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Roan Holdings Group Co., Ltd. – ‘20-F’ for 12/31/19

On:  Friday, 6/26/20, at 4:32pm ET   ·   For:  12/31/19   ·   Accession #:  1213900-20-15976   ·   File #:  1-36664

Previous ‘20-F’:  ‘20-F’ on 4/26/19 for 12/31/18   ·   Next:  ‘20-F’ on 5/17/21 for 12/31/20   ·   Latest:  ‘20-F/A’ on 2/7/24 for 12/31/22   ·   5 References:   By:  Roan Holdings Group Co., Ltd. – Latest ‘20-F/A’ on 2/7/24 for 12/31/22 By:  Roan Holdings Group Co., Ltd. – ‘20-F’ on 5/15/23 for 12/31/22 By:  Roan Holdings Group Co., Ltd. – ‘F-1’ on 1/6/23 By:  Roan Holdings Group Co., Ltd. – ‘20-F’ on 4/22/22 for 12/31/21 By:  Roan Holdings Group Co., Ltd. – Next ‘20-F’ on 5/17/21 for 12/31/20 

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 6/26/20  Roan Holdings Group Co., Ltd.     20-F       12/31/19  129:10M                                    Edgar Agents LLC/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual Report by a Foreign Non-Canadian Issuer      HTML   1.20M 
 2: EX-4.18     Zhigang Liu Employment Agreement, Dated November    HTML     57K 
                20, 2019                                                         
 3: EX-4.23     English Translation of Capital Contribution         HTML     66K 
                Agreement Dated __, 2019 by and Among Roan, Lixin                
                Financial Holdings Group, Et Al                                  
 4: EX-4.24     English Translation of Share Purchase Agreement     HTML    275K 
                Dated June 13, 2019 Between China Lending                        
                Corporation and Lixin Financial Holdings Group, Et               
                Al                                                               
 5: EX-4.25     English Translation of Framework Agreement Dated    HTML     50K 
                July 31, 2019 With Zhejiang Zhongfeng Investment                 
                Management Co., Ltd.                                             
 6: EX-4.26     English Translation of Supplemental Agreement to    HTML     74K 
                Share Purchase Agreement Dated August 23, 2019,                  
                Between China Lending Corporation and Lixin                      
                Financial Holdings Group, Et Al                                  
 7: EX-4.27     English Translation of Supplemental Agreement to    HTML     46K 
                Framework Agreement Dated November 20, 2019 With                 
                Zhejiang Zhongfeng Investment Management Co., Ltd.               
 8: EX-4.28     English Translation of Share Transfer and Vie       HTML     68K 
                Termination Agreement Dated November 22, 2019                    
 9: EX-4.29     English Translation of Supplemental Agreement to    HTML     63K 
                Share Transfer and Vie Termination Agreement Dated               
                January 18, 2020                                                 
10: EX-4.30     English Translation of Lease Agreement Between      HTML     48K 
                Junrong Capital Holdings Limited and Lixin                       
                (Hangzhou) Asset Management Co., Ltd.                            
11: EX-4.31     English Translation of Lease Agreement Between      HTML     56K 
                Hangzhou Yuhuangshannan Fund Town Management                     
                Committee and Zhejiang Lixin Enterprise Management               
                Group Co., Ltd., Dated July 3, 2018                              
12: EX-4.32     English Translation of Lease Between Zhejiang       HTML     47K 
                Fengfan Electrical Accessories Co., Ltd. and                     
                Zhejiang Jingyuxin Financing Guarantee Co., Ltd.,                
                Dated April 7, 2020                                              
13: EX-4.33     English Translation of Lease Agreement Between      HTML     51K 
                Junrong Capital Holdings Limited and Zhiyuan                     
                Factoring (Guangzhou) Co., Ltd.                                  
14: EX-4.34     English Translation of Guangzhou City Lease         HTML     46K 
                Contract Between Guangdong Letian Creative                       
                Investment Co., Ltd. and Zhiyuan Factoring                       
                (Guangzhou) Co., Ltd., Dated June 21, 2019                       
15: EX-4.35     English Translation of Lease Contract Between       HTML     38K 
                Yajuan Zhu and Zhejiang Jing Yu Xin Financing                    
                Guarantee Co., Ltd                                               
16: EX-8.1      List of Subsidiaries                                HTML     40K 
19: EX-13.1     Annual or Quarterly Report to Security Holders      HTML     37K 
20: EX-13.2     Annual or Quarterly Report to Security Holders      HTML     37K 
21: EX-99.1     Press Release Dated June 26, 2020 Titled "Roan      HTML    185K 
                Holdings Group Co., Ltd. Reports Full Year 2019                  
                Financial Results"                                               
17: EX-12.1     Statement re: Computation of Ratios                 HTML     42K 
18: EX-12.2     Statement re: Computation of Ratios                 HTML     42K 
58: R1          Document And Entity Information                     HTML     77K 
129: R2          Consolidated Balance Sheets                         HTML    170K  
88: R3          Consolidated Balance Sheets (Parentheticals)        HTML     58K 
48: R4          Consolidated Statements of Operations and           HTML    150K 
                Comprehensive Income (Loss)                                      
57: R5          Consolidated Statements of Changes in               HTML    107K 
                Shareholders? Equity (Deficit)                                   
127: R6          Consolidated Statements of Cash Flows               HTML    176K  
86: R7          Statement of Reconciliation of Cash, Cash           HTML     48K 
                Equivalents and Restricted Cash                                  
43: R8          Organization and Principal Activities               HTML     80K 
59: R9          Liquidity                                           HTML     44K 
78: R10         Summary of Significant Accounting Policies          HTML    162K 
115: R11         Acquisition of Lixin Cayman                         HTML    136K  
55: R12         Disposition of Feng Hui                             HTML     59K 
41: R13         Restricted Cash                                     HTML     41K 
79: R14         Short-Term Investment                               HTML     42K 
116: R15         Accounts Receivable, Net                            HTML     46K  
56: R16         Loans Receivable Due From Factoring Customers       HTML     44K 
42: R17         Loans Due From Third Parties                        HTML     51K 
80: R18         Other current assets                                HTML     44K 
114: R19         Property and Equipment, Net                         HTML     44K  
76: R20         Intangible Assets, Net                              HTML     48K 
35: R21         Accrued Expenses and Other Current Liabilities      HTML     44K 
101: R22         Income Taxes                                        HTML     62K  
111: R23         Earnings (Loss) Per Share                           HTML     49K  
77: R24         Related Party Transactions and Balances             HTML     43K 
36: R25         Redeemable Convertible Preferred Shares             HTML     54K 
102: R26         Equity                                              HTML     79K  
113: R27         Segment Reporting                                   HTML     62K  
75: R28         Commitments and Contingencies                       HTML     52K 
37: R29         Subsequent Events                                   HTML     45K 
40: R30         Accounting Policies, by Policy (Policies)           HTML    259K 
53: R31         Organization and Principal Activities (Tables)      HTML     70K 
118: R32         Summary of Significant Accounting Policies          HTML     66K  
                (Tables)                                                         
82: R33         Acquisition of Lixin Cayman (Tables)                HTML    124K 
39: R34         Disposition of Feng Hui (Tables)                    HTML     56K 
52: R35         Short-Term Investment (Tables)                      HTML     42K 
117: R36         Accounts Receivable, Net (Tables)                   HTML     47K  
81: R37         Loans Receivable Due From Factoring Customers       HTML     41K 
                (Tables)                                                         
38: R38         Loans Due From Third Parties (Tables)               HTML     49K 
54: R39         Other current assets (Tables)                       HTML     44K 
34: R40         Property and Equipment, Net (Tables)                HTML     44K 
72: R41         Intangible Assets, Net (Tables)                     HTML     49K 
104: R42         Accrued Expenses and Other Current Liabilities      HTML     43K  
                (Tables)                                                         
94: R43         Income Taxes (Tables)                               HTML     61K 
33: R44         Earnings (Loss) Per Share (Tables)                  HTML     48K 
71: R45         Equity (Tables)                                     HTML     65K 
103: R46         Segment Reporting (Tables)                          HTML     60K  
93: R47         Commitments and Contingencies (Tables)              HTML     47K 
32: R48         Organization and Principal Activities (Details)     HTML     78K 
73: R49         Organization and Principal Activities (Details) -   HTML     92K 
                Schedule of the company and its subsidiaries                     
65: R50         Liquidity (Details)                                 HTML     63K 
49: R51         Summary of Significant Accounting Policies          HTML     78K 
                (Details)                                                        
83: R52         Summary of Significant Accounting Policies          HTML     42K 
                (Details) - Schedule of foreign currency                         
                translation and transactions                                     
119: R53         Summary of Significant Accounting Policies          HTML     53K  
                (Details) - Schedule of property and equipment                   
                estimated useful lives                                           
66: R54         Summary of Significant Accounting Policies          HTML     52K 
                (Details) - Schedule of intangible assets                        
                estimated useful lives using the straight-line                   
                method                                                           
50: R55         Summary of Significant Accounting Policies          HTML     40K 
                (Details) - Schedule of financial guarantee                      
                services                                                         
84: R56         Summary of Significant Accounting Policies          HTML     45K 
                (Details) - Schedule of management consulting                    
                services                                                         
120: R57         Acquisition of Lixin Cayman (Details)               HTML     61K  
64: R58         Acquisition of Lixin Cayman (Details) - Schedule    HTML     58K 
                of estimated fair values for major classes of                    
                assets acquired and liabilities                                  
51: R59         Acquisition of Lixin Cayman (Details) - Schedule    HTML     58K 
                of carrying amounts of major classes of acquired                 
                assets                                                           
95: R60         Acquisition of Lixin Cayman (Details) - Schedule    HTML    155K 
                of pro forma financial information includes                      
                various assumptions                                              
107: R61         Disposition of Feng Hui (Details)                   HTML     71K  
67: R62         Disposition of Feng Hui (Details) - Schedule of     HTML     51K 
                operations and comprehensive income (Loss)                       
28: R63         Disposition of Feng Hui (Details) - Schedule of     HTML     46K 
                operations and comprehensive income (Loss)                       
                (Parentheticals)                                                 
98: R64         Disposition of Feng Hui (Details) - Schedule of     HTML     68K 
                reconciliation of assets and liabilities held for                
                sale consolidated balance sheet                                  
110: R65         Disposition of Feng Hui (Details) - Schedule of     HTML     63K  
                reconciliation of income from operations                         
                classified as discontinued operations                            
70: R66         Restricted Cash (Details)                           HTML     44K 
31: R67         Short-Term Investment (Details) - Schedule of       HTML     48K 
                amortized cost and fair value                                    
99: R68         Accounts Receivable, Net (Details) - Schedule of    HTML     45K 
                accounts receivable                                              
105: R69         Accounts Receivable, Net (Details) - Schedule of    HTML     45K  
                movement of allowance for doubtful accounts                      
125: R70         Loans Receivable Due From Factoring Customers       HTML     43K  
                (Details)                                                        
92: R71         Loans Receivable Due From Factoring Customers       HTML     44K 
                (Details) - Schedule of loans receivable                         
47: R72         Loans Due From Third Parties (Details)              HTML     64K 
63: R73         Loans Due From Third Parties (Details) - Schedule   HTML     48K 
                of loans due from third parties                                  
122: R74         Loans Due From Third Parties (Details) - Schedule   HTML     49K  
                of allowance for doubtful accounts                               
89: R75         Other current assets (Details) - Schedule of other  HTML     61K 
                current assets                                                   
44: R76         Property and Equipment, Net (Details)               HTML     40K 
60: R77         Property and Equipment, Net (Details) - Schedule    HTML     55K 
                of property and equipment, net                                   
128: R78         Intangible Assets, Net (Details)                    HTML     40K  
87: R79         Intangible Assets, Net (Details) - Schedule of      HTML     58K 
                intangible assets net                                            
124: R80         Intangible Assets, Net (Details) - Schedule of      HTML     54K  
                amortization expenses                                            
91: R81         Accrued Expenses and Other Current Liabilities      HTML     57K 
                (Details) - Schedule accrued expenses and other                  
                current liabilities                                              
46: R82         Income Taxes (Details)                              HTML     49K 
62: R83         Income Taxes (Details) - Schedule of income tax     HTML     47K 
                expense                                                          
123: R84         Income Taxes (Details) - Schedule of effective      HTML     53K  
                income tax rate and PRC statutory income tax                     
90: R85         Income Taxes (Details) - Schedule of deferred tax   HTML     64K 
                assets and liabilities                                           
45: R86         Earnings (Loss) Per Share (Details) - Schedule of   HTML     63K 
                computation of basic and diluted loss per common                 
                share                                                            
61: R87         Related Party Transactions and Balances (Details)   HTML     58K 
126: R88         Redeemable Convertible Preferred Shares (Details)   HTML     71K  
85: R89         Equity (Details)                                    HTML    133K 
96: R90         Equity (Details) - Schedule of restricted shares    HTML     61K 
108: R91         Equity (Details) - Schedule of warrants activity    HTML     70K  
68: R92         Equity (Details) - Schedule of assumptions used to  HTML     52K 
                value stock options granted using a Black-Scholes                
                model                                                            
29: R93         Equity (Details) - Schedule of assumptions used to  HTML     51K 
                value stock options granted using a Black-Scholes                
                model                                                            
97: R94         Segment Reporting (Details)                         HTML     39K 
109: R95         Segment Reporting (Details) - Schedule of segment   HTML     82K  
                reporting                                                        
69: R96         Commitments and Contingencies (Details)             HTML     61K 
30: R97         Commitments and Contingencies (Details) - Schedule  HTML     47K 
                of operating lease related assets and liabilities                
100: R98         Commitments and Contingencies (Details) - Schedule  HTML     55K  
                of maturities of lease liabilities                               
106: R99         Subsequent Events (Details)                         HTML     44K  
74: XML         IDEA XML File -- Filing Summary                      XML    228K 
121: EXCEL       IDEA Workbook of Financial Reports                  XLSX    144K  
22: EX-101.INS  XBRL Instance -- rahgf-20191231                      XML   2.01M 
24: EX-101.CAL  XBRL Calculations -- rahgf-20191231_cal              XML    216K 
25: EX-101.DEF  XBRL Definitions -- rahgf-20191231_def               XML   1.13M 
26: EX-101.LAB  XBRL Labels -- rahgf-20191231_lab                    XML   2.07M 
27: EX-101.PRE  XBRL Presentations -- rahgf-20191231_pre             XML   1.12M 
23: EX-101.SCH  XBRL Schema -- rahgf-20191231                        XSD    344K 
112: ZIP         XBRL Zipped Folder -- 0001213900-20-015976-xbrl      Zip    266K  

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  for the transition period from __________ to ___________

Commission file number: 001-36664

Roan Holdings Group Co., Ltd.

(Exact name of the Registrant as specified in its charter)

British Virgin Islands

(Jurisdiction of incorporation or organization)

147 Ganshui Lane, Yuhuangshannan Fund Town

Shangcheng District

Hangzhou, Zhejiang, China

(Address of principal executive offices)

Zhigang Liu, Chief Executive Officer

Telephone: +86-571-8662-1775

Email: zhigang.Liu@roanholdingsgroup.com

(Name, Telephone, E-mail of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

None

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 25,287,851 ordinary shares.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of the securities under a plan confirmed by a court.

TABLE OF CONTENTS 

CERTAIN INFORMATION

In this Annual Report on Form 20-F, or the “Annual Report”, unless the context indicates otherwise, all references to the terms the “Company,” “we,” “us” and “our” refer to Roan Holdings Group Co., Ltd., giving effect to the Lixin Acquisition (as defined below), and all references to “China” or “PRC” and the “Chinese government” refer to the People’s Republic of China and its government. In this Annual Report, all references to “Renminbi,” or “RMB” are to the legal currency of China and all references to “USD” “U.S. dollars,” “dollars,” “$” or “US$” are to the legal currency of the United States.

The Company’s functional currency is USD. The functional currency of its PRC operating subsidiaries is Chinese Yuan, or RMB. For financial reporting purposes, the financial statements of the Company’s PRC operating subsidiaries were prepared using RMB, are translated into the Company’s functional currency, USD at the exchange rates quoted by www.oanda.com. Assets and liabilities are translated using the exchange rate at each balance sheet date. Revenue and expenses are translated using average rates prevailing during each reporting period, and owners’ equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income in shareholders’ equity.

The audited financial statements for the years ended December 31, 2019, 2018 and 2017 in this Annual Report have been prepared in accordance with accounting principles generally accepted in the United States, or “U.S. GAAP.”

FORWARD-LOOKING STATEMENTS

This Annual Report contains statements that may be deemed to be “forward-looking statements” within the meaning of the federal securities laws. These statements relate to anticipated future events, future results of operations and/or future financial performance. In some cases, you can identify forward-looking statements by their use of terminology such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “future,” “intend,” “may,” “ought to,” “plan,” “possible,” “potentially,” “predicts,” “project,” “should,” “will,” “would,” negatives of such terms or other similar terms. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The forward-looking statements in this Annual Report include, without limitation, statements relating to:

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties, including those described in Item 3D “Key Information - Risk Factors.”

You should not unduly rely on any forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or will occur. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Annual Report, to conform these statements to actual results or to changes in our expectations.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not required.

Not required.

Not required.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not required.

ITEM 3. KEY INFORMATION

The following selected financial data should be read in conjunction with Item 5 - “Operating and Financial Review and Prospects” and the Financial Statements and Notes thereto included elsewhere in this Annual Report.

The following table summarizes our financial data. We have derived the summary statements of comprehensive income data for the three years ended December 31, 2019, 2018 and 2017 and the statements of financial position data as of December 31, 2019 and 2018 from our audited financial statements included elsewhere in this Annual Report. We have derived the selected financial data as of December 31, 2016 and 2015 from our audited financial statements not included in this Annual Report. Our financial statements have been prepared in accordance with U.S. GAAP.

Certain factors that affect the comparability of the information set forth in the following table are described in Item 5 “Operating and Financial Review and Prospects” and the Financial Statements and related notes thereto included elsewhere in this Annual Report.

Statements of Operations and Comprehensive (Loss) Income

Balance Sheet

Not required.

Not required.

In conducting our business, we face many risks that may interfere with our business objectives. Some of these risks could materially and adversely affect our business, financial condition and results of operations. In particular, we are subject to various risks resulting from changing economic, political, industry, business and financial conditions. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business operations.

You should carefully consider the following factors and other information in this Annual Report before you decide to invest in our ordinary shares. If any of the risks referred to below occur, our business, financial condition and results of operations could suffer. In any such case, the trading price of our ordinary shares could decline, and you may lose all or part of your investment.

Risks Factors Relating to the Company’s Business and Operations

The Company has had a lot of structural changes recently and we cannot guarantee the new structure will work well.

For the fiscal years ended December 31, 2019 and 2018, we were unable to achieve similar results and grow at the same rate as the Company has in the past. While the Company finished the Lixin Acquisition in December 2019 and has incorporated the business of Lixin Financial Holdings Group Limited (“Lixin Cayman”) and its subsidiaries, it is still difficult to evaluate our prospects, as 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 industry may be exposed. The Company will continue to encounter risks and difficulties that companies at a similar stage of development frequently experience, including the potential failure to:

If the Company is unable to address any or all of the foregoing risks, its business may be materially and adversely affected.

Public health epidemics or outbreaks such as COVID-19 could adversely impact our business.

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. In December 2019, a novel strain of coronavirus (COVID-19) emerged in Wuhan, Hubei Province, China. The COVID-19 outbreak and spread is causing lockdowns, quarantines, travel restrictions, and closures of businesses and schools. Due to COVID-19 outbreak, our facilities remained closed or had limited business operations after the Chinese New Year holiday until early March 2020. In addition, COVID-19 has caused severe disruptions in transportation, limited access to our facilities and limited support from workforce employed in our operations, and as a result, we may experience the delays in provision of financial guarantee services and consulting services to our customers. Although we have taken all possible measures to overcome the adverse impact derived from the COVID-19 outbreak and have resumed our normal business activities in early March 2020, it is estimated that a lower amount of revenue and profit during the period from February to April 2020. The extent to which the coronavirus impacts our results for fiscal year 2020 will depend on certain future developments, including the duration and spread of the outbreak, 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.

Our limited operating history makes it difficult to evaluate their business and prospects.

In general we have a limited operating history. For example, the income from Zhiyuan Commercial Factoring (Guangzhou) Co., Limited (“Zhiyuan”) and Hangzhou Zeshi Investment Partners (“Zeshi”) constituted the majority of the revenue of the Company in fiscal 2019. However, they were incorporated at the end of 2018 and have a limited operating history. We are not sure about their future development and their income in 2019 may not be indicative of future performance.

Feng Hui Ding Xin (Beijing) Financial Consulting Co., Limited (“Ding Xin”) was formed in the second quarter of 2015. Ding Xin commenced operations in August 2015 but it mainly acted as the WFOE (a wholly foreign-owned enterprise) of the VIE which we divested towards the end of 2019. It incorporated a branch company in Xinjiang in 2015 for finance consulting business.

Ningbo Ding Tai Financial Leasing Co., Limited (“Ding Tai”) was formed in the December of 2016. While it incorporated Zeshi in 2019 and Zeshi (Hangzhou) Health Management Co., Ltd. (“Zeshi Health”) and Nibo Zeshi Insurance Technology Co., Ltd. (“Zeshi Insurance”) in 2020, itself has not commenced operations.

The operating subsidiaries under Lixin Cayman also have a limited operating history. While Zhejiang Jing Yu Xin Financing Guarantee Co., Ltd. (“Zhejiang Jingyuxin”) was incorporated in 2013 and Zhejiang Lixin Enterprise Management Holding Group Co., Ltd.(“Zhejiang Lixin”) was incorporated in 2015, Lixin (Hangzhou) Asset Management Co., Ltd. (“LAM”) and Lixin Supply Chain Management (Tianjin) Co., Ltd. (“Lixin Supply Chain”) were incorporated in 2017.

The Company’s current operations in China are geographically limited to certain areas.

Our business focuses on Yangtze River Delta region and Pearl River Delta region. The Company’s future growth opportunities will depend on the growth and stability of the economy in these areas. A downturn in the economy of these areas or the implementation of provincial or local policies unfavorable to middle-sized and micro enterprises (“MSMEs”) may cause a decrease in the demand for the Company’s loan guaranty services and may negatively affect borrowers’ ability to repay their loans on a timely basis, both of which could have a negative impact on the Company’s profitability and business. Although it is open to and are trying to develop business in more areas, the Company still needs more time to expand its business geographically.

Regarding its financial guarantee services to MSMEs, the Company is subject to greater credit risks than larger guarantee providers, which could adversely affect its results of operations.

There are inherent risks associated with our financial guarantee activities, including credit risk, which is the risk that our customers may not repay us after we make payments for them according to our contracts. We provide financial guarantee services to MSMEs. These customers generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and may have fewer financial resources to weather a downturn in the economy. Such customers may expose the Company to greater credit risks than guaranty providers guaranteeing for larger, better-capitalized state-owned businesses with longer operating histories. Conditions such as inflation, economic downturn, local policy change, adjustment of industrial structure and other factors beyond our control may increase our credit risk more than such events would affect larger guaranty providers. In addition, since we are still focusing on Yangtze River Delta region and Pearl River Delta region, our ability to geographically diversify the economic risks is currently limited by the local markets and economies. Also, decreases in local real estate value could adversely affect the values of the real property used as collateral in the financial guarantee business. Such adverse changes in the local economies may have a negative impact on the ability of customers to repay their loans and the value of their collateral and in turn our results of operations and financial condition may be adversely affected.

Competition in the financial industry is growing and could cause the Company to lose market share and revenues in the future.

We believe that the financial industry is an emerging market in China. We may face growing competition in the financial industry, and the Company believes that financial industry is becoming more competitive as this industry matures and begins to consolidate. The Company will compete other financial companies and some cash-rich state-owned companies or individuals that provide financial services to MSMEs. Some of these competitors have larger and more established customer bases and substantially greater financial, marketing and other resources than we have. As a result, the Company could lose market share and its revenues could decline, thereby adversely affecting our earnings and potential for growth.

The Company’s businesses will require highly qualified personnel, and if it is unable to hire or retain qualified personnel, then it may not be able to grow effectively.

The Company’s future success depends upon its ability to attract and retain highly qualified personnel. Establishment of Zeshi Insurance and Zeshi Health in the first quarter of 2020 with healthcare business and expansion   of the businesses of each operating company will require additional managers and employees with relevant industry experience, and its success will be highly dependent on its ability to attract and retain skilled management personnel and other employees. These operating companies may not be able to attract or retain highly qualified personnel. In addition, competition for skilled personnel is significant in China. This competition may make it more difficult and expensive to attract, hire and retain qualified managers and employees. The Company may incur additional expenses to recruit and retain qualified replacements and its businesses may be disrupted and its financial condition and results of operations may be materially and adversely affected. In addition, key managers may join a competitor or form a competing company. An operating company may not be able to successfully enforce any contractual rights with its management team, in particular in China, where all of these individuals reside or will reside. 

The Company’s business continuity plans could prove to be inadequate, resulting in a material interruption in or disruption to, its business and a negative impact on the Company’s results of operations.

The Company relies on communications and information systems to conduct its business to some extent, and in general its ability to protect its systems against damage from fire, power loss, telecommunication failure, severe weather, natural disasters, terrorism or other factors is important to its operations. The computer systems and network infrastructure the Company uses could be vulnerable to unforeseen problems. While the Company has a business continuity plan and other policies and procedures designed to prevent or limit the effect of a failure or interruption of our information systems, there can be no assurance that any such failures or interruptions will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures or interruptions of our information systems could, among other things, damage the Company’s reputation or result in a loss of clients, which could have a material adverse effect on the Company’s results of operations.

The Company has no material insurance coverage, which could expose it to significant costs and business disruption.

Risks associated with the Company’s business and operations include, but are not limited to, clients’ failure to repay the outstanding principal and interest after we make the payments for them and loss reserves are not sufficient cover such failure, losses of key personnel, business interruption due to power loss or network failure, and risks posed by natural disasters including storms, floods and earthquakes, any of which may result in significant costs or business disruption. The Company does not maintain any credit insurance, business interruption insurance, general third-party liability insurance, nor does it maintain key-man life insurance or any other insurance coverage except the mandatory social insurance for employees. If the Company incurs any loss that is not covered by reserves, its business, financial condition and results of operations could be materially and adversely affected.

The Company maintains cash deposits with various banks. These cash accounts are not sufficiently insured or otherwise protected. Should any bank holding these cash deposits become insolvent, or if the Company is otherwise unable to withdraw funds, it could lose the cash on deposit with that particular bank or trust company.

The Company uses credit reports issued by the Credit Reference Center of the People’s Bank of China for credit records, which may not cover all accurate credit activities of guarantee customers.

The Company generally uses credit reports issued by the Credit Reference Center of the People’s Bank of China (“CCRC”) for guarantee customers’ credit records. According to the information from CCRC’s official website (http://www.pbccrc.org.cn/crc/), CCRC is a professional credit information service institution directly under the People’s Bank of China (“PBOC”) which collects comprehensive credit information about both enterprises and individuals throughout China. The 2,100 credit reports query points of the PBOC’s branches have covered almost all rural areas in China, and CCRC has 300,000 information query ports in financial institutions and networks around the country, and the credit information service network is used throughout China. As of the end of April 2015, CCRC’s database had collected credit information of over 860 million individuals and over 20 million enterprises and institutions, mainly from commercial banks as well as other financial institutions. However, the CCRC’s credit reports do not cover all credit and financing activities with all trust companies, leasing companies, asset management companies, direct lending companies, insurance companies, and other financial companies. Moreover, the PBOC had not established a credit reporting system until 1997 when it established the Bank Credit Registration System which upgraded to the CCRC in 2006. Therefore, CCRC’s credit reports may not be able to cover credit and financing activities that occurred before 1997. In addition, the accuracy of credit reports provided by CCRC may be mainly adversely affected: (1) reliability of information source; (2) victimized by criminals forging identity of the customers; (3) mistakes made by data entry operators; and (4) technical stability of CCRC’s computer system. Furthermore, despite using credit reports issued by the CCRC, privately-owned guarantors may be more susceptible to default than state-owned or public guarantors due to financial difficulties or fraud and therefore, the Company may have more difficulty enforcing guarantees from privately-owned guarantors than from state-owned or public guarantors. Finally, having clean credit history in the past does not preclude a guarantee customer from defaulting in the future.

Risks Related to the Company’s Corporate Structure 

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

On August 8, 2006, the Ministry of Commerce (“MOFCOM”), joined by the China Securities Regulatory Commission (“CSRC”), the State-owned Assets Supervision and Administration Commission of the State Council, the State Administration of Taxation (“SAT”), the State Administration for Industry and Commerce (the “SAIC”), and the State Administration of Foreign Exchange (“SAFE”), jointly promulgated regulations entitled the Provisions Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “M&A Rules”), which took effect as of September 8, 2006, and as amended on June 22, 2009. This regulation, among other things, has certain provisions that require offshore companies formed for the purpose of acquiring PRC domestic companies and controlled directly or indirectly by PRC individuals and companies which are the related parties with the PRC domestic companies, to obtain the approval of MOFCOM prior to engaging in such acquisitions and to obtain the approval of the CSRC prior to publicly listing special purpose vehicles’ securities on an overseas stock market. On September 21, 2006, the CSRC published on its official website a notice specifying the documents and materials that are required to be submitted for obtaining CSRC approval.

The application of the M&A Rules with respect to the Company’s corporate structure remains unclear, with no current consensus existing among leading PRC law firms regarding the scope and applicability of the M&A Rules. We believe that the MOFCOM and CSRC approvals under the M&A Rules are not required in the context of the Business Combination and the Lixin Acquisition because we did not acquire Feng Hui’s equity or assets and Jing Kai and Ding Xin and Lixin Group are already foreign owned. However, we cannot be certain that the relevant PRC government agencies, including the CSRC and MOFCOM, would reach the same conclusion, and we cannot be certain that MOFCOM or the CSRC will not deem that the Business Combination or the Lixin Acquisition circumvented the M&A Rules, and other rules and notices, or that prior MOFCOM or CSRC approval is required for overseas financing.

If prior CSRC approval for overseas financings is required and not obtained, the Company may face severe regulatory actions or other sanctions from MOFCOM, the CSRC or other PRC regulatory agencies. In such event, these regulatory agencies may impose fines or other penalties on the Company’s operations in the PRC, limit the Company’s operating privileges in the PRC, delay or restrict the repatriation of the proceeds from overseas financings into the PRC, restrict or prohibit payment or remittance of dividends to us or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ordinary shares. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to delay or cancel overseas financings, to restructure the Company’s corporate structure, or to seek regulatory approvals that may be difficult or costly to obtain.

The M&A Rules, along with certain foreign exchange regulations discussed below, will be interpreted or implemented by the relevant government authorities in connection with our future offshore financings or acquisitions, and we cannot predict how they will affect our acquisition strategy.

PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries or limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits.

SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC resident holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.

SAFE promulgated the Notice of SAFE on Further Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment, or SAFE Circular 13, on February 13, 2015, which was effective on June 1, 2015. SAFE Circular 13 cancels two administrative approval items: foreign exchange registration under domestic direct investment and foreign exchange registration under overseas direct investment, instead. Banks shall directly examine and handle foreign exchange registration under domestic direct investment and foreign exchange registration under overseas direct investment, and SAFE and its branch shall indirectly regulate the foreign exchange registration of direct investment through banks.

We have notified substantial beneficial owners of ordinary shares who we know are PRC residents of their filing obligations in accordance with SAFE Circular 37 and SAFE Circular 13. However, we may not be aware of the identities of all of our beneficial owners who are PRC residents. We do not have control over our beneficial owners and cannot assure you that all of our PRC-resident beneficial owners will comply with SAFE Circular 37, SAFE Circular 13 and subsequent implementation rules. The failure of our beneficial owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant to SAFE Circular 37, SAFE Circular 13 and subsequent implementation rules, or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in SAFE Circular 37, SAFE Circular 13 and subsequent implementation rules, may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions. Furthermore, since SAFE Circular 37 and SAFE Circular 13 was recently promulgated and it is unclear how this regulation, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant PRC government authorities, we cannot predict how these regulations will affect our business operations or future strategy. Failure to register or comply with relevant requirements may also limit our ability to contribute additional capital to our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to our company. These risks may have a material adverse effect on our business, financial condition and results of operations.

If any of our subsidiaries fails to maintain the requisite registered capital, licenses and approvals required under PRC law, our business, financial condition and results of operations may be materially and adversely affected.

Numerous regulatory authorities of the central PRC government, provincial and local authorities are empowered to issue and implement regulations governing various aspects of the financial industry. Each of our subsidiaries may be required to obtain and maintain certain assets relevant to its business as well as applicable licenses or approvals from different regulatory authorities in order to provide its current services. These registered capital, licenses and approvals will be essential to the operation of the Company’s business. If any of our subsidiaries fails to obtain or maintain any of the required registered capital, licenses or approvals for its business, it may be subject to various penalties, such as confiscation of illegal net revenue, fines and the discontinuation or restriction of its operations. Any such disruption in its business operations could materially and adversely affect our business, financial condition and results of operations.

The business overlap of our subsidiaries could result in inefficiencies to the Company’s business.

We completed the Lixin Acquisition in December 2019. Most of our subsidiaries are in the financial industry and may conduct the same business. On one hand they may share resources and expand their own businesses. On the other hand, they may target the same clients and compete with each other. This could reduce the efficiency of the Company as a whole. For example, Zeshi has commenced operations of asset management from 2019. Lixin (Hangzhou) Asset Management Co., Ltd. (“LAM”) started its asset management business in 2017. They both focus on Zhejiang province. Zeshi is staffed entirely by new hires and in some measure may compete with LAM for customers. As a result, 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 Zeshi and LAM will inure to us, each will need to have its own segregated capital and client base. As a result, Zeshi and LAM will not be able to cross-collateralize or combine operations at the working level. Although the Company plans to allocate the resources from a strategic level, this structure may not allow the Company to allocate resources to their most efficient use and may require redundant or additional expenses.

The Company may not be able to timely and effectively implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002.

The Company is required to establish and maintain internal controls over financial reporting and disclosure controls and procedures and to comply with other requirements of the Sarbanes-Oxley Act and the rules promulgated by the SEC. The Company is required to provide management’s attestation on internal controls. The standards required for a public company under Section 404 of the Sarbanes-Oxley Act of 2002 are significantly more stringent than those required of a privately-held company. Management may not be able to effectively and timely implement controls and procedures that adequately respond to the regulatory compliance and reporting requirements, especially considering the new corporate structure after the Lixin Acquisition. If we are not able to implement the additional requirements of Section 404 in a timely manner or with adequate compliance, we may not be able to assess whether our internal controls over financial reporting are effective, which may subject us to adverse regulatory consequences and could harm investor confidence and the market price of our ordinary shares.

If the Company fails to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately. Any inability to report and file our financial results accurately and timely 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 Securities and Exchange Commission (the “SEC”). At present, we have instituted internal controls, but, we are in the process of correcting certain material weaknesses in our internal controls. Our management, cannot guarantee that our internal controls and disclosure controls and procedures will prevent all possible errors. Because of the inherent limitations in all control systems, no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the possibility that judgments in decision-making can be faulty and subject to simple error or mistake. Furthermore, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

There is no guarantee that our warrants will ever be in the money, and they may expire worthless and the terms of our warrants may be amended.

In addition to the warrants issued before January 1, 2018, at an exercise price of $6.00 per one-half of one share ($12.00 per whole share),  the Company issued in July 2018 Series A Warrants at an exercise price of $2.6 per one share which was adjusted to $1.18 per share on January 19, 2019. All warrants are subject to adjustments. Warrants may be exercised only for a whole number of the Company’s ordinary shares. No fractional shares will be issued upon exercise of the warrants. There is no guarantee that the warrants will ever be in the money prior to their expiration, and they may expire worthless.

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

The price of the Company’s securities may fluctuate significantly due to the market’s reaction and general market and economic conditions. An active trading market for our securities may never develop or, if developed, it may not be sustained. In addition, the price of the Company’s securities can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. Additionally, because the Company’s ordinary shares were delisted from the Nasdaq Capital Market in September 2019, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities are more limited than when we were listed on the Nasdaq Capital Market. You may be unable to sell your securities unless a market can be established or sustained.

Because the Nasdaq Capital Market delisted the Company’s ordinary shares from trading on its exchange due to our failure to meet the Nasdaq Capital Market’s initial and/or continued listing standards, we and our security holders face significant material adverse consequences including:

Although we are making all the efforts to help our ordinary shares be listed on Nasdaq again, there can be no assurance that we will succeed or, if listed, that we will be able to comply with the continued listing standards of Nasdaq.

Our ordinary shares were delisted from the Nasdaq Capital Market in September 2019. To list the Company’s securities on the Nasdaq Capital Market again, among other conditions, we will be required to demonstrate compliance with Nasdaq’s initial listing standards, which are more rigorous than Nasdaq’s continued listing requirements. For instance, the Company must maintain a minimum number of holders (300 round-lot holders). While we are working hard and spending significant resources on applying for listing on Nasdaq again, we cannot assure you that we will be able to meet those initial listing standards and/or any other conditions.

If the Lixin Acquisition’s benefits do not meet the expectations of investors, shareholders or financial analysts, the market price of the Company’s securities may decline.

If benefits of the Lixin Acquisition do not meet the expectations of investors or securities analysts, the market price of the Company’s securities may decline. In addition, following the Lixin Acquisition, fluctuations in the price of the Company’s securities could contribute to the loss of all or part of your investment. The valuation ascribed to the Company’s ordinary shares in the Lixin Acquisition may not be indicative of the price that will prevail in the trading market. If an active market for the Company’s securities develops and continues, the trading price of our securities could be volatile and subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your investment in the Company’s securities which may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further decline.

Factors affecting the trading price of the Company’s securities may include:

Broad market and industry factors may materially harm the market price of the Company’s securities irrespective of our operating performance. The stock market in general, has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to the Company could depress our stock price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.

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

The Company has been a public company for a limited number of years. The Company’s insufficient public company operating experience may make it difficult to forecast and evaluate its future prospects. If the Company is unable to execute its business strategy, either as a result of its inability to manage effectively its business in a public company environment or for any other reason, the Company’s business, prospects, financial condition and operating results may be harmed.

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

The Company has only registered a small number of our ordinary shares issuable upon exercise of our warrants, and has not registered any of our ordinary shares underlying the preferred shares under the Securities Act of 1933, as amended (the “Securities Act”) or state securities laws at this time, and such registration may not be in place when an investor desires to exercise such warrants.

The Company has only registered a small number of the ordinary shares issuable upon exercise of our warrants, and has not registered any of our ordinary shares underlying the preferred shares under the Securities Act or any state securities laws at this time. We have agreed to use our best efforts to file with the SEC a registration statement for the registration, under the Securities Act, covering these securities as soon as practicable after the closing of the Business Combination and cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto.

Warrants we sold will become exercisable for the Company’s ordinary shares, which would increase the number of shares eligible for future resale in the public market and result in dilution to our shareholders.

In addition to the warrants issued before January 1, 2018, at an exercise price of $6.00 per one-half of one share ($12.00 per whole share), the Company issued in July 2018 Series A Warrants at an exercise price of $2.6 per one share and adjusted to $1.18 on January 19, 2019. All warrants are subject to adjustments. Warrants may be exercised only for a whole number of the Company’s ordinary shares. No fractional shares will be issued upon exercise of warrants. To the extent such warrants are exercised, additional ordinary shares will be issued, which will result in dilution to the then existing holders of ordinary shares of the Company and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our ordinary shares.

The Company’s charter permits the Board by resolution to amend our charter, including to create additional classes of securities, including shares with rights, preferences, designations and limitations as they determine which may have an anti-takeover effect.

The Company’s charter permits the Board by resolution to amend the charter including to designate rights, preferences, designations and limitations attaching to the preferred shares as they determine in their discretion, without shareholder approval with respect the terms or the issuance. When issued, the rights, preferences, designations and limitations of the preferred shares are set by the Board and can operate to the disadvantage of the outstanding ordinary shares the holders of which would not have any pre-emption rights in respect of such an issue of preferred shares. Such terms could include, among others, preferences as to dividends and distributions on liquidation, or can be used to prevent possible corporate takeovers.

The Company may redeem certain warrants prior to their exercise at a time that is disadvantageous to warrant holders, thereby making their warrants worthless.

The Company has the ability to redeem certain warrants prior to their expiration at a price of $0.01 per warrant, provided that (i) the last reported sale price of our ordinary shares equals or exceeds $18.00 per share for any 20 trading days within the 30 trading-day period ending on the third business day before we send the notice of such redemption and (ii) on the date we give notice of redemption and during the entire period thereafter until the time the warrants are redeemed, there is an effective registration statement under the Securities Act covering the ordinary shares issuable upon exercise of the warrants and a current prospectus relating to them is available unless warrants are exercised on a cashless basis. Redemption of such warrants could force holders of the warrants:

The Company is no longer a Nasdaq listed company and, as a result, the Company may not be required to, and may choose not to, obey certain corporate governance requirements of Nasdaq.

The Company’s ordinary shares have not been listed on the Nasdaq since September 2019. As a result, the Company is no longer subject to Nasdaq rules. While the Company plans to continue following certain corporate governance requirements of Nasdaq, it has the discretion not to and may elect to not obey any Nasdaq rules. Its shareholders will not be afforded the same protections generally as shareholders of Nasdaq-listed companies for so long as the Company is not a Nasdaq listed company.

Risks Related to Doing Business in China   

PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from making loans or additional capital contributions to our PRC operating subsidiaries and thereby prevent us from funding our business.

As an offshore holding company with PRC subsidiaries, we may transfer funds to our PRC subsidiaries by means of loans or capital contributions. Any loans to these PRC subsidiaries, which are foreign-invested enterprises, cannot exceed statutory limits based on the difference between the amount of our investments and registered capital in such subsidiaries, and shall be registered with SAFE, or its local counterparts. Furthermore, any capital increase contributions we make to our PRC subsidiaries, which are foreign-invested enterprises, shall be approved by MOFCOM, or its local counterparts. We may not be able to obtain these government registrations or approvals on a timely basis, if at all. If we fail to receive such registrations or approvals, our ability to provide loans or capital to increase contributions to our PRC subsidiaries may be negatively affected, which could adversely affect their liquidity and our ability to fund and expand their business.

A slowdown of the Chinese economy or adverse changes in economic and political policies of the PRC government could negatively impact China’s overall economic growth, which could materially adversely affect our business.

All of the Company’s operations are entirely conducted in the PRC. Although the PRC economy has grown in recent years, the pace of growth has slowed, and even that rate of growth may not continue. The annual rate of growth in the PRC declined from 7.3% in 2014 to 6.9% in 2015 to 6.7% in 2016, to 6.9% in 2017, to 6.6% in 2018, and to 6.1% in 2019. According to a recent article, due to the COVID-19, China’s economic growth rate in 2020 may slow to 5%, its lowest since 1990. A slowdown in overall economic growth, an economic downturn or recession or other adverse economic developments in the PRC may materially reduce the demand for the Company’s services and may have a materially adverse effect on its business.

China’s economy differs from the economies of most other countries in many respects, including the amount of government involvement in the economy, the general level of economic development, growth rates and government control of foreign exchange and the allocation of resources. While the PRC economy has grown significantly over the past few decades, this growth has remained uneven across different periods, regions and economic sectors.

The PRC government also exercises significant control over China’s economic growth by allocating resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Any actions and policies adopted by the PRC government could negatively impact the Chinese economy or the economy of the region the Company serves, which could materially adversely affect the Company’s business.

Substantial uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business the Company may be able to conduct in the PRC and accordingly on the results of its operations and financial condition.

The Company’s business operations may be adversely affected by the current and future political environment in the PRC. The Chinese government exerts substantial influence and control over the manner in which the Company must conduct its business activities. The Company’s ability to operate in China may be adversely affected by changes in Chinese laws and regulations. Under the current government leadership, the government of the PRC has been pursuing economic reform policies that encourage private economic activities and greater economic decentralization. However, the government of the PRC may not continue to pursue these policies, or may significantly alter these policies from time to time without notice.

There are certain uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing the Company’s business, or the enforcement and performance of the Company’s arrangements with clients. Only after 1979 did the Chinese government begin to promulgate a comprehensive system of laws that regulate economic affairs in general, deal with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade, as well as encourage foreign investment in China. Although the influence of the law has been increasing, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. Also, because these laws and regulations are relatively new, and because of the limited volume of published cases and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. In addition, there have been constant changes and amendments of laws and regulations over the past 30 years in order to keep up with the rapidly changing society and economy in China. Because government agencies and courts provide interpretations of laws and regulations and decide contractual disputes and issues, their inexperience in adjudicating new business and new polices or regulations in certain less developed areas causes uncertainty and may affect the Company’s business. Consequently, we cannot predict the future direction of Chinese legislative activities with respect to either businesses with foreign investment or the effectiveness on enforcement of laws and regulations in China. The uncertainties, including new laws and regulations and changes of existing laws, as well as judicial interpretation by inexperienced officials in the agencies and courts in certain areas, may cause possible problems to foreign investors.

The Company’s business is subject to extensive regulation and supervision by state, provincial and local government authorities, which may interfere with the way the Company conducts its business and may negatively impact its financial results.

The Company conducts its business in the financial industry which is highly regulated. It is subject to extensive and complex state, provincial and local laws, rules and regulations with regard to its financing guaranties, capital structure, and asset management, among other things. These laws, rules and regulations are issued by different central government ministries and departments, provincial and local governments and are enforced by different local authorities. Therefore, the interpretation and implementation of such laws, rules and regulations may not be clear and occasionally the Company has to depend on oral inquiries with local government authorities. As a result of the complexity, uncertainties and constant changes in these laws, rules and regulation, including changes in interpretation and implementation of such, the Company’s business activities and growth may be adversely affected if they do not respond to the changes in a timely manner or are found to be in violation of the applicable laws, regulations and policies as a result of a different position from theirs taken by the competent authority in the interpretation of such applicable laws, regulations and policies. If the Company is found to be not in compliance with these laws and regulations, they may be subject to sanctions by regulatory authorities, monetary penalties and/or reputation damage, which could have a material adverse effect on the Company’s business operations and profitability.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions against us or our management, in China, based upon United States laws, including the U.S. federal securities laws, or other foreign laws.

We are a company organized under the laws of the British Virgin Islands. Substantially all of our operations are conducted in China, and substantially all of our assets are located in China. All of our directors and officers reside in China, and substantially all of the assets of those persons are located outside of the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce judgments against us which are obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

Furthermore, the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States providing for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors or officers if they decide that the judgment violates the basic principles of PRC laws, national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.

Lastly, in the event shareholders originate an action against a company without domicile in China for disputes related to contracts or other property interests, the PRC courts may accept a cause of action if (a) the disputed contract is concluded or performed in the PRC or the disputed subject matter is located in the PRC, (b) the company (as defendant) has properties that can be seized within the PRC, (c) the company has a representative organization within the PRC, or (d) the parties chose to submit to the jurisdiction of the PRC courts in the contract on the condition that such submission does not violate the requirements of jurisdiction under the PRC Civil Procedures Law. The action may be initiated by the shareholder by filing a complaint with the PRC courts. The PRC courts would determine whether to accept the complaint in accordance with the PRC Civil Procedures Law. The shareholder may participate in the action by itself or entrust any other person or PRC legal counsel to participate on behalf of such shareholder. Foreign citizens and companies will have the same rights as PRC citizens and companies in such an action unless such foreign country restricts the rights of PRC citizens and companies.

Our Chinese subsidiaries’ ability to pay dividends to us may be restricted due to foreign exchange control and other regulations of China.

As an offshore holding company, we will rely principally on dividends from our subsidiaries in China, for our cash requirements. Under the applicable PRC laws and regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, a foreign-invested enterprise in China is required to set aside a portion of its after-tax profit to fund specific reserve funds prior to payment of dividends. In particular, at least 10% of its after-tax profits based on PRC accounting standards each year is required to be set aside towards its general reserves until the accumulative amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends.

Furthermore, our Chinese subsidiaries’ ability to pay dividends may be restricted due to foreign exchange control policies and the availability of its cash balance. Substantially all of the Company’s operations are conducted in China and all of the revenue we recognize will be denominated in RMB. RMB is subject to exchange control regulation in China, and, as a result, our Chinese subsidiaries may be unable to distribute any dividends outside of China due to PRC exchange control regulations that restrict our ability to convert RMB into U.S. dollars.

The lack of dividends or other payments from our Chinese subsidiaries may limit our ability to make investments or acquisitions that could be beneficial to our business, pay dividends or otherwise fund, and conduct our business. Our funds may not be readily available to us to satisfy obligations which have been incurred outside the PRC, which could adversely affect our business and prospects or our ability to meet our cash obligations. Accordingly, if we do not receive dividends from our Chinese subsidiaries, our liquidity and financial condition will be materially and adversely affected.

Dividends payable to our foreign investors and gains on the sale of our ordinary shares by our foreign investors may become subject to tax by the PRC.

Under the Enterprise Income Tax Law and its implementation regulations issued by the State Council of the PRC, a 10% PRC withholding tax is applicable to dividends payable to investors that are non-resident enterprises, which do not have an establishment or place of business in the PRC or which have such establishment or place of business but the dividends are not effectively connected with such establishment or place of business, to the extent such dividends are derived from sources within the PRC. Similarly, any gain realized on the transfer of shares by such investors is also subject to PRC tax at a current rate of 10%, subject to any reduction or exemption set forth in relevant tax treaties, if such gain is regarded as income derived from sources within the PRC. If we are deemed a PRC resident enterprise, dividends paid on our shares, and any gain realized from the transfer of our shares, would be treated as income derived from sources within the PRC and would as a result be subject to PRC taxation. Furthermore, if we are deemed a PRC resident enterprise, dividends payable to individual investors who are non-PRC residents and any gain realized on the transfer shares by such investors may be subject to PRC tax at a current rate of 20%, subject to any reduction or exemption set forth in applicable tax treaties. It is unclear whether we or any of our subsidiaries established outside of China are considered a PRC resident enterprise, holders of shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. If dividends payable to our non-PRC investors, or gains from the transfer of our shares by such investors are subject to PRC tax, the value of your investment in our shares may decline significantly.

Our global income may be subject to PRC taxes under the PRC Enterprise Income Tax Law, which could have a material adverse effect on our results of operations.

Under the PRC Enterprise Income Tax Law, or the New EIT Law, and its implementation rules, which became effective in January 2008, an enterprise established outside of the PRC with a “de facto management body” located within the PRC is considered a PRC resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its global income. The implementation rules define the term “de facto management bodies” as “establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel and human resources, finance and treasury, and acquisition and disposition of properties and other assets of an enterprise.” On April 22, 2009, the State Administration of Taxation (the “SAT”), issued a circular, or SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although the SAT Circular 82 only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the determining criteria set forth in the SAT Circular 82 may reflect the SAT’s general position on how the “de facto management body” test should be applied in determining the resident status of all offshore enterprises for the purpose of PRC tax, regardless of whether they are controlled by PRC enterprises or individuals. Although we do not believe that our legal entities organized outside of the PRC constitute PRC resident enterprises, it is possible that the PRC tax authorities could reach a different conclusion. In such case, we may be considered a PRC resident enterprise and may therefore be subject to the 25% enterprise income tax on our global income, which could significantly increase our tax burden and materially and adversely affect our cash flow and profitability. In addition to the uncertainty regarding how the new PRC resident enterprise classification for tax purposes may apply, it is also possible that the rules may change in the future, possibly with retroactive effect.

We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.

On February 3, 2015, the State Administration of Taxation issued an Announcement on Several Issues Concerning Enterprise Income Tax on Income Arising from Indirect Transfers of Property by Non-PRC Resident Enterprises, or Announcement 7, with the same effective date. Under Announcement 7, an “indirect transfer” refers to a transaction where a non-resident enterprise transfers its equity interest and other similar interest in an offshore holding company, which directly or indirectly holds Chinese taxable assets (the assets of an “establishment or place” situated in China; real property situated in China and equity interest in Chinese resident enterprises) and any indirect transfer without reasonable commercial purposes are subject to the PRC taxation. In addition, Announcement 7 specifies the conditions under which an indirect transfer is deemed to lack a reasonable commercial purpose which include: (1) 75% or more of the value of the offshore holding company’s equity is derived from Chinese taxable assets, (2) anytime in the year prior to the occurrence of the indirect transfer of Chinese taxable assets, 90% or more of the total assets (excluding cash) of the offshore holding company are direct or indirect investment in China, or 90% or more of the revenue of the offshore holding company was sourced from China; (3) the functions performed and risks assumed by the offshore holding company(ies), although incorporated in an offshore jurisdiction to conform to the corporate law requirements there, are insufficient to substantiate their corporate existence and (4) the foreign income tax payable in respect of the indirect transfer is lower than the Chinese tax which would otherwise be payable in respect of the direct transfer if such transfer were treated as a direct transfer. As a result, gains derived from such indirect transfer will be subject to PRC enterprise income tax, currently at a rate of 10%.

Announcement 7 grants a safe harbor under certain qualifying circumstances, including transfers in the public securities market and certain intragroup restricting transactions, however, there is uncertainty as to the implementation of Announcement 7. For example, Announcement 7 requires the buyer to withhold the applicable taxes without specifying how to obtain the information necessary to calculate taxes and when the applicable tax shall be submitted. Announcement 7 may be determined by the tax authorities to be applicable to our offshore restructuring transactions or sale of the shares of our offshore subsidiaries where non-resident enterprises, being the transferors, were involved. Though Announcement 7 does not impose a mandatory obligation of filing the report of taxable events, the transferring party shall be subject to PRC withholding tax if the certain tax filing conditions are met. Non-filing may result in an administrative penalty varying from 50% to 300% of unpaid taxes. As a result, we and our non-resident enterprises in such transactions may become at risk of being subject to taxation under Announcement 7, and may be required to expend valuable resources to comply with Announcement 7 or to establish that we and our non-resident enterprises should not be taxed under Announcement 7, for any restructuring or disposal of shares of our offshore subsidiaries, which may have a material adverse effect on our financial condition and results of operations.

Restrictions on currency exchange may limit our ability to utilize our revenue effectively.

Substantially all of our revenue is denominated in Renminbi. The Renminbi is currently convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans. Currently, our PRC subsidiaries, which are wholly-foreign owned enterprises, may purchase foreign currency for settlement of “current account transactions,” including payment of dividends to us, without the approval of SAFE by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. Since a significant amount of our future revenue will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in Renminbi to fund our business activities outside of the PRC or pay dividends in foreign currencies to our shareholders. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE or banks and other relevant PRC governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for our subsidiaries.

Fluctuations in the foreign currency exchange rate between U.S. Dollars and Renminbi could adversely affect our financial condition.

The value of the RMB against the U.S. dollar and other currencies may fluctuate. Exchange rates are affected by, among other things, changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. On July 21, 2005, the PRC government changed its policy of pegging the value of the RMB to the U.S. dollar. Under this policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of foreign currencies. Following the removal of the U.S. dollar peg, the RMB appreciated more than 20% against the U.S. dollar over three years. From July 2008 until June 2010, however, the RMB traded stably within a narrow range against the U.S. dollar. On June 20, 2010, the PBOC announced that the PRC government would reform the RMB exchange rate regime and increase the flexibility of the exchange rate. Since June 2010, the RMB has appreciated more than 10% against the U.S. dollar. In April 2012, the PRC government announced it would allow greater RMB exchange rate fluctuation. On August 11, 12 and 13, 2015, the PRC government successively set the central parity rate for the RMB more than 3% lower in the aggregate than that of August 10, 2015 and announced that it will begin taking into account previous day’s trading in setting the central parity rate. In 2015, the yuan experienced a 4.88% drop in value, and on January 4, 2016 the PRC government set the U.S. dollar-Chinese yuan currency pair to a reference rate of 6.5%, the lowest rate in 4.5 years. The average desperation rate of RMB exchange rate is 4.1% in 2019. (Source: website of National Bureau of Statistics Annual Statistic Report, dated February 28, 2020). However, it is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. As significant international pressure remains on the PRC government to adopt a more flexible currency policy, greater fluctuation of the RMB against the U.S. dollar could result.

Our revenues and costs are mostly denominated in RMB, and a significant portion of our financial assets are also denominated in RMB. Any significant fluctuations in the exchange rate between the RMB and the U.S. dollar may materially adversely affect our cash flows, revenues, earnings and financial position, and the amount of and any dividends we may pay on our shares in U.S. dollars. Fluctuations in the exchange rate between the RMB and the U.S. dollar could also result in foreign currency translation losses for financial reporting purposes.

If any dividend is declared in the future and paid in a foreign currency, you may be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.

If you are a U.S. holder of our ordinary shares, you will be taxed on the U.S. dollar value of your dividends, if any, at the time you receive them, even if you actually receive a smaller amount of U.S. dollars when the payment is in fact converted into U.S. dollars. Specifically, if a dividend is declared and paid in a foreign currency such as the RMB, the amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the payments made in the foreign currency, determined at the spot rate of the foreign currency to the U.S. dollar on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Thus, if the value of the foreign currency decreases before you actually convert the currency into U.S. dollars, you will be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.

Future inflation in China may inhibit economic activity and adversely affect the Company’s operations.

The Chinese economy has experienced periods of rapid expansion in recent years which can lead to high rates of inflation or deflation. This has caused the PRC government to, from time to time, enact various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation may in the future cause the PRC government to once again impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China. Any action on the part of the PRC government that seeks to control credit and/or prices may adversely affect the Company’s business operations.

PRC laws and regulations have established more complex procedures for certain acquisitions of Chinese companies by foreign investors, which could make it more difficult for the Company to pursue growth through acquisitions in China.

Further to the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rules, the Anti-monopoly Law of the PRC, the Rules of Ministry of Commerce on Implementation of Security Review System of Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated by MOFCOM or the MOFCOM Security Review Rules, was issued in August 2011, which established additional procedures and requirements that are expected to make merger and acquisition activities in China by foreign investors more time-consuming and complex, including requirements in some instances that MOFCOM be notified in advance of any change of control transaction in which a foreign investor takes control of a PRC enterprise, or that the approval from MOFCOM be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies. PRC laws and regulations also require certain merger and acquisition transactions to be subject to merger control review and or security review.

The MOFCOM Security Review Rules, effective from September 1, 2011, which implement the Notice of the General Office of the State Council on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated on February 3, 2011, further provide that, when deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to the security review by MOFCOM, the principle of substance over form should be applied and foreign investors are prohibited from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through agreements control or offshore transactions.

Further, if the business of any target company that the Company seeks to acquire falls into the scope of security review, the Company may not be able to successfully acquire such company either by equity or asset acquisition, capital contribution or through any VIE Agreement. The Company may grow its business in part by acquiring other companies operating in its industry. Complying with the requirements of the relevant regulations to complete such transactions could be time consuming, and any required approval processes, including approval from MOFCOM, may delay or inhibit its ability to complete such transactions, which could affect its ability to maintain or expand its market share.

In addition, SAFE promulgated the Circular on the Settlement of Foreign Currency Capital of Foreign-invested Enterprises, or Circular 19, on June 1, 2015. Under Circular 19, registered capital of a foreign-invested company settled in RMB converted from foreign currencies may only be used within the business scope approved by the applicable governmental authority and the equity investments in the PRC made by the foreign-invested company shall be subject to the relevant laws and regulations about the foreign-invested company’s reinvestment in the PRC. In addition, foreign-invested companies cannot use such capital to make the investments on securities, and cannot use such capital to issue the entrusted RMB loans (except approved in its business scope), repay the RMB loans between the enterprises and the ones which have been transferred to the third party. Circular 19 may significantly limit our ability to effectively use the proceeds from future financing activities as the Chinese subsidiaries may not convert the funds received from us in foreign currencies into RMB, which may adversely affect their liquidity and our ability to fund and expand our business in the PRC.

Failure to comply with the United States Foreign Corrupt Practices Act and Chinese anti-corruption laws could subject us to penalties and other adverse consequences.

As our shares are quoted on OTC, we are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Non-U.S. companies, including some that may compete with us, may not be subject to these prohibitions. In addition, in 2012, the central government of the PRC commenced a far-reaching campaign against corruption. That ongoing campaign involves aggressive enforcement of existing Chinese anti-corruption laws. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur from time-to-time in the PRC. Our employees or other agents may engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

Our management may have to expend time and resources becoming familiar with United States securities laws, which could lead to various regulatory issues.

Management of the Company has limited familiarity with United States securities laws. They may have to expend time and resources becoming more familiar with such laws. This could be expensive and time-consuming and could lead to various regulatory issues, which may adversely affect our operations.

If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations and our reputation and could result in a loss of your investment in our shares, especially if such matter cannot be addressed and resolved favorably.

U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on our company and our business. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend the Company. This situation may be a major distraction to our management. If such allegations are not proven to be groundless, our Company and business operations will be severely hampered and your investment in our stock could be rendered worthless.

The disclosures in our reports and other filings with the SEC and our other public pronouncements are not subject to the scrutiny of any regulatory bodies in the PRC.

Our reports and other filings with the SEC are subject to SEC review in accordance with the rules and regulations promulgated by the SEC under the Securities Act and the Exchange Act. Our SEC filings and other disclosure and public pronouncements are not subject to the review or scrutiny of any PRC regulatory authority. For example, the disclosure in our SEC reports and other filings are not subject to the review by CSRC, a PRC regulator that is tasked with oversight of the capital markets in China. Accordingly, you should review our SEC reports, filings and our other public pronouncements with the understanding that no local regulator has done any review of our Company, our SEC reports, other filings or any of our other public pronouncements.

ITEM 4. INFORMATION ON THE COMPANY

Corporate History and Structure of our PRC Operation

Roan Holdings Group Co., Ltd. (formerly DT Asia Investments Limited, or “DT Asia,” and subsequently China Lending Corporation) (the “Company,” “Roan,” “we,” “us” or “our”) is a British Virgin Islands company limited by shares. The Company was established on April 8, 2014 under the laws of the British Virgin Islands (“BVI”) as a shell company with the purpose of acquiring, engaging in share exchange, share reconstruction and amalgamation, purchasing all or substantially all of the assets of, entering into contractual arrangements, or engaging in any other similar business combination with one or more businesses or entities.

On July 6, 2016, the Company consummated a business combination (the “First Business Combination”) with Adrie Global Holdings Limited (“Adrie”) and its subsidiaries and variable interest entity (“VIE”) by acquiring from the shareholders of Adrie all of outstanding equity interests of Adrie in exchange for 20 million ordinary shares of DT Asia and a purchase price of $200.0 million. Adrie, through its subsidiaries and VIE, was engaged in the business of providing loan facilities to micro, small and medium sized enterprises (“MSMEs”) and sole proprietors in Xinjiang Uyghur Autonomous Region (“Xinjiang Province”) of the People’s Republic of China (“PRC”). As a result of the business combination, shareholders of Adrie became the controlling shareholders of the Company, and Adrie became a subsidiary of the Company. For financial reporting purpose, the consolidated assets, liabilities and results of operations of Adrie became the historical financial statements of the Company, and the Company’s assets, liabilities and results of operations were consolidated with that of Adrie beginning on the acquisition date. Immediately following the First Business Combination, the Company’s name was changed from DT Asia to China Lending Corporation (“CLDC”).

In June through December 2019, the Company consummated a second business combination with Lixin Financial Holdings Group Limited (“Lixin Cayman”) and its subsidiaries, pursuant to which the Company acquired a majority interest in Lixin Cayman (the “Second Business Combination” or “Lixin Acquisition”) (discussed below). In connection with the Second Business Combination, the Company was renamed Roan Holdings Group Co., Ltd. (“Roan”) in November 2019. Roan is a holding company and conducts business operations through its direct and indirect subsidiaries.

ADRIE Global Holding Limited (“Adrie”) was established under the laws of the BVI as a company limited by shares on November 19, 2014 and became a wholly-owned subsidiary of the Company after the First Business Combination. Adrie is a holding company that has no substantial operations and has no assets other than its ownership of a wholly-owned subsidiary.

China Roan Industrial-Financial Holdings Group Co., Limited (中国融安产融控股集团有限公司) (“Roan HK or RAHK”) (formerly China Feng Hui Financial Holding Group Co., Ltd, and subsequently, China Fenghui Industrial-Financial Holding Group Co. Limited) is a wholly-owned subsidiary of Adrie. It was established on February 11, 2015 under the laws of the Hong Kong Special Administrative Region (“Hong Kong”) of the PRC. It is a holding company and conducts business through its direct and indirect subsidiaries.

Fortis Health Industrial Group Limited (富通健康产业集团有限公司) (“Fortis Health” or “FHIG”) was established on December 30, 2019 under the laws of Hong Kong. It is owned by Adrie. It has not had operations since its inception.

Feng Hui Ding Xin (Beijing) Financial Consulting Co., Limited (丰汇鼎鑫(北京)财务咨询有限公司) (“Ding Xin”) is a wholly-owned subsidiary of Roan HK. It was established on May 20, 2015 under the laws of the PRC and is licensed to provide financial advisory services. Based in Beijing, Ding Xin also has an operating branch office in Urumqi, Xiangjiang. Prior to the Company’s reorganization and termination of the VIE arrangement in July 2019 (discussed below), Ding Xin was also contractually obligated to provide business support, technical services and related services to the VIE entity as provided in the VIE agreements. The Urumqi branch office of Ding Xin primarily provides financial services to third-party direct lending companies in Xingjiang.

Xinjiang Feng Hui Jing Kai Direct Lending Limited (新疆丰汇经开小额贷款有限公司) (“Jing Kai”) is 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 Province. Jing Kai has not had substantial operations since its inception and is currently in the process of being dissolved pursuant to our plan of reorganization implemented in 2019.

Ningbo Ding Tai Financial Leasing Co., Ltd. (宁波鼎泰融资租赁有限公司) (“Ding Tai”) is a wholly-owned subsidiary of Roan HK. It was established in December 19, 2016 under the laws of the PRC. Ding Tai is engaged in financial leasing business.

Xinjiang Xin Quan Financial Leasing Co., Ltd. (新疆鑫铨融资租赁有限公司)(“Xin Quan”) was established on January 24, 2017 under the laws of the PRC as a wholly-owned subsidiary of Roan HK and is licensed to engage in financial leasing service. During the year ended December 31, 2018, Roan HK’s ownership interest in Xin Quan was reduced to 60% when the remaining 40% of the interest was transferred to Xinjiang Heli Kaiyuan Construction Co., Ltd. (“Heli Kaiyuan”), an unrelated third party, through Heli Kaiyuan’s capital injection into Xin Quan. Of the 60% Xin Quan equity interest owned by RAHK, 20% are held by a third party on behalf of Roan HK.

Zhiyuan Commercial Factoring (Guangzhou) Co., Limited (至元商业保理(广州)有限公司) (“Zhiyuan”) was formed on November 19, 2018 under the laws of the PRC. Zhiyuan is 99% owned by Ding Xin and the remaining 1% is owned by an unrelated third party. Zhiyuan is engaged in business factoring program, financing products design, related corporate financing solutions, investments and asset management.

Hangzhou Zeshi Investment Partnership (Limited Partnership) (杭州泽时投资合伙企业(有限合伙)) (“Hangzhou Zeshi”) was formed on November 29, 2018 under the laws of the PRC. It is a limited partnership with 98.04% of its interest owned by Ding Tai, its general partner, and the remaining 1.96% owned by Zeshi Insurance. It is primarily engaged in asset management business.

Through Zhiyuan and Zeshi, we provide new supply chain financing services, including a business factoring program, financing products design, related corporate financing solutions, investments and asset management, as part of our restructuring plan implemented in 2019.

Ningbo Zeshi Insurance Technology Co., Ltd.(宁波泽时保险科技有限公司) (“Zeshi Insurance”) was incorporated on February 28, 2020 under the laws of the PRC. Ding Tai owns 99% of Zeshi Insurance equity interest with the remaining 1% owned by Hangzhou Zeshi. Its principal business is providing insurance technology services and related services.

Zeshi (Hangzhou) Health Management Co., Ltd. (泽时(杭州)健康管理有限公司) (“Zeshi Health”) was incorporated on March 3, 2020 under the laws of the PRC. Hangzhou Zeshi and Ningbo Dingtai 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.

Contractual Arrangements with the VIE and Termination of the VIE Relationship

Urumqi Feng Hui Direct Lending Limited (乌鲁木齐丰汇小额贷款有限公司) (“Feng Hui” or “VIE”) was established under the laws of the PRC on June 12, 2009 with the approval of the Financial Office of Xinjiang Provincial Government. Feng Hui is a microcredit company primarily engaged in providing direct loan services to the MSMEs and sole proprietors in Xinjiang Province as a non-bank direct lending company. Feng Hui is also engaged in innovative financial services, such as supply chain finance in which Feng Hui provides financings for suppliers who purchase inventory from distributors and its customer base has been primarily limited to the tire industry. Feng Hui is owned by fifteen shareholders, including seven individuals and eight entities.

On July 16, 2015, Ding Xin, Feng Hui and Feng Hui’s shareholders executed certain agreements (“VIE Agreements”), pursuant to which the Company obtained control of Feng Hui through its subsidiary, Ding Xin. The VIE Agreements had a term of five years from July 15, 2015 to July 15, 2020 which may be renewed at Ding Xin’s discretion. The VIE Agreements included a Share Pledge Agreement, Exclusive Business Cooperation Agreement, Exclusive Option Agreement and Power of Attorney. The VIE Agreements set forth our relationship with the VIE as follows:

Exclusive Business Cooperation Agreement. Pursuant to the Exclusive Business Cooperation Agreement between Feng Hui and Ding Xin, Ding Xin provided Feng Hui with comprehensive business support, technical services and services relating to its day-to-day business operations and management on an exclusive basis. For services rendered to Feng Hui, Ding Xin had the right to collect a service fee calculated based on the complexity, required time, contents and commercial value of the services provided by Ding Xin. Ding Xin, as the primary beneficiary of the VIE, was entitled to absorb losses and to receive benefits of Feng Hui.

Share Pledge Agreement. Pursuant to the Share Pledge Agreement among Feng Hui’s shareholders and Ding Xin, Feng Hui’s shareholders pledged all of their equity interests in VIE to Ding Xin to guarantee the performance of obligations by the VIE and the VIE shareholders under the Exclusive Business Cooperation Agreement, Exclusive Option Agreement and Power of Attorney. Any dividend or bonus received by VIE in respect of the Pledged Equity would be deposited into an account designated by Ding Xin. The VIE shareholders also agreed that upon occurrence of any event of default, as set forth in the Share Pledge Agreement, Ding Xin would be entitled to dispose of the pledged equity interest in accordance with applicable PRC laws. The VIE shareholders further agreed not to dispose of the pledged equity interests or take any actions that would prejudice Ding Xin’s interest. The Share Pledge Agreement was effective until all obligations under the other VIE Agreements have been performed by VIE, when the VIE Agreements are terminated or when the secured indebtedness has been satisfied in full. In the event that VIE or its shareholders breach their respective contractual obligations under the Exclusive Business Cooperation Agreement, Ding Xin, as pledgee, would be entitled to certain rights, including, but not limited to, the right to collect dividends generated by the pledged equity interests and absorbs expected losses.

Exclusive Option Agreement. Under the Exclusive Option Agreement, VIE shareholders irrevocably granted to Ding Xin (or its designee) an exclusive option to purchase, to the extent permitted under PRC law, part or all of their equity interests in VIE. The option price is equal to the lowest price permissible by PRC laws.

Power of Attorney. Under the Power of Attorney, each VIE shareholder authorized Ding Xin to act on the shareholder’s behalf as their exclusive agent and attorney with respect to all rights as a shareholder of VIE, under PRC laws and the Articles of Association of VIE, including but not limited to attending shareholder meetings and voting to approve the sale or transfer or pledge or disposition of shares in part or in whole or to designate and appoint the legal representative, directors, and supervisors of VIE.   

Pursuant to the VIE Agreements, substantially all of the Company’s consolidated assets were held, and its consolidated revenues and income were generated, by VIE through contractual arrangements. VIE was based in Urumqi, the capital city and business hub of Xinjiang Province, and most of the lending activities conducted by the VIE were to enterprises and individual proprietors based in Xinjiang. The VIE’s assets were used as collateral for its obligation and the creditors of VIE had no recourse to the general credit of the primary beneficiary.

Ding Xin, as the primary beneficiary of the VIE, was the variable interest holder (e.g., a contractual counterparty or capital provider) deemed to have the controlling financial interest(s) in the VIE. These contractual arrangements enabled us to exercise effective control over the VIE, to receive substantially all of the economic benefits and absorb substantially all losses from the VIE, and to have an exclusive option to purchase all of the equity interest in the VIE to the extent permitted by PRC law. Through such arrangements, the VIE had been treated as a subsidiary of the Company and the VIE’s financial statements were consolidated with that of the Company for financial reporting purposes.

Termination of VIE Agreements and Disposition of VIE

On July 31, 2019, Roan HK and Zhejiang Zhongfeng Investment Management Co., Ltd (“Zhongfeng”) entered into a framework agreement (the “VIE Framework Agreement”) to terminate Ding Xin’s contractual relationship with VIE. Pursuant to the VIE Framework Agreement, Zhongfeng agreed to acquire 100% of the equity interest in the VIE, or obtain control over and become the primary beneficiary of VIE through contractual arrangements for a cash consideration of not less than RMB 15.0 million. On November 22, 2019, the parties entered into a supplemental agreement to the VIE Framework Agreement such that the minimum cash consideration was reduced to RMB 10.0 million based on the amount of accounts receivable debt associated with the VIE. For the year ended December 31, 2019, the Company received an aggregate of $504,713 (RMB 3.5 million). On April 23, 2020, the Company received an additional $0.43 million (RMB 3.0 million) from Zhongfeng.

On November 22, 2019, Ding Xin, Feng Hui, shareholders owning 78.73% of Feng Hui equity interest, and Zhongfeng entered into a Share Transfer and VIE Termination Agreement (the “VIE Termination Agreement”), pursuant to which Ding Xin agreed to no longer benefit from controlling financial interests in Feng Hui in exchange for a minimum consideration of RMB 10.0 million, and Zhongfeng agreed to acquire 100% equity interest in or have control over and become a primary beneficiary of Feng Hui through contractual arrangements. On the same date, Ding Xing transferred all of its interests in and effective control of Feng Hui to Zhongfeng for a final consideration of RMB 10.0 million, and the VIE termination notice was sent to the shareholders owning the remaining 21.27% Feng Hui equity interest. The VIE agreements with the 21.27% shareholders terminated on Dec 21, 2019, the effective date of termination pursuant to the notice.

Ding Xin has released all equity interests in Feng Hui to Feng Hui’s shareholders, which were transferred to Zhongfeng by Feng Hui’s shareholders.

As a result of the above series of transactions, the Company ceased its rights in and control of Feng Hui, and Zhongfeng obtained the controlling financial interest in Feng Hui. Therefore, the Company’s VIE contractual relationship with Feng Hui has been terminated.

Business Combination with Lixin Financial Holdings Group Limited and Subsidiaries

Lixin Financial Holdings Group Limited (“Lixin Cayman”) was established on October 25, 2017 under the laws of the Cayman Islands as an exempt company. It is a holding company and does not have substantial operations. It conducts its business through its direct and indirect subsidiaries.

In January 2019, the Company acquired 1% of the equity interest in Zhejiang Lixin (defined below) for RMB 2,858,600. On June 14, 2019, the Company entered into a Share Purchase Agreement (the “SPA”) with Lixin Cayman and certain shareholders of Lixin Cayman to acquire a controlling interest in Lixin Cayman. Pursuant to the SPA, the Company acquired a 65.0177% interest in Lixin Cayman from its selling shareholders in exchange for ordinary shares of the Company to be issued to the selling shareholders for a total value of RMB 276.00 million (later adjusted to $31.09 million (RMB 217.88 million). See Note 4 to the Consolidated Financial Statements) (“Lixin Acquisition”).  On August 23, 2019, the parties entered into a supplementary agreement to amend the form of payment of the purchase price. Pursuant to the supplementary agreement, Lixin shareholders agreed to receive non-voting preferred shares that will have the right to be converted into common shares after two years from the closing date of the acquisition. The transaction was closed on December 20, 2019 upon the Company’s issuance of 291,795,150 Class B convertible preferred shares to the selling shareholders. These convertible preferred shares are embedded with liquidation preference and dividend preference but with no voting rights. Following the second anniversary of the closing date, preferred shares may be convertible to the equal number of ordinary shares or can be redeemed at a conversion price calculated at the average closing price per share for ninety consecutive trading days before the conversion date.

Lixin Cayman, through its subsidiaries, provides a wide range of financing solutions and related peripheral services, including financial leasing, commercial factoring, private funding, guarantee and supply chain management, to individuals and MSMEs in the Yangtze River Delta Region of China. Lixin Cayman conducts its business through the following direct and indirect subsidiaries.

Lixin Financial Holdings (BVI) Limited (“Lixin BVI”) is a wholly-owned subsidiary of Lixin Cayman. It was established on November 29, 2017 under the laws of the BVI as a company limited by shares. It is a holding company and does not have business operations.

Lixin Financial Holdings Group Limited (励信金融控股集团有限公司) (“Lixin HK”) was established on January 15, 2018 under the laws of Hong Kong as a wholly-owned subsidiary of Lixin BVI. It is a holding company and does not have business operations.

Zhejiang Lixin Enterprise Management Holding Group Co., Ltd. (浙江励信企业管理集团有限公司) (“Zhejiang Lixin”) was incorporated on July 3, 2015 under the laws of the PRC. Lixin HK owns 99% of Zhejiang Lixin equity interest and RAHK owns the remaining 1%. Following its reorganization completed in 2018, it became the controlling shareholder of Zhejiang Jingyuxin (discussed below). It is a financial service company providing comprehensive financial solutions and services including guarantee services and related assessment and management services.

Zhejiang Jing Yu Xin Financing Guarantee Co., Ltd. (浙江京虞信融资担保有限公司) (“Zhejiang Jingyuxin”) was incorporated on January 5, 2013 under the laws of the PRC. Zhejiang Lixin owns 93.4% of Zhejiang Jingyuxin equity interest, with the remaining 6.6% interest owned by an unrelated third party individual. It provides guarantee services and related assessment and management services.

Lixin (Hangzhou) Asset Management Co., Ltd. (励信(杭州)资产管理有限公司) (“LAM”) is a wholly-owned subsidiary of Zhejiang Jingyuxin. It was incorporated on March 21, 2017 under the laws of the PRC. LAM provides consulting and assessment services to customers and facilitates financial guarantee services between customers and guarantors.

Lixin Supply Chain Management (Tianjin) Co., Ltd. (励信供应链管理(天津)有限公司) (“(“Lixin Supply Chain”) is a wholly-owned subsidiary of LAM. It was incorporated on December 19, 2017 under the laws of the PRC and its principal business is providing supply chain management services.

On December 31, 2019, the Company changed its address of principal executive office to 147 Ganshui Lane, Yuhuangshannan Fund Town, Shangcheng District, Hangzhou, Zhejiang, China. The Company also changed its phone number to +86 571 8662 1775.

Our Business

We are a non-bank financial corporation serving individuals and micro-, small- and medium-sized enterprises (“MSMEs”) in China. We also provide health management, insurance technology, healthcare and consumer financing services to the employees of large institutions.

Our business has experienced substantial changes in the recent years. Immediately following the consummation of the Business Combination, with Adrie formed as a non-operational holding company, the original China Lending Group was a PRC-based group of companies specializing in providing loan facilities to MSMEs and sole proprietors in Xinjiang. However, we decreased direct loan business from 2018 and didn’t conduct or renew any loans in 2019. Zhiyuan and Zeshi continued their factoring, financing services and asset management business and generated revenues of $3.24 million from the customers located in Zhejiang, Shanghai, Jiangsu, Guangdong, Xizang and Xinjiang in 2019.

For the year ended December 31, 2019, the Company conducted management and assessment services, financial guarantee and financial consulting business and maintained existing direct loan business. Prior to the Lixin Acquisition closed in December 2019, most of our customers were MSMEs and individual proprietors located in Zhejiang Province and Guangdong Province. Those customers were involved in the commerce and service, real estate, technology promotion and application services, construction, finance, wholesale and retail and other industries.

On December 20, 2019, the Company completed the Lixin Acquisition. Lixin Cayman and its subsidiaries are engaged in guarantee business, asset management, supply chain financing, and factoring through its subsidiaries based in Zhejiang Province, China. The revenue from these entities only constituted a small portion of our total revenues in 2019, because only the revenues from December 21, 2019 to December 31, 2019 were included in our consolidated financial statements.

As of December 31, 2019, the Company had cash balance of $6,911,592 and a positive working capital of $39,449,021. In addition to the cash balance, the working capital was mainly comprised of restricted cash of $15,233,933, short-term investments in financial products of $8,610,796 and loan receivable due from third parties of $5,952,223. The balances of these assets are expected to be repaid on maturity dates and will also be used for working capital.

Our Major Services

1. Management & assessment services and factoring business -Adrie Subsidiaries

In 2019, Zeshi and Zhiyuan, the Chinese subsidiaries under Adrie provided the following management and assessment services and factoring business:

Among the asset management services, Zeshi was involved in consulting service relating to debt collection with one factoring company. The debt collection service involved one performance obligation which is to assist the customer to receive repayment on outstanding debt, and the Company recognized revenues upon completion of the performance obligation.

During the year ended December 31, 2019, Zhiyuan generated interest income from factoring business of $2.78 million and Zeshi generated management and assessment service income of $0.45 million.

For the year ended December 31, 2019, the Company disbursed loans of $43,422,881 to four factoring customers. As of December 31, 2019, the Company collected all principals and interests from these factoring customers.

In the first few months of 2020, affected by COVID-19, our due diligence work for factoring customers were delayed and some offline visits were cancelled. Meanwhile, the Company evaluated the impacts of COVID-19 of customers and decided to further control and reduce the operating risk. Nevertheless, the Company still plans to develop factoring business as a major service.  From June 2020, the Company cooperates with local banks and financial institutes to develop supply chain finance and financial assets exchange business. Zhiyuan plans to enhance factoring business with Zhejiang Lixin and develop highly qualified customers from local state-owned enterprises and public companies. 

2. Direct Loan Business-Adrie Subsidiaries

We had minimal direct loan business in 2019 and the balance of the loan ended as of December 31, 2019 represents minimal revenues received from loans.

3. Guarantee and consulting services-Lixin Cayman Subsidiaries

Although only a small portion of the revenues generated by the guarantee and consulting services conducted by Lixin Cayman subsidiaries (mainly Zhejiang Jingyuxin and LAM) in 2019 was included in our total revenues due to the timing of the Lixin Acquisition, we expect this part will be a material source of our revenues going forward.

(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. However, there were no non-financial guarantee revenues contributed by Lixin Cayman subsidiaries from December 20, 2019 to the end of 2019.

Financial guarantee service contracts provide guarantees which protects the holder of a debt obligation against default in the financing process. Pursuant to such guarantee, the Company makes payments if the obligor responsible for making payments fails to do so as scheduled. The contract amounts reflect the extent of involvement Zhejiang Jingyuxin has in the guarantee transaction and also represent the Company’s maximum exposure to credit loss in its guarantee business.

To mitigate the potential credit risks exposure to the financial guarantee services, Zhejiang Jingyuxin requires the guarantee service customers to make a deposit to Zhejiang Jingyuxin of the same amount as the deposit Zhejiang Jingyuxin pledged to the banks for their loans if the customer does not pledge or collateralize other assets with Zhejiang Jingyuxin. The deposit is returned to the customer after the customer repays the bank loan and the Zhejiang Jingyuxin’s guarantee obligation expires.

In addition, Zhejiang Jingyuxin also provides non-financial guarantee services to clients by giving credit guarantee. It is used to improve the contract enforcement. This business includes litigation preservation guarantee, bid guarantee, project performance guarantee and other contract performance business. This is not its key business and it does not take the core resources. It has lower risks.

(2) Consulting services

a. Consulting services for financial guarantee customers

Lixin Cayman subsidiaries provided financial consulting services to financial guarantee customers. Pursuant to the contracts with customers, Lixin Cayman subsidiaries 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. 

b. Consulting services relating to debt collection   

For the year ended December 31, 2019, Lixin Cayman subsidiaries also provide consulting services relating to debt collection with certain factoring companies. The debt collection services involved commitments of 1) assisting the customers to obtain court judgments on outstanding debt, and the Company recognized revenue over period towards completion of the performance by using input method based on the staff cost incurred, and 2) assisting the customers to receive repayment on outstanding debt, the Company recognized revenues upon collection of outstanding debts. The transaction price is allocated to each performance obligation based on the relative standalone selling prices of the services being provided to the customer.

The company will continuously develop management & assessment services and factoring business in 2020. After Lixin Acquisition, the subsidiaries of both Adrie and Lixin Cayman plan to cooperate closely to expand business territories, share business resources of each other and strengthen the Company’s competitiveness.

New Services

In line with our 2020 innovative insurance service and healthcare program growth strategy, we have begun providing health management, innovation insurance, healthcare and consumer financing services to the employees of large institutions.

On December 30, 2019, we incorporated Fortis Health Industrial Group Limited (“Fortis Health” or “FHIG”) 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 aims to provide modern households with one-stop systematic “customized insurance + health management + family doctor + home medical testing” health management service solutions. This platform will enable households and employees of medium to large-sized enterprises to access highly cost-effective, customized health care and insurance solutions, customized insurance products, as well as data management and operational services.

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, including Kunlun Health Insurance Co., Ltd. (Zhejiang Branch) (“Kunlun Health Insurance Zhejiang Branch”), Qidi Blockchain Technology Development Corporation (“Qidi Blockchain Corporation”), Ruixin Insurance Technology (Ningbo) Co., Ltd (“Ruixin Insurance Technology”), and Yunxin Internet Hospital (Yinchuan) Co., Ltd (“Yunxin Internet Hospital”).

The following sections outline the various partnerships that we are currently engaged in.

In January 2020, Zhejiang Lixin and Zeshi entered into a cooperation agreement with five other companies including Qidi Blockchain Corporation and Kunlun Health Insurance Zhejiang Branch to work with Beijing Sunshine Health Foundation to jointly establish a special public welfare fund named Women and Children’s Health Care for fetal and neonatal diseases. This fund aims to support the screening, diagnosis, and treatment of fetal and newborn birth defects in China as well as the development of related medical institutions service networks, treatments of children’s diseases, as well as other scientific work and research.

In February 2020, Zhejiang Lixin and Fuyi Digital Technology (Hangzhou) Co., Limited (“Fuyi Digital Technology”) entered into a strategic cooperation agreement with Qidi Blockchain Corporation to cooperate in the areas of data management and operations, data transformation, and data service platform development. The partnership will pair Qidi Blockchain Corporation’s capabilities in AI medical technology, application development, data mining, operations, and management with Zhejiang Lixin’s market resources, product development experience, and marketing proficiency to drive the development of blockchain and artificial intelligence applications within both the health care and insurance industries.

In March 2020, each of Zhejiang Lixin and Zeshi Health entered into separate agreements with Yunxin Internet Hospital, a provider of online and offline medical consultation and health management services to individuals, banks, insurance brokerages, and employees of large-sized institutions. In addition to its physical facilities, Yunin Internet Hospital is licensed to provide telemedicine services in China. Under these two agreements, each of Zhejiang Lixin and Zeshi Health will cooperate closely with Yunxin Internet Hospital in such areas as financial insurance and internet medical services while establishing a closed-loop “Financial Insurance + Health Care + Technology” service system.

In April 2020, Zhejiang Lixin and Ruixin Insurance Technology agreed upon the terms of cooperation for developing a special program in support of newborn congenital insurance projects. As part of the agreement, Ruixin Insurance Technology will provide customer service support and insurance products that have been jointly designed with Kunlun Health Insurance Zhejiang Branch. Zhejiang Lixin will be responsible for product marketing channel exploration and management, marketing and promotion services, as well as customer relationship services.

On March 12, 2020, Zeshi Health and Guangzhou Jingke Biotech Co., Ltd. (“Jingke Biotech”) reached a strategic cooperation agreement to jointly build an online medical testing service platform to meet the home medical testing demands of households. According to the agreement, Zeshi Health will provide support for platform operations, market development, marketing channel management, and early-stage customer services. In addition, Jingke Medical Testing will provide testing service products and prioritize the delivery of supplies and services to customers on Zeshi Health’s service platform.

Business Strategies

We closed the Lixin Acquisition in December 2019. We plan to take advantage of the strength of Lixin Cayman and its subsidiaries in market and channels, and apply latest technology related to healthcare big data, artificial intelligence and blockchain to the combination of medical and healthcare management and insurance. We intend to implement the following three strategies to expand and grow the size of our businesses:

(i) Explore the business scope of guarantee and financing services

We plan to add categories of guarantee business, mainly consumption financial guarantee, but also contract performance guarantee for medical testing service, health management service and insurance-related service. We also would like to expand the geographic areas of our financial guarantee business to more areas in China.

In the future, Zhejiang Jinyuxin will be the major entity to conduct financial guarantee, and Zeshi and LAM will be the major entities to conduct financing services.

(ii) Initiate insurance service and healthcare program growth strategy

We plan to develop insurance service and healthcare program and explore our business in this area because of the following reasons:

a. We have built the insurance technology and health management platform.

In April 2020, we officially launched a one-stop internet insurance and health care service platform. This platform will enable households and employees of medium to large-sized enterprises to access highly cost-effective, customized health care and insurance solutions, customized insurance products, as well as data management and operational services.

b. We have established strategic cooperation relationship with other companies.

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.

c. The macro policy benefits our business development.

On October 25, 2016, China formally passed the blueprint of “Healthy China 2030,” working towards the national goal of reaching a health standard on par with developed countries by 2030. The five specific targets of Healthy China 2030 are to improve the level of health, control major risk factors, increase health service capacity, expand health industry scale, and perfect the health service system. The demand of fair, efficient, good, reasonable healthcare service by Chinese people will keep increasing.

In the recent years, Chinese government has issued a series of Internet + Healthcare development polices. The outbreak of COVID-19 at the beginning of 2020 reveals some shortcomings of Chinese medical system, and has promoted the diagnose service of internet hospital.

d. We start from Zhejiang Province.

Zhejiang Province is the frontline of internet development in China and an economically active area. It has a relatively stable market of internet healthcare. We are based in Hangzhou, the capital city of Zhejiang and are developing the new business in Zhejiang. We plan to promote the our successful experience in Zhejiang to Shanghai, Guangzhou, Tianjin, Xinjiang and other business areas, cooperate with our clients, industry organizations and partners and facilitate the deep infusion of insurance, medical healthcare and artificial intelligence.

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 Cayman				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 plan to renew it before it expires. The permit authorizes Zhejiang Jingyuxin to operate the guarantee business, and related financial consulting and consulting agent business in China.

Competition

The Company faces competition in the financial industry. We believe that the financial industry is becoming more competitive as this industry matures and begins to consolidate, especially under the heavy regulation by policies and macroeconomic downturn. The Company competes with other financial guarantee companies, other financial consulting companies, and some cash-rich state-owned companies or individuals that provide financial services to MSMEs. Some of these competitors have larger and more established customer bases and substantially greater financial, marketing and other resources than we have. As a result, we could lose market share and our revenues could decline, thereby adversely affecting our earnings and potential for growth.

While we plan to achieve a competitive advantage by adopting various business strategies including exploring business in the Internet + Healthcare area, we face the competition from the companies much bigger than us and with a longer history. For example, Ping’an good doctor focuses on online diagnosis, consumption diagnosis, health mall, health management and health interaction. Ali Health started from online medicine, and is building a big health closed loop by developing internet diagnosis, intelligent treatment, consumption diagnosis and source tracking service. Huarun Medicine, as a top medicine enterprise, has strong supply chain and rich client resources and is developing its platform by applying internet technology.

Seasonality

Our main business does not have significant seasonality. 

Government Regulation

The Company’s operations are subject to extensive and complex state, provincial and local laws, rules and regulations. We are supervised by a variety of provincial and local government authorities, including CBRC, PBOC, local tax bureaus, local Administration 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

Below are summaries of the material terms of PRC laws applicable to our businesses.

The following is an organizational chart setting forth our corporate structure as of December 31, 2019:

The following is an organizational chart setting forth our corporate structure as of June 26, 2020:

 The following table lists the major holders of our Ordinary Shares:

The Company has the land use rights and the ownership for the following building:

The Company has signed the following leases:

The Company does not have any plants, but has office equipment in each office.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” or in other parts of this annual report on Form 20-F.

Overview

In the fiscal year ended December 31, 2019, we conducted management and assessment services and financial guarantee and consulting business, in addition to existing direct loan business from which we only had minimal income.

Management & assessment services and factoring business

We commenced our management & assessment services and factoring business to customers in December 2018. For the years ended December 31, 2019 and 2018, we provided management and assessment services to four customers, generating revenues of $135,938 and $71,568, respectively.

Financial guarantee and consulting services

In order to diversify the Company’s business and generate additional revenue, on December 20, 2019, the Company completed acquiring 65.0177% equity interest in Lixin Cayman and its subsidiaries (collectively “Lixin”), which were engaged in guarantee and consulting services. The Company is able to consolidate operations of Lixin Cayman effective December 20, 2019 and now operates a separate guarantee and consulting services.

Financial guarantee services

We received financial guarantee commission by providing financial guarantee services to customers. Pursuant to financial guarantee service contracts, the Company is obligated to make payments if the customers fail to make payments to financial institutions as scheduled. Accordingly, the financial institutions providing capital to customers would claim defaulted amount against Lixin if any potential defaults incurred by customers. The contract amounts reflect the extent of credit losses to which the Company is exposed.

Credit risk is controlled by the application of credit approvals, limits and monitoring procedures including due-diligence visits and post-lending visits to the clients. The Company manages credit risk through in-house research and analysis of the Chinese economy and the underlying obligors and transaction structures. To minimize credit risk, the Company requires collateral in the form of rights to cash, securities or property and equipment.

The Company has been providing the financial guarantees of loans for limited history. The customer’s deposits or other assets are held as collateral for the repayment of each loan. As of December 31, 2019, the amount of outstanding loans and related interests that the Company has guaranteed is approximately $35.1 million. The Company estimates the fair market value of the collateral to be approximately $61.4 million as of December 31, 2019.

For the period from acquisition of Lixin on December 20, 2019 to December 31, 2019, the Company generated financial guarantee commission of $8,797.

Consulting services for financial guarantee customers

The Company provided financial consulting services to financial guarantee customers. Pursuant to the contracts with customers, the Company 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 upon successful facilitation of guarantee service, which is at the inception of financial guarantee period. Transaction prices are generally paid upon successful facilitation. The Company recognizes the revenue at the inception of guarantee period.

For the period from acquisition of Lixin on December 20, 2019 to December 31, 2019, the Company generated minimal consulting services for financial guarantee customers.

Consulting services relating to debt collection

The Company also provides consulting services relating to debt collection with certain factoring companies. The debt collection services involved commitments of 1) assisting the customers to obtain court judgments on outstanding debt, and 2) assisting the customers to receive repayment on outstanding debt. The Company recognized revenues upon completion of each commitment.

For the period from the closing of Lixin Acquisition on December 20, 2019 to December 31, 2019, the Company generated consulting services relating to debt collections of $176,984 through Lixin.

In addition, Zeshi was involved in consulting service relating to debt collection with one factoring company. The debt collection service involved one performance obligation which is to assist the customer to receive repayment on outstanding debt, and the Company recognized revenues upon completion of the performance obligation. For the year ended December 31, 2019, Zeshi assisted the customer to collect the debt and recognized revenue of $316,795.

Interest and fees earned from factoring business

We also entered into financing arrangements with our customers through Zhiyuan, which is engaged in business factoring program. We earned interest income from these financing arrangements. For the years ended December 31, 2019 and 2018, we earned interest income from factoring programs of $2,782,332 and $35,229, respectively.

We used to engage in disbursement of direct loans to MSMEs located in Xinjiang Uygur Autonomous Region. Our customers covered sectors of commerce and service, real estate, technology promotion and application services, construction, finance, wholesale and retail and other industries. From 2018, we decreased direct loan business and didn’t conduct or renew any loan in 2019. As of December 31, 2019, we had direct loans receivables due from four business customers and two individual customers. For the years ended December 31, 2019 and 2018, we earned interest and fees income from direct loan customers of $1,153 and $15,035, respectively.

Recent developments

Lixin Acquisition

In January 2019, the Company acquired 1% equity interest in Zhejiang Lixin at a cash consideration of $427,318 (RMB 2,858,600).

On June 13, 2019 and August 23, 2019, the Company entered into a share purchase agreement (“SPA”) and a supplementary to the SPA with Lixin Cayman and certain shareholders of Lixin Cayman, pursuant to which the Company would acquire 65.0177% equity interests in Lixin Cayman and its subsidiaries at a consideration of approximately $39.38 million (RMB 276.00 million)  (later adjusted to $31.09 million (RMB 217.88 million). See Note 4 to the Consolidated Financial Statements). Lixin Cayman is engaged in financial guarantee business, asset management, supply chain financing, and business factoring through its subsidiaries based in Zhejiang Province, China.

The transaction was closed on December 20, 2019 upon the Company’s issuance of 291,795,150 Class B convertible preferred shares. These convertible preferred shares are embedded with liquidation preference and dividend preference but with no voting rights. Upon the second anniversary of the closing date, one Class B preferred share may be convertible to one ordinary share or can be redeemed at a conversion price calculated at the average closing price per share for ninety consecutive trading days before the conversion date. Because the Company’s board has the rights to convert any or all of the Class B Preferred Shares, in whole or in part, into ordinary shares. Accordingly, the redemption provisions are solely at the discretion of the Company.

Disposition of Urumqi Fenghui Direct Lending Co., Ltd. (“Feng Hui”)

On July 31, 2019 and November 22, 2019, the Company entered into a framework agreement (the “Agreement”) and a supplementary to the Agreement with Zhejiang Zhongfeng Investment Management Co., Ltd. (“Zhongfeng”, or the “Purchaser”), pursuant to which Zhongfeng agreed to acquire a 100% equity interest in Feng Hui, a variable interest entity of the Company, or acquire control over and become a primary beneficiary of Feng Hui through contractual arrangements. Feng Hui primarily provides loan facilitation services to micro, small and medium sized enterprises in the Xinjiang Uygur Autonomous Region. On November 22, 2019, the disposition transaction was closed at a consideration of approximately $1.44 million (RMB 10 million) and transferred control over Feng Hui to Zhongfeng. For the year ended December 31, 2019, the Company received an aggregate of $504,713 (RMB 3.5 million). On April 30, 2020, the Company received an additional $0.43 million (RMB 3.0 million) from Zhongfeng.

Upon the closing of the disposition on November 22, 2019, the Company released all Feng Hui equity interests to Feng Hui’s shareholders and those interests were subsequently transferred to Zhongfeng by Feng Hui’s shareholders. Zhongfeng assumed all assets and obligations of Feng Hui. Upon the closing of the transaction, the Company does not bear any contractual commitment or obligation to the microcredit business or the employees of Feng Hui, nor to the Purchaser.

Key Factors Affecting Our Results of Operation

We have a limited operating history of our current businesses. We commenced management and assessment consulting services in December 2018, and acquired financial guarantee and consulting business in late December 2019. We believe our future success depends on our ability to significantly expand financial market and channels, and apply latest technology related to healthcare big data, artificial intelligence and block chain to the combination of medical and healthcare management and insurance. Our limited operating history makes it difficult to evaluate our business and future prospects. You should consider our future prospects in light of the risks and challenges encountered by a company with a limited operating history in an emerging and rapidly evolving industry. These risks and challenges include, among other things,

In addition, our business requires a significant amount of capital in large part due to needing to continuously grow financial guarantee services, and expand our business in existing markets and to additional markets where we currently do not have operations. We do not know if we will receive the amount of capital needed for our business growth and expansion.

Results of Operations

The following table sets forth a summary of our consolidated results of operations for the periods presented. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The results of operations in any period are not necessarily indicative of our future trends.

Year ended December 31, 2019 compared to year ended December 31, 2018

Revenues

Our revenues from services increased by $567,652 or 793%, from $71,568 for the year ended December 31, 2018, to $639,220 for the year ended December 31, 2019. The following table sets forth a breakdown of our revenue by services offered for the years ended December 31, 2019 and 2018:

Management and assessment services

We commenced our management and assessment services in December 2018, which primarily involved factoring services, asset management services and financing services.

Revenues from management and assessment services increased by $64,370, or 90% from $71,568 for the year ended December 31, 2018 to $135,938 for the year ended December 31, 2019. The primary reason of the increase was as we launched the services in December 31, 2018 and we recognized management and assessment services using a time-based measure of progress, a majority of revenues from the contracts obtained in 2018 were recognized in the year ended December 31, 2019.

Consulting services relating to debt collection

The Company provides consulting services relating to debt collection with certain factoring companies, through Lixin Cayman and its subsidiaries which were acquired in late December 2019. The debt collection services involved two performance obligations, and the service fee for each performance obligation are fixed and reflected the stand-alone selling price. In addition, a collected-amount based incentive is rewarded to the Company upon collection of outstanding debt.

For the period from acquisition of Lixin Cayman and its subsidiaries on December 20, 2019 to December 31, 2019, the Company assisted four customers to get court judgments on outstanding debts and recognized revenue of $176,984 through Lixin Cayman and its subsidiaries.

In addition, Zeshi was involved in consulting service relating to debt collection with one factoring company. The debt collection service involved one performance obligation which is to assist the customer to receive repayment on outstanding debt, and the Company recognized revenues upon completion of the performance obligation. For the year ended December 31, 2019, Zeshi assisted the customer to collect the debt and recognized revenue of $316,795.

Because we were just engaged in consulting services relating to debt collection in December 2019, we did not generate any revenues for the year ended December 31, 2018.

Consulting services relating to financial guarantee services

The Company provided financial consulting services to financial guarantee customers. Pursuant to the contracts with customers, the Company facilitated financial guarantee services between customers and financial guarantors, and charged referral fees at a fixed amount. The performance obligation is completed and control of the service is transferred at the inception of financial guarantee period. Transaction prices are generally paid upon successful facilitation. The Company recognizes the revenue at the inception of guarantee period.

From the acquisition date from December 20, 2019 to December 31, 2019, the Company generated minimal revenue from consulting services relating to financial guarantee services.

We were just engaged in consulting services relating to financial guarantee services in December 2019 and we did not generate any revenues for the year ended December 31, 2018.

Interest and fees income

Interest and fee income consisted of interest and fee income generated from factoring business and from direct loans. For the year ended December 31, 2019, the interest and fee income was $2,882,828, representing an increase of $2,832,146, or 5,588% from $50,682 for the year ended December 31, 2018. The increase was mainly attributable to an increase of $2,747,103 in interest and fee income generated from factoring business, as we launched our factoring business in December 2018.

Interest expenses and fees on secured loans 

Interest expenses and fees on secured loans increased by $2,193,697, or 8,734% from $25,118 for the year ended December 31, 2018 to $2,218,815 for the year ended December 31, 2019.

The significant increase of interest expenses and fees on secured loans was primarily driven by borrowings of secured loans of $67,258,135 in December 2018 and borrowings of $43,422,881 during the year ended December 31, 2019, leading to a one-month interest expense was recognized for the year ended December 31, 2018, while remaining interest expenses recognized for the year ended December 31, 2019.

All secured loans were repaid during the year ended December 31, 2019.

Provision for loan losses

The provision for loan losses was determined by comparing the beginning and ending balance of allowance for loan losses for business and personal loans. If the ending balance of the allowance of loan losses after any charge offs (net of recoveries) is less than the beginning balance, it will be recorded as a “reversal”; if it is larger, it will be recorded as a “provision” in the allowance for loan loss. The netting amount of “reversal” and “provision” is presented in “provision for loan losses” in the condensed consolidated statements of operations and comprehensive loss.

Provision for loan losses increased by $68,385, or 3%, from $2,176,216 for the year ended December 31, 2018 to $2,244,601 for the year ended December 31, 2019. The increase was caused by additional “doubtful” loans rolled to “loss” loans during the year ended December 31, 2019 as compared to that for the same period ended December 31, 2018. The provision for loan losses is maintained at a level believed to be reasonable by management to absorb probable losses inherent in the portfolio as of each balance sheet date. The provision is based on factors such as the size and current risk characteristics of the portfolio, an assessment of individual loans and actual loss, delinquency, and/or risk rating record within the portfolio.

Operating expenses

Operating expense mainly consisted of salary and employee surcharges, business tax and surcharges, office expenses, travel costs, entertainment expenses, depreciation of equipment, investment impairment, professional fees and office supplies. Non-interest expenses increased by $73,487, or 6% from $1,293,223 for the year ended December 31, 2018 to $1,366,710 for the year ended December 31, 2019.  The increase was primarily attributable by a decrease of $217,483 in changes of fair value of warrant liabilities because the Company was delisted from NASDAQ in September 2019, offset against a decrease of $59,803 in salaries and employee surcharges due to resignation of employees as a result of downsized direct loan business, and a decrease of $83,831 in other operating expenses due to the decrease in expenses related to direct loan business.

Income tax expenses

We had income tax expenses of $244,741 for the year ended December 31, 2019, as compared with $17,635 for the year ended December 31, 2018.

Current income tax expenses increased by $169,432 from $17,635 for the year ended December 31, 2018 to $187,067 for the year ended December 31, 2019. The increase was primarily caused by increase of $168,127 in current income tax expenses incurred by Zeshi and Zhiyuan as a result of increasing taxable income generated during the year ended December 31, 2019.

Deferred income tax expenses changed from deferred tax expenses of $nil for the year ended December 31, 2018 to deferred tax expenses of $57,674 for the ended December 31, 2019. The change was mainly caused by the deferred tax expenses of $64,468 from net operating losses generated by Lixin, against deferred tax benefits of $6,794 arising from recognition of intangible assets from the Lixin Acquisition.

Net income (loss) from discontinued operations, net of income tax

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. 

During the year ended December 31, 2018, the net loss of $90,736,365 mainly represented a net loss of $90,736,365 from discontinued operations of Feng Hui. 

For details of disposition of Feng Hui, please refer to Note 5 to the consolidated financial statements in the Form 20-F.

Net income

As a result of the foregoing, we had a net income of $24,288,908 for the year ended December 31, 2019, as compared to a net loss of $94,126,307 for the year ended December 31, 2018. 

Year ended December 31, 2018 compared to year ended December 31, 2017

Revenues

We commenced our management and assessment services on direct loans in December 2018, which primarily involved maintenance services on direct loans over the loan period. The service fee is recognized over loan period. For the year ended December 31, 2018, we obtained contracts with four customers and we generated revenues from management and assessment services on direct loans of $71,568.

Because we just launched management and assessment services in December 2018 and we did not generate any revenues for the year ended December 31, 2017.

Interest and fees

Interest and fees decreased by $1,578,380, or 97% from $1,629,062 for the year ended December 31, 2017 to $50,682 for the year ended December 31, 2018.

The sharp decrease of interest and fees on direct loans was attributable to increasing past due loan receivable and interest receivable during the year ended December 31, 2018 which resulted in reversal of interest income.

Provision for loan losses

The provision for loan losses was determined by comparing the beginning and ending balance of allowance for loan losses for business and personal loans. If the ending balance of the allowance of loan losses after any charge offs (net of recoveries) is less than the beginning balance, it will be recorded as a “reversal”; if it is larger, it will be recorded as a “provision” in the allowance for loan loss. The netting amount of “reversal” and “provision” is presented in “provision for loan losses” in the condensed consolidated statements of operations and comprehensive loss.

Provision for loan losses increased by $1,611,029, or 285%, from $565,187 for the year ended December 31, 2017 to $2,176,216 for the year ended December 31, 2018. The increase was caused by additional “doubtful” loans rolled to “loss” loans during the year ended December 31, 2018 as compared to that for the same period ended December 31, 2017. The provision for loan losses is maintained at a level believed to be reasonable by management to absorb probable losses inherent in the portfolio as of each balance sheet date. The provision is based on factors such as the size and current risk characteristics of the portfolio, an assessment of individual loans and actual loss, delinquency, and/or risk rating record within the portfolio.

Operating expenses

Operating expense mainly consisted of salary and employee surcharges, business tax and surcharges, office expenses, travel costs, entertainment expenses, depreciation of equipment, investment impairment, professional fees and office supplies. Non-interest expenses decreased by $926,058, or 42% from $2,219,281 for the year ended December 31, 2017 to $1,293,223 for the year ended December 31, 2018.  The decrease was primarily attributable a decrease of $748,346 in changes of fair value of warrant liabilities as a result of continuing decrease of the Company’s share price from private placement in July 2018 to December 31, 2018, and a decrease of $222,649 in non-operating expenses as a result of slowdown of direct loan business in the year ended December 31, 2018.

Income tax expenses

We had income tax expenses of $17,635 for the year ended December 31, 2018, as compared with $250,245 for the year ended December 31, 2017, which was in line with a change from a net income for the year ended December 31, 2017 to a net loss for the same period ended December 31, 2018.

Net loss from discontinued operations, net of income tax

During the year ended December 31, 2018 and 2017, the net loss from represented a net loss of $90,736,365 and $53,377,622 from discontinued operations of Feng Hui. 

For details of disposition of Feng Hui, please refer to Note 5 to the consolidated financial statements in the Form 20-F.

Net loss

As a result of the foregoing, we had a net loss of $94,126,307 for the year ended December 31, 2018, as compared with a net loss of $54,783,273 for the year ended December 31, 2017.

Taxation

Cayman Islands

Under the current tax laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.

British Virgin Islands

Under the current tax laws of BVI, the Company’s subsidiary incorporated in the BVI is not subject to tax on income or capital gains.

Hong Kong

Roan HK and Lixin HK are incorporated in Hong Kong and are subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate for the first HKD$2 million of assessable profits is 8.25% and assessable profits above HKD$2 million will continue to be subject to the rate of 16.5% for corporations in Hong Kong, effective from the year of assessment 2018/2019. Before that, the applicable tax rate was 16.5% for corporations in Hong Kong. The Company did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception. Under Hong Kong tax laws, Roan HK and Lixin HK are exempted from income tax on its foreign-derived income and there are no withholding taxed in Hong Kong on remittance of dividends. 

PRC

PRC subsidiaries are subject to PRC Enterprise Income Tax (“EIT”) on the taxable income in accordance with the relevant PRC income tax laws. The EIT rate for companies operating in the PRC is 25%.