory provisions of laws or administrative regulations.

 

In addition, the Provisions on Private Lending Cases set forth that the People’s Court shall support the interest rates not exceeding four times of the market interest rate quoted for one-year loan at the time the private lending contracts were entered into.

 

Regulations Relating to Employment

 

The Labor Law of the People’s Republic of China, or the Labor Law, which became effective in January 1995 and was amended in 2018, and the Employment Contract Law of the People’s Republic of China, or the Employment Contract Law, effective in January 2008 and amended in 2012, require employers to provide written contracts to their employees, restrict the use of temporary workers and aim to give employees long-term job security. Employers must pay their employees’ wages equal to or above local minimum wage standards, establish labor safety and workplace sanitation systems, comply with state labor rules and standards and provide employees with appropriate training on workplace safety. In September 2008, the State Council promulgated the Implementing Regulations for the PRC Employment Contract Law which became effective immediately and interprets and supplements the provisions of the Employment Contract Law.

 

Under the Labor Contract Law, an employer shall limit the number of dispatched workers so that they do not exceed a certain percentage of its total number of workers. In January 2014, the MOHRSS issued the Interim Provisions on Labor Dispatching, which became effective in March 2014, pursuant to which it provides that the number of dispatched workers used by an employer shall not exceed 10% of the total number of its employees.

 

The PRC governmental authorities have passed a variety of laws and regulations regarding social insurance and housing funds from time to time, including, among others, the Social Insurance Law of the People’s Republic of China, the Regulation of Insurance for Labor Injury, the Regulations of Insurance for Unemployment, the Provisional Insurance Measures for Maternal Employees, the Interim Administrative Provisions on Registration of Social Insurance and the Administrative Regulations on the Housing Provident Fund. Pursuant to these laws and regulations, enterprises in the PRC shall provide their employees with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, occupational injury insurance and medical insurance, as well as housing fund and other welfare plans. Failure to comply with such laws and regulations may result in various fines and legal sanctions and supplemental contributions to the local social insurance and housing fund regulatory authorities.

 

Pursuant to the PRC Civil Code, which was promulgated by the National People’s Congress on May 28, 2020 and took effect on January 1, 2021, employers shall bear tortious liability for any injury or damage caused to other people by their employees in the course of their work. Parties that use outsourced labor shall bear tortious liability for any injury or damage caused to other people by outsourced personnel during the course of their work during the labor dispatch period; the labor dispatching party shall bear corresponding supplementary liability where it is at fault.

 

 

Regulations Relating to Ownership of Companies Limited by Shares

 

Pursuant to the Company Law of the PRC, directors, supervisors and senior management members of a company limited by shares are required to report their shareholding in the company and changes in such shareholding to the company; and shall not transfer more than 25% of their shareholding in the company during their term of service or transfer their shares within one year from the date on which the shares of the company are listed on a stock exchange. The directors, supervisors and senior management members are also prohibited from transferring their shares of the company within half a year after termination of their services.

 

Regulations Relating to Overseas Listing and M&A

 

On August 8, 2006, six PRC regulatory agencies, including the CSRC, promulgated the Rules on the Merger and Acquisition of Domestic Enterprises by Foreign Investors, or the M&A Rules, which took effect on September 8, 2006 and were amended on June 22, 2009. The M&A Rules, among other things, require offshore special purpose vehicles formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC domestic enterprises or individuals to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. In September 2006, the CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles. The CSRC approval procedures require the filing of a number of documents with the CSRC. Although the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours under this prospectus are subject to the M&A Rules, the interpretation and application of the regulations remain unclear, and this offering may ultimately require approval from the CSRC. If CSRC approval is required, it is uncertain whether it would be possible for us to obtain the approval and any failure to obtain or delay in obtaining CSRC approval for this offering would subject us to sanctions imposed by the CSRC and other PRC regulatory agencies.

 

The M&A Rules, and other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex. For example, the M&A Rules require that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that impact or may impact national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand.

 

In addition, according to the Notice on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors issued by the General Office of the State Council on February 3, 2011 and which took effect 30 days thereafter, the Rules on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors issued by the MOFCOM on August 25, 2011 and which took effect on September 1, 2011, mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOFCOM, and the regulations prohibit any activities attempting to bypass such security review, including by structuring the transaction through a proxy or contractual control arrangement. 

 

On July 6, 2021, the State Council and General Office of the CPC Central Committee issued Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law. The opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies.

 

On December 24, 2021, the CSRC released the Draft Rules Regarding Overseas Listing, which had a comment period that expired on January 23, 2022. The Draft Rules Regarding Overseas Listing lay out the filing regulation arrangement for both direct and indirect overseas listing, and clarify the determination criteria for indirect overseas listing in overseas markets.

 

The Draft Rules Regarding Overseas Listing stipulate that the Chinese-based companies, or the issuer, shall fulfill the filing procedures within three business days after the issuer makes an application for initial public offering and listing in an overseas market. The required filing materials for an initial public offering and listing shall include but are not limited to, record-filing report and related undertakings; regulatory opinions, record-filing, approval and other documents issued by competent regulatory authorities of relevant industries (if applicable); and security assessment opinion issued by relevant regulatory authorities (if applicable); PRC legal opinion; and prospectus. In addition, an overseas offering and listing is prohibited under any of the following circumstances: (1) if the intended securities offering and listing is specifically prohibited by national laws and regulations and relevant provisions; (2) if the intended securities offering and listing may constitute a threat to or endangers national security as reviewed and determined by competent authorities under the State Council in accordance with law; (3) if there are material ownership disputes over the equity, major assets, and core technology, etc. of the issuer; (4) if, in the past three years, the domestic enterprise or its controlling shareholders or actual controllers have committed corruption, bribery, embezzlement, misappropriation of property, or other criminal offenses disruptive to the order of the socialist market economy, or are currently under judicial investigation for suspicion of criminal offenses, or are under investigation for suspicion of major violations; (5) if, in past three years, directors, supervisors, or senior executives have been subject to administrative punishments for severe violations, or are currently under judicial investigation for suspected criminal offenses, or are under investigation for suspected major violations; (6) other circumstances as prescribed by the State Council. The Draft Administration Provisions defines the legal liabilities of breaches such as failure in fulfilling filing obligations or fraudulent filing conducts, imposing a fine between RMB 1 million and RMB 10 million, and in cases of severe violations, a parallel order to suspend relevant business or halt operation for rectification, revoke relevant business permits or operational license.

 

 

Regulations Relating to Tax in the PRC

 

Income Tax

 

The PRC Enterprise Income Tax Law was promulgated in March 2007 and was most recently amended in December 2018. The PRC Enterprise Income Tax Law applies a uniform 25% enterprise income tax rate to both foreign-invested enterprises and domestic enterprises, except where tax incentives are granted to special industries and projects. Under the PRC Enterprise Income Tax Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income. Under the implementation regulations of the PRC Enterprise Income Tax Law, a “de facto management body” is defined as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise.

 

In April 2009, the Ministry of Finance, or MOF, and SAT jointly issued the Notice on Issues Concerning Process of Enterprise Income Tax in Enterprise Restructuring Business, or the Circular 59. In December 2009, SAT issued the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or the Circular 698. Both Circular 59 and Circular 698 became effective retrospective as of January 2008. In March 2011, SAT issued the Notice on Several Issues Regarding the Income Tax of Non-PRC Resident Enterprises, or the SAT Circular 24, effective in April 2011. By promulgating and implementing these circulars, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-resident enterprise.

 

In February 2015, SAT issued the Notice on Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-PRC Resident Enterprises, or the SAT Circular 7, to supersede existing provisions in relation to the indirect transfer as set forth in Circular 698, while the other provisions of Circular 698 remain in force. SAT Circular 7 introduces a new tax regime that is significantly different from that under Circular 698. SAT Circular 7 extends its tax jurisdiction to capture not only indirect transfers as set forth under Circular 698 but also transactions involving transfer of immovable property in China and assets held under the establishment, and placement in China, of a foreign company through the offshore transfer of a foreign intermediate holding company. SAT Circular 7 also addresses transfer of the equity interest in a foreign intermediate holding company broadly. In addition, SAT Circular 7 provides clearer criteria than Circular 698 on how to assess reasonable commercial purposes and introduces safe harbor scenarios applicable to internal group restructurings. However, it also brings challenges to both the foreign transferor and transferee of the indirect transfer as they have to determine whether the transaction should be subject to PRC tax and to file or withhold the PRC tax accordingly. In October 2017, SAT issued the Announcement on Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises, or the SAT Circular 37, amended in June 2018. The SAT Circular 37 superseded the Non-resident Enterprises Measures and SAT Circular 698 as a whole and partially amended some provisions in SAT Circular 24 and SAT Circular 7. SAT Circular 37 purports to clarify certain issues in the implementation of the above regime, by providing, among others, the definition of equity transfer income and tax basis, the foreign exchange rate to be used in the calculation of withholding amount, and the date of occurrence of the withholding obligation. Specifically, SAT Circular 37 provides that where the transfer income subject to withholding at source is derived by a non-PRC resident enterprise in installments, the installments may first be treated as recovery of costs of previous investments. Upon recovery of all costs, the tax amount to be withheld must then be computed and withheld.

 

Value-Added Tax

 

The PRC Provisional Regulations on Value-Added Tax were promulgated by the State Council on December 13, 1993, which became effective on January 1, 1994 and were subsequently amended from time to time. The Detailed Rules for the Implementation of the PRC Provisional Regulations on Value-Added Tax (2011 Revision) was promulgated by the Ministry of Finance on December 25, 1993 and subsequently amended on December 15, 2008 and October 28, 2011. On November 19, 2017, the State Council promulgated the Decisions on Abolishing the PRC Provisional Regulations on Business Tax and Amending the PRC Provisional Regulations on Value-Added Tax. Pursuant to these regulations, rules and decisions, all enterprises and individuals engaged in sale of goods, provision of processing, repair, and replacement services, sales of services, intangible assets, real property, and the importation of goods within the PRC territory are VAT taxpayers. On March 21, 2019, the Ministry of Finance, the SAT, and the General Administration of Customs jointly issued the Announcement on Relevant Policies on Deepen the Reform of Value-Added Tax. Sales revenue represents the invoiced value of goods, net of VAT. The VAT is based on gross sales price, starting from April 1, 2019, VAT rate was lowered to 13%.

 

 

Laws and Regulations Relating to Medical Devices

 

Regulation and Classification of Medical Devices

 

Pursuant to the Regulations on the Supervision and Administration of Medical Devices promulgated on January 4, 2000, effective on June 1, 2014, amended by the State Council on May 4, 2017 and now effective, and then amended on February 9, 2021, effective as of June 1, 2021 (“Regulation on Supervision and Administration of Medical Devices”), the Food and Drug Administration of the State Council shall be responsible for the national administration and supervision of medical devices of the PRC and its local counterparts take charge of the local administration and supervision of medical devices of the PRC.

 

Under this regulation, medical devices have been classified into three categories based on the degree of risk. Class I medical devices shall refer to those devices with low level of risks and whose safety and effectiveness can be ensured through routine administration. Class II medical devices shall refer to those devices with moderate risks that must be strictly controlled and regulated to ensure their safety and effectiveness. Class III medical devices shall refer to those devices with relatively high risks that must be strictly controlled and regulated through special measures to ensure their safety and effectiveness.

 

Zeshi Health has obtained a Business Record Certificate for Type II Medical Devices on January 7, 2021, which is valid for 5 years.

 

Operation License for Medical Device

 

Pursuant to the Regulations on the Supervision and Administration of Medical Devices and the Administrative Measures on the Operation Supervision of Medical Devices, promulgated on July 30, 2014 and came into effect on October 1, 2014 (amended on November 17, 2017, came into effect on November 17, 2017), filing and licensing are not required for the operation of Class I medical devices. Operators engaged in the operation of Class II medical devices are subject to filing administration and will receive medical device operation filing certificate upon satisfaction of filing requirement, while operators engaged in the operation of Class III medical devices are subject to pre-approval licensing administration and will receive medical device operation license upon receipt of approval for licensing. A medical device operation license is valid for five years and may be renewed six months prior to its expiration date

 

To engage in business operations of medical devices, the following requirements shall be met:

 

1. Have a quality control institution or staff corresponding to the business scope and scale, and the staff shall have relevant education or professional titles certified by the state.

 

2. Have an operation and storage premise corresponding to the business scope and scale.

 

3. Have storage conditions corresponding to the business scope and scale; warehouses are not required if all storage is commissioned to other operators of medical devices.

 

4. Have a quality control system corresponding to the medical devices concerned.

 

5. Possessing the capability of professional guidance, technical training and after-sale service corresponding to the medical devices it operates; or it has come into an agreement on technical support with a relevant institution.

 

An enterprise to be engaged in business operations of Category III medical devices shall also have a computerized information management system compliant with quality standards to ensure traceability of products. An enterprise to be engaged in business operations of Category I or Category II medical devices is encouraged to set up such a system.

 

Advertisements of Medical Devices

 

Pursuant to the Regulations on Tentative Measures for the Censorship of Advertisement for Drugs, Medical Devices, Dietary Supplements, Food Formula for Special Medical Purpose promulgated by SAMR on December 24, 2019 and came into effect on March 1, 2020, the State Administration for Market Regulation is responsible for organizing and guiding the review of advertisements for drugs, medical devices, health foods and formula foods for special medical purposes. The administrations for market regulation and drug administrations (hereinafter referred to as the “advertisement review authorities”) of all provinces, autonomous regions and centrally administered municipalities shall be responsible for the review of advertisements for drugs, medical devices, health food and formula food for special medical purposes, and may entrust other administrative authorities to implement review of advertisements pursuant to the law.

 

The validity period of the advertisement approval number for drugs, medical devices, health food and formula food for special medical purposes shall be consistent with the shortest validity period of the product registration certificate, filing certificate or production license. If no valid period is prescribed in the product registration certificate, filing certificate or production license, the valid period of the advertisement approval number shall be two years.

 

Advertisements for drugs, medical devices, health food and formula food for special medical purposes shall be true and legitimate and shall not contain any false or misleading contents. Advertisers shall be responsible for the veracity and legitimacy of the contents of advertisements for drugs, medical devices, health food and formula food for special medical purposes.

 

 

National Medical Insurance Program

 

The national medical insurance program was adopted pursuant to the Decision of the State Council on the Establishment of the Urban Employee Basic Medical Insurance Program issued by the State Council on December 14, 1998, under which all employers in urban cities are required to enroll their employees in the Urban Employee Basic Medical Insurance Program and the insurance premium is jointly contributed by the employers and employees. Pursuant to the Opinions on the Establishment of the New Rural Cooperative Medical System forwarded by the General Office of the State Council on January 16, 2003, China launched the New Rural Cooperative Medical System to provide medical insurance for rural residents in selected areas which has since spread to the whole nation. The State Council promulgated the Guiding Opinions of the State Council about the Pilot Urban Resident Basic Medical Insurance on July 10, 2007, under which urban residents of the pilot district, rather than urban employees, may voluntarily join Urban Resident Basic Medical Insurance. In 2015, the PRC government announced the Outline for the Planning of the National Medical and Health Service System (2015-2020) which aims to establish a basic medical and health care system that covers both rural and urban citizens by 2020. On January 3, 2016, the State Council issued the Opinions on Integrating the Basic Medical Insurance Systems for Urban and Rural Residents to integrate the Urban Resident Basic Medical Insurance and the New Rural Cooperative Medical System and the establishment of a unified Basic Medical Insurance for Urban and Rural Residents, which will cover all urban and rural non-working residents expect for rural migrant workers and persons in flexible employment arrangements who participate in the basic medical insurance for urban employees.

 

With regard to reimbursement for medical devices and diagnostic tests, the Notice of Opinion on the Diagnosis and Treatment Management, Scope and Payment Standards of Medical Service Facilities Covered by the National Urban Employees Basic Medical Insurance Scheme (Lao She Bu Fa [1999] No. 22) prescribes the coverage of diagnostic and treatment devices and diagnostic tests where part of the fees is paid through the basic medical insurance scheme. It also includes a negative list that precludes certain devices and medical services from governmental reimbursement. Detailed reimbursement coverage and rate for medical devices and medical services (including diagnostic tests and kits) are subject to each province’s local policies.

 

Export Registration

 

Pursuant to Measures for the Supervision and Administration of Medical Device Production promulgated by the CFDA and amended on November 11, 2017, CFDA, in accordance with the spirit of the Notice of Guo Ban Fa [94] No. 66 of the State Council, conducts inspections of safety and legality of the exported products manufactured by domestic enterprises, grants legitimate production license in China (if these products are sold within Chinese territory) and files the relevant product information by its branches at the level of a districted city for recordation. In accordance with international practice, the quality of exported medical devices is mainly supervised by the importing countries. However, some importing countries/regions may require exporting enterprises to provide Medical Device Product Export Sales Certificates issued by the CFDA. Pursuant to Announcement on Issuing the Provisions on the Administration of Medical Device Product Export Sales Certificates, promulgated by the CFDA and effective on September 1, 2015, such exporting enterprises may apply to the provincial departments of the CFDA at the places where enterprises are located for Medical Device Product Export Sales Certificates

 

The premise of obtaining Medical Device Product Export Sales Certificates is that the relevant production enterprises have obtained medical device product registration certificates and production licenses or have undergone the formalities for recordation and production of medical device products in China. The valid period of Medical Device Product Export Sales Certificates, except being specified for one time use, shall not expire after the earliest deadline of any certificate among various certificates submitted by the enterprise amid the application materials, and shall be no longer than two years. Where the relevant materials submitted by an enterprise change, the enterprise shall report to the certificate issuing department in a timely manner. Where the relevant materials change, or the Medical Device Product Export Sales Certificate still needs to be used after its expiration, the enterprise shall apply for a new Medical Device Product Export Sales Certificate. Where the CFDA find that any relevant enterprises fail to meet the requirements of relevant regulations on production, they shall downgrade the credit ratings of such enterprises to lower levels; or, when any enterprises are considered failing to meet the requirements for issuance of certificates anymore, or the relevant materials submitted by the enterprises change, the provincial CFDA departments shall notify the relevant information in a timely manner.

 

Two-invoice System

 

According to the Notice of Publishing Opinions on Implementing Two-invoice System in Drug Procurement Among Public Medical Institutions (For Trial Implementation) which was issued on December 26, 2016, the “two-invoice system” refers to the system that requires one invoice to be issued from pharmaceutical manufacturers to pharmaceutical distributors and the other invoice to be issued from pharmaceutical distributors to medical institutions. The wholly owned or holding commercial company (only one commercial company is permitted in the whole country) or the domestic general agent for overseas drugs (only one domestic agent is permitted in the whole country) established by a pharmaceutical manufacturer or a group enterprise integrating science, industry and trade may be regarded as a manufacturer. The allocation of drugs between a pharmaceutical distribution group enterprise and its wholly owned (holding) subsidiaries or among its wholly-owned (holding) subsidiaries may not be regarded as a process for which an invoice should be issued, but one invoice is allowed to be issued at most.

 

Currently, some provinces in the PRC have formulated relevant rules and regulations to implement the “two-invoice system” in the field of medical consumables, for instance, the Notice on the Sharing of Transparent Procurement Results of Medical Devices (Medical Consumables) across the Province promulgated by the Fujian Provincial Medical Security Management Committee Office in July 2018, the Notice on Further Promoting the “Two Invoice System” on Medicines and Medical Consumables issued by eight local government departments of Shaanxi Province including Deepen Medical and Healthcare System Reform Leading Group Office of Shaanxi Province in July 2018, and the Opinions on Implementation of the “Two Invoice System” in Medical Consumables Procurement by Public Medical Institutions in Anhui Province (for Trial Implementation) issued by five local government departments of Anhui Province including Food and Drug Administration of Anhui Province in November 2017.

 

 

Regulations Relating to Personal Information Protection

 

On August 20, 2021, the Standing Committee of the National People’s Congress of China promulgated the Personal Information Protection Law, or the PIPL, which took effect on November 1, 2021. In addition to other rules and principles of personal information processing, the PIPL specifically provides rules for processing sensitive personal information. Sensitive personal information refers to personal information that, once leaked or illegally used, could easily lead to the infringement of human dignity or harm to the personal or property safety of an individual, including biometric recognition, religious belief, specific identity, medical and health, financial account, personal whereabouts and other information of an individual, as well as any personal information of a minor under the age of 14. Only where there is a specific purpose and sufficient necessity, and under circumstances where strict protection measures are taken, may personal information processors process sensitive personal information. A personal information processor shall inform the individual of the necessity of processing such sensitive personal information and the impact thereof on the individual’s rights and interests.

 

Regulations Relating to Internet and Information

 

Regulations Relating to Telecommunication Services

 

The Administrative Measures on Internet Information Services, or ICP Measures, which was promulgated by the State Council in September 2000 and most recently amended on January 8, 2011, set forth more specific rules on the provision of internet information services. According to ICP Measures, any company that engages in the provision of commercial internet information services shall obtain a sub-category VATS License for Internet Information Services, or ICP License, from the relevant government authorities before providing any commercial internet information services within the PRC. Pursuant to the above- mentioned regulations, “commercial internet information services” generally refer to provision of specific information content, online advertising, web page construction and other online application services through internet for profit making purpose.

 

The Administrative Measures on Licensing of Telecommunications Business, or the Licenses Measures, issued on March 1, 2009 and most recently amended on July 3, 2017, which set forth more specific provisions regarding the types of licenses required to operate VATS, the qualifications and procedures for obtaining such licenses and the administration and supervision of such licenses. Under these regulations, a commercial operator of VATS must first obtain a VATS License from MIIT or its provincial level counterparts, otherwise such operator might be subject to sanctions including corrective orders and warnings from the competent administration authority, fines and confiscation of illegal gains and, in the case of significant infringements, the related websites may be ordered to close.

 

Under the Licenses Measures, where telecommunications operators change the name, legal representative or registered capital within the validity period of their operating licenses, they shall file an application for update of the operating license to the original issuing authority within 30 days after completing the administration for industry and commerce. Those fail to comply with the procedure may be ordered to make rectifications, issued a warning or imposed a fine of RMB 5,000 to RMB 30,000 (approximately $770 to $4,630) by the relevant telecommunications administrations.

 

To comply with the relevant laws and regulations, Zeshi Health, Jing Yu Xin and Fine C+ Health have obtained the ICP licenses.

 

Regulations on Internet Information Services

 

On September 25, 2000, the State Council promulgated the Administrative Measures on Internet Information Services, or the Internet Measures, which was later amended on January 8, 2011. Under the Internet Measures, a value-added telecommunications license shall be obtained before conducting commercial internet information services in the PRC, and a filing requirement shall be satisfied before conducting non-commercial internet information service. The provision of information services through mobile apps is subject to the PRC laws and regulations governing Internet information services.

 

The content of the internet information is highly regulated in China and pursuant to the Internet Measures, the PRC government may shut down the websites of internet information providers and revoke their value-added telecommunications licenses (for commercial Internet information services) if they produce, reproduce, disseminate or broadcast internet content that contains content that is prohibited by law or administrative regulations. Internet information services operators are also required to monitor their websites. They may not post or disseminate any content that falls within the prohibited categories, and must remove any such content from their websites, save the relevant records and make a report to the relevant governmental authorities. The PRC government may require corrective actions to address non-compliance by ICP License holders or revoke their ICP License for serious violations. In addition, as the internet information service providers, under the PRC Tort Liability Law, which became effective in July 2010, they shall bear tortious liabilities in the event they infringe upon other person’s rights and interests due to providing wrong or inaccurate content through the internet. Where an internet service provider conducts tortious acts through internet services, the infringed person has the right to request the internet service provider take necessary actions such as deleting contents, screening and de-linking. Failing to take necessary actions after being informed, the internet service provider will be subject to its liabilities with regard to the additional damages incurred. Where an internet service provider knows that an internet user is infringing upon other persons’ rights and interests through its internet service but fails to take necessary actions, it is jointly and severally liable with the internet user.

 

 

Regulations Relating to Information Security and Privacy Protection

 

The PRC Cybersecurity Law, which was promulgated in November 7, 2016 and took effect on June 1, 2017, requires a network operator, including internet information services providers among others, to adopt technical measures and other necessary measures in accordance with applicable laws and regulations as well as compulsory national and industrial standards to safeguard the safety and stability of network operations, effectively respond to network security incidents, prevent illegal and criminal activities, and maintain the integrity, confidentiality and availability of network data. The Cybersecurity Law emphasizes that any individuals and organizations that use networks must not endanger network security or use networks to engage in unlawful activities such as those endangering national security, economic order and the social order or infringing the reputation, privacy, intellectual property rights and other lawful rights and interests of others. The Cybersecurity Law has also reaffirmed certain basic principles and requirements on personal information protection previously specified in other existing laws and regulations, including those described above. Any violation of the provisions and requirements under the Cybersecurity Law may subject an internet service provider to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown of websites or even criminal liabilities. Furthermore, MIIT’s Rules on Protection of Personal Information of Telecommunications and Internet Users promulgated in July 2013, effective September 2013, contain detailed requirements on the use and collection of personal information as well as security measures required to be taken by telecommunications business operators and internet information service providers.

 

The Cybersecurity Review Measures, together with the Cybersecurity Law, specify that any purchase of network products and services by critical information infrastructure operators (the “CIIOs”) that may impact national security will be subject to the cybersecurity review. Where the purchase of network products and services by a CIIO influences or may influence state security, the CIIO shall notify the Cybersecurity Review Office, which is under the CAC, and a cybersecurity review shall be conducted pursuant to the Measures. According to Cybersecurity Review Measures, the CIIO shall be identified by the relevant department as protecting critical information infrastructure. In addition, under the Cybersecurity Review Measures, the term “network products and services” mainly refers to core network equipment; high-performance computers and servers; large-capacity storage devices; large-capacity databases and application software; network security equipment; cloud computing services; and other network products and services that have a significant impact on critical information infrastructure security. Under the Cybersecurity Law, where CIIOs use network products or services that have neither been reviewed for security, nor passed the cybersecurity review, they shall be ordered by the relevant competent departments to stop using such products or services, and a fine of no less than one, but no more than ten times the purchase amount shall be imposed. As for the persons directly in charge or otherwise directly responsible, a fine of no less than RMB 10,000 (approximately $1,543) but no more than RMB 100,000 (approximately $15,434) shall be imposed. Zeshi Health, Jing Yu Xin and Fine C+ Health as the internet information services provider, is therefore subject to the regulations relating to information security.

 

On July 10, 2021, the CAC issued a revised draft of the Measures for Cybersecurity Review for public comments. Further, on January 4, 2022, thirteen PRC regulatory agencies, namely, the CAC, the NDRC, the Ministry of Industry and Information Technology, the Ministry of Public Security, the Ministry of State Security, the Ministry of Finance, MOFCOM, SAMR, CSRC, the People’s Bank of China, the National Radio and Television Administration, National Administration of State Secrets Protection and the National Cryptography Administration, jointly adopted and published the Measures for Cybersecurity Review (2021), which became effective on February 15, 2022.

 

On June 10, 2021, the Standing Committee of the NPC promulgated the PRC Data Security Law, which became effective on September 1, 2021. The Data Security Law also sets forth the data security protection obligations for entities and individuals handling personal data, including that no entity or individual may acquire such data by stealing or other illegal means, and the collection and use of such data should not exceed the necessary limits. The costs of compliance with, and other burdens imposed by, Cybersecurity Law and any other cybersecurity and related laws may limit the use and adoption of our products and services and could have an adverse impact on our business. Further, if the enacted version of the Measures for Cybersecurity Review and/or the Network Internet Data Protection Draft Regulations (draft for comments) mandate clearance of cybersecurity review and other specific actions to be completed by companies like us, we face uncertainties as to whether such clearance can be timely obtained, or at all.

 

On November 14, 2021, CAC published the Administration Measures for Cyber Data Security (Draft for Public Comments), or the “Cyber Data Security Measure (Draft)”, which requires cyberspace operators with personal information of more than 1 million users who want to list abroad to file a cybersecurity review with the Office of Cybersecurity Review. The cybersecurity review will evaluate, among others, the risk of critical information infrastructure, core data, important data, or a large amount of personal information being influenced, controlled or maliciously used by foreign governments and risk of network data security after going public overseas. 

 

On December 24, 2021, the CSRC released the Administrative Provisions of the State Council Regarding the Overseas Issuance and Listing of Securities by Domestic Enterprises (Draft for Comments) (the “Draft Administrative Provisions”) and the Measures for the Overseas Issuance of Securities and Listing Record-Filings by Domestic Enterprises (Draft for Comments) (the “Draft Filing Measures,” collectively with the Draft Administrative Provisions, the “Draft Rules Regarding Overseas Listing”), both of which are currently published for public comments only. 

 

As confirmed by our PRC counsel, we are not affected by the Measures for Cybersecurity Censorship because we do not conduct our business through the internet and we do not have over one million users’ personal information.

 

Regulations on House Leasing

 

On May 28, 2020, the Third Session of the 13th National People’s Congress passed the Civil Code of the People’s Republic of China which took effect on January 1, 2021, and replaced the PRC Contract Law. According to the Civil Code of the People’s Republic of China, a written lease contract shall be entered into between the lessor and the lessee for leasing a property, and the contract shall include the terms and conditions such as the term, purpose and price of leasing and liability for maintenance and repair, etc., as well as other rights and obligations of both parties.

 

We have signed written lease contracts for our existing business sites.

 

 

Regulations Relating to Customer Rights Protection

 

The PRC Customer Rights and Interests Protection Law, or Customer Protection Law, as amended on October 25, 2013 and effective on March 15, 2014, sets out the obligations of business operators and the rights and interests of the customers. Pursuant to this law, business operators must guarantee that the commodities they sell satisfy the requirements for personal or property safety, provide customers with authentic information about the commodities, and guarantee the quality, function, usage and term of validity of the commodities. Failure to comply with the Customer Protection Law may subject business operators to civil liabilities such as refunding purchase prices, exchange of commodities, repairing, ceasing damages, compensation, and restoring reputation, and even subject the business operators or the responsible individuals to criminal penalties if business operators commit crimes by infringing the legitimate rights and interests of customers.

 

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.

 

Organizational Structure

 

The following is an organizational chart setting forth our corporate structure as of September 30, 2022 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			24.759	%		Yuan Shen			40.637	%
2 Yangwei Global Limited			13.775	%		Qian Li			87.291	%
3 Jiyi Global Investments Limited			8.045	%		Qian Li			75.05	%
4 Zhan Zhao Limited			5.093	%

 

*	Beneficial owners of 30% or more of applicable record holders, where record holder is not an individual.

 

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)