(Name, Telephone, E-mail and/or Facsimile number
and Address of Company Contact Person)
Securities registered or to be registered pursuant
to Section 12(g) of the Act: None
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 shares as of the close of the period covered by the annual report: 32,752,629
Class A Common Shares and Nil Class B Common 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 the definitions 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 whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☒
Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:
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 Securities Exchange Act of 1934).
(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 securities under a plan confirmed by a court.
Except where the context
otherwise requires and for purposes of this annual report on Form 20-F only, “we,” “us,” “our company,”
“Company,” “our” and “Nisun” refer to NISUN INTERNATIONAL ENTERPRISE DEVELOPMENT GROUP CO., LTD,
a British Virgin Islands company limited by shares (“Nisun International”), and its subsidiaries, including its offshore
subsidiaries and PRC subsidiaries, and in the context of describing our operations and consolidated financial information, also include
our consolidated affiliated entities in China.
References to “consolidated
affiliated entities” are to: variable interest entities (“VIEs”) and subsidiaries of VIEs.
Hebron is the English romanization
of Xibolun in Chinese.
This annual report contains
translations of certain RMB amounts into U.S. dollar amounts at a specified rate solely for the convenience of the reader. The exchange
rates in effect as of December 31, 2021 and 2020 were US$1.00 for RMB 6.3726 and RMB 6.5250, respectively. The average exchange rates
for the years ended December 31, 2021, 2020 and 2019 were US$1.00 for RMB 6.4508, RMB 6.9042, and RMB 6.9081, respectively.
We use period-end exchange rates for assets and liabilities and average exchange rates for revenue and expenses. Capital accounts are
translated at their historical exchange rates when the capital transactions occurred. Any discrepancies in any table between the amounts
identified as total amounts and the sum of the amounts listed therein are due to rounding.
For the sake of clarity,
this annual report follows the English naming convention of first name followed by last name, regardless of whether an individual’s
name is Chinese or English. For example, the name of the Chief Executive Officer will be presented as “Xiaoyun Huang,” even
though, in Chinese, Mr. Huang’s name is presented as “Huang Xiaoyun.”
We obtained the industry
and market data used in this annual report or any document incorporated by reference from industry publications, research, surveys and
studies conducted by third parties and our own internal estimates based on our management’s knowledge and experience in the markets
in which we operate. We did not, directly or indirectly, sponsor or participate in the publication of such materials, and these materials
are not incorporated in this annual report other than to the extent specifically cited in this annual report. We have sought to provide
current information in this annual report and believe that the statistics provided in this annual report remain up-to-date and reliable,
and these materials are not incorporated in this annual report other than to the extent specifically cited in this annual report.
Certain matters discussed
in this report may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended (the “Securities
Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the future
results, performance or achievements expressed or implied by such forward-looking statements. The words “expect,” “anticipate,”
“intend,” “plan,” “believe,” “seek,” “estimate,” and similar expressions
are intended to identify such forward-looking statements. Our actual results may differ materially from the results anticipated in these
forward-looking statements due to a variety of factors, including, without limitation, those discussed under “Item 3—Key
Information—Risk Factors,” “Item 4—Information on the Company,” “Item 5—Operating and Financial
Review and Prospects,” and elsewhere in this report, as well as factors which may be identified from time to time in our other
filings with the Securities and Exchange Commission (the “SEC”) or in the documents where such forward-looking statements
appear. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary
statements.
The forward-looking statements
contained in this report reflect our views and assumptions only as of the date this report is signed. Except as required by law, we assume
no responsibility for updating any forward-looking statements.
PART I
Item
1. Identity of Directors, Senior Management and Advisers
Not applicable for annual
reports on Form 20-F.
Item
2. Offer Statistics and Expected Timetable
Not applicable for annual
reports on Form 20-F.
Item
3. Key Information
Our Corporate Structure and Contractual Arrangements with our Consolidated
Affiliated Entities
Nisun International Enterprise
Development Group Co., Ltd, or Nisun International, is not a PRC operating company but a British Virgin Islands (“BVI”) holding
company with operations primarily conducted through (i) its PRC subsidiaries, and (ii) contractual arrangements with its consolidated
affiliated entities based in China. PRC laws and regulations restrict and impose conditions on foreign investment in internet based,
value-added telecommunication services, mobile application services and certain other businesses. Accordingly, we operate these businesses
in China mainly through our consolidated affiliated entities and rely on contractual arrangements among our PRC subsidiaries, our consolidated
affiliated entities and their nominee shareholders to control the business operations of our consolidated affiliated entities. Our consolidated
affiliated entities are consolidated for accounting purposes, but are not entities in which our BVI holding company, or our investors,
own equity. Such structure and the contractual arrangements are designed to enable Nisun International to have power to direct significant
activities of our consolidated affiliated entities and to receive economic benefits from these entities where PRC law prohibits, restricts
or imposes conditions on direct foreign investment in such entities. Investors in our common shares thus are not acquiring or owning
equity interests in our consolidated affiliated entities but instead are acquiring interests in a BVI holding company. Investors may
never directly hold equity interests in these consolidated affiliated entities.
Our consolidated affiliated
entities have been treated as Variable Interest Entities under the Statement of Financial Accounting Standards Board Accounting Standards
Codification 810 Consolidation and we are regarded as the primary beneficiary of our consolidated affiliated entities, or VIEs. Accordingly,
we treat our VIEs as our consolidated entities under U.S. GAAP and we consolidate the financial results of our VIEs in our consolidated
financial statements in accordance with U.S. GAAP.
Our subsidiaries, our VIEs
and shareholders of VIEs have entered into a series of contractual agreements. These contractual arrangements enable us to:
| ● | receive
the economic benefits that could potentially be significant to our consolidated affiliated
entities in consideration for the services provided by our subsidiaries; |
| ● | exercise
effective control over our consolidated affiliated entities; and |
| ● | hold
an exclusive option to purchase all or part of the equity interests in our VIEs when and
to the extent permitted by PRC law. |
The
contractual arrangements among our subsidiaries, our VIEs and their shareholders generally include equity interest holder voting rights
proxy agreements, exclusive equity purchase option agreements, trademarks, technologies, management and consulting services agreements,
and equity interest pledge agreements. Terms contained in each set of contractual arrangements with our VIEs and their respective shareholders
are substantially similar. As a result of the contractual arrangements, we have effective control over and are considered the primary
beneficiary of these affiliated companies, and we have consolidated the financial results of these companies in our consolidated financial
statements. For more details of these contractual arrangements, see “Item 4. Information on the Company—B. Business Overview—Contractual
Arrangements with Our Consolidated Affiliated Entities and the Nominee Shareholders;” and “Item 4. Information on the Company—C.
Organizational Structure.”
The
contractual arrangements may not be as effective as direct ownership in providing us with control over our consolidated affiliated entities
and we may incur substantial costs to enforce the terms of the arrangements. Uncertainties in the PRC legal system may limit our ability,
as a BVI holding company, to enforce these contractual arrangements. There are very few precedents upon which we can rely to determine
whether such contractual arrangements would provide our subsidiaries with effective control over the relevant consolidated affiliated
entities, or how such contractual arrangements in the context of a consolidated affiliated entity structure should be interpreted or
enforced by the PRC courts. Should legal actions become necessary, we cannot guarantee that the court will rule in favor of the enforceability
of the consolidated affiliated entity contractual arrangements. In the event we are unable to enforce these contractual arrangements,
or if we experience significant delay or other obstacles in the process of enforcing these contractual arrangements, we may not be able
to exert effective control over our consolidated affiliated entities, and our ability to conduct our business may be materially adversely
affected. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We rely on contractual
arrangements with our consolidated affiliated entities and their shareholders for our business operations, which may not be as effective
as direct ownership in providing operational control” and “Item 3. Key Information—D. Risk Factors—Risks Related
to Our Corporate Structure—Shareholders of VIEs may have potential conflicts of interest with us, which may materially and adversely
affect our business and financial condition.”
Our
corporate structure is subject to risks associated with our contractual arrangements with our VIEs. Investors may never directly hold
equity interests in our VIEs. If the PRC government finds that the agreements that establish the structure for operating our business
do not comply with PRC laws and regulations, or if these regulations or their interpretations change in the future, we could be subject
to severe penalties or be forced to relinquish our interests in those operations. Our holding company, our PRC subsidiaries, our VIEs,
and investors of our company face uncertainty about potential future actions by the PRC government that could affect the enforceability
of the contractual arrangements with our VIEs and, consequently, significantly affect the financial performance of our VIEs and our company
as a whole.
There
are also substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rules
regarding the status of the rights of our BVI holding company with respect to its contractual arrangements with our VIEs and their respective
shareholders. It is uncertain whether any new PRC laws or regulations relating to VIE structures will be adopted or if adopted, what
they would provide. If we or any of our VIEs is found to be in violation of any existing or future PRC laws or regulations, or fail to
obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take
action in dealing with such violations or failures. See “Item 3. Key Information—D. Risk Factors—Risks Relating to
Our Corporate Structure— Uncertainties exist with respect to the interpretation and implementation of the PRC Foreign Investment
Law and how it may impact the viability of our current corporate structure, corporate governance and business operations,” and
“—If the PRC government finds that the contractual arrangements that establish the structure for operating our business do
not comply with PRC laws and regulations, we could be subject to severe consequences.”
We
face various legal and operational risks and uncertainties associated with being based in or having our operations primarily in China
and the complex and evolving PRC laws and regulations. For example, we face risks associated with regulatory approvals on offerings conducted
overseas by and foreign investment in China-based issuers, the use of our VIEs, anti-monopoly regulatory actions, and oversight on cybersecurity
and data privacy. These risks could result in a material adverse change in our operations and the value of our securities, significantly
limit or completely hinder our ability to offer or continue to offer securities to investors, or cause the value of such securities to
significantly decline. For a detailed description of risks related to doing business in China, “Item 3. Key Information—D.
Risk Factors—Risks Relating to Doing Business in China.”
PRC
government’s significant authority in regulating our operations and its oversight and control over offerings conducted overseas
by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to
offer securities to investors. Implementation of industry-wide regulations in this nature may cause the value of such securities to significantly
decline or be of little or no value. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Relating
to Doing Business in China—The PRC government’s significant oversight and discretion over our business operation could result
in a material adverse change in our operations and the value of our listed securities.”
Risks
and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly
evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our common shares.
For more details, see “Item 3. Key Information—D. Risk Factors— Risks Relating to Doing Business in China—Uncertainties
in the PRC legal system and the interpretation and enforcement of PRC laws and regulations could limit the legal protections available
to us and our investors, materially and adversely affect our financial condition and results of operations, and cause our shares to significantly
decline in value or become worthless.”
Permissions Required
from the PRC Authorities for the Operations and Securities Offerings of PRC Subsidiaries and Consolidated Affiliated Entities
We
conduct our business primarily through our subsidiaries, our VIEs and their subsidiaries in China. Our operations in China are governed
by PRC laws and regulations. As of the date of this annual report, all of our PRC subsidiaries and consolidated affiliated entities have
obtained the requisite licenses and permits from the PRC government authorities that are material for the business operations of our
holding company, our subsidiaries, VIEs and VIE subsidiaries in China, including, Business Licenses, the Internet Content Provision (ICP)
Licenses and Electronic Data Interchange (EDI) Licenses. All of our PRC subsidiaries, VIEs and VIE subsidiaries are required to obtain,
and have obtained, their respective Business Licenses. Fintech, Hengpu and Nami are required to made, and have made a record filing with
the competent telecommunications authority as a non-operational Internet Content (ICP) Provider and therefore have received the ICP Licenses.
Hengpu is required to make, and has made, an Electronic Data Interchange (EDI) record filing with the competent telecommunications authority
and therefore has received the EDI License. However, given the uncertainties of interpretation and implementation of relevant laws and
regulations and the enforcement practice by government authorities, we cannot assure you that we have obtained all the permits or licenses
required by the PRC government authorities for conducting our business in China. We may be required to obtain additional licenses, permits,
filings or approvals for the functions and services of our platform in the future. For more detailed information, see “Item 3.
Key Information—D. Risk Factors—Risks Relating to Doing Business in China—We may be adversely affected by the complexity,
uncertainties and changes in PRC regulation of internet- related or finance-related businesses and companies, and any lack of requisite
approvals, licenses, permits or filings applicable to our business may have a material adverse effect on our business and results of
operations.”
Furthermore,
we are subject to PRC rules and regulations relating to overseas listing and securities offering, and a substantial extension of the
PRC government’s oversight over our business operations or overseas listings may hinder our ability to offer or continue to offer
our securities. Under current PRC laws, regulations and regulatory rules, we, our PRC subsidiaries and our consolidated affiliated entities
may be required to obtain permissions from the China Securities Regulatory Commission, or the CSRC, and may be required to go through
cybersecurity review by the Cyberspace Administration of China, or the CAC, in connection with any future offering and listing on overseas
capital markets.
On
June 10, 2021, the Standing Committee of the National People’s Congress of China promulgated the Data Security Law which took effect
on September 1, 2021. The Data Security Law provides for data security and privacy obligations of entities and individuals carrying out
data activities, prohibits entities and individuals in China from providing any foreign judicial or law enforcement authority with any
data stored in China without approval from the competent PRC authority, and sets forth the legal liabilities of entities and individuals
found to be in violation of their data protection obligations, including rectification order, warning, fines of up to RMB10 million,
suspension of relevant business, and revocation of business permits or licenses. The Data Security Law is relatively new, and therefore
there are substantial uncertainties with respect to the interpretation and implementation of the law. We may need to adjust our operations
to comply with data security requirements from time to time. If we were found to have violations, we may be ordered to rectify and terminate
any actions that are deemed illegal by the government authorities and become subject to fines and other government sanctions, which may
materially and adversely affect our business, financial condition, and results of operations.
On
July 6, 2021, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council
jointly issued the Opinions on Severe and Lawful Crackdown on Illegal Securities Activities, which took effect on the same day. These
opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseas listings
by China-based companies. These opinions proposed to take effective measures, such as promoting the construction of relevant regulatory
systems, to deal with the risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data
privacy protection. As of the date of this opinion, no official guidance and related implementation rules have been issued in relation
to these recently issued opinions and the interpretation and implementation of these opinions remain unclear at this stage.
On
July 10, 2021, the Cyberspace Administration of China issued the Measures for Cybersecurity Review which took effect on February 15, 2022.
The Revised Cybersecurity Measures authorize the relevant government authorities to conduct cybersecurity review on a range of activities
that affect or may affect national security, including listings in foreign countries by companies
that possess personal data of more than one million users. The PRC National Security Law covers various types of national security, including
technology security and information security. Given the nature of our business in China and the fact that we do not have personal information
of more than one million users, we do not believe we are an “internet platform operator” that is required to file for a cybersecurity
review pursuant to the Measures for Cybersecurity Review.
On
August 20, 2021, the Standing Committee of the National People’s Congress adopted the Personal Information Security Law, which
took effect on November 1, 2021. The Personal Information Protection Law includes the basic rules for personal information processing,
the rules for cross-border provision of personal information, the rights of individuals in personal information processing activities,
the obligations of personal information processors, and the legal responsibilities for illegal collection, processing, and use of personal
information. We have access to confidential or personal information in certain of the businesses and have privacy policies and other
documentation regarding the protection of personal information; however, we may not be successful in achieving compliance if any employees
or contractors fail to comply with these policies and procedures.
On
December 24, 2021, the CSRC issued Provisions of the State Council on the Administration of Overseas Securities Offering and Listing
by Domestic Companies (Draft for Comments) (the “Administration Provisions”), and the Provisions of the State Council on
the Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the
“Measures”). The Administration Provisions and Measures for overseas listings lay out specific requirements for filing documents
and include unified regulation management, strengthening regulatory coordination, and cross-border regulatory cooperation. Domestic companies
seeking to list abroad must carry out relevant security screening procedures if their businesses involve such supervision. Companies
endangering national security are among those off-limits for overseas listings. According to Relevant Officials of the CSRC Answered
Reporter Questions (“CSRC Answers”), after the Administration Provisions and Measures are implemented upon completion of
public consultation and due legislative procedures, the CSRC will formulate and issue guidance for filing procedures to further specify
the details of filing administration and ensure that market entities could refer to clear guidelines for filing, which means it will
still take time to put the Administration Provisions and Measures into effect. As of the date of this report, the Administration Provisions
and Measures have not yet come into effect. However, according to CSRC Answers, only new initial public offerings and refinancing by
existent overseas listed Chinese companies will be required to go through the filing process; other existent overseas listed companies
will be allowed sufficient transition period to complete their filing procedure. The Company may be required to obtain approval of and
filling with the CSRC or other PRC government authorities for its future refinancing. However, it is uncertain when the Administration
Provision and the Measures will take effect or if they will take effect as currently drafted. Currently, the period for public comment
on these draft regulations has ended and their provisions and anticipated adoption or effective date are subject to changes and thus
their interpretation and implementation remain substantially uncertain. It also remains unclear on whether a US-listed company, like
Nisun International, is subject to the CSRC filing procedures, to maintain the listing of its securities in a foreign country. As of
the date of this report, we cannot predict the impact of these regulations on maintaining the listing status of our common shares and/or
other securities, or any of our future offerings of securities overseas in the overseas markets.
Based
on PRC laws and regulations effective as of the date of this report and subject to different interpretations of these laws and regulations
that may be adopted by PRC authorities, we believe that, as of the date of this report, we, our PRC subsidiaries and consolidated affiliated
entities are not required to obtain any permission from the CSRC, the CAC, or any other PRC authority in connection with this offering.
As a result, we have not submitted any application to the CSRC, the CAC or other PRC authorities for the approval of our securities offerings.
As of the date of this report, we and our PRC subsidiaries have not received any inquiry, notice, warning or objection in relation to
this offering or Nasdaq listing from the CSRC, the CAC or any other PRC authorities. If we fail to obtain the relevant approval or complete
other review or filing procedures for any future offshore offering or listing, we may face sanctions by the CSRC or other PRC regulatory
authorities, which may include fines and penalties on our operations in China, limitations on our operating privileges in China, restrictions
on or prohibition of the payments or remittance of dividends by our PRC subsidiaries, restrictions on or delays to our future financing
transactions, or other actions that could have a material and adverse effect on our business, financial condition, results of operations,
reputation and prospects, as well as the trading price of our common shares. For more detailed information, see “Item 3. Key Information—D.
Risk Factors—Risks Relating to Doing Business in China—The PRC government may intervene or influence our operations at any
time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result
in a material change in our operations and/or cause the value of our securities to significantly decline or be worthless,” and
“Risk Factors—Risks Relating to Doing Business in China—Recent regulatory developments in China, including greater
oversight and control by the CAC over privacy and data security, may subject us to additional regulatory review and any actions by the
Chinese government to exert more oversight and control over foreign investment in China-based issuers could significantly limit or completely
hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline
or be worthless.”
Holding Foreign Companies Accountable
Act (HFCAA)
Our
common shares may be prohibited from trading on a national exchange or “over-the-counter” markets under the HFCAA if the
PCAOB determines it is unable to inspect or investigate completely our auditors for three consecutive years beginning in 2021. Further,
on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (“AHFCAA”) and on February
4, 2022, the U.S. House of Representatives passed the America Creating Opportunities for Manufacturing Pre-Eminence in Technology and
Economic Strength (COMPETES) Act of 2022, or the COMPETES Act. If either the AHFCAA or COMPETES Act is enacted into law, it would amend
the HFCAA and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not
subject to PCAOB inspections or complete investigations for two consecutive years instead of three.
Pursuant
to the HFCAA, the PCAOB issued a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate
completely registered public accounting firms headquartered in: (1) mainland China and (2) Hong Kong. In addition, the PCAOB’s
report identified the specific registered public accounting firms which are subject to these determinations. Our auditor, Wei, Wei &
Co., LLP, is headquartered in New York City, New York and has been inspected by the PCAOB on a regular basis. Wei, Wei & Co., LLP
is a firm registered with the PCAOB and is required by the laws of the U.S. to undergo regular inspections by the PCAOB to assess its
compliance with the laws of the U.S. and professional standards. Wei, Wei & Co., LLP has been subject to PCAOB inspections, and is
not among the PCAOB-registered public accounting firms headquartered in the PRC or Hong Kong that are subject to PCAOB’s determination
on December 16, 2021 of having been unable to inspect or investigate completely. Notwithstanding the foregoing, in the future, if it
is later determined that the PCAOB is unable to inspect or investigate our auditor completely, or if there is any regulatory change or
step taken by PRC regulators that does not permit Wei, Wei & Co., LLP to provide audit documentations to the PCAOB for inspection
or investigation, or the PCAOB expands the scope of the Determination so that we are subject to the HFCAA, as the same may be amended,
you may be deprived of the benefits of such inspection. Any audit reports not issued by auditors that are completely inspected or investigated
by the PCAOB, or a lack of PCAOB inspections of audit work undertaken in China that prevents the PCAOB from regularly evaluating our
auditors’ audits and their quality control procedures, could result in a lack of assurance that our financial statements and disclosures
are adequate and accurate, which could result in limitation or restriction to our access to the U.S. capital markets and trading of our
securities, including trading on the national exchange or “over-the-counter” markets, may be prohibited under the HFCAA.
See “Risk Factors — Our shares may be delisted under the Holding Foreign Companies Accountable Act if the PCAOB is unable
to inspect our auditors for three consecutive years beginning in 2021, or for two consecutive years if the Accelerating Holding Foreign
Companies Accountable Act becomes law; and the delisting of our shares, or the threat of their being delisted, may materially and adversely
affect the value of your investment” and “Risk Factors — Newly enacted Holding Foreign Companies Accountable
Act, recent regulatory actions taken by the SEC and the Public Company Accounting Oversight Board, and proposed rule changes submitted
by Nasdaq calling for additional and more stringent criteria to be applied to China-based public companies could add uncertainties to
our capital raising activities and compliance costs” for more information.
Cash and Other Assets Transfers within
our Organization and Dividend Distribution
Cash
may be transferred within our organization in the following manner: (i) we may transfer funds to our subsidiaries, including our PRC
subsidiaries, by way of capital contributions or loans, through intermediate holding companies or otherwise; (ii) we and our subsidiaries
may provide loans to our VIEs and vice versa; (iii) funds may be transferred between our VIEs and our subsidiaries, including our PRC
subsidiaries, as service fees for services contemplated by the VIE agreements, as repayment of loan or pursuant to other commercial contracts;
and (iv) our subsidiaries, including our PRC subsidiaries, may make dividends or other distributions to us through intermediate holding
companies or otherwise.
Because
we control our VIEs through contractual arrangements, neither us nor our subsidiaries are able to make direct capital contribution to
our VIEs or their respective subsidiaries.
For
the years ended December 31, 2019, 2020 and 2021, Nisun International, through its intermediate holding companies, provided capital contribution
of nil, $0.7 million, and $15.1 million to its subsidiaries in China. For the years ended December 31, 2019, 2020 and 2021, our VIEs
received debt financing of nil, $2.1 million and $4.4 million from our subsidiaries in China, respectively.
Our
VIEs may transfer cash to the relevant WFOE by paying service fees according to the management and consulting service agreement. For
the years ended December 31, 2019, 2020 and 2021, no service fee was paid to the relevant WFOEs under the management and consulting service
agreement.
For
the years ended December 31, 2019, 2020 and 2021, no dividends or distributions were made to Nisun International by our subsidiaries.
Under PRC laws and regulations, our PRC subsidiaries and VIEs are subject to certain restrictions with respect to paying dividends or
otherwise transferring any of their net assets to us. Remittance of dividends by a wholly foreign-owned enterprise out of China is also
subject to examination by the banks designated by SAFE. The amounts restricted include the paid-up capital and the statutory reserve
funds of our PRC subsidiaries and VIEs, totaling $12.6 million, $46.5 million and $64.6 million as of December 31, 2019, 2020 and 2021,
respectively. Furthermore, cash transfers from our PRC subsidiaries to entities outside of China are subject to PRC government control
of currency conversion. Shortages in the availability of foreign currency may temporarily delay the ability of our PRC subsidiaries and
VIEs to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated
obligations. For risks relating to the fund flows of our operations in China, see “Item
3. Key Information—Risk Factors—Risks
Relating to Doing Business in China—Any limitation on the ability
of our PRC subsidiaries to make payments to us, or the tax implications of making payments to us, could have a material adverse effect
on our ability to conduct our business or our financial condition.”
In
the years ended December 31, 2019, 2020 and 2021, no assets other than cash were transferred through our organization.
Nisun
International has not declared or paid any cash dividends, nor does it have any present plan to pay any cash dividends on its common
shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate
and expand our business. See “Item 8. Financial Information—A.
Consolidated Statements and Other Financial Information—Dividend
Policy.” For the BVI, PRC and U.S. federal income tax considerations
applicable to an investment in our Class A common shares, see “Item
10. Additional Information—E. Taxation.”
For purposes of illustration,
the following discussion reflects the hypothetical taxes that might be required to be paid within mainland China, assuming that: (i)
our PRC subsidiaries have taxable earnings, and (ii) they determine to pay a dividend in the future:
Taxation Scenario Statutory Tax and Standard Rates(1) |
Hypothetical pre-tax earnings(2) | |
| 100 | % |
Tax on earnings at statutory rate of 25%(3) | |
| (25 | )% |
Net earnings available for distribution | |
| 75 | % |
Withholding tax at standard rate of 10%(4) | |
| (7.5 | )% |
Net distribution to Parent/Shareholders | |
| 67.5 | % |
Notes:
| (1) | For purposes of this example, the
tax calculation has been simplified. The hypothetical book pre-tax earnings amount, not considering timing differences, is assumed to
equal taxable income in China. For income tax purposes, our PRC subsidiaries file income tax returns on a separate company basis. |
| (2) | Under the terms of VIE agreements,
our PRC subsidiaries may charge our VIEs for services provided to VIEs. These service fees shall be recognized as expenses of our VIEs,
with a corresponding amount as service income by our PRC subsidiaries and eliminate in consolidation. For income tax purposes, our PRC
subsidiaries and VIEs file income tax returns on a separate company basis. The service fees paid are recognized as a tax deduction by
our VIEs and as income by our PRC subsidiaries and are tax neutral. |
| (3) | Certain of our subsidiaries and
VIEs qualifies for a 15% preferential income tax rate in China. However, such rate is subject to qualification, is temporary in nature,
and may not be available in a future period when distributions are paid. For purposes of this hypothetical example, the table above reflects
a maximum tax scenario under which the full statutory rate would be effective. |
| (4) | The PRC Enterprise Income Tax Law
imposes a withholding income tax of 10% on dividends distributed by a foreign invested enterprise, or FIE, to its immediate holding company
outside of China. A lower withholding income tax rate of 5% is applied if the FIE’s
immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with China, subject to
a qualification review at the time of the distribution. For purposes of this hypothetical example, the table above assumes a maximum
tax scenario under which the full withholding tax would be applied. |
The table above has been
prepared under the assumption that all profits of our VIEs will be distributed as fees to our PRC subsidiaries under tax neutral contractual
arrangements. If, in the future, the accumulated earnings of our VIEs exceed the service fees paid to our PRC subsidiaries (or if the
current and contemplated fee structure between the intercompany entities is determined to be non-substantive and disallowed by Chinese
tax authorities), our VIEs could make a non-deductible transfer to our PRC subsidiaries for the amounts of the stranded cash in our VIEs.
This would result in such transfer being non-deductible expenses for our VIEs but still taxable income for the PRC subsidiaries. Such
a transfer and the related tax burdens would reduce our after-tax income to approximately 50.6% of the pre-tax income. Our management
believes that there is only a remote possibility that this scenario would happen.
A. Selected Consolidated Financial Data
We do not own the VIEs that
we consolidate in our financial statements. We consolidate the results of the VIEs and their subsidiaries under U.S. GAAP through our
contractual arrangements with the VIEs and their nominee shareholders. The following tables present the condensed consolidating schedules
of financial information for Nisun International, its wholly owned subsidiaries that are the primary beneficiary of our VIEs, our other
subsidiaries, our VIEs and VIEs’ subsidiaries as of the dates presented.
We
completed the sale of our equity interest in Xibolun HK to Wise Metro Development Co., Ltd., an entity controlled by our former Chairman
and CEO, Mr. Anyuan Sun (“Wise Metro”) on September 30, 2021, pursuant to a Call Option Agreement we entered on April 16,
2019 with Wise Metro. Under the agreement, Wise Metro was granted an option to purchase all of the equity of the Xibolun Group for a
period beginning six months after the effective date of the Call Option Agreement and expiring two years and six months after the agreement
effective date. On May 11, 2020, Wise Metro exercised the Call Option to acquire the Xibolun Group and on September 30, 2020, we completed
the sale of Xibolun Group to Wise Metro. The transaction met the criteria for discontinued operations. Accordingly, the results of operations
of Hebron Group and the gain of approximately $0.1 million, net of transaction and other costs, from its disposal are presented in separate
line items as discontinued operations. Retrospective adjustments to the historical statements have been made in order to provide a consistent
basis of comparison. The financial position and results of operations in relation to the discontinued operations were therefore not disaggregated
considering they will not constitute any part of our consolidated financial statements after the completion of the disposition.
Selected
Condensed Consolidated Statements of Operations Data
The following table presents our condensed consolidating
schedule of financial position for our top-tier publicly-traded holding company, Nisun International, our wholly-owned subsidiaries that
are the primary beneficiaries of the VIEs under U.S. GAAP (the “Primary Beneficiaries of VIEs”), our other subsidiaries that
are not the Primary Beneficiaries of VIEs (the “Other Subsidiaries”), and VIEs and their subsidiaries that we consolidate
as of the dates presented:
Selected Condensed Consolidated Balance Sheets
Data
| |
As of December 31, 2021 | |
| |
Nisun International | | |
Other Subsidiaries | | |
Primary Beneficiaries of VIEs | | |
VIEs and VIE subsidiaries (PRC) | | |
Eliminations adjustments | | |
Consolidated Total | |
Cash | |
$ | 68,296,949 | | |
$ | 425,272 | | |
$ | 6,056 | | |
$ | 22,898,764 | | |
$ | - | | |
$ | 91,627,041 | |
Other current assets | |
| - | | |
| 241,390 | | |
| 2,963 | | |
| 135,926,634 | | |
| - | | |
| 136,170,987 | |
Intercompany receivables (1) | |
| 7,582,199 | | |
| 4,449,051 | | |
| 457,312 | | |
| 409,334 | | |
| (12,897,896 | ) | |
| - | |
Total current assets | |
| 75,879,148 | | |
| 5,115,713 | | |
| 466,331 | | |
| 159,234,732 | | |
| (12,897,896 | ) | |
| 227,798,028 | |
Investments in subsidiaries (2) | |
| 115,680,581 | | |
| 78,539,006 | | |
| - | | |
| - | | |
| (194,219,587 | ) | |
| - | |
Benefits through VIEs and VIE subsidiaries (2) | |
| - | | |
| - | | |
| 69,567,441 | | |
| - | | |
| (69,567,441 | ) | |
| - | |
Goodwill and intangible assets | |
| - | | |
| 19,846,662 | | |
| 8,482,427 | | |
| - | | |
| - | | |
| 28,329,089 | |
Other non-current assets | |
| - | | |
| 15,769,254 | | |
| 430,687 | | |
| 1,651,028 | | |
| - | | |
| 17,850,969 | |
Total non-current assets | |
| 115,680,581 | | |
| 114,154,922 | | |
| 78,480,555 | | |
| 1,651,028 | | |
| (263,787,028 | ) | |
| 46,180,058 | |
Total Assets | |
| 191,559,729 | | |
| 119,270,635 | | |
| 78,946,886 | | |
| 160,885,760 | | |
| (276,684,924 | ) | |
| 273,978,086 | |
Intercompany payables (1) | |
| 404,408 | | |
| 4,291 | | |
| 403,706 | | |
| 12,085,491 | | |
| (12,897,896 | ) | |
| - | |
Other liabilities and accrued liabilities | |
| 10,528,965 | | |
| 340,124 | | |
| 4,174 | | |
| 78,503,535 | | |
| - | | |
| 89,376,798 | |
Total Liabilities | |
| 10,933,373 | | |
| 344,415 | | |
| 407,880 | | |
| 90,589,026 | | |
| (12,897,896 | ) | |
| 89,376,798 | |
Total Shareholders’ Equity (2) | |
| 180,626,356 | | |
| 115,680,581 | | |
| 78,539,006 | | |
| 69,567,441 | | |
| (263,787,028 | ) | |
| 180,626,356 | |
Non-controlling interests | |
| - | | |
| 3,245,639 | | |
| - | | |
| 729,293 | | |
| - | | |
| 3,974,932 | |
Total Liabilities and Equity | |
$ | 191,559,729 | | |
$ | 119,270,635 | | |
| 78,946,886 | | |
$ | 160,885,760 | | |
$ | (276,684,924 | ) | |
$ | 273,978,086 | |
| |
As of December 31, 2020 | |
| |
Nisun International | | |
Other Subsidiaries | | |
Primary Beneficiaries of VIEs | | |
VIEs and VIE subsidiaries (PRC) | | |
Eliminations adjustments | | |
Consolidated Total | |
Cash | |
$ | 2,426 | | |
$ | 4,405 | | |
$ | 1,316 | | |
$ | 22,190,110 | | |
$ | - | | |
$ | 22,198,257 | |
Other current assets | |
| - | | |
| 281,905 | | |
| - | | |
| 22,968,532 | | |
| - | | |
| 23,250,437 | |
Due from legacy business | |
| 14,950,577 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 14,950,577 | |
Intercompany receivables (1) | |
| 509 | | |
| 2,267,082 | | |
| - | | |
| - | | |
| (2,267,591 | ) | |
| - | |
Total current assets | |
| 14,953,512 | | |
| 2,553,392 | | |
| 1,316 | | |
| 45,158,642 | | |
| (2,267,591 | ) | |
| 60,399,271 | |
Investments in subsidiaries (2) | |
| 80,260,786 | | |
| 58,080,737 | | |
| - | | |
| - | | |
| (138,341,523 | ) | |
| - | |
Benefits through VIEs and VIE’s subsidiaries (2) | |
| - | | |
| - | | |
| 35,406,748 | | |
| - | | |
| (35,406,748 | ) | |
| - | |
Goodwill and intangible assets | |
| - | | |
| 19,855,147 | | |
| 8,722,624 | | |
| - | | |
| - | | |
| 28,577,771 | |
Other non-current assets | |
| - | | |
| - | | |
| 17,055,071 | | |
| 2,064,716 | | |
| - | | |
| 19,119,787 | |
Total non-current assets | |
| 80,260,786 | | |
| 77,935,884 | | |
| 61,184,443 | | |
| 2,064,716 | | |
| (173,748,271 | ) | |
| 47,697,558 | |
Total Assets | |
| 95,214,298 | | |
| 80,489,276 | | |
| 61,185,759 | | |
| 47,223,358 | | |
| (176,015,862 | ) | |
| 108,096,829 | |
Intercompany payables (1) | |
| - | | |
| 173 | | |
| 336 | | |
| 2,267,082 | | |
| (2,267,591 | ) | |
| - | |
Other liabilities and accrued liabilities | |
| 18,371,779 | | |
| 228,317 | | |
| - | | |
| 9,559,335 | | |
| - | | |
| 28,159,431 | |
Total Liabilities | |
| 18,371,779 | | |
| 228,490 | | |
| 336 | | |
| 11,826,417 | | |
| (2,267,591 | ) | |
| 28,159,431 | |
Total Shareholders’ Equity (2) | |
| 76,842,519 | | |
| 80,260,786 | | |
| 58,080,737 | | |
| 35,406,748 | | |
| (173,748,271 | ) | |
| 76,842,519 | |
Non-controlling interests | |
| - | | |
| - | | |
| 3,104,686 | | |
| (9,807 | ) | |
| - | | |
| 3,094,879 | |
Total Liabilities and Equity | |
$ | 95,214,298 | | |
$ | 80,489,276 | | |
| 61,185,759 | | |
$ | 47,223,358 | | |
$ | (176,015,862 | ) | |
$ | 108,096,829 | |
Selected Condensed Consolidated Statements
of Operations Data
| |
For the Year Ended December 31, 2021 | |
| |
Nisun International | | |
Other Subsidiaries | | |
Primary Beneficiaries of VIEs | | |
VIEs and VIE subsidiaries (PRC) | | |
Eliminations adjustments | | |
Consolidated Total | |
Third-party revenues | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 160,199,711 | | |
$ | - | | |
$ | 160,199,711 | |
Intra- group revenues (3) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Total revenue | |
| - | | |
$ | - | | |
$ | - | | |
$ | 160,199,711 | | |
$ | - | | |
$ | 160,199,711 | |
Total costs and expenses | |
| (3,071,681 | ) | |
| (789,676 | ) | |
| (477,303 | ) | |
| (117,672,141 | ) | |
| - | | |
| (122,010,801 | ) |
Income from subsidiaries and VIEs (2) | |
| 33,452,042 | | |
| 33,268,971 | | |
| 33,627,137 | | |
| - | | |
| (100,348,150 | ) | |
| - | |
Income (loss) from non-operations | |
| - | | |
| 1,047,137 | | |
| (228 | ) | |
| 1,540,204 | | |
| - | | |
| 2,587,113 | |
Income before income tax expenses | |
| 30,380,361 | | |
| 33,526,432 | | |
| 33,149,606 | | |
| 44,067,774 | | |
| (100,348,150 | ) | |
| 40,776,023 | |
Less: income tax (benefit) expenses | |
| - | | |
| (66,503 | ) | |
| (119,365 | ) | |
| 10,455,369 | | |
| - | | |
| 10,269,501 | |
Net income | |
| 30,380,361 | | |
| 33,592,935 | | |
| 33,268,971 | | |
| 33,612,405 | | |
| (100,348,150 | ) | |
| 30,506,522 | |
Less: net income (loss) attributable to non-controlling interests | |
| - | | |
| 140,893 | | |
| - | | |
| (14,732 | ) | |
| - | | |
| 126,161 | |
Net income attributable to Nisun International’s shareholders | |
| 30,380,361 | | |
| 33,452,042 | | |
| 33,268,971 | | |
| 33,627,137 | | |
| (100,348,150 | ) | |
| 30,380,361 | |
| |
For the Year Ended December 31, 2020 | |
| |
Nisun International | | |
Other Subsidiaries | | |
Primary Beneficiaries of VIEs | | |
VIEs and VIE subsidiaries (PRC) | | |
Eliminations adjustments | | |
Consolidated Total | |
Third-party revenues | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 42,190,191 | | |
$ | - | | |
$ | 42,190,191 | |
Intra- group revenues (3) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Total revenue | |
| - | | |
| - | | |
| - | | |
| 42,190,191 | | |
$ | - | | |
| 42,190,191 | |
Total costs and expenses | |
| (1,098,668 | ) | |
| (431,464 | ) | |
| (414,241 | ) | |
| (30,217,599 | ) | |
| - | | |
| (32,161,972 | ) |
(Loss) income from subsidiaries and VIEs (2) | |
| (11,993,122 | ) | |
| 11,232,662 | | |
| 11,583,787 | | |
| - | | |
| (10,823,327 | ) | |
| - | |
Income (loss) from non-operations | |
| - | | |
| 105,063 | | |
| 980 | | |
| 723,408 | | |
| - | | |
| 829,451 | |
(Loss) income before income tax expenses | |
| (13,091,790 | ) | |
| 10,906,261 | | |
| 11,170,526 | | |
| 12,696,000 | | |
| (10,823,327 | ) | |
| 10,857,670 | |
Less: income tax (benefit) expenses | |
| - | | |
| (109,013 | ) | |
| (62,136 | ) | |
| 1,112,213 | | |
| - | | |
| 941,064 | |
Net income from continuing operations | |
| (13,091,790 | ) | |
| 11,015,274 | | |
| 11,232,662 | | |
| 11,583,787 | | |
| (10,823,327 | ) | |
| 9,916,606 | |
(Loss) income from discontinued operations | |
| - | | |
| (22,971,016 | ) | |
| - | | |
| - | | |
| - | | |
| (22,971,016 | ) |
Net (loss) income | |
| (13,091,790 | ) | |
| (11,955,742 | ) | |
| 11,232,662 | | |
| 11,583,787 | | |
| (10,823,327 | ) | |
| (13,054,410 | ) |
Less: net income attributable to non-controlling interests | |
| - | | |
| 37,380 | | |
| - | | |
| - | | |
| - | | |
| 37,380 | |
Net (loss) income attributable to Nisun International’s shareholders | |
| (13,091,790 | ) | |
| (11,993,122 | ) | |
| 11,232,662 | | |
| 11,583,787 | | |
| (10,823,327 | ) | |
| (13,091,790 | ) |
| |
For the Year Ended December 31, 2019 | |
| |
Nisun
International | | |
Other
Subsidiaries | | |
Primary
Beneficiaries
of VIEs | | |
VIEs and
VIE
subsidiaries (PRC) | | |
Eliminations
adjustments | | |
Consolidated
Total | |
Third-party revenues | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 2,525,524 | | |
$ | - | | |
$ | 2,525,524 | |
Intra- group revenues (3) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Total revenue | |
| - | | |
| - | | |
| - | | |
| 2,525,524 | | |
| - | | |
| 2,525,524 | |
Total costs and expenses | |
| (424,492 | ) | |
| (244 | ) | |
| - | | |
| (926,223 | ) | |
| - | | |
| (1,350,959 | ) |
Income from subsidiaries and VIEs (2) | |
| 3,164,471 | | |
| 1,600,661 | | |
| 1,600,661 | | |
| - | | |
| (6,365,793 | ) | |
| - | |
Income from non-operations | |
| 11 | | |
| - | | |
| - | | |
| 1,360 | | |
| - | | |
| 1,371 | |
Income before income tax expenses | |
| 2,739,990 | | |
| 1,600,417 | | |
| 1,600,661 | | |
| 1,600,661 | | |
| (6,365,793 | ) | |
| 1,175,936 | |
Less: income tax (benefit) expenses | |
| - | | |
| (55,731 | ) | |
| - | | |
| - | | |
| - | | |
| (55,731 | ) |
Net income from continuing operations | |
| 2,739,990 | | |
| 1,656,148 | | |
| 1,600,661 | | |
| 1,600,661 | | |
| (6,365,793 | ) | |
| 1,231,667 | |
Income from discontinued operations | |
| - | | |
| 1,508,323 | | |
| - | | |
| - | | |
| - | | |
| 1,508,323 | |
Net income | |
| 2,739,990 | | |
| 3,164,471 | | |
| 1,600,661 | | |
| 1,600,661 | | |
| (6,365,793 | ) | |
| 2,739,990 | |
Less: net income attributable to non-controlling interests | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Net income attributable to Nisun International’s shareholders | |
| 2,739,990 | | |
| 3,164,471 | | |
| 1,600,661 | | |
| 1,600,661 | | |
| (6,365,793 | ) | |
| 2,739,990 | |
Notes:
| (1) | It represents the elimination of intercompany balances among Nisun
International, the Primary Beneficiaries of VIEs, and VIEs and their subsidiaries that we consolidate. |
| (2) | It represents the elimination of investments among Nisun International,
the Primary Beneficiaries of VIEs, the Other Subsidiaries, and VIEs and their subsidiaries that we consolidate. |
| (3) | It represents the elimination of the intercompany service charge
at the consolidation level. |
For
the years ended December 31, 2021, 2020 and 2019, the Primary Beneficiaries of VIEs did not charge any service fee from the VIEs. Apart
from what have been disclosed above, there was no intra-group revenues during the years ended December 31, 2021, 2020 and 2019, respectively.
B. Capitalization and Indebtedness
Not applicable for annual
reports on Form 20-F.
C. Reasons for the Offer and Use of Proceeds
Not applicable for annual
reports on Form 20-F.
D. Risk Factors
Summary Of Risk Factors
Our business is subject
to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business,
financial condition, results of operations, cash flows, and prospects. These risks are discussed more fully below and include, but are
not limited to, risks related to:
Risks Relating to Our Business and Industry
|
● |
We have a limited operating history in the rapidly evolving supply
chain and financial services industries, and any unforeseeable changes and uncertainties could adversely affect our operating results
and future prospects. |
|
● |
If we are unable to innovate or respond effectively to the ever-changing
financial technologies and industry practice, our business and results of operations would be materially adversely affected. |
|
● |
We rely on our cooperation with our customers and industry partners,
and if our technology solutions or services cannot meet the needs or expectations of customers and partners for any reason, we could
lose our established market share. |
|
● |
We are subject to evolving regulatory requirements, and if we fail
to adapt to regulatory changes, our business and prospects may be materially and adversely affected. |
|
● |
Failure to manage growth will cause disruption to our operations and
impair our ability to generate revenue. |
|
● |
We have modified our business models and had substantial strategic
changes to our business operations, and may be subject to additional risks and uncertainties as a result. |
|
● |
We cannot assure you that our growth strategies will be successful. |
|
● |
Cyber-attacks or any failure to adequately maintain data security and
prevent unauthorized access to confidential information could materially adversely affect our reputation, financial condition and
operating results. |
Risks Relating to Doing Business in China
|
● |
Adverse changes in political climate and economic policies of the PRC
government could have a material adverse effect on the overall economic growth of China and materially and adversely affect our competitive
position. |
|
|
|
|
● |
Uncertainties in the PRC legal system and the interpretation and enforcement
of PRC laws and regulations could limit the legal protections available to us and our investors, materially and adversely affect
our financial condition and results of operations, and cause our shares to significantly decline in value or become worthless. |
|
|
|
|
● |
We may be adversely affected by the complexity, uncertainties and changes
in PRC regulation of internet- related or finance-related businesses and companies, and any lack of requisite approvals, licenses,
permits or filings applicable to our business may have a material adverse effect on our business and results of operations. |
|
|
|
|
● |
The PRC government may intervene or influence our operations at any
time, or may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result
in a material change in our operations and/or cause the value of our securities to significantly decline or be worthless. |
|
|
|
|
● |
Recent regulatory developments in China, including greater oversight
and control by the CAC over privacy and data security, may subject us to additional regulatory review and any actions by the Chinese
government to exert more oversight and control over foreign investment in China-based issuers could significantly limit or completely
hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly
decline or be worthless. |
|
|
|
|
● |
PRC regulations establish complex procedures for some acquisitions
conducted by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China. |
|
|
|
|
● |
Trading in our securities may be prohibited under the Holding Foreign
Companies Accountable Act if the PCAOB determines that it cannot inspect or investigate completed our auditors for three consecutive
years beginning in 2021, or for two consecutive years if the Accelerating Holding Foreign Companies Accountable Act or the America
COMPETES Act becomes law. |
|
● |
Newly enacted Holding Foreign Companies Accountable Act, recent regulatory
actions taken by the SEC and the Public Company Accounting Oversight Board, and proposed rule changes by Nasdaq calling for additional
and more stringent criteria to be applied to China-based public companies could add uncertainties to our capital raising activities
and compliance costs. |
|
|
|
|
● |
We may rely on dividends and other distributions on equity paid by
our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries
to make payments to us and any tax we are required to pay could have a material and adverse effect on our ability to conduct our
business. |
|
|
|
|
● |
PRC regulations relating to the establishment of offshore special purpose
companies by PRC residents may limit our ability to inject capital into our PRC subsidiaries, limit our subsidiaries’ ability
to increase their registered capital or distribute profits to us, or may otherwise adversely affect us. |
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There are uncertainties under the PRC laws relating to the procedures
for U.S. regulators to investigate and collect evidence from companies located in the PRC. |
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Chinese economic growth slowdown may have a negative effect on our
business. |
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You may have difficulty enforcing judgments against us. |
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Failure to comply with laws and regulations applicable to our business
in China could subject us to fines and penalties and could also cause us to lose customers or otherwise harm our business. |
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Under the Enterprise Income Tax Law, we may be classified as a “Resident
Enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders.
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PRC regulation of loans and direct investment by offshore holding companies
in PRC entities may delay or prevent us from using the proceeds of our securities offerings to make loans or additional capital contributions
to our PRC operating subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our
business. |
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Failure to comply with the Individual Foreign Exchange Rules relating
to the overseas direct investment or the engagement in the issuance or trading of securities overseas by our PRC resident stockholders
may subject such stockholders to fines or other liabilities. |
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We may be exposed to liabilities under the Foreign Corrupt Practices
Act, and any determination that we violated the foreign corrupt practices act could have a material adverse effect on our business.
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Governmental control of currency conversion may affect the value of
your investment. |
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Payment of dividends is subject to restrictions under Nevada and the
PRC laws. |
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Adverse changes in political and economic policies of the PRC government
could have a material adverse effect on the overall economic growth of China and materially and adversely affect our competitive
position |
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Chinese economic growth slowdown may have a negative effect on our
business. |
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We may be classified as a “Resident Enterprise” of China,
which would result in unfavorable tax consequences. |
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Uncertainties with respect to the PRC legal system could adversely
affect us. |
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Shareholders may experience difficulties in effecting service of legal
process, enforcing foreign judgments, including those obtained in the U.S., or bringing actions in China against us or our management
based on foreign laws. |
Risks Relating to Our Corporate Structure
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Uncertainties exist with respect to the interpretation and implementation
of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure and business operations. |
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If the PRC government finds that the contractual arrangements that
establish the structure for operating our business do not comply with PRC laws and regulations, we could be subject to severe consequences. |
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We rely on our contractual arrangements with our consolidated affiliates
and their shareholders for business operations, which may not be as effective as direct ownership in providing operational control. |
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Shareholders of VIEs may have potential conflicts of interest with
us, which may materially and adversely affect our business and financial condition. |
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Our VIE agreements may be subject to scrutiny by the PRC tax authorities
which may determine that we or our consolidated affiliates owe additional taxes. |
Risks Related to Ownership of Our Common
Shares
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British Virgin Islands companies may not be able to initiate shareholder
derivative actions, thereby depriving shareholders of the ability to protect their interests. |
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The laws of the British Virgin Islands provide little protection for
minority shareholders, and minority shareholders will have little or no recourse if the shareholders are dissatisfied with the conduct
of our affairs. |
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The market price of our Class A common shares may be volatile or may
decline regardless of our operating performance, and shareholders may not be able to resell their shares. |
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We do not intend to pay dividends for the foreseeable future. |
Risks Related to Our Business and Industry
We have a limited operating history in
the rapidly evolving supply chain and financial services industries, and any unforeseeable changes and uncertainties could adversely
affect our operating results and growth prospects.
Financial technologies have
brought dynamic and rapidly changes to the financial services and supply chain industries in China. The regulatory framework for those
industries is also evolving and may remain uncertain for the foreseeable future. We provide technology-driven customized financing solutions
to small- and mid-sized enterprises (SMEs) (hereinafter referred to as “SME financing solutions”) and direct banking solutions
to small- and mid-sized commercial banks (referred to as “direct banking solutions” or “other financing solutions”)
in China. We commenced our financial service operations in 2019 after we acquired NiSun BVI and its subsidiaries and contractually controlled
affiliates, Fintech (Shanghai) Digital Technology Co., Ltd. (“Fintech”) and Beijing Hengtai Puhui Information Services Co.,
Ltd (“Hengpu”). We expanded our financial service operations following the acquisition of Nami Holding (Cayman) Co., Ltd.
In January 2020, we commenced
our supply chain solutions service operations. Supply chain industry is at a relatively early stage of its development in China, and
there are few established players with well-recognized business models that we can follow or build upon. In addition, we face uncertainties
related to increased competition and a changing regulatory environment in China’s supply chain finance industry. As the financial
services market dynamics, regulatory environment and our business continue to evolve, we may need to introduce new services from time
to time or modify the existing business models. Any significant change to our existing business models may not achieve expected results
and may have a material impact on our financial condition and results of operations. It is therefore difficult to effectively assess
the future prospects of our operations. Investors should consider our business and prospects based on such uncertainties that we encounter
or may encounter in this fast-growing industry, including, but not limited to:
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our ability to adapt to the changing macroeconomic environment in China
and around the world, which may be influenced by a number of factors, such as geopolitical factors, global financial market volatility
and pandemics such as COVID-19; |
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our ability to compete successfully with our industry peers, some of
whom may have more resources in the business than we do; |
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our response to changes in the regulatory environment; |
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our solutions to meet the changing needs of our customers and partners,
including those resulting from changes in the regulatory environment in which they operate; |
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our ability to maintain and strengthen our relationships with key stakeholders
in the supply chain finance industry, including, but not limited to, core enterprises and their suppliers, as well as financial institutions; |
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our strategy to reach more core enterprises and financial institutions
and increase the volume of transactions that process commodity flows through our technology solutions; |
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our innovations and diversification of our solution products; |
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improvement of our operational efficiency; |
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measures to safeguard the security of our IT systems and confidentiality
of the data we obtain and use through our solutions and systems; |
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ability to attract, retain, and motivate talented employees; |
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solutions to potential litigation such as regulatory, intellectual
property infringement, data privacy, or other claims; and |
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other potential risks and uncertainties inherently associated with
our industry and our operations; |
If we are unable to effectively
address those identified and unknown risks and uncertainties, or fail to adapt to changes in the financial services industry, our business,
financial condition and operating results could be materially adversely affected.
If we are unable to innovate or respond
effectively to ever-changing financial technologies and industry practice, our business and results of operations would be materially
adversely affected.
The supply chain and SME
financing markets in which we compete are subject to rapid and significant changes. Operating in the financial service industry requires
cutting-edge technology to digitize supply chain finance processes and optimize payment cycles. We offer a wide range of solutions built
upon our cutting-edge technologies such as AI, blockchain, big data, and cloud technology to digitize and optimize payment cycles throughout
the supply chain procurement process. Innovation is key to improving our finance solution products and developing new technologies to
meet ever-changing customer needs. If we fail to innovate or invest in technology innovation, our competitive position could be compromised,
which in turn could have a material and adverse impact on our business, financial condition, operating results and prospects.
Our success will depend
in part on our ability to adapt and respond to the technology changes in a timely and effective manner. It requires us to continue to
invest significant resources to enhance our technology infrastructure and research and development efforts. Changes and developments
in the supply chain finance industry may also require us to reevaluate our existing business models or financial solutions from time
to time and make significant adjustments to our long-term strategy and business plans. We cannot assure you that we will succeed in implementing
those initiatives. If we are unable to respond to technological developments or industry practices in a cost-effective manner, our business,
financial position, and operating performance may be materially adversely affected.
We rely on our cooperation with our customers
and industry partners, and if our technology solutions or services cannot meet the needs or expectations of customers and partners for
any reason, we could lose our established market share.
Our relationships with our
customers and partners are critical to our success. We generate revenue primarily by providing financial services and technology solutions
to our customers and partners for service fees. In our supply chain solutions business, much of our business depends on our relationships
with core enterprises and financial institutions and their willingness to continue to work with us. Almost all of our customers apply
a complex and rigorously screened bidding process in selecting their fintech solutions partners to address some of their most challenging
yet frequently encountered problems. We have been successful in building trusted relationships with those core enterprises and financial
institutions and believe we will continue to deliver satisfactory fintech solutions to those businesses. However our service agreements
are usually non-exclusive in nature, and they may choose to use their in-house research and development capabilities or choose our competitors
to develop their supply chain fintech platforms and solutions. We cannot guarantee our customers and industry partners will renew contracts
with us on a long term basis or at all, nor can we be certain that the customer will not engage other third-party technology solution
providers for their technical solution needs.
Our ability to maintain
and expand our customer base and build long-term relationships with our partners also depends on a number of other factors, such as:
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our technologies and solutions to keep up with rapid technological
change and the ability to compete in the market; |
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our adaptation to meet changing customer needs and expectations; |
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satisfaction level of our customers and partners with the performance,
customization and effectiveness of our solutions and customer service; |
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our ability to accurately predict market trends and deliver attractive
products and services at a prices sensitive to market demands; |
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the success and development of our customers and partners; and |
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overall economy conditions, market and regulatory developments. |
Our business, financial
condition, operating results and prospects may be materially adversely affected if our technology solutions or services cannot meet the
needs or expectations of customers and partners, or our customers and partners opt for their in-house team or our competitors to provide
them technology solutions.
We are subject to evolving regulatory requirements,
and if we fail to adapt to regulatory changes, our business and prospects may be materially and adversely affected.
Many aspects of our business,
including the provision of internet information, consulting services to customers and banks, online publication services relating to
financial product information, and financing solutions services, among others, are subject to supervision and regulation by various governmental
authorities in China. In addition, as we continue to expand the solutions on our platform, we may be subject to new and more complex
regulatory requirements. We are also required to comply with applicable laws and regulations in relevant jurisdictions to protect the
privacy and security of our customers’ information. Legal and regulatory restrictions may delay, or possibly prevent, some of our
solutions or services from being offered, which may have a material adverse effect on our business, financial condition and results of
operations. Violation of laws and regulations may also result in severe penalties, confiscation of illegal income, revocation of licenses
and, under certain circumstances, criminal prosecution.
The PRC regulatory framework
governing financial services and related technology services is evolving. New laws or regulations may be promulgated, which could
impose new requirements or prohibitions that render our operations or our technologies non-compliant. In addition, due to uncertainties
and complexities of the regulatory environment, we cannot assure you that regulators will interpret laws and regulations the same way
we do, or that we will always be in full compliance with applicable laws and regulations. To remedy any violations, we may be required
to modify our business models, solutions and technologies in ways that render our solutions less appealing. We may also become subject
to fines or other penalties, or, if we determine that the requirements to operate in compliance are overly burdensome, we may elect to
terminate potentially non-compliant operations. If those situations were to happen, our business, financial condition and results of
operations may be materially and adversely affected.
Failure to manage our growth could cause
disruption to our operations, impair our ability to generate revenue and strain our operational and other resources.
Since 2019, our business
has experienced significant growths through acquisitions and service solution diversification. Our growth strategy includes increasing
market penetration of our existing products and services, enhancing our financial technologies, developing new products, and increasing
the number of industries and customers we serve. Pursuing these strategies has resulted in, and will continue to result in substantial
demands on our capital and operating resources. In particular, the management of our growth will require, among other things:
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successful integration of our existing operations and acquired businesses; |
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continued technology innovations and R&D capability enhancement; |
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stringent cost controls and adequate replenishable liquidity; |
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strengthening of financial and risk controls; |
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increased marketing, sales and support activities; and |
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retaining, training and hiring qualified employees and professionals. |
If we are not able to manage
our growth successfully, our business, financial condition and operating results would be materially and adversely affected.
We have modified our business models and
had substantial strategic operational adjustments to our business as a result of changes in the regulatory mandates as well as our corporate
reorganizations, and we may be subject to risks, uncertainties or potential liabilities associated with our legacy business, products
or services.
Given the complexities,
uncertainties and changes in the laws, rules, regulations, policies and administrative measures governing our industries and business
operations, we have modified our business models and practices in response to changes in regulatory requirements and our strategies.
In addition, among historical financial service products some of our affiliated entities offered, they had ceased to facilitate certain financial
intermediary services before being acquired by our Company as a result of the legal and policy changes in the PRC financial industry. In
addition, in the normal course of business, legacy Xibolun Group that has been divested by us in 2020 may still be subject to challenges
from PRC taxing authorities regarding the amounts of taxes due. Although Xibolun Group management believed it had paid all accrued taxes
owed, PRC taxing authorities may take the position that Xibolun Group owed more taxes than it had paid and could hold us liable for any
overdue taxes that may be levied despite that Xibolun Group is no longer a part of our consolidated group.
We are not aware any PRC
authorities have imposed such liability or administrative penalties on us as of the date of this prospectus. Nevertheless, we cannot
assure you that we will not be subject to liabilities or regulatory penalties in connection with the historical products or services
our affiliates previously offered. Furthermore, the PRC legal system is based in part on government policies and internal rules (some
of which are not published in a timely manner or at all) that may have retroactive effect. As a result, we may not be aware of any violation
of those policies and rules until notified by the relevant agencies, and we cannot assure you that our affiliates or disposed operations
would not cause us to be subject to liabilities or administrative penalties even though the relevant products or operations had not been
or no longer are associated with our Company. Any of such occurrence may materially and adversely affect our client relationship, reputation
and business operations.
We cannot assure you that our growth strategies
will be successful or that we will not incur loss in the future.
We implement diversified
and complimentary business strategies in pursuing our growth. However, many obstacles to our growth exist, including, but not limited
to, increased competition from similar businesses, our ability to improve our products and product mix to realize the benefits of our
solution services, unexpected costs and costs associated with marketing efforts. We cannot assure you that we will be able to successfully
overcome such obstacles, increase market share or succeed in achieving our goals. Our inability to implement this internal growth strategy
successfully may have a negative impact on our growth, future financial condition, results of operations or cash flows.
In addition, we have incurred
losses in the past. We cannot assure you that we will be able to generate profits in the future. We may experience losses due to our
continued investments in technology, talent, content, brand recognition, customer base expansion and other initiatives. Our profitability
also depends on our ability to manage our costs and expenses. We intend to manage and control our costs and expenses as a proportion
of our total revenues, but there can be no assurance that we will achieve this goal. Our ability to achieve and sustain profitability
is affected by various other factors, some of which are beyond our control, such as changes in macroeconomic and regulatory environment
or competitive dynamics in the industry. Accordingly, shareholders should not rely on our financial results of any prior period as an
indication of our future performance.
From time to time we may evaluate and pursue
strategic investments or acquisitions, which could require significant management attention, disrupt our existing operations and adversely
affect our financial results.
We may evaluate and consider
strategic investments, combinations, acquisitions or alliances to expand our operations and further increase the value of our services
to our customers. These transactions could be material to our financial condition and results of operations if consummated. If we are
able to identify an appropriate business opportunity, we may not be able to successfully consummate the transaction or may be unable
to obtain the benefits of such transaction.
Strategic investments or
acquisitions will involve risks commonly encountered in business relationships, including:
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difficulties in integrating the operations, personnel,
systems, data, technologies, rights, platforms, products and services of the acquired business; |
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inability of the acquired technologies, products
or businesses to achieve expected levels of revenue, profitability, productivity or other benefits; |
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difficulties in retaining, training, motivating
and integrating key personnel; |
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diversion of management’s time and resources
from our daily operations; |
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difficulties in maintaining uniform standards,
controls, procedures and policies within the combined organizations; |
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difficulties in retaining relationships with customers,
employees and suppliers of the acquired business; |
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risks of entering markets in which we have limited
or no prior experience; |
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assumption of contractual obligations that contain
terms that are not beneficial to us, require us to license or waive intellectual property rights or increase our risk for liability; |
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failure to successfully further develop the acquired
technology; |
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liability for activities of the acquired business
before the acquisition, such as violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; |
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potential disruptions to our ongoing businesses;
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unexpected costs and unknown risks and liabilities
associated with strategic investments or acquisitions. |
We have made certain investments
and acquisitions during the past year, including, for example, working with local partners in Shandong to establish our Tai’an
subsidiary as a key holding and operational platform and acquiring Nami Cayman and its subsidiaries and operating affiliates to support
the growth of our SME financing solution services. However, our investments and acquisitions may not be successful, may not benefit our
business strategy, may not generate sufficient revenues to offset the associated acquisition costs or may not otherwise result in the
intended benefits. In addition, we cannot assure you that any future investment in or acquisition of new businesses or technology will
prove to be profitable or bring value to our shareholders.
COVID-19 pandemic had an adverse effect
on some operations of our business and may have material impact on our future business operations.
The COVID-19 pandemic
has negatively impacted the global economy, disrupted business operations of various industries, and created significant volatility and
disruption of financial markets. In the Spring of 2020, our operations were temporarily affected by travel restrictions, office closings,
home quarantine, delays in project implementation, on-site work and business development, among others. For fiscal year 2020, the COVID-19
pandemic did not have a material negative impact on the Company’s financial services business. However, the COVID-19 pandemic resulted
in material adverse effects on the Company’s discontinued equipment and engineering business. Employees had very limited access
to Xibolun Group’s manufacturing facilities, and as a result, the Company experienced difficulty in providing manufacturing and
installation services. In addition, some of the Company’s customers and suppliers experienced financial distress, delayed or defaulted
on their payments, reduced the scale of their business, and suffered disruptions in their business, which in turn had caused further adverse
impact on the equipment and engineering business.
After Spring 2020, the COVID
outbreak in China has gradually been controlled and we also returned to normal operations. However, in March 2022, due to the spread of
new variants and subvariants of COVID-19 in Shanghai and several other cities in China, local governments of the impacted cities have
imposed strict movement restrictions. In mid-March 2022, Shanghai authorities issued strict lockdown and shutdown orders in response to
the pandemic and as a result, employees of our PRC operating entities located in Shanghai having been working from home. As our Shanghai
employees were prepared for remote working in advance, our Shanghai entities have been able to continue to provide services to our customers
remotely with minimum interruptions. Our management does not believe the lockdown restrictions in Shanghai will have a material adverse
impact on the Company’s overall business, operating results and financial condition. However, the pandemic could adversely affect
our business and financial results in 2022 if any virus resurges cause significant disruptions to our operations or the business of our
supply chain customers, logistics and service providers, and negative impact to the pricing of our products. We cannot predict the severity
and duration of the impact from such resurgence. If any new outbreak of COVID-19 is not effectively and timely controlled, or if government
responses to outbreaks or potential outbreaks are severe or long-lasting, our business operations and financial condition may be materially
and adversely affected as a result of the deteriorating market outlook, the slowdown in regional and national economic growth, weakened
liquidity and financial condition of our customers or other factors that we cannot foresee. Any of these factors and other factors beyond
our control could have an adverse effect on the overall business environment, cause uncertainties in the economic growth in the regions
where we conduct business, and could materially and adversely impact our business, financial condition and results of operations.
If we cannot compete effectively, our results
of operations could suffer.
Competition in the SME financing
industry has been intense, and increasingly more participants have also entered into the supply chain solutions market. Our competitors
operate with different business models, have different cost structures or participate selectively in different markets. They may ultimately
prove more successful or more adaptable to new regulatory, technological and other developments. Some of our current and potential competitors
have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater resources to
the development, promotion, sale and support of their financial service platforms and customers. Our competitors may also have longer
operating histories, more extensive customer bases, greater brand recognition and brand loyalty and broader partner relationships than
us. Additionally, a current or potential competitor may acquire one or more of its existing competitors or form a strategic alliance with
one or more of its competitors. Our competitors may be better at developing new products or services, responding faster to new technologies,
or undertaking more extensive and effective marketing campaigns. If we are unable to compete with such companies and meet the need for
innovation in the financial services industry, the demand for our financial services could stagnate or substantially decline, our financial
services business could experience reduced revenues or fail to achieve or maintain more widespread market acceptance, any of which could
harm our business and results of operations.
If SME financial products traded on provincial
or regional financial assets exchanges become restricted or prohibited, or if such financial assets exchanges are prohibited from listing
exchange administered products, our results of operations and financial condition would be materially and adversely affected.
We provide small-and mid-size
enterprises with financing solution services in connection with the listing of their securities on the provincial or regional financial
assets exchanges in the PRC. The PRC government has not adopted a regulatory framework governing such local exchanges or the listing,
trading and distribution of exchange administered products. The local financial assets exchanges are established upon approval of the
local governments, and the exchange administered products listed and traded on these exchanges are filed with and approved by local financial
asset exchanges under the supervision of the offices of finance at the municipal and provincial levels. As a result, the major product
types selected for distribution on such exchanges are dependent upon the local regulatory environment and policies. If any significant
product types are discouraged by the local government authorities, our product portfolio, distribution services and related revenues
may be negatively impacted.
In addition, although the local
financial exchanges are regulated by the local government subject to the two prohibitive provisions issued by the State Council, we cannot
guarantee that they would not be covered by the tightened national financial supervision system. If they are subject to approval or guidance
of any national regulatory bodies, such as the People’s Bank of China, China Banking and Insurance Regulatory and Administration
Committee, or the CSRC, these financial exchanges may be prohibited from listing certain or all of the products currently traded on such
exchanges, or be prohibited from engaging in such listing and trading services. Under that circumstance, we may have to change our business
model and as a result, our operating results from SME financing solution services would be materially and adversely affected.
We depend on our industry partners to derive
a substantial portion of our revenues.
We derive a substantial portion
of our revenues from our cooperation with industry partners, including state-owned enterprises in our supply chain finance operations,
financial institutions underwriting our customers’ securities on the financial asset exchanges and commercial banks distributing
various financial products. If we lose any of the product providers, sponsors or acquirers, or any of our partners significantly reduces
its volume of business with us, our revenues and profitability would be substantially reduced if we are unable seek alternative partners
on a timely basis, or at all. In addition, the product volume we source and distribute from specific product providers may vary from period
to period, particularly because we are not the exclusive distributor for any particular product provider. Our dependence on our financial
product providers, sponsors or acquirers may also adversely affect our ability to negotiate fee rates with our customers, which may in
turn materially and adversely affect our results of operations.
While we are not aware of any data breach in
the past, cyber-attacks, computer viruses or any future failure to adequately maintain security and prevent unauthorized access to electronic
and other confidential information could result in a data breach which could materially adversely affect our reputation, financial condition
and operating results.
The protection of our customers’,
business partners’, our Company’s and employees’ data is critically important to us. Our customers, business partners,
and employees expect we will adequately safeguard and protect their sensitive personal and business information. We have become increasingly
dependent upon automated information technology processes. Improper activities by third parties, exploitation of encryption technology,
data-hacking tools and discoveries and other events or developments may result in a future compromise or breach of our networks, payment
terminals or other settlement systems. In particular, the techniques used by criminals to obtain unauthorized access to sensitive data
change frequently and often are not recognized until launched against a target; accordingly, we may be unable to anticipate these techniques
or implement adequate preventative measures. There can be no assurance that we will not suffer a criminal cyber-attack in the future,
that unauthorized parties will not gain access to personal or business information or sensitive data, or that any such incident will be
discovered in a timely manner.
We also face indirect technology,
cybersecurity and operational risks relating to the third parties whom we work with to facilitate our business activities, including,
among others, third-party online service providers who manage accounts for our customers and external cloud service provider. As a result
of increasing consolidation and interdependence of technology systems, a technology failure, cyber-attack or other information or security
breach that significantly compromises the systems of one entity could have a material impact on its counterparties. Any cyber-attack,
computer viruses, physical or electronic break-ins or similar disruptions of such third-party service providers could adversely affect
our operations and could result in misappropriation of funds of our customers.
Security breaches or unauthorized
access to confidential information could also expose us to liability related to the loss of the information, time-consuming and expensive
litigation and negative publicity. If security measures are breached because of third-party action, employee error, malfeasance or otherwise,
or if design flaws in our technology infrastructure are exposed and exploited, our relationships with customers and cooperation partners
could be severely damaged, we could incur significant liability and our business and operations could be adversely affected.
Any negative publicity and allegations against
us may adversely affect our brand and reputation, which may harm our ability to attract and retain customers and business partners and
result in material adverse impact on our business, results of operations and prospects.
Negative publicity and allegations
about us, our products and services or our financial results, including by short sellers or investment research firms, regardless of their
veracity, may adversely damage our brand, public image and reputation, harm our ability to attract and retain customers and result in
material adverse impact on our share price, business, results of operations and prospects. For example, on June 3, 2020, a short seller
issued a report alleging that, among other things, the private placement we consummated in December 2019, Hengpu acquisition and Nami
acquisition were undisclosed related party transactions which we failed to disclose. The trading price of our shares declined and a shareholder
class action lawsuit was filed against us and some of our directors and senior executive officers with the United States District Court
for the Southern District of New York. While the findings and conclusions of the independent investigation conducted by the special counsel
have refuted the relevant allegations set out in the short report, and the class action lawsuit has been dismissed in its entirety, nevertheless
our share price fluctuated after such negative publicity.
The loss of any of our key customers could reduce
our revenues and our profitability.
For the year ended December
31, 2021, two customers accounted for 37% and 15% of the Company’s total revenue from the financial service business, respectively.
Two customers accounted for 71% and 10% of the Company’s total revenue from supply chain trading business, respectively. For the
year ended December 31, 2020, three customers accounting for 31%, 21% and 12% of the Company’s total revenue. For the year ended
December 31, 2019, one customer accounted for approximately 100% of our total financial services revenue and accounts receivable from
the financial services. As of December 31, 2021, two customers accounted for approximately 31% and 29% of the Company’s total accounts
receivable balance. As of December 31, 2020, three customers accounted for approximately 45%, 20% and 17% of the Company’s total
accounts receivable balance.
We have not entered into long-term
contracts with any of these major customers and instead rely on individual orders from such customers. Therefore, there can be no assurance
that we will maintain or improve the relationships with these customers, or that we will be able to continue to serve these customers
at current levels or at all. As the majority of our revenues are driven by individual orders for services, our major customers often change
each period based on when a given order is placed. Although long-term contracts do not exist in our industry and our customers often make
orders repeatedly, if we cannot develop and maintain long-term relationships with major customers or replace major customers from period
to period with equivalent customers, the loss of such sales could have an adverse effect on our business, financial condition and results
of operations.
Our supply chain solutions services are capital
driven operations, and if we cannot maintain the level of capital and funding sources needed to support our solutions services to our
customers, our business would be harmed.
For our supply chain solutions
services, we participate as an intermediary and a trading partner in the procurement and distribution transactions, automate the transaction
payments and streamline the supply chain finance process. Such supply chain transactions are common for the commodity-based industry such
as the agriculture, infrastructure and energy markets. As such, our supply chain solutions services may be considered capital intensive
operations in the merchandise flows from the upstream procurement to the downstream distribution. Further, to remain competitive and enhance
customer experience and the quality of our services, we need to make continued investment to develop new solution products and expand
into new industries. Such endeavors carry risks, such as cost overruns, delays in delivery or lack of acceptance from our clients or partners.
There can be no assurance that we will have sufficient funds available to maintain the levels of funding or future investment required
to support our products or innovations, and any delay in the delivery of new services or the failure to accurately predict and address
market demand could render our services less desirable to our customers and cooperation partners. While we have made continued efforts
to diversify revenue and funding sources, we cannot assure you that such efforts would be successful or could remain or become increasingly
diversified in the future. If we become dependent on a small number of customers or funding sources, and any such entities decide not
to collaborate with us, change the commercial terms to the extent unacceptable to us or limit the funding available on our platform, such
constraints may materially limit our ability to serve our customers. As a result, our business, financial condition, results of operations
and cash flow may be materially and adversely affected.
Our PRC subsidiaries’ and consolidated
affiliates’ books and records are prepared in accordance with China GAAP, not U.S. GAAP.
Substantially all of the business operations of the Company are located
in Mainland China. Although Nisun International’s reports are prepared in accordance with U.S. GAAP, our PRC subsidiaries’
books and records are prepared in accordance with China GAAP. Despite our efforts to improve the Company’s controls and procedures,
our accounting personnel do not have sufficient knowledge, experience and training in maintaining our books and records in accordance
with U.S. GAAP standards. If we fail to maintain an effective system of internal control over financial reporting, we may not be able
to accurately report our financial results or prevent fraud. As a result, current and potential shareholders could lose confidence in
our financial reporting, which would harm the value of our shares.
We are substantially dependent upon our senior
management and key information technology and development personnel.
We are highly dependent on our
senior management to manage our business and operations and our key research and development personnel for the development of new products
and the enhancement of our existing products and technologies. In particular, we rely substantially on members of our senior management,
including Chief Executive Officer, Xiaoyun Huang, Chief Financial Officer, Changjuan Liang, and senior executives of Fintech, Hengpu and
Nami to manage our operations.
While we provide the legally
required personal insurance for the benefit of our employees, we do not maintain key man life insurance on any of our senior management
or key personnel. The loss of any one of them would have a material adverse effect on our business and operations. Competition for senior
management and our other key personnel is intense and the pool of suitable candidates is limited. We may be unable to locate a suitable
replacement for any senior management or key personnel that we lose. In addition, if any member of our senior management or key personnel
joins a competitor or forms a competing company, they may compete with us for customers, business partners and other key professionals
and staff members of our Company. Although each of our senior management and key personnel has signed a confidentiality agreement in connection
with their employment with us, we cannot assure you that we will be able to successfully enforce these provisions in the event of a dispute
between us and any member of our senior management or key personnel.
We compete for qualified personnel
with other technology companies and research institutions. Intense competition for these personnel could cause our compensation costs
to increase, which could have a material adverse effect on our results of operations. Our future success and ability to grow our business
will depend in part on the continued service of these individuals and our ability to identify, hire and retain additional qualified personnel.
If we are unable to attract and retain qualified employees, we may be unable to meet our business and financial goals.
We are heavily dependent upon the services of
experienced personnel who possess skills that are valuable in our industry, and we may have to actively compete for their services.
We are heavily dependent upon
our ability to attract, retain and motivate skilled personnel to serve our customers. Many of our personnel possess skills that would
be valuable to all companies engaged in our industry. Consequently, we expect that we will have to actively compete for these employees.
Some of our competitors may be able to pay our employees more than we are able to pay to retain them. Our ability to profitably operate
is substantially dependent upon our ability to locate, hire, train and retain our personnel. There can be no assurance that we will be
able to retain our current personnel, or that we will be able to attract and assimilate other personnel in the future. If we are unable
to effectively obtain and maintain skilled personnel, the development and quality of our services could be materially impaired. See “Our
Employees.”
If we fail to protect our intellectual property
rights, it could harm our business and competitive position.
We rely on a combination of copyright,
trademark and trade secret laws and non-disclosure agreements and other methods to protect our intellectual property rights. Our affiliated
entities own a number of trademarks in China, all of which have been properly registered with regulatory agencies such as the State Intellectual
Property Office and Trademark Office. This intellectual property has allowed our products to earn market share in the financial services
and supply chain solutions industries.
We also rely on trade secret
rights to protect our business through non-disclosure agreements with certain employees. If any of our employees breach their non-disclosure
obligations, we may not have adequate remedies in China, and our trade secrets may become known to our competitors. In accordance with
Chinese intellectual property laws and regulations, we will have to renew our trademarks once the terms expire.
Implementation of PRC intellectual
property-related laws has historically been lacking, primarily because of ambiguities in the PRC laws and enforcement difficulties. Accordingly,
intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other western
countries. Furthermore, policing unauthorized use of proprietary technology is difficult and expensive, and we may need to resort to litigation
to enforce or defend our intellectual property rights, or to determine the enforceability, scope and validity of our proprietary rights
or those of others. Such litigation and an adverse determination in any such litigation, if any, could result in substantial costs and
diversion of resources and management attention, which could harm our business and competitive position.
We may be exposed to intellectual property infringement
and other claims by third parties which, if successful, could disrupt our business and have a material adverse effect on our financial
condition and results of operations.
Our success depends, in large
part, on our ability to use and develop our technology and know-how without infringing third party intellectual property rights. As litigation
concerning intellectual property has become more common in China, we face a higher risk of being the subject of claims for intellectual
property infringement, invalidity or indemnification relating to other parties’ proprietary rights. Our current or potential competitors,
many of which have substantial resources and have made substantial investments in competing technologies, may have or may obtain intellectual
property rights that will prevent, limit or interfere with our ability to use or sell our products in either China or other countries,
including the United States. In addition, the defense of intellectual property suits, including patent infringement suits, and related
legal and administrative proceedings can be both costly and time consuming and may significantly divert the efforts and resources of our
technical and management personnel. Furthermore, an adverse determination in any such litigation or proceedings to which we may become
a party could cause us to:
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seek licenses from third parties; |
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redesign our products; or |
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be restricted by injunctions, |
each of which could effectively prevent us from pursuing
some or all of our business and result in our customers or potential customers deferring or limiting their purchase or use of our branded
products, which could have a material adverse effect on our financial condition and results of operations.
Our brands or reputation and the reputation
of the financial service industry may materially and adversely be affected by factors outside of its control.
Enhancing the recognition and
reputation of the brands of our financial services is critical to its business and competitiveness. Factors that are important to this
objective include but are not limited to its ability to:
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maintain the quality and reliability of our technology platform; |
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provide financial institutions, corporate and individual customers and industry partners with a superior client service experience; |
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maintain accurate financial product matching and asset management tools and decision-making models; |
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effectively manage and resolve any customer questions or concerns; and |
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effectively protect personal information and privacy of customers and industry partners. |
Any negative publicity by the
media or other parties about the foregoing or other aspects of our services, including but not limited to our management, business, compliance
with laws, whether with merit or not, could severely hurt its reputation and harm its business and operating results.
Certain factors that may adversely
affect our reputation are beyond our control. Negative publicity about our industry partners, service providers or other counterparties,
such as negative publicity about their revenue generating practices and any failure by them to adequately protect the information of their
investors, to comply with applicable laws and regulations or to otherwise meet required quality and service standards could harm the reputation
of our financial services model working with those industry partners. Furthermore, any negative development in the financial services
industry, such as bankruptcies or failures of other financial technology platforms, or negative perception of the industry as a whole,
such as that arises from any failure of other financial advisory service providers or their technology platforms to detect or prevent
money laundering or other illegal activities, even if factually incorrect or based on isolated incidents, could compromise our image,
undermine the trust and credibility we have established and have a negative impact on our ability to attract new customers. Negative developments
in the financial services industry, such as fraudulent behavior and/or the closure of other financial service platforms, may also lead
to tightened regulatory scrutiny of the industry and limit the scope of permissible business activities that may be conducted by the industry
participants. If any of the foregoing were to occur, our business and results of operations could be materially and adversely affected.
Our operations depend on the performance of
the internet infrastructure and fixed telecommunications networks in China.
Almost all access to the
internet in China is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision
of the Ministry of Industry and Information Technology, or the MIIT. We rely on a limited number of telecommunication service providers
to provide us with data communications capacity through local telecommunications lines and internet data centers to host our servers.
We have limited access to alternative networks or services in the event of disruptions, failures or other problems with China’s
internet infrastructure or the fixed telecommunications networks provided by telecommunication service providers. With the expansion of
our business, we may be required to upgrade our technology and infrastructure to keep up with the increasing traffic on our digital technology
systems and platform. We cannot assure you that the internet infrastructure and the fixed telecommunications networks in China will be
able to support the demands associated with the continued growth in internet usage.
In addition, we have no control
over the costs of the services provided by telecommunication service providers. If the prices we pays for telecommunications and internet
services rise significantly, our results of operations may be adversely affected. Furthermore, if internet access fees or other charges
to internet users increase, our user traffic may decline and our business may be harmed.
We face risks related to health pandemics or
disease outbreaks.
In general, our business could
be adversely affected by the effects of pandemic, including but not limited to, the COVID-19, avian influenza, severe acute respiratory
syndrome (SARS), the influenza A virus, Ebola virus, or other outbreaks. In response to an pandemic, government and other organizations
may adopt regulations and policies that could lead to severe disruptions to our daily operations, including temporary closure of our offices
and other facilities. These severe conditions may cause us and/or our suppliers and customers to make internal adjustments, including
but not limited to, temporarily closing down our business, limiting business hours, and setting restrictions on travel and/or visits with
clients and suppliers for a prolonged period of time. Various impacts arising from a severe condition may cause business disruption, resulting
in a material, adverse impact to our financial condition and results of operations.
Substantially all of our revenues
and our workforce are concentrated in the PRC. Consequently, our results of operations will likely be adversely, and may be materially,
affected, to the extent that the COVID-19 or any other pandemic harms the Chinese and global economy in general. Any potential impact
to our results will depend on, to a large extent, future developments and new information that may emerge regarding the duration and severity
of the health pandemics and the actions taken by government authorities and other entities to contain the health pandemics or alleviate
its impact, almost all of which are beyond our control. Potential impacts include, but are not limited to, the following:
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temporary closure of offices, travel restrictions or suspension of services of our customers and suppliers have negatively affected, and could continue to negatively affect, the demand for our services; |
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our customers that are negatively impacted by the outbreak of health pandemics, may reduce their budgets on equipment and engineering projects or delay the progress of the related projects or have less demands on our financial service which may materially adversely impact our revenue; |
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our customers may require additional time to pay us or fail to pay us at all, which could significantly increase the amount of accounts receivable and require us to record additional allowances for doubtful accounts, which may in turn adversely affect our financial condition and operating results; and |
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any disruption of our supply chains, logistics providers or customers could adversely impact our business and results of operations, including causing our subcontractors to temporarily cease operation for a period of time, which may also lead to delayed project progress and business harm to us; |
Because of the possible future
uncertainty surrounding the COVID-19, the financial impact related to the pandemic of and response cannot be reasonably estimated at this
time. There is no guarantee that our total revenues will grow or remain at the similar level year-over-year in the future. We may have
to record downward adjustments, if conditions have not been significantly improved and global stock markets have not recovered from recent
declines.
Risks Related to Doing Business in China
Adverse changes in political climate and economic
policies of the PRC government could have a material adverse effect on the overall economic growth of China and materially and adversely
affect our competitive position.
Substantially all of our business
operations are conducted in China. Our business, results of operations, financial condition and prospects are subject to economic, political
and legal developments in China. Although the Chinese economy is no longer a planned economy, the PRC government continues to exercise
significant control over China’s economic growth through direct allocation of resources, monetary and tax policies, and a host of
other government policies such as those that encourage or restrict investment in certain industries by foreign investors, control the
exchange between RMB and foreign currencies, and regulate the growth of the general or specific market. This government involvements has
been instrumental in China’s significant growth in the past 30 years. In response to the global and Chinese economic downturns,
the PRC government has adopted policy measures aimed at stimulating the economic growth in China. If the PRC government’s current
or future policies fail to help the Chinese economy achieve further growth or if any aspect of the PRC government’s policies limits
the growth of our industry or otherwise negatively affects our business, our growth rate or strategy and our results of operations could
be adversely affected as a result.
Uncertainties in the PRC legal system and the
interpretation and enforcement of PRC laws and regulations could limit the legal protections available to us and our investors, materially
and adversely affect our financial condition and results of operations and cause our shares to significantly decline in value or become
worthless.
We conduct all of our business
through our subsidiaries in China. Our operations in China are governed by PRC laws and regulations. Our PRC subsidiaries are generally
subject to laws and regulations applicable to foreign investments in China and, in particular, laws and regulations applicable to wholly
foreign-owned enterprises. The PRC legal system is based on statutes. Prior court decisions may be cited for reference but have limited
precedential value.
PRC laws and regulations have
significantly enhanced the protections afforded to various forms of foreign investments in China for the past decades. However, 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. In particular, because these laws and regulations are relatively new, and because of the limited volume
of published decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties.
Furthermore, the PRC legal system
is based in part on government policies and internal rules, some of which are not published on a timely basis or at all. As a result,
we may not be aware of our potential violation of these policies and rules. In addition, any administrative and court proceedings in China
may be protracted and result in substantial costs and diversion of resources and management attention.
PRC government has significant
oversight over the conduct of our business and it has recently indicated an intent to exert more oversight over offerings that are conducted
overseas and/or foreign investment in China-based issuers. Any such action could significantly limit or completely hinder our ability
to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
We may be adversely
affected by the complexity, uncertainties and changes in PRC regulation of internet- related or finance-related businesses and companies,
and any lack of requisite approvals, licenses, permits or filings applicable to our business may have a material adverse effect on our
business and results of operations.
The PRC government extensively
regulates the internet industry and finance-related industry, including foreign ownership of, and the licensing and permit requirements
pertaining to, companies in the internet industry and finance-related industry. These internet-related or finance-related laws and regulations
are relatively new and evolving, and their interpretation and enforcement involve significant uncertainties. As a result, in certain circumstances
it may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws and regulations.
For example, PRC regulations
impose sanctions for engaging in disseminating analysis, forecasting, advisory or other information related to securities and securities
markets without having obtained the securities investment consultancy qualifications in China. We do not intend to engage in such business
in China. However, our users could post articles or share contents that contain analysis, forecasting or advisory content related to securities
on our platform. If any of the information or content displayed on our platform is deemed as analysis, forecasting, advisory or other
information related to securities or securities markets, or any of our business in the PRC is deemed to be a service providing such information,
we may be subject to regulatory measures including warnings, public condemnation, suspension of relevant business and other measures in
accordance with applicable laws and regulations. Any such penalties may disrupt our business operations or materially and adversely affect
our business, financial condition and results of operations.
The interpretation and application
of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the internet industry and finance-related
have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities
of, internet and finance-related businesses in China, including our business. While we believe that we have obtained all the permits or
licenses required to conduct our business operations in China, we cannot assure you that the relevant government authorities will determine
we have obtained all required permits or licenses or completed all the record-filing procedures required for conducting our business,
or that we will be able to maintain our existing licenses or obtain new permits if so required. If the PRC government considers that we
were operating without the proper approvals, licenses, permits or filings or promulgates new laws and regulations that require additional
approvals, licenses, permits or filings or imposes additional restrictions on the operation of any part of our business, it has the power,
among other things, to levy fines, confiscate our income, revoke our business licenses, and require us to discontinue our relevant business
or impose restrictions on the affected portion of our business. Any of these actions by the PRC government may have a material adverse
effect on our business and results of operations.
The PRC government
may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment
in China-based issuers, which could result in a material change in our operations and/or cause the value of our securities to significantly
decline or be worthless.
The Chinese government has significant
oversight and discretion over the conduct of our business and may intervene or influence our operations as the government deems appropriate
to further regulatory, political and societal goals. The Chinese government has recently published new policies that significantly affected
certain industries such as the education and internet industries. Recent statements made by the Chinese government have indicated an intent
to increase the government’s oversight and control over offerings of companies with significant operations in mainland China that
are to be conducted in foreign markets, as well as foreign investment in China-based issuers like us. Any future action by the Chinese
government expanding the categories of industries and companies whose foreign securities offerings are subject to government review could
significantly limit or completely hinder our ability to offer or continue to offer securities to investors or could disallow our current
operating structure, which would likely result in a material change in our operations and/or a material change in the value of our securities,
including causing the value of such securities to significantly decline or become worthless.
On July 6, 2021, the General
Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued a document to crack
down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among other
things, requires the relevant governmental authorities to strengthen cross-border oversight of law enforcement and judicial cooperation,
to enhance supervision over China-based companies listed overseas, and to establish and improve the system of extraterritorial application
of the PRC securities laws. Since this document is still relatively new, uncertainties still exist in relation to how soon legislative
or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations
will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our future business
combination with a company with major operation in China.
Further, Chinese government continues
to exert more oversight and control over Chinese technology firms. On July 2, 2021, Chinese cybersecurity regulator announced, that it
had begun an investigation of Didi Global Inc. (NYSE: DIDI) and two days later ordered that the company’s application be removed
from smartphone application stores. On July 5, 2021, the Chinese cybersecurity regulator launched the same investigation on two other
Internet platforms, China’s Full Truck Alliance of Full Truck Alliance Co. Ltd. (NYSE: YMM) and Boss of KANZHUN LIMITED (Nasdaq:
BZ).
On December 24, 2021, the
CSRC issued the Administrative Provisions of the State Council Regarding the Overseas Issuance and Listing of Securities by Domestic Enterprises
(the “Draft Administrative Provisions”) and the Measures for the Overseas Issuance of Securities and Listing Record-Filings
by Domestic Enterprises (Draft for Comments) (the “Draft Filing Measures”), collectively, the Draft Overseas Listing Rules,
which are currently published for public comments only. According to the Draft Overseas Listing Rules, among other things, all China-based
companies applying for overseas securities issuance, listing and post-listing capital operations shall be subject to statutory procedures,
such as filing and information reporting requirement. After making initial applications with overseas stock markets for offerings or listings,
all China-based companies shall file with the CSRC within three business days. In addition, overseas offerings and listings may be prohibited
for such China-based companies when any of the following applies: (a) if the securities offerings and listings are prohibited by applicable
PRC laws and rules; (b) if securities offerings and listings may constitute a threat to, or endanger national security as reviewed and
determined by PRC authorities; (c) if there are material ownership disputes over applicants’ equity interests, major assets, core
technologies or other items; (d) if a PRC company or its controlling shareholders or de facto controllers have committed certain crimes,
under investigation for suspicion of major violations in the prior three years; (e) if any directors, supervisors, or senior executives
of applicants have been subject to administrative punishments for severe violations, or are under investigations for crimes or major violations;
or (f) other circumstances as provided. The Draft Administrative Provisions further provide that a fine between RMB 1 million and RMB
10 million may be imposed if a company fails to fulfill the filing requirements with the CSRC or conducts an overseas offering or listing
in violation of the Draft Overseas Listing Rules. In the case of severe violations, an order to suspend relevant businesses or halt operations
for rectification may be issued, and relevant business permits or operational license revoked. Overseas issuance and listings subject
to the Draft Overseas Listing Rules include direct and indirect issuance and listings. Our future securities offerings if any could be
deemed an indirect overseas issuance under the Draft Overseas Listing Rules and would be required to complete the filing procedures and
submit the relevant information to CSRC after the Draft Overseas Listing Rules become effective. As of the date of this report, such rules
have not become effective. In addition, after the rules take effect, we would only need to submit the filing materials and no CSRC approval
would be required under the rules. However, in the event that a government approval is required, we cannot assure you that we will be
able to receive clearance in a timely manner, or at all. Any failure of us to fully comply with new regulatory requirements may significantly
limit or completely hinder our ability to offer or continue to offer our shares, cause significant disruption to our business operations,
severely damage our reputation, materially and adversely affect our financial condition and results of operations and cause our shares
to significantly decline in value or become worthless.
Recent regulatory developments
in China, including greater oversight and control by the CAC over privacy and data security, may subject us to additional regulatory review
and any actions by the Chinese government to exert more oversight and control over foreign investment in China-based issuers could significantly
limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to
significantly decline or be worthless.
Recent statements by the Chinese
government have indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investments
in China based issuers. The PRC government recently initiated a series of regulatory actions and statements to regulate business
operations in China with little advance notice, among other things, including adopting new measures to extend the scope of cybersecurity
reviews, cracking down on illegal activities in the securities market, and expanding the efforts in anti-monopoly enforcement. The PRC
government is increasingly focused on data security, recently launching cybersecurity review against a number of mobile apps operated
by several U.S.-listed Chinese companies and prohibiting these apps from registering new users during the review period. We are subject
to various risks and costs related to the collection, use, sharing, retention, security, and transfer of confidential and private information,
such as personal information and other data. Such covered data is wide ranging and relates to our investors, employees, suppliers, customers
and other third parties. The relevant PRC laws apply not only to third-party transactions, but also to transfers of information between
Nisun International, offshore subsidiaries, our PRC subsidiaries, and other parties with which we have commercial relations.
The PRC regulatory and enforcement
regime with regard to privacy and data security is evolving. The PRC Cybersecurity Law, which was promulgated on November 7, 2016 and
became effective on June 1, 2017, provides that personal information and important data collected and generated by operators of critical
information infrastructure in the course of their operations in the PRC should be stored in the PRC, and the law imposes heightened regulation
and additional security obligations on operators of critical information infrastructure. The interpretation and application of these cybersecurity
laws, regulations and standards are still uncertain and evolving. We cannot assure you that relevant governmental authorities will not
interpret or implement these and other laws or regulations in ways that may negatively affect us.
On November 14, 2021, the CAC
published a discussion draft of the Administrative Measures for Internet Data Security, or the Draft Measures for Internet Data Security,
which provides that data processors conducting the following activities shall apply for cybersecurity review: (i) merger, reorganization
or division of Internet platform operators that have acquired a large number of data resources related to national security, economic
development or public interests affects or may affect national security; (ii) listing abroad of data processors processing over one million
users’ personal information; (iii) listing in Hong Kong which affects or may affect national security; or (iv) other data processing
activities that affect or may affect national security. There have been no clarifications from the authorities as of the date of this
annual report as to the standards for determining such activities that “affects or may affect national security.” The CAC
has solicited comments on this draft until December 13, 2021, but there is no timetable as to when it will be enacted. As such, substantial
uncertainties exist with respect to the enactment timetable, final content, interpretation and implementation. The Draft Measures for
Internet Data Security, if enacted as proposed, may materially impact our capital raising activities. Any failure to obtain such approval
or clearance from the regulatory authorities could materially constrain our liquidity and have a material adverse impact on our business
operations and financial results, especially if we need additional capital or financing.
On December 28, 2021, the CAC,
the NDRC, the MIIT, and several other administrations jointly published the Measures for Cybersecurity Review, effective on February 15,
2022, which provides that certain operators of critical information infrastructure purchasing network products and services or network
platform operators carrying out data processing activities, which affect or may affect national security, must apply with the Cybersecurity
Review Office for a cybersecurity review. However, the scope of operators of “critical information infrastructure” under the
current regulatory regime remains unclear and is subject to the decisions of competent PRC regulatory authorities. Based on our understanding
of the Measures as of the date hereof, the exact scope of operators of “critical information infrastructure” under the Measures
and current PRC regulatory guidance remains unclear, and is subject to the decisions of the relevant PRC government authorities that have
been delegated the authority to identify operators of “critical information infrastructure” in their respective jurisdictions
(including regions and industries). PRC government authorities have wide discretion in the interpretation and enforcement of these laws,
including the identification of operators of “critical information infrastructure” and the interpretation and enforcement
of requirements potentially applicable to such operators of “critical information infrastructure.” As we operate an internet
platform, we are at risk of being deemed to be an operator of “critical information infrastructure” or a network platform
operator meeting the above criteria under PRC cybersecurity laws. If we are identified as an operator of “critical information infrastructure,”
we would be required to fulfill various obligations as required under PRC cybersecurity laws and other applicable laws for such operators
of “critical information infrastructure,” including, among others, setting up a special security management organization,
organizing regular cybersecurity education and training, formulating emergency plans for cyber security incidents and conducting regular
emergency drills, and we may need to follow cybersecurity review procedure and apply with Cybersecurity Review Office before making certain
purchases of network products and services. During cybersecurity review, we may be required to suspend the provision of any existing or
new services to our users, and we may experience other disruptions of our operations, which could cause us to lose users and customers
therefore resulting in adverse impacts on our business. The cybersecurity review could also lead to negative publicity and a diversion
of time and attention of our management and our other resources. It could be costly and time-consuming for us to prepare application materials
and make the applications. Furthermore, there can be no assurance that we will obtain the clearance or approval for these applications
from the Cybersecurity Review Office and the relevant regulatory authorities in a timely manner, or at all. If we are found to be in violation
of cybersecurity requirements in China, the relevant governmental authorities may, at their discretion, conduct investigations, levy fines,
request app stores to take down our apps and cease to provide viewing and downloading services related to our apps, prohibit the registration
of new users on our platform, or require us to change our business practices in a manner materially adverse to our business. Any of these
actions may disrupt our operations and adversely affect our business, results of operations and financial condition.
PRC regulations establish
complex procedures for some acquisitions conducted by foreign investors, which could make it more difficult for us to pursue growth through
acquisitions in China.
The
Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, adopted by six PRC regulatory agencies in August
2006 and amended in June 2009, among other things, established additional procedures and requirements that could make merger and acquisition
activities by foreign investors more time-consuming and complex. In addition, the Implementing Rules Concerning Security Review on the
Mergers and Acquisitions by Foreign Investors of Domestic Enterprises, or the Rules Concerning Security Review on M&A, issued by the
Ministry of Commerce in August 2011, specify that mergers and acquisitions by foreign investors involved in “an industry related
to national security” are subject to strict review by the Ministry of Commerce, and prohibit any activities attempting to bypass
such security review, including by structuring the transaction through a proxy or contractual control arrangement. We believe that our
business is not in an industry related to national security, but we cannot preclude the possibility that the competent PRC government
authorities may publish explanations contrary to our understanding or broaden the scope of such security reviews in the future, in which
case our future acquisitions and investment in the PRC, including those by way of entering into contractual control arrangements with
target entities, may be closely scrutinized or prohibited. Moreover, according to the Anti-Monopoly Law, the SMAR shall be notified in
advance of any concentration of undertaking if certain filing thresholds are triggered. We may grow our business in part by directly acquiring
complementary businesses in China. Complying with the requirements of the laws and regulations mentioned above and other PRC regulations
to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the SMAR,
may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our
market share. Our ability to expand our business or maintain or expand our market share through future acquisitions would as such be materially
and adversely affected.
In December
2020, the NDRC and the Ministry of Commerce promulgated the Measures for the Security Review of Foreign Investment, which came into effect
on January 18, 2021. As these measures are recently promulgated, official guidance has not been issued by the relevant government
authority. The interpretation of those measures remains unclear in many aspects such as what would constitute “important information
technology and internet services and products” and whether these measures may apply to foreign investment that is implemented or
completed before the enactment of these new measures. We cannot assure you that our current business operations will remain fully compliant,
or we can adapt our business operations to new regulatory requirements on a timely basis, or at all.
Trading in our securities
may be prohibited under the Holding Foreign Companies Accountable Act if the PCAOB determines that it cannot inspect or investigate
completed our auditors for three consecutive years beginning in 2021, or for two consecutive years if the Accelerating Holding Foreign
Companies Accountable Act or the America COMPETES Act becomes law.
In recent years, U.S. regulatory
authorities have continued to express their concerns about challenges in their oversight of financial statement audits of U.S.-listed
companies with significant operations in China. As part of a continued regulatory focus in the United States on access to audit and other
information, the Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020. The HFCAA includes requirements
for the SEC to identify issuers whose audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely
because of a restriction imposed by a non-U.S. authority in the auditor’s local jurisdiction. The HFCAA also requires that, to the
extent that the PCAOB has been unable to inspect an issuer’s auditor for three consecutive years since 2021, the SEC shall prohibit
its securities registered in the United States from being traded on any national securities exchange or over-the-counter markets in the
United States.
On March 24, 2021, the SEC adopted
interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCAA. The interim final
rule applies to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public
accounting firm that is located in a foreign jurisdiction that the PCAOB is unable to inspect or investigate completely because of a position
taken by an authority in that jurisdiction. Consistent with the HFCAA, the interim final rule requires the submission of documentation
to the SEC establishing that such a registrant is not owned or controlled by a government entity in that foreign jurisdiction and also
requires disclosure in a foreign issuer’s annual report regarding the audit arrangements of, and government influence on, such registrants.
On May 13, 2021, the PCAOB issued proposed PCAOB Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act for
public comment. The proposed rule provides a framework for making determinations as to whether PCAOB is unable to inspect an audit firm
in a foreign jurisdiction, including the timing, factors, bases, publication and revocation or modification of such determinations, and
such determinations will be made on a jurisdiction-wide basis in a consistent manner applicable to all firms headquartered in the jurisdiction.
In November 2021, the SEC approved PCAOB Rule 6100. On December 2, 2021, the SEC adopted amendments to final rules implementing the disclosure
and submission requirements of the HFCAA.
On June 22, 2021, the U.S. Senate
passed the Accelerating Holding Foreign Companies Accountable Act or AHFCAA, and on February 4, 2022, the U.S. House of Representatives
passed the America Creating Opportunities for Manufacturing Pre-Eminence in Technology and Economic Strength (COMPETES) Act of 2022, or
the COMPETES Act. If either bill is enacted into law, it would amend the HFCAA and require the SEC to prohibit an issuer’s securities
from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections or complete investigations for two consecutive
years instead of three. As a result, our securities may be prohibited from trading on Nasdaq or over-the-counter markets if our auditor
is not inspected by the PCAOB for three consecutive years as specified in the HFCAA or two years if the AHFCAA or the COMPETES Act becomes
law, and would reduce the time before our securities may be prohibited from trading or delisted.
On December 2, 2021, the SEC
issued amendments to finalize rules implementing the submission and disclosure requirements in the HFCAA. The rules apply to registrants
that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located
in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in
foreign jurisdictions.
On December 16, 2021, the PCAOB
announced the PCAOB Holding Foreign Companies Accountable Act determinations (the “PCAOB determinations”) relating to the
PCAOB’s inability to inspect or investigate completely registered public accounting firms headquartered in mainland China of the
PRC or Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in
the PRC or Hong Kong.
The lack of access to the PCAOB
inspection or investigation in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based
in China. As a result, the investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct
inspections or investigations of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firms’
audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections and
investigations, which could cause existing and potential investors in our stock to lose confidence in our audit procedures and reported
financial information and the quality of our financial statements.
Our current auditor, Wei, Wei
& Co., LLP, an independent registered public accounting firm that is headquartered in the United States, is a firm registered with
the U.S. Public Company Accounting Oversight Board (the “PCAOB”), and is required by the laws of the U.S. to undergo regular
inspections by the PCAOB to assess its compliance with the laws of the U.S. and professional standards. Wei, Wei & Co., LLP has been
subject to PCAOB inspections, and is not among the PCAOB-registered public accounting firms headquartered in the PRC or Hong Kong that
are subject to PCAOB’s determination on December 16, 2021 of having been unable to inspect or investigate completely.
Notwithstanding the foregoing,
if it is later determined that the PCAOB is unable to inspect or investigate our auditor completely, or if there is any regulatory change
or step taken by PRC regulators that does not permit our auditor to provide audit documentations located in China or Hong Kong to the
PCAOB for inspection or investigation, or the PCAOB expands the scope of the Determination so that we are subject to the HFCAA, as the
same may be amended, you may be deprived of the benefits of such inspection. Any audit reports not issued by auditors that are completely
inspected or investigated by the PCAOB, or a lack of PCAOB inspections or investigations of audit work undertaken in China that prevents
the PCAOB from regularly evaluating our auditors’ audits and their quality control procedures, could result in a lack of assurance
that our financial statements and disclosures are adequate and accurate.
However, the recent developments
would add uncertainties to our offering and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more
stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy
of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements.
It remains unclear what further actions the SEC, the PCAOB or Nasdaq will take to address these issues and what impact those actions will
have on U.S. companies that have significant operations in the PRC and have securities listed on a U.S. stock exchange (including a national
security exchange or over-the-counter stock market). In addition, any additional actions, proceedings, or new rules resulting from these
efforts to increase U.S. regulatory access to audit information could create some uncertainty for investors, the market price of our ordinary
shares could be adversely affected, and we could be delisted if we and our auditor are unable to meet the PCAOB inspection requirement
or being required to engage a new audit firm, which would require significant expense and management time.
Newly enacted Holding
Foreign Companies Accountable Act, recent regulatory actions taken by the SEC and the Public Company Accounting Oversight Board, and proposed
rule changes by Nasdaq calling for additional and more stringent criteria to be applied to China-based public companies could add uncertainties
to our capital raising activities and compliance costs.
U.S. public companies that have
substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors,
financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered on
financial and accounting irregularities and mistakes, 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.
On December 7, 2018, the SEC
and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial
statement audits of U.S.-listed companies with significant operations in China. On April 21, 2020, the SEC Chairman and PCAOB Chairman,
along with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or
have substantial operations in emerging markets including China, reiterating past SEC and PCAOB statements on matters including the difficulty
associated with inspecting accounting firms and audit work papers in China and higher risks of fraud in emerging markets and the difficulty
of bringing and enforcing SEC, Department of Justice and other U.S. regulatory actions, including in instances of fraud, in emerging markets
generally.
On May 18, 2020, NASDAQ filed
three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in a “Restrictive
Market”, (ii) prohibit Restrictive Market companies from directly listing on NASDAQ Capital Market, and only permit them to list
on NASDAQ Global Select or NASDAQ Global Market in connection with a direct listing, and (iii) apply additional and more stringent criteria
to an applicant or listed company based on the qualifications of the company’s auditors.
On May 20, 2020, the U.S. Senate
passed the Holding Foreign Companies Accountable Act requiring a foreign company to certify it is not owned or controlled by a foreign
government if the PCAOB is unable to audit specified reports because the company uses a foreign auditor not subject to PCAOB inspection.
If the PCAOB is unable to inspect the company’s auditors for three consecutive years, the issuer’s securities are prohibited
to trade on a national exchange. On December 2, 2020, the U.S. House of Representatives passed the Holding Foreign Companies Accountable
Act. On December 18, 2020, the Holding Foreign Companies Accountable Act was signed into law.
On March 24, 2021, the SEC announced
that it had adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of the Act.
The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report on Forms 10-K, 20-F, 40-F
or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB
has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction. The
SEC will implement a process for identifying such a registrant and any such identified registrant will be required to submit documentation
to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction, and will also require
disclosure in the registrant’s annual report regarding the audit arrangements of, and governmental influence on, such a registrant.
On June 22, 2021, the U.S. Senate
passed the Accelerating Holding Foreign Companies Accountable Act (“AHFCAA”), and on February 4, 2022, the U.S. House of Representatives
passed the America Creating Opportunities for Manufacturing Pre-Eminence in Technology and Economic Strength (COMPETES) Act of 2022, or
the COMPETES Act. Either bill, if signed into law, would reduce the number of consecutive non-inspection years required for triggering
the prohibitions under the Holding Foreign Companies Accountable Act from three years to two and, would reduce the time before our securities
may be prohibited from trading or delisted.
On December 2, 2021, the SEC
issued amendments to finalize rules implementing the submission and disclosure requirements in the Holding Foreign Companies Accountable
Act. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered
public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because
of a position taken by an authority in foreign jurisdictions.
On December 16, 2021, PCAOB announced
the PCAOB Holding Foreign Companies Accountable Act determinations (the “PCAOB determinations”) relating to the PCAOB’s
inability to inspect or investigate completely registered public accounting firms headquartered in mainland China of the PRC or Hong Kong,
a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in the PRC or Hong Kong.
The recent regulatory developments
would add uncertainties to our offering and we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more
stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy
of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements.
It remains unclear what further actions the SEC, the PCAOB or Nasdaq will take to address these issues and what impact those actions will
have on U.S. companies that have significant operations in the PRC and have securities listed on a U.S. stock exchange (including a national
security exchange or over-the-counter stock market). In addition, any additional actions, proceedings, or new rules resulting from these
efforts to increase U.S. regulatory access to audit information could create some uncertainty for investors, the market price of our ordinary
shares could be adversely affected, and we could be delisted if we and our auditor are unable to meet the PCAOB inspection requirement
or being required to engage a new audit firm, which would require significant expense and management time.
As a result of these scrutiny,
criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies 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 us, our future securities offerings, business and our share price. 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 defend our Company. Our management would have to divert valuable resources and attention away from our operations
and may negatively impact our operations. If such allegations are not proven to be groundless, we and our business operations will be
severely affected and you could sustain a significant decline in the value of our shares.
Chinese economic growth slowdown may have a
negative effect on our business.
Since 2014, Chinese economic
growth has been slowing down from double-digit GDP speed. The annual rate of growth 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. Due to the impact of COVID-19, China’s economic growth rate in 2020
has slowed to 2.3%, its lowest level in years. While technology-based financial services companies have not been affected by the pandemic
on the same level as companies in certain other industries, nevertheless a slow economic growth could adversely affected many of our customers
and partners, which in turn may materially adversely affected our financial condition and results of operations.
We may rely on dividends and other distributions
on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our
PRC subsidiaries to make payments to us and any tax we are required to pay could have a material and adverse effect on our ability to
conduct our business.
We are a BVI holding company
and we may rely on dividends and other distributions on equity from our PRC subsidiaries for our cash requirements, including the funds
necessary to pay dividends and other cash distributions to our shareholders and for services of any debt we may incur. Our subsidiaries’
ability to distribute dividends is based upon their distributable earnings. Current PRC regulations permit our PRC subsidiaries to pay
dividends to their respective shareholders only out of their accumulated profits, if any, determined in accordance with PRC accounting
standards and regulations. In addition, each of our PRC subsidiaries and our consolidated affiliated entities is required to set aside
at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered
capital. Each of such entities in China is also required to further set aside a portion of its after-tax profits to fund the employee
welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. These reserves are
not distributable as cash dividends. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the
debt may restrict their ability to pay dividends or make other payments to us. Any limitation on the ability of our PRC subsidiaries to
distribute dividends or other payments to their respective shareholders could materially and adversely limit our ability to grow, make
investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business.
In response to the persistent
capital outflow and RMB’s depreciation against U.S. dollar in the fourth quarter of 2016, the People’s Bank of China and the
State Administration of Foreign Exchange, or SAFE, have implemented a series of capital control measures, including stricter vetting procedures
for China-based companies to remit foreign currency for overseas acquisitions, dividend payments and shareholder loan repayments. For
instance, the People’s Bank of China issued the Circular on Further Clarification of Relevant Matters Relating to Offshore RMB Loans
Provided by Domestic Enterprises, or the PBOC Circular 306, on November 22, 2016, which provides that offshore RMB loans provided by a
domestic enterprise to offshore enterprises that it holds equity interests in shall not exceed 30% of the domestic enterprise’s
ownership interest in the offshore enterprise. The PBOC Circular 306 may constrain our PRC subsidiaries’ ability to provide offshore
loans to us. The PRC government may continue to strengthen its capital controls and our PRC subsidiaries’ dividends and other distributions
may be subjected to tighter scrutiny in the future. Any limitation on the ability of our PRC subsidiaries to pay dividends or make other
distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial
to our business, pay dividends, or otherwise fund and conduct our business.
Under the EIT Law and related
regulations, dividends, interests, rent or royalties payable by a foreign-invested enterprise, such as our PRC subsidiaries, to any of
its foreign non-resident enterprise investors, and proceeds from any such foreign enterprise investor’s disposition of assets (after
deducting the net value of such assets) are subject to a 10% withholding tax, unless the foreign enterprise investor’s jurisdiction
of incorporation has a tax treaty with China that provides for a reduced rate of withholding tax. Undistributed profits earned by foreign-invested
enterprises prior to January 1, 2008 are exempted from any withholding tax. The BVI, where Nisun International, the parent company of
our PRC subsidiaries, is incorporated, does not have such a tax treaty with China. Hong Kong has a tax arrangement with China that provides
for a 5% withholding tax on dividends subject to certain conditions and requirements, such as the requirement that the Hong Kong resident
enterprise own at least 25% of the PRC enterprise distributing the dividend at all times within the 12-month period immediately preceding
the distribution of dividends and be a “beneficial owner” of the dividends. However, if NiSun HK is not considered being the
beneficial owner of the dividends paid to it by our WFOE under the tax circulars promulgated in February and October 2009, such dividends
would be subject to withholding tax at a rate of 10%. If our PRC subsidiaries declare and distribute profits to us, such payments will
be subject to withholding tax, which will increase our tax liability and reduce the amount of cash available to our company.
Under the Enterprise Income Tax Law, we may
be classified as a “Resident Enterprise” of China. Such classification will likely result in unfavorable tax consequences
to us and our non-PRC stockholders.
China passed an Enterprise Income
Tax Law (the “EIT Law”) and implementing rules, both of which became effective on January 1, 2008. Under the EIT Law, an enterprise
established outside of China with “de facto management bodies” within China is considered a “resident enterprise,”
meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules
of the EIT Law define de facto management as “substantial and overall management and control over the production and operations,
personnel, accounting, and properties” of the enterprise.
On April 22, 2009, the State
Administration of Taxation of China issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled
Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting
the application of the EIT Law and its implementation to offshore entities controlled by a Chinese enterprise or group. Pursuant to the
Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a
“non-domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform
their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its
substantial assets and properties, accounting books, corporate stamps, board and stockholder minutes are kept in China; and (iv) at least
half of its directors with voting rights or senior management are often resident in China. A resident enterprise would be subject to an
enterprise income tax rate of 25% on its worldwide income and must pay a withholding tax at a rate of 10% when paying dividends to its
non-PRC stockholders.
Nisun International does not
have a PRC enterprise or enterprise group as its primary controlling shareholder and is therefore not a Chinese-controlled offshore incorporated
enterprise within the meaning of the Notice, so we believe the Notice is not applicable to us. However, in the absence of guidance specifically
applicable to us, we have applied the guidance set forth in the Notice to evaluate the tax residence status of Nisun International.
We do not believe that we meet
some of the conditions outlined. As a holding company, the key assets and records of Nisun International including the resolutions and
meeting minutes of our board of directors and the resolutions and meeting minutes of our shareholders, are located and maintained outside
the PRC. In addition, we are not aware of any offshore holding companies with a corporate structure similar to ours that have been deemed
a PRC “resident enterprise” by the PRC tax authorities. Accordingly, we believe that Nisun International should not be treated
as a “resident enterprise” for PRC tax purposes if the criteria for “de facto management body” as set forth in
the Notice were deemed applicable to us. However, as the tax residency status of an enterprise is subject to determination by the PRC
tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body” as applicable
to our offshore entities, we will continue to monitor our tax status.
If the PRC tax authorities determine
that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could
follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise
income tax reporting obligations. In our case, this would mean that income such as non-China source income would be subject to PRC enterprise
income tax at a rate of 25%. Currently, we do not have any non-China source income, so this would have minimal effect on us; however,
if we develop non-China source income in the future, we could be adversely affected. Second, under the EIT Law and its implementing rules,
dividends paid to us from our PRC subsidiaries would qualify as “tax-exempt income.” Finally, it is possible that future guidance
issued with respect to the new “resident enterprise” classification could result in a situation in which a 10% withholding
tax is imposed on dividends we pay to our non-PRC stockholders and with respect to gains derived by our non-PRC stockholders from transferring
our shares.
If we were treated as a “resident
enterprise” by the PRC tax authorities, we would be subject to taxation in both the U.S. and China, but our PRC source income will
not be taxed in the U.S. again because the U.S.-China tax treaty will avoid double taxation between these two nations.
PRC regulation of loans and direct investment by offshore holding
companies in PRC entities may delay or prevent us from using the proceeds of our securities offerings to make loans or additional capital
contributions to our PRC operating subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and
expand our business.
In utilizing proceeds of our
securities offerings, we may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries.
Any loans to our PRC subsidiaries
are subject to PRC regulations. For example, loans by us to our subsidiaries in China, which are FIEs, to finance their activities cannot
exceed statutory limits and must be registered with the State Administration of Foreign Exchange, or SAFE. Currently, China is holding
more open and tolerant attitude toward FIEs. More open rules and regulations are published in recent years to replace previous ones which
are more restrictive. On March 30, 2015, SAFE promulgated Circular 19 which is about Reforming the Management Approach regarding
the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises) and effective since June 1, 2015. Circular 19 has
made some important changes in rules regarding the conversion of foreign exchanges to RMB, which are as follows in particular:
|
(1) |
Instead of the payment-based exchange settlement system under previous Circular 142 and Circular 88, new rules of discretional foreign exchange settlement have been established, which means the foreign exchange capital in the capital account of foreign-invested enterprises for which the confirmation of rights and interests of monetary contribution by the local foreign exchange bureau (or the book-entry registration of monetary contribution by the banks in accordance with Circular 13 as we mentioned in the comment below) has been handled can be settled at the banks based on the actual operational needs of the enterprises, and the proportion of foreign exchange which can be discretionally converted by each FIE is temporarily determined as 100% (SAFE may adjust such scale as necessary). So regulation wise FIEs no longer needs to report the use of its RMB before or after a conversion which are required by previous Circular 142 and Circular 88. However, actually SAFE and the banks are experiencing a transitional period in this regard, so for the time being, most banks still need the FIEs to report their proposed use of the RMB to be converted from foreign exchanges, as well as the actual use of the RMB obtained in the last conversion. Certainly, the transitional period will not be too long and therefore optimistically from the year of 2016, the report obligation will no longer be required. |
|
(2) |
Foreign currency-denominated capital no longer needs to be verified by an accounting firm before converting into RMB. |
|
(3) |
As stipulated in Circular 19, the use of capital by FIEs shall follow the principles of authenticity and self-use within the business scope of enterprises, shall not be used for the following purposes: |
|
a) |
it shall not be directly or indirectly used for the payment beyond the business scope of the enterprises or the payment prohibited by national laws and regulations; |
|
b) |
it shall not be directly or indirectly used for investment in securities unless otherwise provided by laws and regulations; |
|
c) |
it shall not be directly or indirectly used for granting the entrust loans in RMB (unless permitted by the scope of business), repaying the inter-enterprise borrowings (including advances by the third party) or repaying the bank loans in Renminbi that have been sub-lent to the third party; and |
|
d) |
it shall not be used for paying the expenses related to the purchase of real estate not for self-use, except for the foreign-invested real estate enterprises. |
On May 10, 2013, SAFE released
Circular 21, which came into effect on May 13, 2013; also, on February 13, 2015 SAFE published Circular 13 (Circular of the State
Administration of Foreign Exchange on Further Simplifying and Improving the Direct Investment-related Foreign Exchange Administration
Policies) to update some measures stipulated in Circular 21. According to Circular 21, SAFE has significantly simplified the foreign
exchange administration procedures with respect to the registration, account openings and conversions, settlements of FDI-related foreign
exchange, as well as fund remittances. Meanwhile, Circular 13 has further simplified foreign exchange administration procedures, most
important among which is that SAFE delegated foreign exchange registration to the banks, meanwhile the related registration approval by
SAFE has been annulled.
Even with more and more open
policy toward FDI and FIEs, the Circulars mentioned above may still have some limit our ability to convert, transfer and use the net proceeds
from our securities offerings and any offering of additional equity securities in China, which may adversely affect our liquidity and
our ability to fund and expand our business in the PRC.
We may also decide to finance
our subsidiaries by means of capital contributions. These capital contributions must be approved by the Ministry of Commerce of China,
or MOFCOM, or its local counterpart. We may not be able to obtain these government approvals on a timely basis, if at all, with respect
to future capital contributions by us to our PRC subsidiaries. If we fail to receive such approvals, we will not be able to use the proceeds
of our offerings and capitalize our PRC operations, which could adversely affect our liquidity and our ability to fund and expand our
business.
PRC regulations relating
to the establishment of offshore special purpose companies by PRC residents may limit our ability to inject capital into our PRC subsidiaries,
limit our subsidiaries’ ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect
us.
The
Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment via
Overseas Special Purpose Vehicles, or SAFE Circular No. 75, and a series of implementation rules and guidance issued by SAFE, including
the circular relating to operating procedures that took effect in July 2011, required PRC residents and PRC corporate entities to register
with local branches of SAFE in connection with their direct or indirect offshore investment in an overseas special purpose vehicle, or
SPV, for the purposes of overseas equity financing activities, and to update such registration in the event of any significant changes
with respect to that offshore company. 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 No. 37,
on July 4, 2014, which replaced the SAFE Circular No. 75. SAFE Circular No. 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 No. 37 as a “special purpose vehicle.” The term “control”
under SAFE Circular No. 37 is broadly defined as the operation rights, beneficiary rights or decision-making rights acquired by the
PRC residents in the offshore special purpose vehicles or PRC companies by such means as acquisition, trust, proxy, voting rights, repurchase,
convertible bonds or other arrangements. SAFE Circular No. 37 further requires amendment to the registration in the event of any changes
with respect to the basic information of the special purpose vehicle, such as changes in a PRC resident individual shareholder, name or
operation period; or 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. If the shareholders of the offshore holding
company who are PRC residents do not complete their registration with the local SAFE branches, the PRC subsidiaries may be prohibited
from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to the offshore company, and
the offshore company may be restricted in its ability to contribute additional capital to its PRC subsidiaries. Moreover, failure to comply
with SAFE registration and amendment requirements described above could result in liability under PRC law for evasion of applicable foreign
exchange restrictions. On February 28, 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration
Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015. In accordance with SAFE Notice 13, entities and
individuals are required to apply for foreign exchange registration of foreign direct investment and overseas direct investment, including
those required under the SAFE Circular No. 37, with qualified banks, instead of SAFE. The qualified banks, under the supervision of SAFE,
directly examine the applications and conduct the registration.
Our
shareholders that are PRC entities are required to complete their overseas direct investment filings according to applicable laws and
regulations regarding the overseas direct investment by PRC entities, including certificates, filings or registrations with the MOFCOM
and the NDRC, or the local branch of the MOFCOM and NDRC based on the investment amount, invested industry or other factors thereof, and
shall also update or apply for amendment in respect to the certificates, filings or registrations in the event of any significant changes
with respect to the offshore investment.
We have
notified our shareholders whom we know are PRC residents to register with the local SAFE branch and update their registrations as required
under the SAFE regulations described above. We believe that such PRC resident shareholders either have registered and updated registration
when required, or are in the process of the registration, with the relevant local SAFE branch. We, however, cannot provide any assurances
that all of our shareholders who are PRC residents have filed or will file all applicable registrations or update previously filed registrations
as required by these SAFE regulations. The failure or inability of our PRC resident shareholders to comply with the registration procedures
or other applicable PRC regulations may subject the PRC resident shareholders to fines and legal sanctions, restrict our cross-border
investment activities, or limit our PRC subsidiaries’ ability to distribute dividends to or obtain foreign exchange-dominated loans
from our company.
As it
is uncertain how the SAFE regulations described above will be interpreted or implemented, we cannot predict how these regulations will
affect our business operations or future strategy. For example, we may be subject to more stringent review and approval process with respect
to our foreign exchange activities, such as remittance of dividends and foreign currency-denominated borrowings, which may adversely affect
our results of operations and financial condition. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that
we or the owners of such company will be able to obtain the necessary approvals or complete the necessary filings and registrations required
by the SAFE regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and
prospects.
Failure to comply with the Individual Foreign
Exchange Rules relating to the overseas direct investment or the engagement in the issuance or trading of securities overseas by our PRC
resident stockholders may subject such stockholders to fines or other liabilities.
Other than Notice 37, our ability
to conduct foreign exchange activities in the PRC may be subject to the interpretation and enforcement of the Implementation Rules of
the Administrative Measures for Individual Foreign Exchange promulgated by SAFE in January 2007 (as amended and supplemented, the “Individual
Foreign Exchange Rules”). Under the Individual Foreign Exchange Rules, any PRC individual seeking to make a direct investment overseas
or engage in the issuance or trading of negotiable securities or derivatives overseas must make the appropriate registrations in accordance
with SAFE provisions. PRC individuals who fail to make such registrations may be subject to warnings, fines or other liabilities.
We may not be fully informed
of the identities of all our beneficial owners who are PRC residents. For example, because the investment in or trading of our shares
will happen in an overseas public or secondary market where shares are often held with brokers in brokerage accounts, it is unlikely that
we will know the identity of all of our beneficial owners who are PRC residents. Furthermore, we have no control over any of our future
beneficial owners and we cannot assure you that such PRC residents will be able to complete the necessary approval and registration procedures
required by the Individual Foreign Exchange Rules.
It is uncertain how the Individual
Foreign Exchange Rules will be interpreted or enforced and whether such interpretation or enforcement will affect our ability to conduct
foreign exchange transactions. Because of this uncertainty, we cannot be sure whether the failure by any of our PRC resident stockholders
to make the required registration will subject our PRC subsidiaries to fines or legal sanctions on their operations, delay or restriction
on repatriation of proceeds of our securities offerings into the PRC, restriction on remittance of dividends or other punitive actions
that would have a material adverse effect on our business, results of operations and financial condition.
Governmental control of currency conversion
may affect the value of your investment.
The PRC government imposes controls
on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially
all of our revenues in RMB. Under our current corporate structure, our income will currently only be derived from dividend payments from
our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries to remit sufficient
foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under
existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures
from trade-related transactions can be made in foreign currencies without prior approval from SAFE by complying with certain procedural
requirements. However, approval from appropriate government authorities is required where RMB is to be converted into foreign currency
and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government
may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange
control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends
in foreign currencies to our security-holders.
Fluctuations in exchange rates could adversely
affect our business and the value of our securities.
Changes in the value of the RMB
against the U.S. dollar, Euro and other foreign currencies are affected by, among other things, changes in China’s political and
economic conditions. Any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition,
and the value of, and any dividends payable on our shares in U.S. dollar terms. For example, to the extent that we need to convert U.S.
dollars we receive from our securities offerings into RMB for our operations, appreciation of the RMB against the U.S. dollar would have
an adverse effect on RMB amount we would receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for
the purpose of paying dividends on our common shares or for other business purposes, appreciation of the U.S. dollar against the RMB would
have a negative effect on the U.S. dollar amount available to us. In addition, fluctuations of the RMB against other currencies may increase
or decrease the cost of imports and exports, and thus affect the price-competitiveness of our products against products of foreign manufacturers
or products relying on foreign inputs.
Since July 2005, the RMB is no
longer pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent
significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S.
dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in
the RMB exchange rate and lessen intervention in the foreign exchange market.
We reflect the impact of
currency translation adjustments in our financial statements under the heading “accumulated other comprehensive income (loss).”
For the years ended December 31, 2021, 2020 and 2019, we had foreign currency translation gain of $2.0 million, foreign currency gain
of $5.5 million and foreign currency translation loss of $0.6 million, respectively. Very limited hedging transactions are
available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions. While
we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we
may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange gains and losses may be magnified
by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.
Shareholders may experience difficulties in
effecting service of legal process, enforcing foreign judgments, including those obtained in the U.S., or bringing actions in China against
us or our management based on foreign laws.
We are a holding company incorporated under the laws
of the British Virgin Islands. We conduct substantially all of our operations in China and substantially all of our assets are located
in China. In addition, all our key employees and all, but one, directors are PRC residents and reside within China. As a result, it may
be difficult for our shareholders to effect service of process upon us or those persons inside mainland China, including our management.
In addition, China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the British
Virgin Islands and many other countries and regions. Therefore, recognition and enforcement in China of judgments of a court in any of
these non-PRC jurisdictions, including the U.S., in relation to any matter not subject to a binding arbitration provision may be difficult
or impossible.
There are uncertainties under the PRC laws relating
to the procedures for U.S. regulators to investigate and collect evidence from companies located in the PRC.
Shareholder claims that are common
in the U.S., including securities law class actions and fraud claims, among other matters, generally are difficult to pursue as a matter
of law or practicality in China. For example, in China, there are significant legal and other obstacles to obtaining information needed
for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the local authorities
in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement
cross-border supervision and administration, such regulatory cooperation with the securities regulatory authorities in the Unities States
have not been efficient in the absence of mutual and practical cooperation mechanism. According to Article 177 of the PRC Securities Law,
which became effective in March 2020, or Article 177, the securities regulatory authority of the State Council may collaborate with securities
regulatory authorities of other countries or regions in order to monitor and oversee cross border securities activities. Article 177 further
provides that overseas securities regulatory authorities are not permitted to carry out investigation and evidence collection directly
within the territory of the PRC, and that any Chinese entities and individuals are not allowed to provide documents or materials related
to securities business activities to overseas agencies without prior consent of the securities regulatory authority of the State Council
and the competent departments of the State Council.
Our principal business operations
are conducted in the PRC. In the event that the U.S. regulators carry out investigations with respect to our business and need to conduct
investigation or collect evidence within the territory of the PRC, the U.S. regulators may not be able to carry out such investigation
or evidence collection directly in the PRC under the PRC laws. The U.S. regulators may consider cross-border cooperation with securities
regulatory authority of the PRC by way of judicial assistance, diplomatic channels or regulatory cooperation mechanism established with
the securities regulatory authority of the PRC. However, there can be no assurance that the U.S. regulators could succeed in establishing
such cross-border cooperation in a specific case or could establish the cooperation in a timely manner. If U.S. regulators are unable
to conduct such investigations, such U.S. regulators may determine to suspend and ultimately delist our common shares from the Nasdaq
Capital Market or choose to suspend or de-register our SEC registration.
Labor laws in the PRC may adversely affect our
results of operations.
On June 29, 2007, the PRC government
promulgated a new labor law, namely, the Labor Contract Law of the PRC, which became effective on January 1, 2008, which was further amended
on December 28, 2012 (effective July 1, 2013). The Labor Contract Law imposes greater liabilities on employers and significantly affects
the cost of an employer’s decision to reduce its workforce. Further, it requires certain terminations be based upon seniority and
not merit. In the event we decide to significantly change or decrease our workforce, the Labor Contract Law could adversely affect our
ability to enact such changes in a manner that is most advantageous to our business or in a timely and cost-effective manner, thus materially
and adversely affecting our financial condition and results of operations. The Labor Contract Law also mandates that employers provide
social welfare packages to all employees, increasing our labor costs. To the extent competitors from outside China are not affected by
such requirements, we could be at a competitive disadvantage.
Additional factors outside of our control related
to doing business in China could negatively affect our business.
Additional factors that could
negatively affect our business include a potential significant revaluation of the Renminbi, which may result in an increase in the cost
of commodity or products in the PRC supply chain industry, labor shortages and increases in labor costs in China as well as difficulties
in moving products manufactured in China out of the country, whether due to infrastructure inadequacy, labor disputes, slowdowns, PRC
regulations and/or other factors. Prolonged disputes or slowdowns can negatively impact both the time and cost of goods. Natural disasters
or health pandemics impacting China can also have a significant negative impact on our business. Further, the imposition of trade sanctions
or other regulations against products supplied or sold in the supply chain industry transactions for which we provide solutions or the
loss of “normal trade relations” status with China could significantly affect our operating results and harm our business.
Risks Related to Our Corporate Structure
Uncertainties exist with respect to the interpretation
and implementation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure and business
operations.
The
National People’s Congress promulgated the Foreign Investment Law on March 15, 2019 and the State Council adopted the Regulation
on Implementing the Foreign Investment Law (the “Implementation Regulations”) on December 12, 2019, effective from January
1, 2020, to replace the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise
Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation
rules and ancillary regulations. The Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment
regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements
for both foreign and domestic investments. However, since it is relatively new, uncertainties still exist in relation to its interpretation
and implementation. For instance, under the Foreign Investment Law, “foreign investment” refers to the investment activities
directly or indirectly conducted by foreign individuals, enterprises or other entities in China. Though it does not explicitly classify
contractual arrangements as a form of foreign investment, there is no assurance that foreign investment via contractual arrangement would
not be interpreted as a type of indirect foreign investment activities under the definition in the future. In addition, the definition
contains a catch-all provision which includes investments made by foreign investors through means stipulated in laws or administrative
regulations or other methods prescribed by the State Council. Therefore, it still leaves leeway for future laws, administrative regulations
or provisions promulgated by the State Council to provide for contractual arrangements as a form of foreign investment. In any of these
cases, it will be uncertain whether our contractual arrangements will be deemed to be in violation of the market access requirements for
foreign investment under the PRC laws and regulations. Furthermore, if future laws, administrative regulations or provisions prescribed
by the State Council mandate further actions to be taken by companies with respect to existing
contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all.
Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially
and adversely affect our current corporate structure, corporate governance and business operations.
If the PRC government finds that the contractual
arrangements that establish the structure for operating our business do not comply with PRC laws and regulations, or if these regulations
or their interpretations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those
operations.
Foreign ownership of internet-based
businesses, such as distribution of online information, is subject to restrictions under current PRC laws and regulations. For example,
foreign investors are not allowed to own more than 50% of the equity interests in a value-added telecommunication service provider (except
e-commerce) and any such foreign investor must have experience in providing value-added telecommunications services overseas and maintain
a good track record in accordance with the Special Administrative Measures (Negative List) for Foreign Investment Access (2020 Edition)
issued on June 23, 2020 and effective on July 23, 2020, by the National Development and Reform Commission, or the NDRC, and the PRC Ministry
of Commerce, and other applicable laws and regulations.
We are a British Virgin Islands
company. To comply with PRC laws and regulations, we conduct our financing solutions and supply chain service operations in China through
a series of contractual arrangements entered into between our subsidiaries and VIEs and shareholders of the VIEs. As a result of these
contractual arrangements, we exert control over VIEs and their subsidiaries and consolidate the VIEs’ operating results in our financial
statements under U.S. GAAP. We believe our current ownership structure and the contractual arrangements among our subsidiaries, VIEs and
the shareholders of the VIEs are not in violation of existing PRC laws, rules and regulations; and those contractual arrangements are
valid, binding and enforceable in accordance with their terms and applicable PRC laws and regulations currently in effect. However, there
are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations and there can
be no assurance that the PRC government will ultimately take a view that is consistent with our opinion.
It is uncertain whether any new
PRC laws, rules or regulations relating to variable interest entities structures will be adopted or if adopted, what they would provide.
In particular, in January 2015, the Ministry of Commerce, or MOFCOM, published a discussion draft of the proposed Foreign Investment Law
for public review and comments. Among other things, the draft Foreign Investment Law expands the definition of foreign investment and
introduces the principle of “actual control” in determining whether a company is considered a foreign-invested enterprise,
or an FIE. Under the draft Foreign Investment Law, variable interest entities would also be deemed as FIEs, if they are ultimately “controlled”
by foreign investors, and be subject to restrictions on foreign investments. In December 2018, the Standing Committee of the National
People’s Congress published a discussion draft of a new proposed Foreign Investment Law, aiming to replace the major existing laws
governing foreign direct investment in China. On January 29, 2019, the discussion draft with slight revisions, or the New Draft Foreign
Investment Law, was submitted for review. Pursuant to the New Draft Foreign Investment Law, foreign investments shall be subject to the
negative list management system. However, the New Draft Foreign Investment Law does not mention “actual control” as regulated
in the previous draft and the position to be taken with respect to the existing or future companies with the “variable interest
entities” structure. On March 15, 2019, the Foreign Investment Law of the People’s Republic of China, or the Final Foreign
Investment Law, with slight revision, was finally issued and became effective on January 1, 2020.
Although variable interest entities
structures are not included in the Final Foreign Investment Law, it is uncertain whether any interpretation and implementation of the
Final Foreign Investment Law or new PRC laws, rules or regulations relating to variable interest entities structures will be adopted
or if adopted, what they would provide. If the ownership structure, contractual arrangements and business of our PRC subsidiary or its
consolidated VIEs are found to be in violation of any existing or future PRC laws or regulations, or our PRC subsidiary fails to obtain
or maintain any of the required permits or approvals, the relevant governmental authorities would have broad discretion in dealing with
such violation, including levying fines, confiscating its income or the income of its PRC subsidiary or consolidated variable interest
entities, revoking the business licenses or operating licenses of its PRC subsidiary or consolidated variable interest entities, discontinuing
or placing restrictions or onerous conditions on its operations, requiring our PRC operations to undergo a costly and disruptive restructuring
and taking other regulatory or enforcement actions that could be harmful to our business. Any of these actions could cause significant
disruption to our financial service business operations and severely damage its reputation, which would in turn materially and adversely
affect its business, financial condition and results of operations. If any of these occurrences results in its inability to direct the
activities of its consolidated variable interest entities, and/or its failure to receive economic benefits from its consolidated variable
interest entities, we may not be able to consolidate our VIEs’ results into our consolidated financial statements in accordance
with U.S. GAAP.
We rely on our contractual arrangements
with VIEs and the shareholder of VIEs for our business operations, which may not be as effective as direct ownership in providing operational
control.
We have relied and expect
to continue to rely on contractual arrangements with Fintech, Hengpu and Nami to operate our SME financing solutions, supply chain and
other financing solutions business in the future. These contractual arrangements may not be as effective as direct ownership in providing
us with control over our consolidated affiliates. For example, VIEs and their shareholders could breach their contractual arrangements
by, among other things, failing to conduct their operations, in an acceptable manner or taking other actions that are detrimental to our
interests.
If we had direct ownership
of the VIEs, we would be able to exercise our rights as a shareholder to effect changes in the VIEs. However, under the current contractual
arrangements, we rely on the performance by the VIEs and their shareholders of their obligations under the contracts to exercise control
over our consolidated entities. The shareholders of VIEs may not act in the best interests of ours or may not perform their obligations
under these contracts. Such risks exist throughout the period in which we operate our business through the contractual arrangements with
the VIEs. Although we have the right to replace any shareholder of the consolidated variable interest entities under the contractual arrangement,
if any shareholder of such entity is uncooperative or any dispute relating to these contracts remains unresolved, we will have to enforce
the rights under the contracts through the operations of PRC laws and arbitration, litigation and other legal proceedings and therefore
will be subject to uncertainties in the PRC legal system. Therefore, the contractual arrangements with VIEs may not be as effective in
ensuring our control over the relevant portion of its business operations as direct ownership would be.
Shareholders of VIEs may have potential
conflicts of interest with ours, which may materially and adversely affect our business and financial condition.
The equity interests of the
VIEs are beneficially owned by several individual shareholders through holding companies. Such VIE shareholders’ interests in VIE
may differ from the interests of our Company as a whole. VIE shareholders may breach, or cause VIEs to breach, the existing contractual
arrangements between us and VIEs, which would have a material adverse effect on our ability to effectively control the consolidated variable
interest entities and receive economic benefits from them. For example, shareholders of VIEs may be able to cause the VIE agreements with
the VIE to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements
to our subsidiaries on a timely basis. We cannot assure you that when conflicts of interest arise, any or all of VIE shareholders will
act in the best interests of our Company or such conflicts will be resolved in our favor.
Currently, we do not have
any arrangements to address potential conflicts of interest between VIE shareholders and ours, except that we could exercise the purchase
option under the exclusive option agreements with these shareholders to request them to transfer all of their equity interests in the
VIE to a PRC entity or individual designated by us, to the extent permitted by PRC laws. If we cannot resolve any conflict of interest
or dispute with the shareholders of the VIE, we would have to rely on legal proceedings, which could result in the disruption of its business
and subject us to substantial uncertainty as to the outcome of any such legal proceedings.
Contractual arrangements in relation to
our consolidated variable interest entities may be subject to scrutiny by the PRC tax authorities and they may determine that we or our
PRC consolidated variable interest entities owe additional taxes, which could negatively affect our financial condition and the value
of your investment.
Under applicable PRC laws
and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities within
ten years after the taxable year when the transactions are conducted. The PRC enterprise income tax law requires every enterprise in China
to submit its annual enterprise income tax return together with a report on transactions with its related parties to the relevant tax
authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related party transactions
that are inconsistent with arm’s length principles. We may face material and adverse tax consequences if the PRC tax authorities
determine that the contractual arrangements between NingChen and Naqing, our wholly-owned subsidiaries in China, consolidated VIEs in
China, and the shareholders of the VIEs were not entered into on an arm’s length basis in such a way as to result in an impermissible
reduction in taxes under applicable PRC laws, rules and regulations, and adjust the VIEs’ income in the form of a transfer pricing
adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recorded by VIEs for
PRC tax purposes, which could in turn increase its tax liabilities without reducing tax expenses of NingChen and Naqing. In addition,
if NingChen or Naqing requests the shareholders of VIEs to transfer their equity interests in the VIEs at nominal or no value pursuant
to these contractual arrangements, such transfer could be viewed as a gift and subject the VIEs to PRC income tax. Furthermore, the PRC
tax authorities may impose late payment fees and other penalties on the VIEs for the adjusted but unpaid taxes according to the applicable
regulations. Our financial position could be materially and adversely affected if our consolidated variable interest entities’ tax
liabilities increase or if they are required to pay late payment fees and other penalties.
We may lose the ability to use and enjoy
assets held by our consolidated VIEs that are material to the operation of our business if the VIE goes bankrupt or becomes subject to
a dissolution or liquidation proceedings.
The VIE holds certain assets
that are material to the operation of our financial services business, including domain names and equipment for our financial technology
platform. Under the contractual arrangements, VIEs may not and VIE shareholders may not cause it to, in any manner, sell, transfer, mortgage
or dispose of their assets or their legal or beneficial interests in the business without its prior consent. However, in the event a VIE
shareholder breaches these contractual arrangements and voluntarily liquidates the VIE or the VIE declares bankruptcy and all or part
of its assets become subject to liens or rights of third-party creditors, or are otherwise disposed of without NingChen’s or Naqing’s
consent, it may be unable to continue some or all of its business activities, which could materially and adversely affect its business,
financial condition and results of operations. If the VIE undergoes a voluntary or involuntary liquidation proceeding, independent third-party
creditors may claim rights to some or all of their assets, thereby hindering our ability to operate its business, which could materially
and adversely affect its business, financial condition and results of operations.
Risks Related to Ownership of Our Common
Shares
We are a “foreign private issuer,”
and our disclosure obligations differ from those of U.S. domestic reporting companies, which may make it more difficult for you to evaluate
our performance and prospects.
We are a foreign private
issuer and, as a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we will be subject
to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For
example, we will not be required to issue quarterly reports or proxy statements. We will not be required to disclose detailed individual
executive compensation information. Furthermore, our directors and executive officers will not be required to report equity holdings under
Section 16 of the Exchange Act and will not be subject to the insider short-swing profit disclosure and recovery regime.
As a foreign private issuer, we will also be exempt
from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not
privy to specific information about an issuer before other investors. However, we will still be subject to the anti-fraud and anti-manipulation
rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many of the disclosure obligations imposed on us as a foreign private
issuer differ from those imposed on U.S. domestic reporting companies, you should not expect to receive the same information about us
and at the same time as the information provided by U.S. domestic reporting companies.
British Virgin Islands companies may not
be able to initiate shareholder derivative actions, thereby depriving shareholders of the ability to protect their interests.
British Virgin Islands companies
may not have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which
any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the
rights of shareholders of a British Virgin Islands company being more limited than those of shareholders of a company organized in the
United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred.
The British Virgin Islands courts are also unlikely to recognize or enforce against us judgments of courts in the United States based
on certain liability provisions of U.S. securities law; and to impose liabilities against us, in original actions brought in the British
Virgin Islands, based on certain liability provisions of U.S. securities laws that are penal in nature. There is no statutory recognition
in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will generally
recognize and enforce the non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. This means that
even if shareholders were to sue us successfully, they may not be able to recover anything to make up for the losses suffered.
The laws of the British Virgin Islands provide
little protection for minority shareholders, and minority shareholders will have little or no recourse if the shareholders are dissatisfied
with the conduct of our affairs.
Under the law of the British
Virgin Islands, there is little statutory law for the protection of minority shareholders other than the provisions of the BVI Business
Companies Act dealing with shareholder remedies. The principal protection under statutory law is that shareholders may bring an action
to enforce the constituent documents of the corporation, our amended and restated memorandum and articles of association. Shareholders
are entitled to have the affairs of the company conducted in accordance with the general law and the articles and memorandum.
There are common law rights
for the protection of shareholders that may be invoked, largely dependent on English company law, since the common law of the British
Virgin Islands for business companies is limited. Under the general rule pursuant to English company law known as the rule in Foss
v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders
who express dissatisfaction with the conduct of the company’s affairs by the majority or the board of directors. However, every
shareholder is entitled to have the affairs of the company conducted properly according to law and the constituent documents of the corporation.
As such, if those who control the company have persistently disregarded the requirements of company law or the provisions of the company’s
memorandum and articles of association, then the courts will grant relief. Generally, the areas in which the courts will intervene are
the following: (1) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification
by the majority; (2) acts that constitute fraud on the minority where the wrongdoers control the company; (3) acts that infringe on the
personal rights of the shareholders, such as the right to vote; and (4) where the company has not complied with provisions requiring approval
of a special or extraordinary majority of shareholders, which are more limited than the rights afforded minority shareholders under the
laws of many states in the United States.
The market price of our Class A common shares
may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares.
The trading price for our
Class A common shares has fluctuated since we first listed our common shares. The trading price of our Class A common shares has ranged
from $3.02 to $21.47 per share for the year ended December 31, 2021, and the last reported trading price on May 13, 2022 was $0.63 per
Class A common share. The market price of our common shares may fluctuate significantly in response to numerous factors, many of which
are beyond our control, including:
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actual or anticipated fluctuations in our revenue and other operating results; |
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the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; |
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actions of securities analysts who initiate or maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; |
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announcements by us or our competitors of significant products or features, technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments; |
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price and volume fluctuations in the overall stock market, including as a result of trends in the economy as a whole; |
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lawsuits threatened or filed against us; and |
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other events or factors, including those resulting from war or incidents of terrorism, or responses to these events. |
In addition, the stock markets
have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities
of many companies. Stock prices of many companies have fluctuated in a manner unrelated or disproportionate to the operating performance
of those companies. In the past, stockholders have filed securities class action litigation following periods of market volatility. If
we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management
from our business, and adversely affect our business.
We do not intend to pay dividends for the
foreseeable future.
We currently intend to retain
any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the
foreseeable future. As a result, you may only receive a return on your investment in our Class A common shares if the market price of
our Class A common shares increases.
If we continue to be unable to implement
and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness
of our financial reports and the market price of our Class A common shares may decline.
As a public company, we are
required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. In addition,
beginning with the first annual report on Form 20-F, we have been required to furnish a report by management on the effectiveness of our
internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. If we continue to identify material weaknesses
in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or
assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable
to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy
and completeness of our financial reports and the market price of our Class A common shares could be negatively affected, and we could
become subject to investigations by the stock exchange on which our securities are listed, the Securities and Exchange Commission, or
the SEC, or other regulatory authorities, which could require additional financial and management resources.
Our staggered board structure may prevent
a change in control of our company.
Our board of directors is
divided into three classes of directors. The current terms of the directors expire in 2021, 2022 and 2023. Directors of each class are
chosen for three-year terms upon the expiration of their current terms, and each year the shareholders elect one class of directors. The
staggered terms of our directors may reduce the possibility of a tender offer or an attempt at a change in control, even though a tender
offer or change in control might be in the best interest of our shareholders.
The requirements of being a public company
may strain our resources and divert management’s attention.
As a public company, we are
subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act,
the Dodd-Frank Act, the listing requirements of the securities exchange on which we list, and other applicable securities rules and regulations.
Despite recent reforms made possible by the JOBS Act, compliance with these rules and regulations will nonetheless increase our management,
legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems
and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires, among other things,
that we file annual, semiannual, and current reports with respect to our business and operating results.
As a result of disclosure
of information in this annual report on Form 20-F and in filings required of a public company, our business and financial condition are
more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such
claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved
in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely
affect our business, brand and reputation and results of operations.
We also expect that being
a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance,
and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make
it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee
and compensation committee, and qualified executive officers.
We incur increased costs as a result of
being a public company.
As a public company, we incur
legal, accounting and other expenses that we did not incur as a private company. For example, we must now engage U.S. securities law counsel
and U.S. GAAP auditors that we did not require as a private company, and we will have annual payments for listing on a stock exchange
if we are so listed. In addition, the Sarbanes-Oxley Act, as well as new rules subsequently implemented by the SEC and NASDAQ, has required
changes in corporate governance practices of public companies. We expect these new rules and regulations to increase our legal, accounting
and financial compliance costs and to make certain corporate activities more time-consuming and costly. In addition, we incur additional
costs associated with our public company reporting requirements. While it is impossible to determine the amounts of such expenses in advance,
we expect that we will incur additional expenses of between $500,000 and $1 million per year that we did not experience as a private company.
Item 4. Information on the Company
A. |
History and Development of the Company |
NISUN INTERNATIONAL ENTERPRISE
DEVELOPMENT GROUP CO., LTD, formerly Hebron Technology Co., Ltd. (“Nisun International” or the “Company”) was
established under the laws of the British Virgin Islands (“BVI”) on May 29, 2012 as a company limited by shares. The Company
is a holding company and conducts its business through its subsidiaries, variable interest entities (“VIEs”) and subsidiaries
of VIEs in the People’s Republic of China (“PRC’’).
We have had three major reorganizations
since our inception. In connection with our initial public offering, we consummated the first reorganization to acquire our equipment
and engineering business (the “IPO Reorganization”) in 2016. We became the ultimate parent company of Hong Kong Xibolun Technology
Limited (“Xibolun HK”) and its PRC subsidiaries, Wenzhou Xibolun Fluid Equipment Co., Limited (“Xibolun Equipment”)
and Zhejiang Xibolun Automation Project Technology Co., Ltd. (“Xibolun Automation”) (collectively referred to as the “Xibolun
Group”), which before the IPO Reorganization, were all controlled by Mr. Anyuan Sun, our former Chairman of the Board and CEO. The
Xibolun Group conducts equipment and engineering services operations focusing on the research, development and manufacture of valves,
pipe fittings fluid equipment, with an emphasis on the manufacture and installation of intelligent valves used in the pharmaceutical,
biological, food and beverage, and other clean industries in the PRC.
We commenced the second corporate
restructure in July 2019 for the acquisition of our financial services business. We expanded our operations into the financial services
industry through the acquisition of NiSun International Enterprise Management Group (British Virgin Islands) Co., Ltd. (“NiSun BVI”),
its subsidiaries and consolidated affiliate, Fintech (Shanghai) Digital Technology Co., Ltd. (“Fintech”), and subsidiaries
of Fintech (collectively, “Fintech” or “Fintech Subsidiary Group”). In 2019, Fintech provided comprehensive financing
solution services to SMEs primarily in connection with SME financings sponsored or underwritten by financial institutions and also provided
distribution and management services for direct banking products issued by small- and medium-sized commercial banks in China.
Since July 2019, our financial
services industry operations have experienced significant growth through several subsequent acquisitions and organizational changes. In
December 2019, we acquired a controlling interest in Beijing Hengtai Puhui Information Service Co. Ltd., a PRC company, and its subsidiaries
(collectively, “Hengpu” or “Hengpu Subsidiary Group”) through certain contractual arrangements. Hengpu provides
a full set of financing solution services in SME financings. In May 2020, we acquired Nami Holding (Cayman) Co., Ltd., a Cayman Islands
exempted company (“Nami Cayman”), and its subsidiaries and consolidated affiliated entity (collectively, “Nami”
or “Nami Subsidiary Group”) pursuant to a share purchase agreement. Nami provides financial advisory and intermediary financing
solutions services matching small- and mid-sized enterprises and high quality investors in China.
On September 22, 2020, we
changed our corporate name from “Hebron Technology Co., Ltd.” to “Nisun International Enterprise Development Group Co.,
Ltd” and in connection with the name change, the trading symbol of our Class A common shares on the Nasdaq Capital Market was changed
to “NISN” from “HEBT,” effective on November 16, 2020. The new corporate name reflects our Company’s current
core financial services business and enables different service business to integrate various brands under one corporate identity.
In December 2020, based on
a preliminary agreement with the local government, we established a wholly owned subsidiary, Nisun (Shandong) Industry Development Co.,
Ltd (“Nisun Shandong”), in Tai’an, Shandong province. Nisun Shandong is a holding company for our existing PRC operating
subsidiaries and is expected to be a key operations platform. In 2020, we also formed several operating subsidiaries in different regions
of China in response to the operational demands in our supply chain solutions and SME financing solutions services.
On November 30, 2020, to
streamline our businesses, we completed the third corporate restructure whereby we sold all of our equity interest in Xibolun HK to Wise
Metro Development Co., Ltd., an entity controlled by our former Chairman and CEO, Mr. Anyuan Sun (“Wise Metro”). The disposition
of Xibolun HK (the “Disposition”) was consummated pursuant to a Call Option Agreement we entered on April 16, 2019 with Wise
Metro under which Wise Metro was granted an option to purchase all of the equity of the Xibolun Group for a period beginning six months
after the effective date of the Call Option Agreement and expiring two years and six months after the agreement effective date. Upon exercise,
the purchase price to exercise the Call Option Agreement would be equal to the fair market value of the Xibolun Group at the time of exercise
of the Call Option as determined by a qualified and experienced business appraisal firm appointed by us and Wise Metro. On June 14, 2019,
our shareholders approved our entry into the Call Option Agreement. On May 11, 2020, Wise Metro exercised the Call Option to acquire the
Xibolun Group. We completed the Disposition on November 30, 2020.
Through the transfer of Xibolun
HK and the resulting divestiture of our interests in Xibolun HK’s operating subsidiaries, Xibolun Automation and Xibolun Equipment,
we discontinued our legacy equipment and engineering business and disposed of our minority interest in Xuzhou Weijia Biotechnology Co.,
Ltd. We sold the legacy businesses for a gain of approximately $0.14 million.
On March 24, 2021, we completed
the latest subsidiary reorganization whereby Nami Cayman and its Hong Kong subsidiary transferred all of the equity they held in Naqing
and the economic interests in Nami Shanghai to Nisun Shandong. Following the transaction, Naqing became a wholly-owned subsidiary of Nisun
Shandong, which holds a controlling interest in Nami Shanghai.
Corporate Information
Our principal executive offices
are located at 99 Danba Road, Bldg C9, Putuo District, Shanghai, People’s Republic of China. Our telephone number is +86-21-2357-0055.
The SEC maintains a website
at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that
make electronic filings with the SEC using its EDGAR system. We maintain our websites at https://www.fintaike.com for Fintech,
at https://www.ihengpu.com for Hengpu, and at www.namizx.com.cn for Nami.
Principal Corporate Activities
Below is a brief summary
of principal activities of our Company since its formation.
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January 25, 2005, Xibolun Equipment was incorporated. |
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June 14, 2011, Xibolun HK was formed in accordance with laws and regulations of Hong Kong. |
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July 21, 2011, Xibolun HK acquired 30% ownership interest of Xibolun Equipment. |
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May 29, 2012, Hebron Technology was established under the laws of the British Virgin Islands as a holding company. |
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September 24, 2012, Xibolun Automation was incorporated. |
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December 5, 2012, Xibolun HK acquired 100% ownership interest of Xibolun Automation from Hebron Technology, Xibolun Equipment, and Zhejiang Xibolun. |
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October 22, 2012, Hebron Technology acquired 100% ownership interest of Xibolun HK. As a result, Xibolun HK became a wholly owned subsidiary of Hebron Technology. |
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July 29, 2013, Mr. Anyuan Sun transferred his 70% ownership interest in Xibolun Equipment to Xibolun Automation. |
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December 27, 2016, Hebron Technology completed an initial public offering of 2,695,347 common shares. The offering was completed at an issuance price of $4.00 per share. Prior to the offering, the Company had 12,000,000 issued and outstanding shares, and after the offering, the Company had 14,695,347 issued and outstanding shares. The Company issued to the placement agent in the initial public offering, warrants to purchase 134,768 common shares for an exercise price of $4.80 per share. The placement agent’s warrants have a term of three years. |
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March 7, 2018, Hebron Technology re-classified and re-designated our common shares into Class A common shares and Class B common shares by filing the Third Amended and Restated Memorandum of Association with the BVI Registrar of Corporate Affairs. Pursuant to the Third Amended and Restated Memorandum of Association, our authorized shares are re-classified and re-designated into 50,000,000 common shares of par value of US$0.001 each, of which 40,000,000 share are designated as Class A common shares of par value of US$0.001 each and 10,000,000 shares are designated as Class B common shares of par value of US$0.001 each. Each Class A common share is entitled to one vote and each Class B common share is entitled to five votes on all matters subject to vote at our shareholders’ meetings. After the reclassification and re-designation, 6,916,947 Class A common shares and 7,778,400 Class B common shares were issued and outstanding. Our former Chief Executive Officer, Mr. Anyuan Sun, beneficially owns all of the 7,778,400 Class B common shares. The Nasdaq marketplace effective date is March 12, 2018. |
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March 10, 2018, Hebron Technology entered into a share acquisition agreement with the sole shareholder of Xuzhou Weijia Bio-Tech Co., Ltd. (“Weijia Bio-Tech”) and Weijia Bio-Tech to acquire 49% of the equity in Weijia Bio-Tech. As consideration, we were obligated to issue 1,442,778 unregistered Class A common shares (based on an agreed value of $2.00 per share) to the individuals designated by the selling shareholder of Weijia Bio-Tech within 20 business days after signing the agreement. On April 17, 2018, the parties signed an addendum to extend 20 business days to 40 business days. Effective as of April 9, 2018, we issued 1,442,778 unregistered Class A common shares pursuant to the agreement. On or about April 11, 2018, we completed the acquisition of the 49% equity interest in Weijia Bio-Tech. |
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April 16, 2019, Hebron Technology entered into a securities purchase agreement with Wise Metro Development Co., Ltd. (“Wise Metro”), Zuoqiao Sun Zhang (“Sun Zhang”; and together with Wise, “Sellers”) and NiSun Cayman, pursuant to which NiSun Cayman would acquire 7,778,400 Class B Common Shares from the Sellers. Upon the consummation of the share purchase transaction in July 2019, all of the Class B common shares were automatically converted into Class A common shares. |
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July 12, 2019, Hebron Technology acquired all of the equity of NiSun BVI for a consideration of $7 million. NiSun BVI effectively controls Fintech through a series of variable interest agreements. At acquisition, Fintech was the parent company of Khorgos Fintech Network Technology Co., Ltd (“Khorgos”), Jilin Lingang Trade Co., Ltd (“Jilin”) and NiSun Family Office (Guangzhou) Co., Ltd (“Guangzhou”). |
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November 8, 2019, NiSun BVI entered into a cooperation agreement with Tai’an Keyuan Infrastructure Investment Construction Co., Ltd. (“Keyuan”) to form a joint venture entity, Shandong Taiding International Investment Co., Ltd (“Taiding”), of which NiSun BVI and Keyuan hold 80% and 20%, respectively, of the equity interest in Taiding. Taiding was formed on November 12, 2019. |
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December 15, 2019, Hebron Technology entered into a share exchange agreement with Hengpu and shareholders of Hengpu to acquire a controlling interest in Hengpu in exchange for issuance of 1,440,894 Class A Common Share of the Company to Hengpu’s shareholders. The Company, through its subsidiary NingChen, obtained an effective control of Hengpu upon the entry into a series of VIE agreements with Hengpu. At acquisition, Hengpu owned a 92% equity interest of Hangzhou Fengtai Technology Co., Ltd (“Fengtai”) and 100% equity interest of Dunhua Midtown Assets Management Registration Center Co., Ltd. |
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May 31, 2020, Hebron Technology acquired Nami Cayman, and its subsidiaries and consolidated affiliated entity (collectively, “Nami” or “Nami Subsidiary Group”) pursuant to a share purchase agreement. At acquisition, Nami Cayman owned all of the equity in Nami HK and Naqing, and Naqing controlled Nami Shanghai through a series of VIE agreements. Nami provides financial advisory and intermediary financing solutions services matching small- and mid-sized enterprises and high quality investors in China. |
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September 22, 2020, we changed our corporate name from “Hebron Technology Co., Ltd.” to “Nisun International Enterprise Development Group Co., Ltd” and in connection with the name change, the trading symbol of our Class A common shares on the Nasdaq Capital Market was changed to “NISN” from “HEBT,” effective on November 16, 2020. The new corporate name reflects our Company’s current core business and enables different service business to integrate various brands under one corporate identity. |
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November 30, 2020, to streamline our businesses, we disposed of Xibolun HK to Wise Metro, an entity controlled by our former Chairman and CEO, Mr. Anyuan Sun. The disposition of Xibolun HK (the “Disposition”) was consummated pursuant to a Call Option Agreement we entered on April 16, 2019 with Wise Metro under which Wise Metro was granted an option to purchase all of the equity of the Xibolun Group for a period beginning six months after the effective date of the Call Option Agreement and expiring two years and six months after the agreement effective date. Upon exercise, the purchase price to exercise the Call Option Agreement would be equal to the fair market value of the Xibolun Group at the time of exercise of the Call Option as determined by a qualified and experienced business appraisal firm appointed by us and Wise Metro. On June 14, 2019, our shareholders approved our entry into the Call Option Agreement. On May 11, 2020, Wise Metro exercised the Call Option to acquire the Xibolun Group. We completed the Disposition on November 30, 2020. |
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December 15, 2020, based on a preliminary agreement with the local government, the Company established a wholly owned subsidiary, Nisun (Shandong) Industry Development Co., Ltd (“Nisun Shandong”), in Tai’an, Shandong province. Nisun Shandong is a holding company for our PRC operating subsidiaries and is expected to be a key operations platform. |
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December 21, 2020, the Company announced that Fintech entered into a strategic collaboration agreement with Shanghai Petroleum and Natural Gas Exchange (“SHPGX”). SHPGX is a national-level energy trading platform for energy products approved by the Shanghai municipal government and operates under the direct guidance of the National Development and Reform Commission and the National Energy Administration. Under the agreement, Fintech and SHPGX agreed to join forces to expand technology support services to members of SHPGX’s trading platform through the provision of supply chain management and financial services, targeting upstream and downstream enterprises in the energy industry. |
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August through December
2020, Fintech formed a number of operating subsidiaries in different regions of China in response to the operational demands in our
supply chain solutions services, including: |
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Fintech (Henan) Supply
Chain Management Co., Ltd. (“Fintech Henan”), a wholly owned subsidiary of Fintech; |
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Fintech (Jiangsu) Supply
Chain Management Co., Ltd. (“Fintech Jiangsu”), a wholly owned subsidiary; |
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Fanlunke Supply Chain Management
(Shanghai) Co., Ltd. (“Fanlunke”), a wholly owned subsidiary; |
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Fintech Supply Chain Management
(Ningbo) Co., Ltd, a wholly owned subsidiary; |
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Nanjing Nisun Gold Co.,
Ltd. (“Nisun Gold”), a wholly owned subsidiary; |
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Fintech Supply Chain Management
(Shandong) Co., Ltd. (“Fintech Shandong”), a wholly owned subsidiary; |
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Jilin Province Lingang
Hengda Supply Chain Management Co., Ltd. (“Lingang Hengda”), a wholly owned subsidiary of Jilin Province Lingang Supply
Chain Management Co., Ltd, a wholly owned subsidiary of Fintech; |
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Shanxi Fintech Supply Chain Management Co., Ltd (“Fintech Shanxi”),
a wholly owned subsidiary; |
| ● | Inner
Mongolia Fintech Supply Chain Management Co., Ltd (“Fintech Inner Mongolia”),
a 70%-owned subsidiary. |
| ● | December
29, 2021, Nisun HK formed Zhumadian NiSun Supply Chain Management Co., Ltd. (“Nisun
ZMD”), a wholly owned PRC operating subsidiary; |
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July 30, 2021, Nisun HK
formed NiSun Ocean (Qingdao) Supply Chain Investment Co., Ltd. (“Nisun Ocean”), a wholly owned PRC operating subsidiary; |
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May through October 2021,
Fintech formed the following the operating subsidiaries: |
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Jiangxi Fintech Supply
Chain Management Co., Ltd. (“Fintech Jiangxi”), a wholly owned subsidiary; |
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Fintech Supply Chain Management
(Shanxi) Co., Ltd. (“Fintech SX”), a wholly owned subsidiary; |
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Liaogang NiSun (Yingkou)
Supply Chain Management Co., Ltd.(“Liaogang Yingkou”), a 51%-owned subsidiary; |
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Liaogang NiSun (Shanghai)
Supply Chain Management Co., Ltd.(“Liaogang SH”), a wholly owned subsidiary of Liaogang Yingkou; and |
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Fintech (Zibo) Supply Chain
Management Co., Ltd.(“Fintech Zibo”), a wholly owned subsidiary. |
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In December 2021, the Company closed a firm commitment underwritten public offering of 19.25 million Class A common shares and pre-funded warrants to purchase Class A common shares, with gross proceeds to the Company of $77 million, before deducting underwriting discounts and commissions and other expenses. The pre-funded warrants were offered at the same $4.00 price per share as the common shares, less the $0.001 per share exercise price of each pre-funded warrant. |
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January 13, 2022, the Company adopted the Amended and Restated Memorandum and Articles of Association (the “Amended M&A”) to increase the number of Class A common shares the Company was authorized to issue. Pursuant to the Amended M&A, the Company is authorized to issue a maximum of 310,000,000 common shares divided into (i) 300,000,000 Class A common shares of par value of $0.001 each, and (ii) 10,000,000 Class B common shares of par value of $0.001 each. |
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January 2022, Fintech Henan acquired a 51% equity interest in Henan Youjiatian Agricultural Technology Co., Ltd (“Youjiatian”) from its sole shareholder, Guifeng Xu, for a cash consideration of RMB0.51 million (approximately $80,280). |
We
are a technology-driven, integrated supply chain solutions and financial services provider focused on transforming China’s corporate
finance industry. Leveraging our rich industry experience, we provide supply chain solutions to both PRC and non-PRC enterprises and
financial institutions. Our full range of service solutions span from technology supply chain management, to technology asset routing,
and digital transformation of technology and financial institutions, enabling the industries we serve to strengthen and grow. Further,
we offer a wide range of technology-driven customized financing solutions to small- and mid-sized enterprises (SMEs) in China to improve
SMEs’ access to capital through our closed-loop ecosystem built on fintech platforms. Furthermore, we provide direct banking solutions
to small- and medium-sized commercial banks and other financial institutions in their distribution and management of direct banking and
other financial products. Built on our proprietary financial technology, our fintech platforms offer specialized asset allocation and
financial planning services to institutional and individual investors.
Prior
to the disposition of the Xibolun Group in November 2020, we conducted our business operations primarily in two industries, our legacy
equipment and engineering and the financial services. Following the disposition, we no longer operate in the equipment and engineering
industry, and the financial services industry and its related industries are the only sector of the PRC economy we serve. Our financial
services operations have experienced rapid growth since July 2019 and have quickly evolved to become our core business, while the performance
of our legacy equipment and engineering business had not met management expectations in the prior several years before the disposition.
In
2019, we provided comprehensive financing solution services to SMEs primarily in connection with SME financings sponsored or underwritten
by financial institutions (previously referred to by us as underwriting related advisory services) and also provided distribution and
management service for direct banking products issued by small- and medium-sized commercial banks in China. SME financing solution services
are operated by Fintech and Hengpu. Nami provides financial advisory and intermediary financial services matching SMEs and high quality
investors in China. Fintech also provides banking product distribution and management services.
We
commenced our supply chain solutions business in January 2020. Fintech and its subsidiaries provide our customers with professionally
tailored solutions for supply chain management, technology asset routing, and digital transformation of technology and financial institutions.
With a focus on finance and industry linkage, we serve the upstream and downstream enterprises and transactions of the supply chain industry
while facilitating supply-side sub-sector reforms. Our digitally linked platform connects commercial banks, securities firms, trusts,
funds, insurance companies, state-owned enterprises and other participants in the supply chain industry.
Our business operations are
comprised of three main service models: SME Financing Solutions, Supply Chain Solutions and Other Financing Solutions. We earn one-time
advisory fees for our services provided to SMEs for offerings on PRC provincial or national financial assets exchanges or other designated
capital markets underwritten by financial institutions in accordance with the service agreements with underwriters, financial institutions
or financial product providers. In addition, we also provide ongoing customer management services to small and medium commercial banks
and financial institutions in distributing and sourcing funds for their direct banking and other financial products in exchange for recurring
service fees. Our intermediary matching service fee is earned upon the purchase of the financial products.
We use cutting-edge technologies,
including big data, artificial intelligence, Internet of Things, and blockchain in the financial service. We are committed to leveraging
our open fintech platforms and ecosystem and providing comprehensive financial solutions to facilitate digital transformation of financial
institutions and enterprise customers.
Our Strengths
We believe our following
strengths enable us to seize the opportunities in China’s financial services and supply chain industries:
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Scale and capacity to offer a comprehensive set of financial solutions to SMEs by leveraging our closed-loop finance ecosystem. We have built multi-faceted integrated closed-loop finance ecosystems in which each line of our operations complements the services provided by other subsidiaries while our customers benefit from the combined service capacity and a full set of financing solutions we offer. Our systems of comprehensive solutions enable SMEs to acquire financings in an efficient and customized manner to facilitate a healthy enterprise development process. |
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In-depth understanding of the supply chain industry. As a key intermediary to facilitate every step of the transaction in the procurement process, we understand the complexity of the supply chain system and the needs of core enterprises, suppliers, buyers and other parties in the procurement process, and our expertise insight enables us to design tailored supply chain solutions for our customers and build mutually benefited relationships with the industry participants. |
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Data intelligence and technology capability affording added value to SMEs. Our data processing and analytical capacity help industry participants optimize their decision making in their transaction and financing processes. Supported by big data, artificial intelligence, Internet of Things, blockchain and other cutting-edge technologies, we are well positioned to support the enterprise development of SMEs and other industry participants, help tackle challenges of corporate capital turnover, reduce financing costs, and improve business efficiency. |
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Diversified high-quality customers. Our core customers are government-owned enterprise (GOEs), which have high quality accounts receivable, capital resources and favorable customer profiles as relative to other businesses. We form strategic partnerships and cooperation relationships with GOEs and other credit-worthy entities in selected industries. As our supply chain solutions business model is suitable for commodity-based industries, and GOEs and other well-funded companies generally play a dominant role in such industries, we expect our supply chain industry solutions will continue to attract high quality customers to join our finance ecosystem platforms aiming to serve different industries. |
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Controlled risk exposure. As we facilitate GOEs, financial institutions and other credit-worthy customers to execute the transactions in the procurement process, we are not only able to decrease contract processing costs and improve working capital for core enterprises and other transaction parties, but also are positioned to keep track the status of the transaction and the financial health of the buyer and the supplier and as a result, achieve risk controls for all parties involved in the transaction. |
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Experienced management team with proven track record of delivering value and growth. Our experienced management team is comprised of professionals from both fintech market leaders and financial industry experts who bring insights from different aspects of the financial industry and abundant customer resources. The foresight of our management team, combined with their industry experience and strong execution capabilities, has been a key driver for the rapid transformation and operational resilience against the backdrop of the changing regulatory landscape in China. |
Our Strategy
Our mission is to transform
the corporate finance industry by promoting a finance ecosystem of openness and empowerment. We intend to achieve our growth and strengthen
our competitive position by implementing the following strategies:
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Grow the scale of our supply chain solutions and SME financing services ecosystems. We have established development expertise and capabilities in the SME financing and supply chain solutions business. We strive to become a leader in the corporate finance industry and transform the industries we serve through leveraging the our closed-loop finance ecosystems, promote the application of our developed advanced financing solutions to new customers and grow the scale of our solutions ecosystems. |
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Focus on industry segmentation through the integration of industry and finance. We seek to expand supply chain management and financial services to certain targeted industries in which fintech finance has played an increasingly important and effective role in the procurement and distribution processes. We aim to build supply chain platforms that link commercial banks, securities firms, trusts, funds, insurance companies and state-owned enterprises through the continued introduction of big data, artificial intelligence, Internet of Things, blockchain and other cutting-edge technologies into those industry supply chains. |
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Deepen market penetration by cultivating existing relationships with GOEs and cooperation partners while forge new collaborations in targeted industries. Most recently we expanded our supply chain management and financial services to the energy industry by entering into a strategic collaboration relationship with Shanghai Petroleum and Natural Gas Exchange, a national energy trading platform for energy products. We intend to continue to explore strategic cooperation relationships with prominent players in selected industries. |
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Continue to innovate and advance cutting-edge financial technologies to enhance our ability to adapt and respond to rapid industry and technology changes. Innovation is part of our long-term growth strategy and is key to improving our technology solution products and developing new technologies to meet the ever-changing customer needs. We have made and will continue to make significant investments in our technology infrastructure and research and development efforts to enhance our competitiveness and ability to adapt in response to the customer and industry changes in a timely and effective manner. |
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Pursue strategic acquisitions and growth opportunities. In addition to growing our business organically, we consider it a growth strategy to continue to pursue strategic alliances, investments and potential acquisitions that are complementary to our business and operations, including opportunities that further promote our brand, expand product and solution offerings on our or partners’ platforms, strengthen our technology infrastructure and capabilities, or expand our geographic reach. |
Contractual Arrangements with Our Consolidated
Affiliated Entities and the Nominee Shareholders
We conduct our business through
our PRC subsidiaries, three VIEs, Fintech, Hengpu and Nami, and VIE subsidiaries. Our relationships with the VIEs and their respective
nominee shareholders are governed by a series of contractual arrangements, including:
Trademarks, Technologies & Management and
Consulting Services Agreements (the “Consulting Services Agreement”)
Under the Consulting Services
Agreement, NingChen and Naqing have the exclusive right to provide management and consulting and other services to their respective VIEs
for a consulting service fee from VIEs and to authorize the VIEs to use our trademarks, technologies and related intellectual property
rights. VIEs agree to pay NingChen and Naqing or their designated agents for the management and consulting service in the amount equivalent
to VIEs’ net profits after tax. The agreement shall be effective as of the date of agreement and shall remain effective until the
date when NingChen and Naqing terminate such agreements or a VIE ceases to exist.
Equity Interest Pledge Agreements
Pursuant to the Equity Interest
Pledge Agreements, each shareholder of the VIEs agreed to pledge his equity interest in the VIEs to NingChen and Naqing, respectively,
to secure nominal loans provided to the shareholders of VIEs for a loan term of 100 years. Each shareholder of VIEs agrees that the repayment
of loan can only happen on loan maturity date or NingChen or Naqing agrees to collect the loan repayment. If VIEs or their shareholders
breach their contractual obligations under these agreements, NingChen and Naqing, as pledgees, will have the right to dispose of the pledged
equity interests and will have priority in receiving the proceeds from the auction or sale of the pledged equity interests. NingChen and
Naqing are entitled to any dividends declared or paid in connection with the pledged equity interests during the term of this agreement.
The VIEs and their shareholders have further agreed that they will not transfer or encumber the pledged equity interests without the prior
written consent from NingChen or Naqing during the term of this agreement. The Equity Interest Pledge Agreement remains effective and
no provision of this agreement may be amended, modified, supplemented discharged or terminated unless all parties consent thereto in writing.
Equity Interest Holders’ Voting Rights
Proxy Agreements (the “Voting Rights Proxy Agreements”)
Under the Voting Rights Proxy
Agreements, each shareholder of the VIEs irrevocably authorizes NingChen and Naqing, respectively, to exercise rights and powers as the
shareholders of the VIEs, including but not limited to, convening and attending shareholders’ meetings, voting on all matters of
the VIEs requiring shareholder approval and appointing directors and senior management members. The Voting Rights Proxy Agreement will
remain in force unless otherwise terminated in writing by NingChen or Naqing or with the written consent of all parties.
Exclusive Right and Option to Purchase Agreements
(the “Exclusive Call Option Agreements”)
Under the Exclusive Call
Option Agreements, the VIEs and their shareholders have irrevocably granted NingChen and Naqing, respectively, an exclusive option to
purchase, or authorize their designated persons to purchase all or part of each shareholder’s equity interests in VIEs. The purchase
price shall be equal to the minimum price required by the relevant PRC laws. Without prior written consent of NingChen and Naqing, VIEs
shall not to, among other things, amend their articles of association, sell or otherwise dispose of their assets or beneficial interests,
enter into transactions which may adversely affect their assets, liabilities, business operations, equity interests and other legal interests,
or merge with any other entities or make any investments, or distribute dividends. NingChen and Naqing have rights to transfer the rights
and obligations pursuant to the Exclusive Call Option Agreements to any third party, which does not require any prior consent of VIEs
and their shareholders. The Exclusive Call Option Agreements will remain effective until NingChen or Naqing terminates this agreement
with 30 days advance notice.
Those contractual arrangements
enable us to exercise effective control over our VIEs, have the right to all net profits earned by the VIEs, is obligated to absorb all
of net losses borne by VIEs, and have an exclusive option to purchase 100% of the equity interest in our VIEs, when and to the extent
permitted by PRC law. Through such arrangements, our VIEs have become our contractually controlled affiliates and their financial statements
are consolidated with that of our Company for financial reporting purposes.
Discontinued Operations -- Equipment and Engineering
Business
Prior to the disposition
of our legacy equipment and engineering business in November 2020, we also engaged in the research, development and manufacture of fluid
equipment including valves, pipe fittings and others, with an emphasis on the manufacture and installation of intelligentized valves,
used in the pharmaceutical, biological, food and beverage, and other clean industries. A significant majority of our revenues from equipment
and engineering service had come from these installation services.
Xibolun Group developed,
manufactured and provided customized installation of valves and pipe fittings for use in the pharmaceutical, biological, food and beverage,
and other clean industries. Xibolun Group offered customers comprehensive pipeline design, installation, construction, ongoing maintenance
services as well as holistic solution services. Xibolun Group provided our installation services and valve and pipe fitting products in
the following areas: pharmaceuticals, biology, food and beverage. The sales network had presence in Shanghai, Wenzhou and Taiwan. Xibolun
Group mainly provided installation services for the customers, although it also sold our products to third parties for installation. A
significant majority of the revenues have come from these installation services. The profit margins associated with installing our customized
valve and pipe fitting designs have historically been higher than those associated with the sale of our products for installation by third
parties.
Prior to November 30, 2020,
our offices and facilities for the equipment and engineering business was in Wenzhou in the South-eastern Zhejiang Province.
Our Products and Services
SME Financing Solutions
We provide a system of technology-driven
customized financing solutions to small- and mid-sized enterprises (SMEs) in China to improve SMEs’ access to financing and innovative
solutions to unlock sources of capital. Each of our three subsidiary groups, Hengpu, Fintech and Nami, is an integral and indispensable
part of our SME financing solutions operations. Fintech provides comprehensive financing solution services, such as designing debt financial
products, preparing product descriptions and other related advisory services, to underwriters and financial institutions in SME issuers’
offerings of debt securities on PRC provincial and municipal financial assets exchanges or other designated markets. Hengpu provides a
full set of financing solution services, such as due diligence investigation, government registration, customer recommendation, investor
education and maintenance, and other related services. Nami matches the SMEs with institutional and individual investors based on SMEs’
financing needs. We help SMEs channel working capital and liquidity resources by utilizing funds supplied by investors from Henpu’s
original three-board equity pledge financing-based intermediary services and high-quality investors from Nami’s financial advisory
and intermediary matching services.
By connecting the asset and
capital ends and solving risk control issues in the financing process, we leverage our closed-loop system in the financings of SMEs and
provide a full set of financial solutions to SMEs. Our comprehensive solutions enable SMEs to acquire financings in an efficient and customized
manner to facilitate a healthy enterprise development process starting from the birth to the growth and mature development stages of the
SMEs.
Supply Chain Solutions
We launched our technology-driven
integrated supply chain solutions business in January 2020, which has become the fastest growing among all of our operations. We provide
multi-level financing and supply chain solutions to core enterprises and SMEs by focusing on industry and finance integration and industry
segmentation. Our supply chain solutions services mainly target the agriculture, infrastructure, maritime logistics, energy and plastics
products markets. We streamline the supply chain finance process, participate as an intermediary and a partner in the merchandise flows
in the procurement and distribution transactions, automate the transaction payments and offer the most favorable trading terms to both
suppliers and buyers.
Our supply chain industry
services provide cash flow solutions to help businesses free up working capital locked in the supply chains. Our offerings cover a broad
category of trade financing solutions encompassing all the financing opportunities across a supply chain. We facilitate merchandise purchases
from suppliers with payment terms desirable to the suppliers who can access working capital quickly and at a lower cost. Meanwhile our
collaborations with merchandise buyers enable the buyers to make payments on a delayed basis often with an extended trade credit. Our
solutions optimize working capital and allow for buyers to extend payments on supplies at no cost to the supplier. Pursuant to the agreements
with our supply chain customers, we earn service fees when suppliers receive their financings, and our service fees are calculated as
a fixed charge rate on the financing amount. Our services allow both suppliers and buyers to unlock working capital as well as reduce
the risks associated with merchandise flows.
In the first half of 2020,
our supply chain solutions services were mainly focused on the agriculture, infrastructure, and maritime logistics markets. In December
2020, we expanded our services into the energy industry through a strategic collaboration with Shanghai Petroleum and Natural Gas Exchange
(“SHPGX”), a national trading platform for energy products. This partnership provides us with the opportunity to offer the
supply chain management and financing solutions services to members of SHPGX’s trading platform and establish our presence and market
share in the energy industry. Based on this cooperation, we have developed a new “supply chain +” business model, which will
be applied in our services to clients in other industries.
We aim to build supply chain
platforms that link commercial banks, securities firms, trusts, funds, insurance companies and state-owned enterprises through the continued
introduction of big data, artificial intelligence, Internet of Things, blockchain and other cutting-edge technologies into the supply
chain industry. In supply chain procurement and sales transactions, we play an instrumental role in reducing the purchase cost, communication
cost and financial risks for core enterprises, buyers and suppliers.
Supply Chain Trading
Since the launch of our supply
chain solutions business, we have connected with supply chain participants from different sectors through our supply chain platforms and
developed high quality customers in various industries, especially in agriculture, coal, new energy technology, construction, e-commerce,
retail, and food and vegetable industries.
As our supply chain solution
business grew substantially in size, we launched supply chain trading business in 2021, further expanding our product offerings and leveraging
our supply chain technology platforms and high-quality customers connections. Complementary to supply chain solutions services, which
primarily are focused on the financing aspect of the supply chain business, we have begun to participate in the procurement and distribution
process as a trading partner, purchasing and selling merchandise, such as chemicals, food and agricultural products, directly to customers
through our supply chain platforms and system. Empowered by our AI technology, we have developed an intelligent matching system through
which we connect the upstream suppliers and the downstream customers through our procurement services. After a customer posts their product
purchase inquiries on our platform, we are able to screen and identify the products with the most suitable suppliers in our supplier database
via our intelligent matching system. When a customer places an order, we purchase products from a pre-selected supplier as an independent
vendor and arrange delivery from the supplier directly to the customer. In the supply chain trading operations, we have developed supply
chain logistics, inventory and warehousing capacities and also bear a vendor’s risks associated with turnovers of inventories.
Other Financing Solutions (Director Banking
Solutions)
Fintech provides direct banking
solutions to small- and medium-sized commercial banks and other financial institutions in their distribution and management of direct
banking and other financial products. Our banking customers launch various financial products on Fintech’s online platform, “Huijingshe”
(the “Huijingshe Platform”), directly reaching institutional and individual investors, market their banking financial products,
and complete sales to investment institutions and individuals. Leveraging our proprietary financial technology, Huijingshe Platform offers
specialized asset allocation and financial planning services to institutional and individual investors. It optimizes risk controls and
asset management procedures to meet the investors’ financial planning needs and minimize their investment risks.
The Huijingshe Platform,
through integrating four-dimensional elements of Internet finance, Internet plus, finance and advanced technology, builds a fintech ecosystem
platform serving banks, investment institutions and individuals. The Huijingshe Platform features the following functionality:
|
● |
Customer financial needs and bank financial products matching |
|
● |
API direct connection, one-click account opening, improved user experience |
|
● |
Unified interface of cooperation channels |
|
● |
Precision marketing of banking products |
Fintech provides ongoing
customer management services to small and medium commercial banks and other financial institutions in their distribution and management
of direct banking and other financial products through the Huijingshe Platform that Fintech owns. The Huijingshe Platform provides specialized
asset allocation and financial planning services for various institutions or individual investors. In the meantime, the Huijingshe Platform
optimizes and improves risk and asset management procedures to meet the investors’ financial planning needs and minimize their investment
risks. The Huijingshe Platform focuses on helping our clients, licensed small and medium commercial banks, to achieve the best matching
and configuration of directing bank financial product and distributes and manages financial products. By connecting with the Huijingshe
Platform, those licensed small and medium commercial banks can launch various financial products through our online channels, directly
reach various institutional or individual investors, efficiently market the banking financial products and effectively match with investment
institutions and individuals.
Khorgos, a subsidiary of
Fintech, and Hengpu provide consulting and advisory services to investment companies, financial institutions and SME issuers of debt financial
products on PRC provincial and municipal financial assets exchanges or other designated markets. In general, a service provider is required
to register as a member of these municipal or provincial financial asset exchanges to provide full services of underwriting for financial
product issuance and distribution. Khorgos, a participating member of several local financial assets exchanges, provides underwriting
related services, such as designing debt financial products, preparing product descriptions and other related advisory services, to underwriters
or financial institutions. Hengpu, also a member of a number of provincial or municipal asset exchanges, provides full services in connection
with financial product underwriting, such as due diligence investigations, government registration, customer recommendations, investor
education and maintenance, and other related services.
The financial assets products
traded on the assets exchanges are backed by financial assets of registered members of those assets exchanges and issued by exchange designated
product issuers (typically investment or asset management companies). The financial assets exchanges list qualified financial products
for trading after evaluation and provide payment clearance and settlement, credit rating and custodian services. The underlying listed
products administered by these exchanges primarily include commercial loans, receivables, creditors’ right and other financial products.
Distribution Channels and Methods of Competition
Domestic Markets and Customers
Our marking network has a
presence in different regions in China, including several main offices such as Shanghai, Tai’an, Shandong, and Khorgos, Xinjiang.
International Markets
All of our products and services
are available for international markets. We may explore the international market, though there is no guarantee that we will be able to
materialize the plan. We intend to focus our growth efforts within China with regards to the services we provide as a result of the Company’s
assessment of current market opportunities.
Activity Distribution of Revenues
The chart below is a breakdown
of total revenues by activities for the years ended December 31, 2021, 2020 and 2019, respectively.
| |
Fiscal 2021 | | |
Fiscal 2020 | | |
Fiscal 2019 | |
Revenue generated from service | |
| | |
| | |
| |
SME Financing Solutions | |
| 54 | % | |
| 97 | % | |
| 100 | % |
Supply Chain Solutions | |
| 3 | % | |
| 3 | % | |
| - | % |
Other Financing Solutions | |
| - | % | |
| - | % | |
| - | % |
Total revenue generated from service | |
| 57 | % | |
| 100 | % | |
| 100 | % |
Revenue from supply chain trading | |
| 43 | % | |
| - | % | |
| - | % |
Total revenue | |
| 100 | % | |
| 100 | % | |
| 100 | % |
All the Company’s revenue
were generated in the PRC.
Customer Concentration
For the year ended December
31, 2021, two customers accounted for 37% and 15% of our total revenue from the financial services business, and two customers accounted
for 71% and 10% of our total revenue from supply chain trading business.
For the year ended December
31, 2020, three customers accounted for 31%, 21% and 12% of our total financial service revenue, respectively.
For the year ended December
31, 2019, one customer accounted for approximately 100% of our total financial service revenue from financial services.
Methods of Competition
We plan to compete domestically
by establishing new branch offices in more cities in China. We will also promote more products and services through our platforms, which
will enable our customers to communicate with us online and order, purchase and have our products and services delivered in a more convenient
and faster manner.
Most of our service customers
are SMEs in the supply chain, financial institutions and corporate clients, which has great development potential and customer demand
in China. We compete on the basis of the experience and technology we have developed in serving customers.
Our Competitive Position
We have set forth our assessment
of our Company’s relative strengths and challenges. The tables below represent our belief about our competitive position and is
based on our observations, rather than objective data. Our assessment may not be shared by others, including such competitors, but it
does represent management’s assessment of our industry position.
We compete with the following
listed companies in different areas. Currently there is no competitor that competes with us in all areas.
Competitors |
|
Services |
|
Comparative Strengths/Challenges |
Client Service International Inc
(“Client Service”) |
|
Financial software and
financial solution service
provider |
|
● |
Client service focuses on providing financial software development |
|
|
● |
Fintech integrates the financial product management service with technology service. |
|
|
● |
Fintech assists the commercial banks to analyze and gain better understanding of their business needs, while Client Service only develops software to meet client needs |
|
|
|
|
|
|
Orbian |
|
Supply Chain Finance
Provider |
|
● |
Unlimited funding capacity (true multi-bank, source-agnostic funding) |
|
|
● |
Multi-currency capacity |
|
|
● |
True sale, non-recourse cash purchase of receivable(ensure payables treatment) |
|
|
|
|
|
|
Beijing Udomedia Advertising Co., Ltd.
(“Udomedia”) |
|
Financial product
recommendation |
|
● |
Amarsoft focuses on providing financial product comparison and recommendations to investors |
|
|
● |
Fintech offers asset-side options to financial institutions as well as the financial planning service to investors |
|
|
● |
Fintech competes against Amarsoft on financial product distribution service |
|
|
|
|
|
|
PUYI INC.
(“PUYI”)
|
|
Third-party wealth management services provider |
|
● |
The business goal of PUYI is to provide investor various financial product and asset allocation service to investor, which is similar to the goal of Hengpu |
|
|
● |
PUYI is mainly engaged in private fund, and supply chain financing |
|
|
● |
Hengpu is primarily engaged in underwriting related service for debt financial product |
Research and Development
We are committed to researching
and developing financial technologies in financial services, supply chain and other relevant industries. We believe scientific and technological
innovations will help our Company achieve its long-term strategic objectives. Our research and development efforts are an integral part
of our operations and the crux of its competitive advantage and differentiation strategy.
For the years ended
December 31, 2021, 2020 and 2019, we spent $1,599,728, $817,770 and $155,216, respectively, on R&D. The R&D expenses in
2021 were primary used to maintain and develop our supply chain financing and other financing services APPs and platform. We
anticipate that we will continue to focus our research and development efforts on developing new technology and improving existing
products in the coming years.
Our Intellectual Property
We have the right to use
the following trademark registrations issued in the PRC:
Trademarks |
|
Reg. No. |
|
Issue
Date |
|
Expiration
Date |
|
Owner |
|
Goods/Services |
|
|
26449617 |
|
9/7/2018 |
|
9/6/2028 |
|
Hengpu |
|
Arrange and organize the conference; Translated; Planning a party (entertainment); Provide online electronic publications (non-download); Manuscript writing; Journalist Service; Zoo Service; Online publishing of e-books and magazines; Arrange and organize seminars; Arrange and organize on-site education forum |
|
|
|
|
|
|
|
|
|
|
|
|
|
26432309 |
|
9/7/2018 |
|
9/6/2028 |
|
Hengpu |
|
Insurance Broker; Real estate agency; Guarantee; Raise Charity Fund; Fiduciary management; Pawn; Finance lease; Financial Information; Coin valuation; Brokerage |
|
|
|
|
|
|
|
|
|
|
|
|
|
26434423 |
|
9/7/2018 |
|
9/6/2028 |
|
Hengpu |
|
Downloadable mobile application software; Computer program (downloadable software); Computer peripherals; Animation; Electronic Notepad; Automatic Teller Machine (ATM); Portable media player; Interactive touch screen terminal; Computer software (recorded); Mobile phone; Automatic teller machine (ATM) |
|
|
|
|
|
|
|
|
|
|
|
|
|
26428912 |
|
9/7/2018 |
|
9/6/2028 |
|
Hengpu |
|
Online publishing of e-books and magazines; Translated; Arrange and organize the conference; Journalist Service; Planning a party (entertainment); Provide online electronic publications (non-download); Arrange and organize seminars; Arrange and organize on-site education forum; Zoo Service; Manuscript writing |
|
|
|
|
|
|
|
|
|
|
|
|
|
26438038 |
|
10/28/2018 |
|
10/27/2028 |
|
Hengpu |
|
Interactive touch screen terminal; Computer software (recorded); Computer peripherals; Automatic Teller Machine (ATM); Portable media player; Animation; Downloadable mobile application software; Electronic Notepad; Mobile phone; Computer program (downloadable software) |
|
|
26428917 |
|
10/28/2018 |
|
10/27/2028 |
|
Hengpu |
|
Technical Studies; Information Technology Consulting Services; Cloud computing; Art identification; Intangible assets assessment; Urban planning; Energy audit; Computer Programming; Provide Internet Search Engine; Data Security Consulting |
|
|
|
|
|
|
|
|
|
|
|
|
|
26434429 |
|
10/28/2018 |
|
10/27/2028 |
|
Hengpu |
|
Online advertising on computer networks; Purchasing for others (purchasing goods or services for other companies); Provide online markets for buyers and sellers of goods and services; Marketing; Looking for sponsorship; Advertising; Retail or wholesale services of pharmaceutical, veterinary, hygienic preparations and medical supplies (-); Franchise business management; Import and export agent; Sell for others |
|
|
|
|
|
|
|
|
|
|
|
|
|
26439293 |
|
10/28/2018 |
|
10/27/2028 |
|
Hengpu |
|
Guarantee; Fiduciary management; Financial Information; Brokerage; Pawn; Insurance Broker; Finance lease; Coin valuation; Real estate agency; Raise Charity Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
26443885 |
|
01/28/2019 |
|
01/27/2029 |
|
Hengpu |
|
Interactive touch screen terminal; Computer program (downloadable software); Electronic Notepad; Mobile phone; Portable media player; Downloadable mobile application software; Computer software (recorded); Automatic Teller Machine (ATM); Animation; Computer peripherals |
|
|
|
|
|
|
|
|
|
|
|
|
|
26428913 |
|
1/14/2019 |
|
1/13/2029 |
|
Hengpu |
|
Coin valuation; Pawn; Fiduciary management; Finance lease; Real estate agency; Guarantee; Brokerage (3605) Financial Information (3602) Raise Charity Fund (3607) |
|
|
|
|
|
|
|
|
|
|
|
|
|
20689649 |
|
9/14/2017 |
|
9/13/2027 |
|
Hengpu |
|
Insurance Underwriting; Financial Services; Financial Management; Financial loans; Art valuation; Real estate management; Brokerage; Guarantee; Raise Charity Fund; Pawn |
|
|
17764453 |
|
12/21/2016 |
|
12/20/2026 |
|
Hengpu |
|
Quality assessment; Technical Project Research; Hosted computer station (website); Provide Internet Search Engine; Computer system remote monitoring; Create and maintain websites for others; Art identification; Intangible assets assessment; Intangible assets evaluation (-) |
|
|
|
|
|
|
|
|
|
|
|
|
|
26008168 |
|
10/28/2018 |
|
10/27/2028 |
|
Fintech |
|
Looking for sponsorship; Provide online markets for buyers and sellers of goods and services; Accounting; Provide business information through the website; Business intermediary services; Personnel management consulting; Advertising; Commercial enterprise relocation; Update and maintain data in computer databases; Sell for others; Franchise business management. |
|
|
|
|
|
|
|
|
|
|
|
|
|
26008168 |
|
10/28/2018 |
|
10/27/2028 |
|
Fintech |
|
Provide global computer network user access service; Telephone communication; TV broadcast; Communication equipment rental; Computer terminal communication; Satellite transmission; Provide database access service; Provide telecommunications connection services with global computer networks; Provide Internet chat rooms; Wireless broadcasting |
|
|
|
|
|
|
|
|
|
|
|
|
|
26008168 |
|
10/28/2018 |
|
10/27/2028 |
|
Fintech |
|
Internal communication device; Electronic monitoring device (-) Downloadable computer application software; Computer software (recorded); Computer program (downloadable software); Recorded computer program; Cash register; Remote control device; Electronic Publication (-); Electronic Notepad; Electronic Note (-); cashier(-); Electronic monitoring device (-) Remote control device (-) |
|
|
|
|
|
|
|
|
|
|
|
|
|
26008168 |
|
10/28/2018 |
|
10/27/2028 |
|
Fintech |
|
Credit card related investigations Financial loans; Art valuation; Real estate agency; Brokerage; Insurance Underwriting; Guarantee; Raise Charity Fund; Fiduciary management; Capital investment; Organize collections; Financial Information; Provide financial information through the website Insurance information; Pawn; Trust; Financial Management; Financial Consulting; Bank; Jewelry valuation |
|
|
26008168 |
|
10/28/2018 |
|
10/27/2028 |
|
Fintech |
|
Adoption Agent; Security and anti-theft alarm system monitoring; Open the safety lock Clothing rental; Computer Software License (Legal Service); Social companionship; Online social networking services; Lost and Found; Dating Service; Safe rental; Adoption agents; security and anti-theft alarm system monitoring; unlocking locks; clothing rental; computer software licensing (legal services); social companionship; online social networking services; lost and found; dating services; safe rental (-) |
|
|
|
|
|
|
|
|
|
|
|
|
|
26008168 |
|
10/28/2018 |
|
10/27/2028 |
|
Fintech |
|
Quality system certification; Convert tangible data or files into electronic media; Technical Studies; Computer system remote monitoring; Interior Design; Computer Software Design; Electronic data storage; Cosmetic Research; Industrial design; Intangible assets assessment |
|
|
|
|
|
|
|
|
|
|
|
|
|
48343254 |
|
06/21/2019 |
|
06/20/2029 |
|
Nami |
|
Insurance Broker; Insurance coverage; Life insurance underwriting; Insurance consultation; Insurance information; Rental of real estate; Real estate agency; Real estate brokerage; Real estate valuation; Real estate management |
|
|
|
|
|
|
|
|
|
|
|
|
|
32919214 |
|
08/28/2019 |
|
8/27/2029 |
|
Nami |
|
Business management consulting Commercial intermediary services Provide business information through website; Market intelligence service; Temporary business management; Appointment service (office affairs); Registration of written messages and data accounting; Draw up bill and account report marketing management; Appointment service (Office affairs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
48343254 |
|
04/14/2021 |
|
04/13/2031 |
|
Nami |
|
Financial audit; Business administration assistance advertisement; Personnel management consulting; Business management consulting; Management service of business enterprise migration marketing management; Sell for others; Looking for sponsorship; Appointment service (office affairs) |
We own the following copyrights:
Copyright Name |
|
Reg. No. |
|
Completion
Date |
|
Owner |
Hengpu online RMB withdrawal system |
|
2020SR1554067 |
|
11/09/2020 |
|
Hengpu |
|
|
|
|
|
|
|
Hemp Online Mobile Investment System |
|
2020SR1554106 |
|
11/09/2020 |
|
Hengpu |
|
|
|
|
|
|
|
Hengpu online RMB recharge system |
|
2020SR1554066 |
|
11/09/2020 |
|
Hengpu |
|
|
|
|
|
|
|
Hengpu online authentication system |
|
2020SR1554072 |
|
11/09/2020 |
|
Hengpu |
|
|
|
|
|
|
|
Hengpu online entrusted trading system |
|
2020SR1554073 |
|
11/09/2020 |
|
Hengpu |
|
|
|
|
|
|
|
Hengpu Fund Information Display System |
|
2020SR0774260 |
|
07/15/2020 |
|
Hengpu |
|
|
|
|
|
|
|
Hemp Fund Mobile Redemption System |
|
2020SR0776761 |
|
07/15/2020 |
|
Hengpu |
|
|
|
|
|
|
|
Hengpu Fund Management System |
|
2020SR0774255 |
|
07/15/2020 |
|
Hengpu |
|
|
|
|
|
|
|
Hengpu Fund Trading System |
|
2020SR0774266 |
|
07/15/2020 |
|
Hengpu |
|
|
|
|
|
|
|
Hengpu Fund Mobile Requisition System |
|
2020SR0769122 |
|
07/14/2020 |
|
Hengpu |
|
|
|
|
|
|
|
Huijingshe CRM customer management system |
|
2020SR0331868 |
|
04/14/2020 |
|
Fintech |
|
|
|
|
|
|
|
Jetcom wallet background management system |
|
2020SR0330745 |
|
04/14/2020 |
|
Fintech |
|
|
|
|
|
|
|
Huijingshe Financial Management System |
|
2020SR0332562 |
|
04/14/2020 |
|
Fintech |
|
|
|
|
|
|
|
Huijingshe Financial Products Management Platform |
|
2020SR0332553 |
|
04/14/2020 |
|
Fintech |
|
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Huijingshe sales channel cost accounting and operation management system |
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2020SR0332191 |
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04/14/2020 |
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Fintech |
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Huijingshe integrated financial management APP system |
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2020SR0332195 |
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04/14/2020 |
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Fintech |
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Equity trading system |
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2020SR0332587 |
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04/14/2020 |
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Fintech |
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Huijingshe website content management system |
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2020SR0331400 |
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04/14/2020 |
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Fintech |
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Huijing Fund Finance APP System |
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2020SR0332558 |
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04/14/2020 |
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Fintech |
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Huijingshe system monitoring alarm management platform |
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2020SR0331454 |
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04/14/2020 |
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Fintech |
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Employee loan system |
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2020SR0331462 |
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04/14/2020 |
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Fintech |
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Huijingshe distributed message management platform |
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2020SR0332591 |
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04/14/2020 |
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Fintech |
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Huijingshe Insurance APP System |
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2020SR0331872 |
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04/14/2020 |
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Fintech |
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Huijingshe risk control management system |
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2020SR0331518 |
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04/14/2020 |
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Fintech |
Huijingshe Financial Leasing System |
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2020SR0330193 |
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04/14/2020 |
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Fintech |
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Jetcom wallet back-office management system |
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2020SR0332521 |
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04/14/2020 |
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Fintech |
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Huijingshe Big Data Reporting Platform |
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2020SR0332497 |
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04/14/2020 |
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Fintech |
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New three board data mobile display system |
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2019SR0914974 |
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9/3/2019 |
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Hengpu |
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Hengpu offline financial management system |
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2019SR0914982 |
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9/3/2019 |
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Hengpu |
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Application and display system of equity pledge financing |
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2019SR0915056 |
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9/3/2019 |
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Hengpu |
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Hengpu offline financing mobile investment system |
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2019SR0912121 |
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9/2/2019 |
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Hengpu |
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Hengpu offline financial investment system |
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2019SR0912070 |
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9/2/2019 |
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Hengpu |
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Hengpu Financial RMB Withdrawal System |
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2018SR498978 |
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6/28/2018 |
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Hengpu |
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Hengpu Financial Bank Depository Docking System |
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2018SR269474 |
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4/20/2018 |
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Hengpu |
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Hengpu Financial Mobile Investment System |
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2018SR265882 |
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4/19/2018 |
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Hengpu |
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Hengpu Financial Transaction Return System |
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2018SR265875 |
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4/19/2018 |
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Hengpu |
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Hengpu financial product search recommendation system |
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2018SR265870 |
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4/19/2018 |
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Hengpu |
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Hengpu Financial Identity Verification System |
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2018SR178293 |
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3/19/2018 |
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Hengpu |
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Hengpu financial investment marketing activity system |
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2018SR178208 |
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3/19/2018 |
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Hengpu |
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Hengpu Financial Virtual Account System |
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2018SR178316 |
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3/19/2018 |
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Hengpu |
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Hengpu Financial Commission Trading System |
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2018SR178319 |
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3/18/2019 |
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Hengpu |
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Hengpu Financial Personal Name Coin Recharge System |
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2018SR178295 |
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3/19/2018 |
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Hengpu |
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Huijingshe APP platform |
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2018SR241757 |
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4/10/2018 |
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Fintech |
Our Employees
As of December 31, 2021,
we employed total of 178 full-time employees in the following functions:
Department | |
December 31, 2021 | | |
December 31, 2020 | | |
December 31, 2019 | |
Management and administration | |
| 50 | | |
| 120 | | |
| 28 | |
Research and Development | |
| 10 | | |
| 10 | | |
| 33 | |
Production and operation | |
| 67 | | |
| 111 | | |
| 50 | |
Sales | |
| 51 | | |
| 571 | | |
| 31 | |
Total | |
| 178 | | |
| 812 | | |
| 142 | |
Note: The total number of our employees was significantly higher
in 2020 than 2019 as a result of our acquisition of Nami Cayman and its subsidiaries and consolidated VIE, which had a large workforce.
During 2021, Nami management decided to reduce the number of employees to reduce labor costs and hired third party contractors to perform
certain job functions.
We had no part-time employees
in 2021.
Our employees are not represented
by a labor organization or covered by a collective bargaining agreement. We have not experienced any work stoppages.
We are required under PRC
law to make contributions to employee benefit plans at specified percentages of our after-tax profit. In addition, we are required by
PRC law to cover employees in China with various types of social insurance. We believe that we are in material compliance with the relevant
PRC employment laws.
Regulation
We operate in an increasingly
complex legal and regulatory environment. We are subject to a variety of PRC and foreign laws, rules and regulations across numerous aspects
of our business. This section sets forth a summary of the principal PRC laws, judicial interpretations, rules and regulations relevant
to our business and operations in the PRC.
Regulations Relating to Foreign Investment
The establishment, operation
and management of corporate entities in the PRC, including foreign-invested companies, are subject to the Company Law of the PRC, or the
Company Law, which was issued by the Standing Committee of the National People’s Congress, or the NPC Standing Committee, on December
29, 1993 and took effect on July 1, 1994. It was last amended on October 26, 2018. Unless otherwise provided in the PRC’s foreign
investment laws, the provisions of the Company Law shall prevail.
We are a British Virgin Islands
company and thus, we are classified as a foreign enterprise under the PRC laws. On March 15, 2019, the NPC promulgated the Foreign Investment
Law, which came into effect on January 1, 2020 and replaced the trio of existing laws regulating foreign investment in China, namely,
the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested
Enterprise Law. The Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory
regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign
and domestic investments. However, since it is relatively new, uncertainties still exist in relation to its interpretation and implementation,
and failure to take timely and appropriate measures to cope with the regulatory-compliance challenges could result in material and adverse
effect on us. For instance, though the Foreign Investment Law does not explicitly classify contractual arrangements as a form of foreign
investment, it contains a catch-all provision under the definition of “foreign investment”, which includes investments made
by foreign investors in China through means stipulated in laws or administrative regulations or other methods prescribed by the State
Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions promulgated by the Stale Council
to provide for contractual arrangements as a form of foreign investment, at which time it will be uncertain whether our contractual arrangements
will be deemed to be in violation of the market access requirements for foreign investment in the PRC and if so, how our contractual arrangements
should be dealt with. In addition, if future laws, administrative regulations or provisions prescribed by the State Council mandate further
actions to be taken by companies with respect to existing contractual arrangements, we may face substantial uncertainties as to whether
we can complete such actions in a timely manner, or at all. In the worst-case scenario, we may be required to unwind our existing contractual
arrangements and/or dispose of the relevant business operations, which could have a material and adverse effect on our current corporate
structure, corporate governance, business, financial condition and results of operations.
Investments in the PRC by
foreign investors and foreign-invested enterprises are regulated by the Catalogue of Industries in which Foreign Investment is Encouraged
(2020 Edition), or the 2020 Catalog, and the Special Administrative Measures for Foreign Investment Access (Negative List 2021), or the
2021 Negative List. The establishment of wholly foreign-owned enterprises is generally allowed in industries not included in the Negative
List. Industries not listed in the Negative List are generally open to foreign investment unless specifically restricted by other applicable
Chinese regulations. Under the 2021 Negative List, foreign equity in companies providing value-added telecommunications services, excluding
e-commerce, domestic multi-party communications, data collection and transmission services, and call centers, should not exceed 50%. Part
of our business is subject to such 50% foreign invested equity cap.
On December 26, 2019, the
State Council promulgated the Implementation Regulations for the Foreign Investment Law, which became effective on January 1, 2020. The
Implementation Regulations for the Foreign Investment Law implement the legislative principles and purpose of the Foreign Investment Law,
emphasize on promoting the foreign investment and refine the specific measures, and also replaced the implementation rules of the Law
of the PRC on Sino-foreign Equity Joint Ventures, the Wholly Foreign-owned Enterprise Law of the PRC and the Law of the PRC on Sino-foreign
Cooperative Joint Ventures. On December 26, 2019, the Supreme People’s Court issued an Interpretation on Several Issues Concerning
the Application of the Foreign Investment law of the PRC, which also came into effect on January 1, 2020. The interpretation applies to
any contractual dispute arising from acquisition of the relevant rights and interests by a foreign investor through gift, division of
property, merger of enterprises, division of enterprises, etc. On December 30, 2019, MOFCOM and the SAMR jointly issued the Measures on
Reporting of Foreign Investment Information, which replaced the existing filing and approval procedures regarding the establishment and
change of foreign-invested companies. On December 31, 2019, MOFCOM issued the Announcement on Matters Relating to Foreign Investment Information
Reporting, emphasized the information reporting requirements provided by the Measures on Reporting of Foreign Investment Information,
and stipulated the forms for information reporting.
On December 19, 2020, NDRC
and the Ministry of Commerce jointly issued the Measures which became effective on January 18, 2021. According to the Measures, a working
mechanism shall be established for organizing, coordinating, and guiding the security review of foreign investments, and the office in
charge of the security review work will be set up by the NDRC and the Ministry of Commerce. Furthermore, the Measures provide that if
foreign investors or their related parties in China engage in any foreign investment in industry with national security concerns such
as information technology, internet products and services, or financial services, they shall make applications to the office in charge
of the security review work in advance of national security review.
Regulations Relating to Value-Added Telecommunication
Services
The Telecommunications Regulations
of the PRC, or the Telecommunications Regulations, issued by the State Council of the PRC on September 25, 2000 and last amended on February
6, 2016, provide the general framework for the provision of telecommunication services by PRC companies. It requires a telecommunication
service provider in China to obtain an operating license from the Ministry of Industry and Information Technology, or MIIT, or its provincial
counterparts, prior to commencement of operations.
The Telecommunications Regulations
categorize telecommunication services in China as either basic telecommunications services or value-added telecommunications services.
According to the Catalog of Telecommunications Business, attached to the Telecommunications Regulations and issued by MIIT, on December
28, 2015 and last amended on June 6, 2019, online data processing, transaction processing and information services provided via fixed
network, mobile network and internet, call center service and internet data center services are value-added telecommunication services.
On July 3, 2017, MIIT issued
the Administrative Measures for Telecommunications Business Operating Permit, or the Telecom Permit Measures, which took effect on September
1, 2017. The Telecom Permit Measures set forth more specific provisions regarding the types of licenses required to operate value-added
telecommunications services, the qualifications and procedures for obtaining the licenses and the administration and supervision of these
licenses. Operators are required to submit an application within the prescribed period to the original permit-issuing authority with respect
to changes in the business scope or the operating entity resulting from shareholder changes or the merger and division of the company
as prescribed under relevant regulations.
On June 8, 2020, MIIT issued
the Notice of Strengthening the Administration of Call Center Service, which provides that any entities engaging in call center service
shall obtain corresponding business permits as required by the relevant laws and regulations, and shall conduct the business subject to
the Catalog of Telecommunications Business.
Regulations on Foreign Investment in the
Value-Added Telecommunications Industry
Foreign direct investment
in telecommunications companies in China is governed by the Administrative Rules on Foreign-invested Telecommunications Enterprises, or
the FITE Regulations, which was issued by the State Council on December 11, 2001 and last amended on February 6, 2016. The Decision of
the State Council on Revising or Abolishing Certain Administrative Regulations, which was promulgated by the State Council on March 29,
2022 and will take effect from May 1, made certain significant changes to the 2016 FITE Regulations. Under the 2016 FITE Regulations,
foreign investors are not allowed to hold more than 50% of the equity interests in a company providing value-added telecommunications
services. In addition, a foreign investor who invests in a value-added telecommunications business in the PRC must possess prior experience
in and a proven track record of operating value-added telecommunications businesses overseas (the “Qualification Requirements”),
while the 2022 Decision repeals the Qualification Requirements. The restrictions of Qualification Requirements no longer apply to foreign
investors, and foreign investors may be allowed to hold no more than 50% of the equity interests of a company providing value-added telecommunications
services. However, as of the date of this report, no applicable PRC laws, regulations or rules have provided clear guidance or interpretation
about the 2022 Decision. It remains extremely uncertain as to the interpretation and enforcement of the 2022 Decision in practice and
relevant regulations by government authorities.
However, under the Circular
on Loosening the Restriction on Foreign Shareholdings in Online Data Processing and Transaction Processing Business (for E-commerce),
or Circular 196, issued by MIIT on June 19, 2015, foreign investors may hold up to 100% of all equity interest in an online data processing
and transaction processing business operating e-commerce in China, while other requirements provided by the FITE Regulations shall still
apply. Apart from e-commerce, the 2021 Negative List also provides that foreign investors may hold 100% equity interest in domestic multi-party
communications, data collection and transmission services and call centers. Pursuant to the Special Administrative Measures for Foreign
Investment Access (Negative List 2021), foreign investors are not allowed to hold more than 50% of the equity interests of any company
providing value-added telecommunications services, including ICP services, with the exception of e-commerce, domestic multi-party communications,
storage- forwarding, and call centers businesses. The MIIT’s Circular on Strengthening the Administration of Foreign Investment
in and Operation of Value-added Telecommunications Business, or the MIIT Circular, issued on July 13, 2006, requires foreign investors
to set up foreign-invested enterprises and obtain a license for value-added telecommunications services. It prohibits domestic companies
holding value-added telecommunications services licenses from leasing, transferring or selling their licenses in any form, or providing
any resource, sites or facilities, to any foreign investors intending to conduct this type of businesses in China.
In addition to restricting
dealings with foreign investors, the MIIT Circular contains a number of detailed requirements applicable to operators of value-added telecommunications
services, including that operators or their shareholders must legally own the domain names and trademarks used in their daily operations
and each operator must possess the necessary facilities for its approved business operations and maintain its facilities in the regions
covered by its license. The MIIT or its provincial counterparts have the power to require corrective actions after they discover any non-compliance
by operators, and where operators fail to take those steps, the MIIT or its provincial counterparts can revoke the value-added telecommunications
services licenses.
In view of the foregoing
foreign ownership restrictions, we have established several VIEs to engage in the business of value-added telecommunications services.
Due to the lack of interpretative guidance from the relevant PRC governmental authorities, there are uncertainties regarding whether PRC
governmental authorities would consider our corporate structure and contractual arrangements compliant with applicable PRC foreign investment
laws and regulations.
Regulations on Internet Information Services
The Administrative Measures
on Internet Information Services, or the Internet Information Measures, which was issued by the State Council on September 25, 2000 and
amended on January 8, 2011, set out guidelines on the provision of internet information services. Pursuant to the Internet Information
Measures, “internet information services” are defined as services that provide information to online users through the internet.
The Internet Information Measures require internet information services operators to obtain a value-added telecommunications business
operating license for internet information services, or the ICP License, from the relevant government authorities before engaging in any
commercial internet information services operations in China.
In addition, internet information
service providers are required to monitor their websites to ensure that they do not contain content prohibited by law or regulation. The
PRC government may require corrective actions to address non-compliance by ICP License holders or revoke their ICP License for serious
violations. Furthermore, the MIIT Circular on Regulating the Use of Domain Names in Internet Information Services, issued on November
27, 2017 and that took effect on January 1, 2018, requires internet information service providers to register and own the domain names
they use in providing internet information services.
Regulations on Mobile Internet Application
Information Services
On June 28, 2016, the Cyberspace
Administration of China issued the Administrative Provisions on Mobile Internet Application Information Services on June 28, 2016, which
took effect on August 1, 2016, requiring internet information service providers, or ICPs, who provide information services through mobile
internet applications, or APPs, to authenticate the identity of the registered users, establish procedures for protection of user information,
establish procedures for information content censorship and management, ensure that users are given adequate information concerning an
APP and are able to choose whether an App is installed and whether or not to use an installed App and its functions and keep records of
users’ logs for 60 days. If an ICP violates these regulations, mobile app stores through which the ICP distributes its APPs may
issue warnings, suspend the release of its APPs, or terminate the sale of its APPs, and/or report the violations to governmental authorities.
ICPs are also required under
the Interim Measures on the Administration of Pre-Installation and Distribution of Applications for Mobile Smart Terminals, which was
issued on December 16, 2016 and took effect on July 1, 2017, to ensure that APPs, as well as its ancillary resource files, configuration
files and user data, can be conveniently uninstalled by a user, unless it is a basic function software (i.e., software that supports the
normal functioning of hardware and operating system of a mobile smart device).
On July 22, 2020, the MIIT
issued the Notice on the Special Program to Further Rectify the Infringement on Users’ Personal Rights and Interests by APPs, or
the Notice. The Notice requires inspection of certain practices of application service providers, including: (i) collecting personal information
without user’s consent, collecting or using personal information beyond the necessary scope of service provided, and forcing users
to receive advertisements; (ii) frequently or automatically launching third-parties apps without user permission, and (iii) deceiving
and misleading users to download apps or providing personal information. The Notice also specifies the period of special inspection of
the Apps for supervision, the Ministry of Industry and Information Technology will order the offending party to rectify the business within
five working days, otherwise a public announcement will be made, and the App will be removed from the Apps store, and the offending party
will be subject to other administrative penalties.
Regulations Relating to Information Security
and Privacy Protection
Regulations on Information Security
In recent years, PRC government
authorities have enacted laws and regulations with respect to internet information security and protection of personal information from
abuse or unauthorized disclosure. Pursuant to the Decision on the Maintenance of Internet Security issued by the NPC Standing Committee
on December 28, 2000, which was amended on August 27, 2009, persons may be subject to criminal liabilities in China for any attempt to:
(i) gain improper entry to a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak
state secrets; (iv) spread false commercial information or (v) infringe upon intellectual property rights and other activities prohibited
by relevant laws and regulations.
The Administration Measures
on the Security Protection of Computer Information Network with International Connections, issued by the Ministry of Public Security,
or MPS, on December 16, 1997 and amended by the State Council of the PRC on January 8, 2011, prohibits using the internet in ways that
result in a leak of state secrets or a spread of socially destabilizing content. The MPS has supervision and inspection powers and relevant
local security bureaus may also have jurisdiction. If a value-added-telecommunications service license holder violates these measures,
the government of the PRC may revoke its value-added-telecommunications service license and shut down its websites.
On November 7, 2016, the
NPC Standing Committee promulgated the Cyber Security Law of the PRC, or Cyber Security Law, which took effect on June 1, 2017, pursuant
to which, network operators must comply with laws and regulations and fulfil their obligations to safeguard security of the network when
conducting business and providing services. Those who provide services through networks must take technical measures and other necessary
measures pursuant to laws, regulations and compulsory national requirements to safeguard the safe and stable operation of the networks,
respond to network security incidents effectively, prevent illegal and criminal activities, and maintain the integrity, confidentiality
and usability of network data. It also states that: network operator may not collect personal information that is irrelevant to the services
it provides or collect or use the personal information in violation of the provisions of laws or agreements between both parties. The
Regulations on Cyber Security Supervision and Inspection of Public Security Organs, which was issued by the MPS on September 15, 2018
and came into effect on November 1, 2018, is an important basis for the Public Security Bureau to strengthen the enforcement of the Cyber
Security Law.
Pursuant to the Ninth Amendment
to the Criminal Law issued by the NPC Standing Committee on August 29, 2015, which took effect on November 1, 2015, any Internet service
provider that fails to fulfil the obligations related to internet information security administration as required by applicable laws and
refuses rectification orders is subject to criminal penalty for (i) any dissemination of illegal information in large scale, (ii) any
severe effect due to leakage of the client’s information, (iii) any serious loss of criminal evidence, or (iv) other severe situation.
These amendments also state that any individual or entity that (i) sells or provides personal information to others that violates applicable
law, or (ii) steals or illegally obtains any personal information, is subject to criminal penalty for severe violations. On May 8, 2017,
the Supreme People’s Court and the Supreme People’s Procuratorate released the Interpretations of the Supreme People’s
Court and the Supreme People’s Procuratorate on Several Issues Concerning the Application of Law in the Handling of Criminal Cases
Involving Infringement of Citizens’ Personal Information, which took effect on June 1, 2017. It clarifies several concepts regarding
the crime of “infringement of citizens’ personal information,” including “citizen’s personal information,”
“provision,” and “unlawful acquisition.”
Pursuant to the Announcement
of Conducting Special Supervision against the Illegal Collection and Use of Personal Information by Apps, which was issued on January
23, 2019, app operators should collect and use personal information in compliance with the Cyber Security Law and should be responsible
for the security of personal information obtained from users and take effective measures to strengthen the personal information protection.
Furthermore, app operators should not force their users to make authorization by means of bundling, suspending installation or in other
default forms and should not collect personal information in violation of laws, regulations or breach of user agreements. Such regulatory
requirements were emphasized by the Notice on the Special Rectification of APPs Infringing upon User’s Personal Rights and Interests,
which was issued by MIIT on October 31, 2019.
On October 21, 2019, the
Supreme People’s Court and the Supreme People’s Procuratorate jointly issued the Interpretations on Certain Issues Regarding
the Applicable of Law in the Handling of Criminal Case Involving Illegal Use of Information Networks and Assisting Committing Internet
Crimes, which came into effect on November 1, 2019, and further clarifies the meaning of Internet service provider and the severe situations
of the relevant crimes.
The recommended national
standard, Information Security Technology Personal Information Security Specification, puts forward specific refinement requirements on
the collection, preservation, use and commission processing, sharing, transfer, public disclosure, etc. Although it is not mandatory,
in the absence of clear implementation rules and standards for the law on cyber security and other personal information protection, it
will be used as the basis for judging and making determinations. On November 28, 2019, The Notice of Identification Method of Application
Illegal Collection and Use of Personal Information was issued, which provides a reference for the identification of App illegal collection
and use of personal information, and provides guidance for App operators’ self-inspection and self-correction and netizens’
social supervision.
On December 15, 2019,
the Provisions on Ecological Governance of Network Information Content was issued by the Cyberspace Administration of China, which has
come into effect on March 1, 2020. These provisions require network information content service platform to perform its duties as the
information content administrator, strengthen ecological governance of the network information contents of its own platform, and foster
a positive, healthy, progressive and amicable cyber culture.
The Measures on Cyber Security
Review was jointly issued on April 13, 2020 and took effect on June 1, 2020. It provides detailed rules regarding cyber security review,
any operator in violation of the regulations shall be penalized in accordance with Article 65 of the Cyber Security Law.
On July 3, 2020, the Data
Security Law (Draft) was published to solicit public comments. The Data Security Law (Draft) mainly sets forth specific provisions regarding
establishing basic systems for data security management, including data classification management system, risk assessment system, monitoring
and early warning system, and emergency disposal system. In addition, it clarifies the data security protection obligations of organizations
and individuals carrying out data activities and implementing data security protection responsibility.
On June 10, 2021, the Standing
Committee of the National People’s Congress of China promulgated the Data Security Law which took effect in September 1, 2021. The
Data Security Law provides for data security and privacy obligations of entities and individuals carrying out data activities, prohibits
entities and individuals in China from providing any foreign judicial or law enforcement authority with any data stored in China without
approval from the competent PRC authority, and sets forth the legal liabilities of entities and individuals found to be in violation of
their data protection obligations, including rectification order, warning, fines of up to RMB10 million, suspension of relevant business,
and revocation of business permits or licenses.
On July 6, 2021, the General
Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions
on Severe and Lawful Crackdown on Illegal Securities Activities, which took effective on the same day. These opinions emphasized the need
to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies.
These opinions proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the
risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data privacy protection.
On July 10, 2021, the Cyberspace
Administration of China issued the Measures for Cybersecurity Review which took effect on February 15 2022. It proposes to authorize the
relevant government authorities to conduct cybersecurity review on a range of activities that affect or may affect national security,
including listings in foreign countries by companies that possess personal data of more than one million users. The PRC National Security
Law covers various types of national security, including technology security and information security.
On December 24, 2021, the
CSRC issued Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft
for Comments) (the “Administration Provisions”), and the Provisions of the State Council on the Administrative Measures for
the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Measures”). The Administration
Provisions and Measures for overseas listings lay out specific requirements for filing documents and include unified regulation management,
strengthening regulatory coordination, and cross-border regulatory cooperation. Domestic companies seeking to list abroad must carry out
relevant security screening procedures if their businesses involve such supervision. Companies endangering national security are among
those off-limits for overseas listings. According to Relevant Officials of the CSRC Answered Reporter Questions (“CSRC Answers”),
after the Administration Provisions and Measures are implemented upon completion of public consultation and due legislative procedures,
the CSRC will formulate and issue guidance for filing procedures to further specify the details of filing administration and ensure that
market entities could refer to clear guidelines for filing, which means it will still take time to put the Administration Provisions and
Measures into effect. However, according to CSRC Answers, only new initial public offerings and refinancing by existent overseas listed
Chinese companies will be required to go through the filing process; other existent overseas listed companies will be allowed sufficient
transition period to complete their filing procedure. The Company may be required to obtain approval of and filling with the CSRC or other
PRC government authorities for its future refinancing. However, it is uncertain when the Administration Provision and the Measures will
take effect or if they will take effect as currently drafted. Currently, the period for public comment on these draft regulations has
ended and their provisions and anticipated adoption or effective date are subject to changes and thus their interpretation and implementation
remain substantially uncertain.
Regulations on Privacy Protection
On December 13, 2005, the
MPS issued the Regulations on Technological Measures for Internet Security Protection, or the Internet Protection Measures, which took
effect on March 1, 2006, requiring internet service providers to utilize standard technical measures for internet security protection.
Under the Several Provisions
on Regulating the Market Order of Internet Information Services issued by the MIIT on December 29, 2011 and that took effect on March
15, 2012, ICPs are also prohibited from collecting any personal user information or providing any information to third parties without
the consent of the user. The Cyber Security Law provides an exception to the consent requirement where the information is anonymous, not
personally identifiable and unrecoverable. ICPs must expressly inform the users of the method, content and purpose of the collection and
processing of user personal information and may only collect information necessary for its services. ICPs are also required to properly
maintain user personal information, and in case of any leak or likely leak of user personal information, ICPs must take remedial measures
immediately and report any material leak to the telecommunications regulatory authority.
In addition, the Decision
on Strengthening Network Information Protection issued by the NPC Standing Committee on December 28, 2012 emphasizes the need to protect
electronic information that contains individual identification information and other private data. The decision requires ICPs to establish
and publish policies regarding the collection and use of personal electronic information and to take necessary measures to ensure the
security of the information and to prevent leakage, damage or loss. Furthermore, MIIT’s Order on Protection of Personal Information
of Telecommunications and Internet Users, which was issued on July 16, 2013 and took effect on September 1, 2013, contains detailed requirements
on the use and collection of personal information as well as the security measures to be taken by ICPs.
On August 22, 2019, the Cyberspace
Administration of China promulgated the Provisions on the Cyber Protection of Children’s Personal Information, which took effect
on October 1, 2019, requiring that before collecting, using, transferring or disclosing the personal information of a child, any Internet
service operator should inform that child’s guardians in a noticeable and clear manner and obtain their consents. Meanwhile, Internet
service operators should take measures like encryption when storing children’s personal information.
On May 28, 2020, the Civil
Code of the PRC was issued by the National People’s Congress and became effective from January 1, 2021. The Civil Code defines the
processing of personal information as the collection, storage, use, processing, transmittal, provision, and disclosure of personal information.
Furthermore, according to the Civil Code, any entity that engages in the processing of personal information shall follow the principles
of lawfulness, fairness, and necessity and not overuse personal information, and they shall obtain the consent from the natural person
or his or her guardian, except as otherwise provided by laws and regulations.
On August 31, 2020, the Administrative
Provisions for Text Message and Voice Call Service (Draft) were published for public comments. It provides that no entity or individual
can send commercial text messages or make commercial calls to users without their consent. The relevant governmental authorities may order
rectification, impose warnings or fines, make public announcements, or enforce other administrative measures on violation. Under severe
circumstances, the relevant governmental authorities may revoke telecommunication licenses and phone number sources of the violating entity
or individual.
On September 22, 2020, the
Ministry of Public Security issued the Guiding Opinions on Implementing the Network Security Level Protection System and Critical Information
Infrastructure Security Protection System. It stipulates that internet operators shall cooperate with public security authorities to crack
down on illegal and criminal online activities. In the event of online crimes, or material cyber security threats and incidents, the internet
operators shall promptly report and provide necessary assistance to the public security authorities.
On October 21, 2020, the
Standing Committee of the National People’s Congress published a consultation draft of the Personal Information Protection Law,
which sets a high bar for Chinese data protection, taking consent as basis for data processing, introducing restrictions on international
data transfers and imposing revenue-based fines as the penalty for non-compliance.
On August 20, 2021, the Standing
Committee of the National People’s Congress adopted the Personal Information Security Law, which took effect on November 1, 2021.
The Personal Information Protection Law includes the basic rules for personal information processing, the rules for cross-border provision
of personal information, the rights of individuals in personal information processing activities, the obligations of personal information
processors, and the legal responsibilities for illegal collection, processing, and use of personal information.
Regulations on Anti-Monopoly Matters Related
to Internet Platform Companies
The PRC Anti-Monopoly Law,
which took effect on August 1, 2008, prohibits monopolistic conducts such as entering into monopoly agreements, abusing market dominance,
and undertaking concentrations that may have the effect of eliminating or restricting competition. On February 7, 2021, the Anti-Monopoly
Commission of the State Council officially promulgated the Anti-Monopoly Guidelines on Platform Economics. The guidelines prohibit certain
monopolistic conducts of internet platforms to protect market competition, safeguard interests of users and operators who participate
in internet platform economics, including without limitation, prohibiting platforms with dominant position from abusing their market dominance
(such as discriminating customers in terms of pricing and other transactional conditions using big data and analytics, coercing counterparties
into exclusivity arrangements, using technology methods to block competitors’ interface, tying or attaching unreasonable trading
conditions, compulsory collection of unnecessary user data). In addition, the guidelines also reinforce the requirement of antitrust merger
review for internet platform related transactions to safeguard market competition.
Regulations Relating to Loan Facilitation
On December 1, 2017, the
Group Head Office of Internet Financial Risk Special Rectification and the Group Head Office of the P2P Network Loan Risks jointly issued
the Notice on the Regulation and Rectification of the “Cash Loan” Business, or Circular 141, which regulates “cash loan”
businesses conducted by internet micro-finance companies, banking financial institutions and online lending information intermediaries.
Circular 141 defines “cash loans” as loans that are unrelated to the circumstances of their use, with no designated use for
the loan proceeds, no qualification requirement for the borrower and no collateral for the loan. The definition of a cash loan under Circular
141 is vague and subject to further regulatory interpretation. Circular 141 sets forth various prohibitions and obligations on banking
financial institutions participating in “cash loan” businesses, including that: (i) extension of loans jointly with any third-party
institution that has not obtained approvals for the lending business, or funding to such institutions for the purpose of extending loans
in any form, is prohibited; (ii) with respect to a lending business conducted in collaboration with a third-party institution, outsourcing
of the core business (including the credit assessment and risk control) is prohibited, and any credit enhancement service, whether or
not in disguised form (including the commitment to bear the risk of default), provided by any third-party institutions without guarantee
qualification are also prohibited, and (iii) banking financial institutions must require and ensure that such third-party institutions
do not collect any interest or fees from the borrowers. Any violation of Circular 141 may result in criminal liability and various penalties,
including suspension or cessation of business operations, sanctions, rectification, rejection of filing, and revocation of license.
In addition, the Notice on
Specific Rectification Implementation Plans for Risk of Online Microfinance Businesses of Microfinance Companies, or Circular 56, provides
that the online lending business conducted by microfinance companies in collaboration with a third-party institution, may not include
any credit enhancement service in disguised form (including the provision of a “drawer agreement” guarantee) or underlying
commitments by the third-party institution. Third-party institutions collaborating with microfinance companies are also prohibited from
collecting any interest or fees from borrowers. Violation of Circular 56 may result in various penalties.
On August 1, 2019, the General
Office of the State Council issued and promulgated the Guidance on Promoting the Healthy Development of the Platform Economy, which provides
that the market-access management and supervision of financial services provided through online platforms in the finance sector are regulated
by the laws, regulations and other relevant rules. In addition, entities conducting financial information intermediaries services and
transaction-matching services are subject to the market-access management pursuant to relevant laws.
On July 12, 2020, the Interim
Measures came into effect. While the Interim Measures apply to commercial banks, consumer finance companies and auto finance companies
directly, the Interim Measures also require these banking financial institutions to strengthen the management of cooperation related to
loan business, which would affect the cooperated institutions in internet loan business and their existing business models. Pursuant to
these Interim Measures, commercial banks shall evaluate their cooperation agencies and implement name list management. Commercial banks
shall not accept direct and disguised credit enhancement services from unqualified cooperation agencies, nor entrust third-party collection
agencies with illegal records. The Interim Measures also provide that, except for cooperating institutions that jointly provide loans,
commercial banks shall not entrust cooperating institutions to perform key operations, such as loan issuance, loan principal and interest
recovery, and suspension of funding. Pursuant to the Interim Measures, commercial banks shall independently carry out risk assessment
and credit approval for loans they fund, and take primary responsibility for post-loan management. Commercial banks shall not entrust
third-party institutions with records of violent collection or other illegal records to collect loans. Furthermore, according to the Interim
Measures, commercial banks shall forbid third-party partners from charging any fees or interests on borrowers, and shall clarify such
rule in written agreements with their partners. The CBIRC and its local branches shall evaluate reports and relevant materials submitted
by commercial banks, and the key assessment factors include independent control of credit approval procedures, contract signing and other
core risk management procedures of commercial banks.
On February 19, 2021, the
CBIRC issued the Notice of Further Regulating Online Loan Business of Commercial Banks, and it provides that commercial banks shall not
outsource material procedures of loan origination, loan servicing, and delinquency management to third-party institutions, and in addition,
commercial banks shall not engage in online loan business outside its registered place.
Regulation related to Exchange Administered
Financial Asset Securities Distribution
The distribution of exchange
administered financial asset securities is currently regulated by the Decision Regarding Straightening out and Rectifying Various Types
of Trading Venues to Effectively Prevent Financial Risks (“Document 38”) and the Implementation Opinions on Straightening
out and Rectifying Various Types of Trading Venues (“Document 37”), promulgated by the General Office of the State Council
on November 11, 2011 and July 12, 2012, respectively. Both Document 38 and Document 37 stipulate that exchanges that are subject to the
approval of the State Council or its administration department of finance for establishment, shall be regulated by the administration
department of finance of the State Council; all other exchanges shall be regulated by the local People’s Government at the provincial
level, which in practice, are the offices of finance at municipal and provincial levels. Document 38 and Document 37 emphasize on the
prohibitive activities relating to the issuance and distribution of exchange administered funds, for example, that the number of investors
of exchange administered funds shall not exceed 200 accumulatively.
Regulation on Foreign Exchange Control
Foreign exchange in China
is primarily regulated by:
| ● | The Foreign Currency Administration
Regulations (1996), as amended on January 14, 1997 and August 5, 2008; and |
| ● | The Administration Rules of
the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules. |
Under the Foreign Currency
Administration Regulations, the Renminbi is convertible for current account items, including the distribution of dividends, interest payments
and trade and service-related foreign exchange transactions. Conversion of Renminbi into foreign currency for capital account items, such
as, loans, investment in securities and repatriation of investments, however, remains subject to the registration of the SAFE or its local
counterparts as required by law. Under the Administration Rules, foreign-invested enterprises may buy, sell and remit foreign currencies
at banks authorized to conduct foreign exchange transactions for settlement of current account transactions after providing valid commercial
documents and, in the case of capital account item transactions, only after registration with the SAFE and, as the case may be, other
relevant PRC government authorities as required by law. Capital investments directed outside of China by foreign-invested enterprises
are also subject to restrictions, which include registration filing with MOFCOM. If the investment is made to the sensitive countries,
districts, or industries, it needs to be approved by MOFCOM.
The value of the Renminbi
against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political
and economic conditions. The conversion of Renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the
People’s Bank of China. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S.
dollar. Under the new policy, the Renminbi will be permitted to fluctuate within a band against a basket of certain foreign currencies.
We receive a significant portion of our revenue in Renminbi, which is not a freely convertible currency. Under our current structure,
our income will be primarily derived from dividend payments from our subsidiaries in China. Even though we may remit the income from China
to anywhere we want, the fluctuation of exchange rate may be a disadvantage to us if the Renminbi depreciated.
Regulation on Foreign Exchange Registration
of Offshore Investment by PRC Residents
The Notice on Relevant Issues
Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special
Purpose Vehicles, promulgated by SAFE on July 14, 2014 and designed to replace the former circular commonly known as “Notice 75”,
requires registration of PRC residents with local branches of SAFE with respect to their direct establishment or indirect control of an
offshore entity (referred to in Notice 37 as “special purpose vehicle.”), where such offshore entity are established for the
purpose of overseas investment or financing, provided that PRC residents contribute their legally owned assets or equity into such entity.
Notice 37 further requires
amendment to the registration where any significant changes with respect to the special purpose vehicle capitalization or structure of
the PRC resident itself (such as capital increase, capital reduction, share transfer or exchange, merger or spin off).
Regulation on Dividend Distributions
The principal regulations
governing the distribution of dividends paid by wholly foreign-owned enterprises include:
| ● | Corporate
Law (1993), as last amended with immediate effect on October 26, 2018 |
|
● |
The Foreign Investment Law promulgated on March 15, 2019 that became effect on January 1, 2020; |
|
● |
The Implementation Regulations for the Foreign Investment Law that was promulgated on December 12, 2019 and became effect on January 1, 2020; and |
|
● |
The Enterprise Income Tax Law (2007) which was amended on December 29, 2018 and its Implementation Regulations (2007) which was amended on April 23, 2019. |
Under these regulations,
wholly foreign-owned and joint venture enterprises in China may pay dividends only out of their accumulated profits, if any, as determined
in accordance with PRC accounting standards and regulations. In addition, an enterprise in China is required to set aside at least 10%
of its after-tax profit based on PRC accounting standards each year to its general reserves until its cumulative total reserve funds reaches
50% of its registered capital. Our Company’s reserve fund has not yet reached this level. The board of directors of a wholly foreign-owned
enterprise has the discretion to allocate a portion of its after-tax profits to its employee welfare and bonus funds. These reserve funds,
however, may not be distributed as cash dividends.
On March 16, 2007, the National
People’s Congress enacted the Enterprise Income Tax Law, and on December 6, 2007, the State Council issued the Implementation Regulations
on the Enterprise Income Tax Law, both of which became effective on January 1, 2008. Under this law and its implementation regulations,
dividends payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise will be subject
to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with the PRC that provides
for a lower withholding tax rate. See “Taxation.”
M&A Rules and Regulation on Overseas
Listings
On August 8, 2006, six PRC
regulatory agencies, MOFCOM, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State
Administration for Industry and Commerce, CSRC and SAFE, jointly adopted the Regulation on Mergers and Acquisitions of Domestic Enterprises
by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006, which was amended in June 2009. The M&A Rules purport, among other things,
to require that offshore SPVs that are controlled by PRC companies or individuals and that have been formed for overseas listing purposes
through acquisitions of PRC domestic interests held by such PRC companies or individuals, obtain the approval of the CSRC prior to publicly
listing their securities on an overseas stock exchange. On September 21, 2006, the CSRC published a notice on its official website specifying
documents and materials required to be submitted to it by SPVs seeking CSRC approval of their overseas listings.
While the application of
the M&A Rules remains unclear, our PRC legal counsel advised us that, based on their understanding of the current
PRC laws and regulations as well as the notice announced on September 21, 2006:
| ● | the CSRC currently has not
issued any definitive rule or interpretation concerning whether offerings such as our initial public offering are subject to the CSRC
approval procedures under the M&A Rules; and |
| ● | despite the lack of any definitive
rule or interpretation from CSRC, the main purpose of the M&A rule is for national security and national industrial policy and so
far none of the Chinese companies that have completed their public listing in the U.S. have obtained such approval; and |
| ● | Our business operations in
China do not belong to a prohibited industry by foreign investment; and |
| ● | Our M&A to our Chinese
subsidiary companies have all obtained properly the approval from local governmental authorizations; and |
| ● | Our BVI company is not established
by a Chinese citizen. Accordingly, although the purpose of BVI incorporation is for overseas listing, the M&A rule should not apply
to us. |
Our PRC counsel also advises
us, however, that there is still uncertainty as to how the M&A Rules will be interpreted and implemented. If the CSRC or other PRC
regulatory agencies, subsequently determine that CSRC approval was required for our initial public offering, we may need to apply for
remedial approval from the CSRC and we may be subject to penalties and administrative sanctions administered by these regulatory agencies.
These regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, or take
other actions that could materially adversely affect our business, financial condition, results of operations, reputation and prospects,
as well as the trading price of our Class A common shares. Consequently, even though our PRC counsel believes the probability for the
aforementioned actions is small, if you engage in market trading or other activities in anticipation of, and prior to, settlement and
delivery, you do so at the risk settlement and delivery may not occur.
In addition, if the CSRC
later requires that we obtain its approval for our initial public offering, we may be unable to obtain a waiver of the CSRC approval requirements,
if and when procedures are established to obtain such a waiver. Any uncertainties or negative publicity regarding the CSRC approval requirements
could have a material adverse effect on the trading price of our Class A common shares.
Regulations on Offshore Parent Holding Companies’
Direct Investment in and Loans to Their PRC Subsidiaries
An offshore company may invest
equity in a PRC company, which will become the PRC subsidiary of the offshore holding company after investment. Such equity investment
is subject to a series of laws and regulations generally applicable to any foreign-invested enterprise in China, which include the Wholly
Foreign Owned Enterprise Law, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Contractual Joint Venture Enterprise
Law, all as amended from time to time, and their respective implementing rules; the Tentative Provisions on the Foreign Exchange Registration
Administration of Foreign-Invested Enterprise; and the Notice on Certain Matters Relating to the Change of Registered Capital of Foreign-Invested
Enterprises.
Under the aforesaid laws
and regulations, the increase of the registered capital of a foreign-invested enterprise is subject to the prior approval by the original
approval authority of its establishment. In addition, the increase of registered capital and total investment amount shall both be registered
with SAIC.
Shareholder loans made by
offshore parent holding companies to their PRC subsidiaries are regarded as foreign debts in China for regulatory purposes, which debts
are subject to a number of PRC laws and regulations, including the PRC Foreign Exchange Administration Regulations, the Interim Measures
on Administration on Foreign Debts, the Tentative Provisions on the Statistics Monitoring of Foreign Debts and its implementation rules,
and the Administration Rules on the Settlement, Sale and Payment of Foreign Exchange.
Under these regulations,
the shareholder loans made by offshore parent holding companies to their PRC subsidiaries shall be registered with SAFE. Furthermore,
the total amount of foreign debts that can be incurred by such PRC subsidiaries, including any shareholder loans, shall not exceed the
difference between the total investment amount and the registered capital amount of the PRC subsidiaries, both of which are subject to
governmental approval.
Regulations on Enterprise Income Tax
On March 16, 2007, the NPC
Standing Committee issued the Enterprise Income Tax Law of the PRC, which took effect on January 1, 2008, or the Old EIT Law. On December
6, 2007, the State Council enacted the Implementation Rules for the Enterprise Income Tax Law of the PRC, or the EIT Rules, which also
took effect on January 1, 2008 and was amended on April 23, 2019. The Old EIT Law was amended on February 24, 2017 and December 29, 2018.
The Old EIT Law, as amended, and the EIT Rules are collectively referred to as the EIT Law. According to the EIT Law, taxpayers consist
of resident enterprises and non-resident enterprises. Resident enterprises are defined as enterprises that are established in China in
accordance with the PRC laws, or that are established in accordance with the laws of foreign countries but whose actual or de
factocontrol entity is within the PRC. Non-resident enterprises are defined as enterprises that are set up in accordance with the
laws of foreign countries and whose actual administration is conducted outside the PRC, but (i) have entities or premises in China, or
(ii) have no entities or premises but have income generated from China. According to the EIT Law, foreign-invested enterprises in the
PRC are subject to a uniform enterprise income tax rate of 25%. A non-resident enterprise that has an establishment or premises within
the PRC must pay enterprise income tax at a rate of 25% on its income that is derived from such establishment or premises inside the PRC
and that is sourced outside the PRC but is actually connected with the said establishment or premises. However, if non-resident enterprises
have not formed permanent establishments or premises in the PRC, or if they have formed permanent establishment institutions or premises
in the PRC but there is no actual relationship between the relevant income derived in the PRC and the established institutions or premises
set up by them, the enterprise income tax is, in that case, set at the rate of 10% for their income sourced from inside the PRC.
Enterprises that are recognized
as high and new technology enterprises in accordance with the Notice of the Ministry of Science, the Ministry of Finance and the State
Administration of Taxation on Amending and Issuing the Administrative Measures for the Determination of High and New Tech Enterprises
are entitled to enjoy a preferential enterprise income tax rate of 15%. Pursuant to the Administrative Measures for the Recognition of
High and New Technology Enterprises, the validity period of the high and new technology enterprise qualification shall be three years
from the date of issuance of the certificate of high and new technology enterprise. An enterprise can re-apply for such recognition as
a high and new technology enterprise before or after the previous certificate expires.
On February 3, 2015, the
State Administration of Taxation, or SAT, issued the Announcement on Several Issues Concerning Enterprise Income Tax on Indirect Transfer
of Assets by Non-Resident Enterprises, or Circular 7. Circular 7 provides comprehensive guidelines relating to, and heightening the Chinese
tax authorities’ scrutiny of, indirect transfers by a non-resident enterprise of assets (including assets of organizations and premises
in the PRC, immovable property in the PRC, and equity investments in PRC resident enterprises), or the PRC Taxable Assets. For instance,
when a non-resident enterprise transfers equity interest in an overseas holding company that directly or indirectly holds certain PRC
Taxable Assets and if the transfer is believed by the Chinese tax authorities to have no reasonable commercial purpose other than to evade
enterprise income tax, Circular 7 allows the Chinese tax authorities to reclassify the indirect transfer of PRC Taxable Assets into a
direct transfer and therefore impose PRC enterprise income tax at a rate of a 10% on the non-resident enterprise. On the other hand, indirect
transfers falling into the scope of the safe harbors under the Circular 7 may not be subject to PRC tax under the Circular 7. The safe
harbors include qualified group restructurings, public market trades and exemptions under tax treaties or arrangements.
On October 17, 2017, the
SAT issued the Announcement on Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises, or the SAT Circular
37, which took effect on December 1, 2017 and was amended on June 15, 2018. According to SAT Circular 37, the balance after deducting
the equity net value from the equity transfer income shall be the taxable income amount for equity transfer income.
Under the SAT Circular 7
and the Law on the Administration of Tax Collection issued by the NPC Standing Committee on September 4, 1992 and last amended on April
24, 2015, in the case of an indirect transfer, entities or individuals that are obligated to pay the transfer price to the transferor
shall act as withholding agents. If they fail to make withholding or withhold the full amount of tax payable, the transferor of equity
must declare and pay tax to the tax authorities in charge within seven days from the occurrence of the tax payment obligation. Where the
withholding agent does not make withholding, and the transferor of equity does not pay the payable amount, the tax authority may impose
late payment interest on the transferor. In addition, the tax authority may also hold the withholding agents liable and impose a penalty
of ranging from 50% to 300% of the unpaid tax on them. The penalty imposed on the withholding agents may be reduced or waived if the withholding
agents have submitted the relevant materials in connection with the indirect transfer to the PRC tax authorities in accordance with Circular
7.
Regulations on Dividend Tax
Pursuant to the SAT Circular
on Relevant Issues relating to the Implementation of Dividend Clauses in Tax Agreements, which took effect on February 20, 2009, all of
the following requirements must be satisfied to enjoy the preferential tax rates provided under the tax agreements: (1) the tax resident
that receives dividends should be a company as provided in the tax agreement; (2) the equity interest and voting shares of the PRC resident
company directly owned by the tax resident satisfy the percentages specified in the tax agreement; and (3) the equity interest of the
PRC resident company directly owned by such tax resident at any time during the 12 months prior to receiving the dividends satisfy the
percentage specified in the tax agreement.
The EIT Law provides that
an income tax rate of 10% will normally be applicable to dividends payable to investors that are “non-resident enterprises,”
and gains derived by such investors, which (a) do not have an establishment or place of business in the PRC or (b) have an establishment
or place of business in the PRC, but the relevant income is not effectively connected with the establishment or place of business to the
extent such dividends and gains are derived from sources within the PRC. The income tax on the dividends may be reduced pursuant to a
tax treaty between China and other applicable jurisdictions. Pursuant to the Arrangement Between the Mainland of China and the Hong Kong
Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income,
or the Double Tax Avoidance Arrangement, issued by the SAT on August 21, 2006 that took effect on December 8, 2006, and other applicable
PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have satisfied the relevant conditions
and requirements under such Double Tax Avoidance Arrangement, its protocols and other applicable laws, the 10% withholding tax on the
dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5% upon receiving approval from
the in-charge tax authority. However, based on the SAT Notice on Certain Issues with Respect to the Enforcement of Dividend Provisions
in Tax Treaties, issued and effective on February 20, 2009, if the relevant PRC tax authorities determine, in their discretion, that a
company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities
may adjust the preferential tax treatment. Based on the SAT Announcement of Taxation on Issues Relating to “Beneficial Owner”
in Tax Treaties, issued on February 3, 2018 and effective from April 1, 2018, to determine the “beneficial owner” status of
a resident of the treaty counterparty seeking to enjoy tax treaty benefits, a comprehensive analysis must be carried out in accordance
with the factors set out in the announcement.
On August 27, 2015, the SAT
issued the Announcement on Promulgating the Administrative Measures for Tax Convention Treatment for Non-resident Taxpayers, which took
effect on November 1, 2015 and was amended on June 15, 2018. The aforementioned announcement was repealed by the Announcement of
State Taxation Administration on Promulgation of the Administrative Measures on Non-resident Taxpayers Enjoying Treaty Benefits, which
was propagated on October 14, 2019 and took effect on January 1, 2020. Under such announcement, non-resident taxpayers meeting conditions
for enjoying the convention treatment may be entitled to the convention treatment themselves when filing a tax return or making a withholding
declaration through a withholding agent, subject to the subsequent administration by the tax authorities. Such taxpayers who make their
own declaration must self-assess whether they are entitled to tax treaty benefits, make truthful declarations and submit the relevant
reports, statements and materials required by the relevant tax authorities.
Regulations on Value-added Tax
All entities and individuals
engaged in the sale of goods, provision of processing, repairs and replacement services, and the importation of goods within the territory
of the PRC must pay value-added tax, or the VAT, in accordance with the Provisional Regulations on Value-added Tax of the PRC, or the
Provisional Regulations on VAT, and its implementation rules, or collectively, the VAT Law. The Provisional Regulations on VAT, which
was issued by the State Council on December 13, 1993 and took effect on January 1, 1994, was amended by the Notice of Adjustment of VAT
Rates issued on April 4, 2018 and by the Notice of Strengthening Reform of VAT Policies issued on March 20, 2019. Pursuant to the VAT
Law, VAT payable is calculated as “output VAT” minus “input VAT”. The rate of VAT varies among 13%, 9% and 6%
depending on the product type.
In accordance with the Circular
of the Ministry of Finance and SAT on Comprehensively Promoting the Pilot Program of the Collection of Value-added Tax in Lieu of Business
Tax, issued on March 23, 2016 and effective from May 1, 2016, upon approval of the State Council of the PRC, the pilot program of the
collection of VAT in lieu of business tax shall be promoted nationwide in a comprehensive manner as at May 1, 2016.
Regulations on Trademarks
Trademarks are protected
by the PRC Trademark Law adopted in 1982, as last amended in 2019 amended, as well as the Implementation Regulations of the PRC Trademark Law
adopted by the State Council in 2002 and amended in 2014. The Trademark Office under the SAIC handles trademark registrations. Trademarks can be
registered for a term of ten years and can be extended for another ten years if requested upon expiration of the first or any renewed
ten-year term. The PRC Trademark Law has adopted a “first-to-file” principle with respect to trademark registration. Where
a trademark for which a registration application has been made is identical or similar to another trademark which has already been registered
or been subject to a preliminary examination and approval for use on the same type of or similar commodities or services, the application
for such trademark registration may be rejected. Any person applying for the registration of a trademark may not prejudice the existing
right first obtained by others, nor may any person register in advance a trademark that has already been used by another party and has
already gained a “sufficient degree of reputation” through such other party’s use. Trademark license agreements must
be filed with the Trademark Office or its regional offices. We are currently using at no expense two trademarks registered in China and
owned by Mr. Anyuan Sun. Meanwhile, we have successfully applied on our own name two trademarks in 2015, for both of which we have obtained
the certificate issued by the authority (SAIC).
Regulations on Copyright and Software Products
Under the Copyright Law
of the PRC issued by the NPC Standing Committee on September 7, 1990, which has been replaced by its latest amendment on June 1 2020
and became effective on June 1, 2021, works of Chinese citizens, legal persons or other organizations, whether published or not, enjoy copyright in their works, which
include, among others, works of literature, art, natural science, social science, engineering technology and computer software.
Similarly, under the Computer Software Protection Regulations issued by the State Council on June 4, 1991, last amended on January
30, 2013 and effective on March 1, 2013, Chinese citizens, legal persons and other organizations shall enjoy copyright on the
software they develop, regardless of whether the software has been released publicly. Software copyright commences from the date on
which the development of the software is completed. A software copyright owner may register with the software registration
institution recognized by the copyright administration department of the State Council of the PRC. A registration certificate issued
by the software registration institution is a preliminary proof of the registered items. The protection period for software
copyright of a legal person or other organizations shall be fifty years, concluding on December 31 of the fiftieth year after the
software’s initial release. In order to further implement the Computer Software Protection Regulations, the National Copyright
Administration issued the Measures for the Registrations of Computer Software Copyright effective on February 20, 2002, which
provides procedures for software copyright registration, license contract registration and transfer contract registration. The
Copyright Protection Center of the PRC is mandated as the software registration institution under the regulations.
Employment Laws
In accordance with the
PRC National Labor Law, which became effective in January 1995 and last amended on December 29, 2018, and the PRC Labor Contract
Law, which became effective in January 2008, as amended subsequently in 2012, employers must execute written labor contracts with
full-time employees in order to establish an employment relationship. All employers must compensate their employees equal to at
least the local minimum wage standards. All employers are required to establish a system for labor safety and sanitation, strictly
abide by state rules and standards and provide employees with appropriate workplace safety training. In addition, employers in China
are obliged to pay contributions to the social insurance plan and the housing fund plan for employees.
We have entered into employment
agreements with all of our full-time employees. We have contributed to the basic and minimum social insurance plan. Due to a high employee
turnover rate in our industry, it is difficult for us to comply fully with the law. While we believe we have made adequate provision of
such outstanding amounts of contributions to such plans in our financial statements, any failure to make sufficient payments to such plans
would be in violation of applicable PRC laws and regulations and, if we are found to be in violation of such laws and regulations, we
could be required to make up the contributions for such plans as well as to pay late fees and fines.
| C. | Organizational structure |
Corporate Structure
The following chart illustrates
our Company’s organizational structure, including our subsidiaries and consolidated affiliated entities as of the date of this annual
report:
| D. | Property, plant and equipment |
Description of Property
There is no private land
ownership in China. Individuals and entities are permitted to acquire land use rights for specific purposes. Following is a list of our
properties, all of which we currently lease:
Property |
|
Rental Term |
|
Space |
|
|
Ground
Floor Area |
|
99 Damba Road, Putuo District, Shanghai |
|
May 20, 2019 – October 19, 2023 |
|
|
|
|
|
|
354 |
m2 |
Gubei SOHO, 188 HongBaoShi Road, Changning District, Shanghai |
|
October 01, 2019 – July 31, 2022 |
|
|
|
|
|
|
1000 |
m2 |
Unit 605, 6 / F, block B, 33 Financial Street, Xicheng District, Beijing |
|
January 01, 2020 – December 31, 2020 |
|
|
|
|
|
|
278 |
m2 |
Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
The following discussion
and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements
and related notes that appear in this annual report. In addition to historical consolidated financial information, the following discussion
contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those
discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below
and elsewhere in this annual report, particularly in “Risk Factors.”
Overview
Nisun International Enterprise
Development Group Co., Ltd (“Nisun International” or the “Company”), formerly known as Hebron Technology Co.,
Ltd., was established under the laws of the British Virgin Islands (“BVI”) as a company limited by shares on May 29, 2012.
On September 22, 2020, the Company changed its name from “Hebron Technology Co., Ltd.” to “Nisun International Enterprise
Development Group Co., Ltd.” The Company is a holding company and conducts its business mainly through its subsidiaries, variable
interest entities (“VIEs”) and subsidiaries of the VIEs in the People’s Republic of China (the “PRC”).
We are a technology-driven, integrated supply
chain solutions and financial solutions services provider focused on transforming China’s corporate finance industry. We provide
supply chain solutions services to corporate enterprises and finance institutions in technology supply chain management and digital technology
transformation. Leveraging our fintech expertise and industry experience, we provide supply chain solutions to both PRC and non-PRC enterprises.
Further, we offer a wide range of technology-driven customized financing solutions to small and medium-sized enterprises (SMEs) in China
to improve SMEs’ access to capital. Our comprehensive solutions enable SMEs to acquire financing in a convenient, efficient and
customized manner to facilitate healthy enterprise development. We also provide direct banking solutions to small- and medium-sized commercial
banks and other financial institutions in their distribution and management of direct banking and other financial products. Built on our
proprietary financial technology, our fintech platforms offer specialized asset allocation and financial planning services to institutional
and individual investors.
Prior to November 30, 2020, our business also
included equipment and engineering services focused on the development and manufacture of valves, pipe fittings fluid equipment primarily
used in the pharmaceutical, biological, food and beverage industries in the PRC. The equipment and engineering services were conducted
by Hong Kong Xibolun Technology Limited (“HK Xibolun”) and its subsidiaries in the PRC, Wenzhou Xibolun Fluid Equipment Co.,
Limited and Zhejiang Xibolun Automation Project Technology Co., Ltd. (collectively, the “Xibolun Group”).
On November 30, 2020, to streamline our businesses,
we transferred all of our equity interests in HK Xibolun to Wise Metro Development Co., Ltd. (“Wise Metro”), an entity controlled
by our former Chief Executive Officer and former Chairman of the Board of Directors, Mr. Anyuan Sun, pursuant to a call option agreement
we entered into with Wise Metro on April 16, 2019. Through the disposition of our equity in HK Xibolun, we divested our interests in the
Xibolun Group and discontinued our legacy manufacturing and engineering business.
Our current business is comprised of three main
services areas, including SME financing solutions, supply chain solutions and other financing solutions, and supply chain trading
business. We provide technology-driven customized comprehensive financing solutions to SMEs to improve SMEs’ access to capital and
financings. Leveraging our closed-loop fintech ecosystem, we help SMEs channel working capital and liquidity resources by connecting SMEs
to the investors and solving risk control issues in the financing process.
We launched our technology-driven integrated supply
chain solutions business in January 2020. Fintech provides multi-level supply chain solutions to core enterprises and SMEs by focusing
on industry and finance integration and industry segmentation. Our supply chain solutions services currently primarily target the agriculture,
infrastructure, maritime logistics, energy and plastics products markets. With a focus on finance and industry linkage, we serve the upstream
and downstream enterprises and transactions of the supply chain industry while facilitating supply-side sub-sector reforms. We aim to
build supply chain platforms that link commercial banks, securities firms, trusts, investment funds, insurance companies and state-owned
enterprises through the continued introduction of big data, artificial intelligence, Internet of Things, blockchain and other cutting-edge
technologies into the supply chain industry.
As our supply chain solution business grew substantially in size, we
launched supply chain trading business and expand our product offerings, leverage supply chain technology platform and high-quality customers
connections. Complementary to supply chain solution, we also sell products such as chemicals and vegetables directly to customers through
our intelligent matching system.
Fintech also provides direct banking solutions
to small and medium-sized commercial banks and other financial institutions in their distribution and management of direct banking and
other financial products. Our Fintech platform offers specialized asset allocation and financial planning services to institutional and
individual investors. It optimizes risk controls and asset management procedures to meet the investors’ financial planning needs
and minimize their investment risks.
Impact of COVID-19 Pandemic
In December 2019, a
novel strain of coronavirus (COVID-19) surfaced. COVID-19 has spread rapidly to many parts of the PRC and other parts of the world
in the first quarter of 2020, which has caused significant volatility in the PRC and international markets. There is significant
uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the PRC and
international economies. After the Spring of 2020, the COVID outbreak in China has gradually been controlled and we returned to
normal operations. The COVID-19 pandemic did not have a material negative impact on the Company’s financial services and
supply chain solution business for the year ended December 31, 2021. In March 2022, due to the spread of new variants and
subvariants of COVID-19 in Shanghai and several other cities in China, which appeared to have spread faster than the original
COVID-19 variant, local governments of the impacted cities have imposed strict movement restrictions. In mid-March 2022, Shanghai
authorities issued strict lockdown and shutdown orders in response to the pandemic. As a result, the employees of our PRC operating
entities located in Shanghai started to work from home. As our Shanghai employees were prepared for remote working in advance, our
Shanghai entities have been able to continue to provide services to our customers remotely with minimum interruptions. Management of
the Company does not believe the lockdown restrictions in Shanghai will have a material adverse impact on the Company’s
overall business, operating results and financial condition.
However, the pandemic could
adversely affect our business and financial results in 2022 if the virus’s resurgence causes significant disruptions to our operations
or the business of our supply chain customers, logistics and service providers, and has a negative impact to the pricing of our products.
We cannot predict the severity and duration of the impact from such resurgence. If any new outbreak is not effectively and timely controlled,
or if government responses to outbreaks are long lasting, it could result in the slowdown in regional economic growth and weakened liquidity
and financial condition of our customers, among other things. Any of these factors and other factors beyond our control could have an
adverse effect on the overall business environment, cause uncertainties in the economic growth of the regions where we conduct business,
and could materially and adversely impact our business, financial condition, and results of operations.
Financial Results for fiscal year 2021 and
2020
The following table presents
an overview of our results of operations for fiscal years 2021 and 2020:
| |
Year ended December 31, | | |
Changes | |
| |
2021 | | |
2020 | | |
($) | | |
(%) | |
Revenue | |
$ | 160,199,711 | | |
$ | 42,190,191 | | |
| 118,009,520 | | |
| 280 | % |
Cost of revenue | |
| 106,151,567 | | |
| 19,973,656 | | |
| 86,177,911 | | |
| 432 | % |
Gross profit | |
| 54,048,144 | | |
| 22,216,535 | | |
| 31,831,609 | | |
| 143 | % |
Selling, general and administrative expenses | |
| 15,859,234 | | |
| 12,188,316 | | |
| 3,670,918 | | |
| 30 | % |
Income from operations | |
| 38,188,910 | | |
| 10,028,219 | | |
| 28,160,691 | | |
| 281 | % |
Other income (expense), net | |
| 2,587,113 | | |
| 829,451 | | |
| 1,757,662 | | |
| 212 | % |
Income before income taxes | |
| 40,776,023 | | |
| 10,857,670 | | |
| 29,918,353 | | |
| 276 | % |
Income taxes expense | |
| 10,269,501 | | |
| 941,064 | | |
| 9,328,437 | | |
| 991 | % |
Net income from continuing operations | |
| 30,506,522 | | |
| 9,916,606 | | |
| 20,589,916 | | |
| 208 | % |
(Loss) income from discontinued operations, net of tax | |
| - | | |
| (22,971,016 | ) | |
| 22,971,016 | | |
| 100 | % |
Net income (loss) | |
| 30,506,522 | | |
| (13,054,410 | ) | |
| 43,560,932 | | |
| 334 | % |
Less: net income attributed to non-controlling interest | |
| 126,161 | | |
| 37,380 | | |
| 88,781 | | |
| 238 | % |
Net income (loss) attributed to the shareholders | |
| 30,380,361 | | |
| (13,091,790 | ) | |
| 43,472,151 | | |
| 332 | % |
Foreign currency translation income | |
| 2,039,011 | | |
| 5,507,420 | | |
| (3,468,409 | ) | |
| (63 | )% |
Comprehensive (loss) income | |
$ | 32,419,372 | | |
$ | (7,584,370 | ) | |
| 40,003,742 | | |
| 527 | % |
The following table presents
an overview of our results of operations for fiscal years 2020 and 2019:
| |
Year ended December 31, | | |
Changes | |
| |
2020 | | |
2019 | | |
($) | | |
(%) | |
Revenue | |
$ | 42,190,191 | | |
$ | 2,525,524 | | |
| 39,664,667 | | |
| 1571 | % |
Cost of revenue | |
| 19,973,656 | | |
| 19,492 | | |
| 19,954,164 | | |
| 102371 | % |
Gross profit | |
| 22,216,535 | | |
| 2,506,032 | | |
| 19,710,503 | | |
| 787 | % |
Selling, general and administrative expenses | |
| 12,188,316 | | |
| 1,331,467 | | |
| 10,856,849 | | |
| 815 | % |
Income from operations | |
| 10,028,219 | | |
| 1,174,565 | | |
| 8,853,654 | | |
| 754 | % |
Other income (expense), net | |
| 829,451 | | |
| 1,371 | | |
| 828,080 | | |
| 60400 | % |
Income before income taxes | |
| 10,857,670 | | |
| 1,175,936 | | |
| 9,681,734 | | |
| 824 | % |
Income taxes expense (benefit) | |
| 941,064 | | |
| (55,731 | ) | |
| 996,795 | | |
| 1,789 | % |
Net income from continuing operations | |
| 9,916,606 | | |
| 1,231,667 | | |
| 8,684,939 | | |
| 705 | % |
(Loss) income from discontinued operations, net of tax | |
| (22,971,016 | ) | |
| 1,508,323 | | |
| (24,479,339 | ) | |
| (1623 | )% |
Net (loss) income | |
| (13,054,410 | ) | |
| 2,739,990 | | |
| (15,794,400 | ) | |
| (575 | )% |
Less: net income attributed to non-controlling interest | |
| 37,380 | | |
| - | | |
| 37,380 | | |
| 100 | % |
Net (loss) income attributed to the shareholders | |
| (13,091,790 | ) | |
| 2,739,990 | | |
| (15,831,780 | ) | |
| (578 | )% |
Foreign currency translation income (loss) | |
| 5,507,420 | | |
| (561,091 | ) | |
| 6,068,511 | | |
| (1082 | )% |
Comprehensive (loss) income | |
$ | (7,584,370 | ) | |
$ | 2,178,899 | | |
| (9,763,269 | ) | |
| (448 | )% |
Revenues
The following table presents
a breakdown of our revenue from continuing operations for fiscal years 2021 and 2020.
| |
Year ended December 31, | | |
Changes | | |
Changes | |
| |
2021 | | |
% | | |
2020 | | |
% | | |
($) | | |
(%) | |
Revenue from financial service: | |
| | |
| | |
| | |
| | |
| | |
| |
SME financing solutions | |
$ | 87,133,963 | | |
| 54 | % | |
$ | 40,779,794 | | |
| 97 | % | |
| 46,354,169 | | |
| 114 | % |
Supply chain financing solutions | |
| 4,930,289 | | |
| 3 | % | |
| 1,369,859 | | |
| 3 | % | |
| 3,560,430 | | |
| 260 | % |
Other financing solutions | |
| 3,222 | | |
| 0 | % | |
| 40,538 | | |
| 0 | % | |
| (37,316 | ) | |
| (92 | )% |
Total revenue from financial service | |
$ | 92,067,474 | | |
| 57 | % | |
$ | 42,190,191 | | |
| 100 | % | |
| 49,877,283 | | |
| 118 | % |
Revenue from supply chain trading | |
| 68,132,237 | | |
| 43 | % | |
| - | | |
| - | % | |
| 68,132,237 | | |
| 100 | % |
Total revenue | |
| 160,199,711 | | |
| 100 | % | |
| 42,190,191 | | |
| 100 | % | |
| 118,009,520 | | |
| 280 | % |
The following table presents
a breakdown of our revenue from continuing operations for fiscal years 2020 and 2019.
| |
Year ended December 31, | | |
Changes | | |
Changes | |
| |
2020 | | |
% | | |
2019 | | |
% | | |
($) | | |
(%) | |
SME financing solutions | |
$ | 40,779,794 | | |
| 97 | % | |
$ | 2,522,143 | | |
| 100 | % | |
| 38,257,651 | | |
| 1517 | % |
Supply chain financing solutions | |
| 1,369,859 | | |
| 3 | % | |
| - | | |
| - | % | |
| 1,369,859 | | |
| 100 | % |
Other financing solutions | |
| 40,538 | | |
| 0 | % | |
| 3,381 | | |
| - | % | |
| 37,157 | | |
| 1099 | % |
Total revenue | |
$ | 42,190,191 | | |
| 100 | % | |
$ | 2,525,524 | | |
| 100 | % | |
| 39,664,667 | | |
| 1571 | % |
Total revenue for the year
ended December 31, 2021, was $160.2 million, representing an increase of $118.0 million or 280%, from $42.2 million for the year ended
December 31, 2020, with increases in both revenue from financial service and revenue from sales.
The increase in our total revenues was primarily due to our ability to expand our business, achieve higher quality customers, and achieve
a higher customer retention.
The Company provides a set
of financing solutions to SMEs, including design, issuance, distribution, and management of financial products. For the year ended December
31, 2021, the revenue from SME financing solution services increased by $46.4 million, or 114%, from $40.8 million for the year ended
December 31, 2020, to $87.1 million in the comparable period in 2021 as a result of the increased demand from SME customers to seek alternative
financing solutions to bank financing.
The Company commenced its
supply chain solution business in January 2020. With a focus on finance and industry linkages, the Company aims to serve the upstream
and downstream of the supply chain industry while facilitating supply-side sub-sector reform. Revenue generated from supply chain solutions
includes financing and management services to downstream venders. During the year ended December 31, 2021, revenue from the supply chain
solutions was $4.9 million, increased by $3.6 million, or 260%, from $1.4 million for the year ended December 31, 2020, primarily due
to the Company’s expansion of its supply chain solution business in various industries such as the energy industry and retail industry.
The Company launched supply
chain trading business in July 2021 after generating high-quality customers and resources through its supply chain financing solution
business. For fiscal year 2021, revenue from supply chain trading business was $68.1 million. We expect our revenue from sales related
to supply chain solution business will continue to grow.
Cost of Revenue
The following table presents
a breakdown of our cost of revenue for fiscal years 2021 and 2020:
| |
Year ended December 31, | | |
Changes | | |
Changes | |
| |
2021 | | |
% | | |
2020 | | |
% | | |
($) | | |
(%) | |
Cost of revenue - service | |
| | |
| | |
| | |
| | |
| | |
| |
SME financing solutions | |
$ | 36,744,546 | | |
| 35 | % | |
$ | 19,249,545 | | |
| 96 | % | |
| 17,495,001 | | |
| 91 | % |
Supply chain financing solutions | |
| 1,548,698 | | |
| 1 | % | |
| 724,111 | | |
| 4 | % | |
| 824,587 | | |
| 114 | % |
Other financing solutions | |
| - | | |
| | | |
| - | | |
| - | | |
| - | | |
| - | |
Total cost of revenue - service | |
| 38,293,244 | | |
| 36 | % | |
| 19,973,656 | | |
| 100 | % | |
| 18,319,588 | | |
| 92 | % |
Cost of revenue – supply chain trading | |
| 67,858,323 | | |
| 64 | % | |
| - | | |
| - | % | |
| 67,858,323 | | |
| 100 | % |
Total cost of revenue | |
$ | 106,151,567 | | |
| 100 | % | |
$ | 19,973,656 | | |
| 100 | % | |
| 86,177,911 | | |
| 432 | % |
The following table presents
a breakdown of our cost of revenue for fiscal years 2020 and 2019:
| |
Year ended December 31, | | |
Changes | | |
Changes | |
| |
2020 | | |
% | | |
2019 | | |
% | | |
($) | | |
(%) | |
Cost of revenue - service | |
| | |
| | |
| | |
| | |
| | |
| |
SME financing solutions | |
$ | 19,249,545 | | |
| 96 | % | |
$ | 19,492 | | |
| 100 | % | |
| 19,230,053 | | |
| * | |
Supply chain financing solutions | |
| 724,111 | | |
| 4 | % | |
| - | | |
| - | % | |
| 724,111 | | |
| 100 | % |
Other financing solutions | |
| - | | |
| - | % | |
| - | | |
| - | % | |
| - | | |
| - | % |
Total cost of revenue | |
$ | 19,973,656 | | |
| 100 | % | |
$ | 19,492 | | |
| 100 | % | |
| 19,954,164 | | |
| * | |
Cost of revenue from service
is primarily comprised of cost of sales, direct operational costs, direct costs associated with staff who design and manage the SME financing
solutions, supply chain solutions and other financing solutions business and sales related taxes, office rent and expenses.
For the year ended December 31, 2021, cost of revenue was $106.2 million,
increased by $86.2 million, or 432%, from $20.0 million for the year ended December 31, 2021.
For the year ended December 31, 2021, cost of revenue related to SME
financing service was $36.7 million, increased by $17.5 million, or 92%, from $19.2 million for the year ended December 31, 2021, primarily
attributable to the increased revenue and more operational cost and staff cost.
For the year ended December
31, 2021, cost of revenue related to supply chain financing solution service was $1.5 million, increased by $0.8 million, or 114%, from
$0.7 million for the year ended December 31, 2021, primarily attributable to the increased revenue and more operational cost.
The Company launched trading business in July 2021 after generating
high-quality customers and resources through its supply chain financing solution business. For the year ended December 31, 2021, the cost
of revenue related to sales was $67.9 million.
Gross Profit
For the years ended December
31, 2021 and 2020, gross profit from continuing operations was $54.0 million and $22.2 million, respectively, representing an increase
of approximately $31.8 million or 143%. The increase was primarily due to the fact that the Company commenced its financial services business
in July 2019 and has experienced a significant increase in demand from SME enterprises in the PRC to seek for standardized financing solutions
alternative to bank financing.
Operating Expenses
The following table presents
a breakdown of operating expenses for fiscal years 2021 and 2020:
| |
Year ended December 31, | | |
Changes | | |
Changes | |
| |
2021 | | |
% | | |
2020 | | |
% | | |
($) | | |
(%) | |
Selling expenses | |
$ | 2,323,403 | | |
| 15 | % | |
$ | 3,181,810 | | |
| 26 | % | |
| (858,407 | ) | |
| (27 | )% |
General and administrative expenses | |
| 11,936,103 | | |
| 75 | % | |
| 8,188,736 | | |
| 67 | % | |
| 3,747,367 | | |
| 46 | % |
Research and development expenses | |
| 1,599,728 | | |
| 10 | % | |
| 817,770 | | |
| 7 | % | |
| 781,958 | | |
| 96 | % |
Total operating expenses | |
$ | 15,859,234 | | |
| 100 | % | |
$ | 12,188,316 | | |
| 100 | % | |
| 3,670,918 | | |
| 30 | % |
The following table presents
a breakdown of operating expenses for fiscal years 2020 and 2019:
| |
Year ended December 31, | | |
Changes | | |
Changes | |
| |
2020 | | |
% | | |
2019 | | |
% | | |
($) | | |
(%) | |
Selling expenses | |
$ | 3,181,810 | | |
| 67 | % | |
$ | 93,620 | | |
| 7 | % | |
| 3,088,190 | | |
| 3299 | % |
General and administrative expenses | |
| 8,188,736 | | |
| 26 | % | |
| 1,082,631 | | |
| 81 | % | |
| 7,106,105 | | |
| 656 | % |
Research and development expenses | |
| 817,770 | | |
| 7 | % | |
| 155,216 | | |
| 12 | % | |
| 662,554 | | |
| 427 | % |
Total operating expenses | |
$ | 12,188,316 | | |
| 100 | % | |
$ | 1,331,467 | | |
| 100 | % | |
| 10,856,849 | | |
| 815 | % |
Operating expenses are comprised
of advertising and marketing costs, administrative compensation, office rent and expenses, R&D expenses, and professional fees. Total
operating expenses were $15.9 million for fiscal year 2021, increased by $3.7 million, or 30%, from $12.2 million in the same period of
the prior year.
For fiscal year 2021, the
Company incurred selling expenses of approximately $2.3 million, as compared to approximately $3.2 million for fiscal year 2020, a decrease
of approximately $0.9 million. The decrease in expenses was mainly a result of the Company’s efforts in cutting marketing costs.
In fiscal year 2020, the newly acquired entity, Nami, incurred advertising and marketing expenses of $2.6 million to promote its business.
For fiscal year 2021, the Company incurred general and administrative
expenses of approximately $11.9 million, as compared to approximately $8.2 million for fiscal year 2010, representing an increase of approximately
$3.7 million or 46%. The increase in general and administrative expenses was mainly because (i) more labor and managerial expenses incurred
in fiscal 2021 mainly as a result of the Company’s expansion in its supply chain business in 2021, (ii) the Company spent approximately
$2.5 million more in professional fees for financing activities and public company compliance.
For fiscal year 2021, our research and development (R&D) expenses
were $1.6 million, representing an increase of $0.8 million, compared to $0.8 million in R&D expenses in fiscal 2020. The increased
R&D expenses were primarily used to enhance and develop the functionalities of the Company’s supply chain solution and other
financing service Apps and platform.
Other income (expense), net
Other income (expense), net,
is used to record our non-operating income and expenses, interest income and expenses, investment income and other income and expenses.
For fiscal year 2021, the
Company had a net other income of 2.6 million, representing an increase of 1.8 million, compared to 0.8 million for fiscal year 2020.
The increase was due to an increase in investment income from the short-term investments and investment in limited partnership.
Income tax expense (benefit)
For fiscal year 2021 and 2020, Fintech was recognized as a High-Technology
(“High-Tech”) Company by the Chinese government and subject to a reduced income tax rate of 15%, a reduction from the normal
unified rate of 25%. The High-Tech certificate is valid for three years starting from November 2020 and subject to renewal. In fiscal
year 2020, Hengpu was recognized as a High-Tech Company and is subject to a reduced income tax rate of 15%. In accordance with the implementation
rules of the Income Tax Law of the PRC, for the enterprises newly established in the Horgos Development Zone within the scope of “Catalogue
of EIT Incentives for Industries Specially Encouraged for Development by Poverty Areas of Xinjiang”, the enterprise income from
income tax shall be exempt for five years beginning from the first year in which the manufacturing or business operational revenue is
earned. Khorgos is established in the Horgos Development Zone and its income is eligible to be exempt for five years starting from 2019.
For the year ended December 31, 2021, Jilin Lingang, Jilin Lingang Hengda, Liaogang Nisun (Shanghai), Fintech Zibo, Fintech Inner Mongolia,
Fintech Shanxi, Fintech SX, Fintech Ningbo, Fintech Shandong, Nisun Gold, and Fintech Jiangxi are subject to a favorable income tax rate
of 2.5% due to being small-scale taxpayers. The remaining subsidiaries, VIEs and VIEs’ subsidiaries from the financial services
business are subject to corporate income tax at the PRC unified rate of 25%.
For fiscal year 2021, income tax expense was $10.3 million, as compared
to $1.0 million of income tax expenses for fiscal year 2020, which was mainly because the Company realized an income before taxes of approximately
$41.1 million in fiscal year 2021, compared with an income before tax of approximately $10.9 million in fiscal year 2020. The effective
tax rate in fiscal 2021 was approximately 25.0%, compared to the effective tax rate of approximately 8.7% for fiscal year
2020.
Net income (loss)
For fiscal year 2021, the
Company incurred a net income of $30.5 million, as compared to a net loss of approximately $13.1 million for fiscal year 2020, representing
an increase of 43.6 million. The increase primarily due to the significant increase in revenue from financial service business and disposal
of the equipment and engineering business in fiscal year 2020.
For fiscal year 2021, the Company had a net income from continuing
operations of $30.5 million, representing an increase of $20.6 million or 208%, compared to the net income of $9.9 million for fiscal
year 2020. The increase in net income was mainly due to the significant increase in revenue and related gross profit from financing services.
For fiscal year 2020, due to
the COVID-19 outbreak, the Company’s customers and suppliers in the equipment and engineering businesses experienced financial distress,
delayed or defaulted on their payments, reduced the scale of their business, and suffered disruptions in their business, which in turn
had caused an adverse impact on the Company’s equipment and engineering business. As a result, the Company had a net loss of $23.0
million, which was mainly due to an impairment loss of $9.9 million on the equipment and engineering business’s assets. The Company
disposed the equipment and engineering business on November 30, 2020. Since the equipment and engineering business is considered as discontinued
operations, the results of operations related to the discontinued operations, including comparatives, were reported as income (loss) from
discontinued operations.
Net income (loss) per share
For fiscal year 2021, the net income per share was $1.41, compared
to a net loss per share of $0.71 for fiscal year 2020. The net income per share from continuing operation was $1.41 for fiscal year 2021,
compared to $0.53 for fiscal year 2020, representing the increase of approximately $0.89 per share.
Liquidity and Capital Resources
As of December 31, 2021,
the Company had cash, cash equivalents and restricted cash of $91.6 million, compared to $22.2 million as of December 31, 2020. This increase
was primarily attributable to $23.9 million from operating activities, $70.5 million from financing activities, against $25.3 million
used in investing activities.
In assessing our liquidity,
the Company monitors and analyzes our cash on-hand and our operating and capital expenditure commitments. Our liquidity needs are to meet
our working capital requirements, operating expenses, and capital expenditure obligations.
Based on the above considerations,
management is of the opinion that we have sufficient funds to meet our working capital requirements for the next twelve months from the
date of this report.
Substantially all of our
operations are conducted in China and all of our revenues, expenses, and cash are denominated in Renminbi (RMB). RMB is subject to the
exchange control regulation in China and, as a result, we may have difficulty distributing any dividends outside of China due to PRC exchange
control regulations that restrict its ability to convert RMB into U.S. Dollars.
Under applicable PRC 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, an enterprise in China is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each
year to its general reserves until the cumulative amount of such reserve reaches 50% of its registered capital. These reserves are not
distributable as cash dividends. As of December 31, 2021, and December 31, 2020, the statutory reserve balance for the Company’s
entities established in the PRC was $6,942,111 (RMB 30,241,027) and $2,190,847 (RMB 15,126,025), respectively. The board of directors
of a foreign-invested enterprise has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, which
may not be distributed to equity owners except in the event of liquidation. Under PRC law, RMB is currently convertible into U.S. Dollars
under a company’s “current account,” which includes dividends, trade and service-related foreign exchange transactions,
without prior approval of the State Administration of Foreign Exchange (SAFE), but is not from a company’s “capital account,”
which includes foreign direct investments and loans, without the prior approval of the SAFE.
We have not declared or paid
any cash dividends to our shareholders. We did not pay any dividends out of our retained earnings for the years ended December 31, 2021
and 2020. Our Board of Directors may declare dividends in the future after taking into account our operations, earnings, financial condition,
cash requirements and availability and other factors as it may deem relevant at such time. Any declaration and payment, as well as the
amount of dividends will be subject to our Memorandum and Articles of Association, as amended, and applicable PRC, BVI and U.S. securities
laws and regulations
The following table provides
summary information about our net cash flows for financial statement periods presented in this report:
| |
For the Years Ended December 31, | |
| |
2021 | | |
2020 | | |
2019 | |
Net cash provided by operating activities from continuing operations | |
$ | 23,857,102 | | |
$ | 2,250,373 | | |
$ | 598,709 | |
Net cash provided by (used in) operating activities from discontinued operations | |
| - | | |
| 436,389 | | |
| (263,476 | ) |
Net cash (used in) investing activities from continuing operations | |
| (25,250,787 | ) | |
| (4,712,912 | ) | |
| (1,806,054 | ) |
Net cash (used in) investing activities from discontinued operations | |
| - | | |
| (6,713 | ) | |
| (157,440 | ) |
Net cash provided by financing activities from continuing operations | |
| 70,527,541 | | |
| 19,147,918 | | |
| 4,149,141 | |
Net cash (used in) financing activities from discontinued operations | |
| - | | |
| (788,599 | ) | |
| (996,355 | ) |
Effect of exchange rate change in cash, cash equivalents and restricted cash | |
| 294,928 | | |
| 2,806,981 | | |
| (184,449 | ) |
Net change in cash, cash equivalents and restricted cash | |
| 69,428,784 | | |
| 19,133,437 | | |
| 1,340,076 | |
Net change in cash, cash equivalents and restricted cash from discontinued operations | |
| - | | |
| (283,314 | ) | |
| (1,440,823 | ) |
Net change in cash, cash equivalents and restricted cash from continuing operations | |
$ | 69,428,784 | | |
$ | 19,416,751 | | |
$ | 2,780,899 | |
Operating Activities
Net cash provided by operating
activities for fiscal 2021 was approximately $23.9 million, which was primarily attributable to a net income of approximately $30.5 million,
adjusted for non-cash items of approximately $2.7 million and adjustments for changes in working capital of approximately negative $9.4
million. The adjustments for changes in working capital mainly included (i) an increase $13.3 million in account receivable related to
supply chain trading business launched in fiscal year 2021, (ii) an increase $48.2 million in other receivable related to supply chain
solutions business due to the significant increase of supply chain solution business, (iii) an increase of 9.2 million in advanced to
suppliers (iv) an increase in account payable of $33.6 million, (v) an increase in other payable related to supply chain business of $25.6
million, and (vi) an increase in tax payable of $5.6 million due to higher earnings.
Net cash provided by operating
activities for fiscal 2020 was approximately $2.3 million, which was primarily attributable to a net income of approximately $9.9 million,
adjusted for non-cash items of approximately $2.0 million and adjustments for changes in working capital of approximately negative $9.8
million. The adjustments for changes in working capital mainly included (i) an increase $10.7 million in other receivable related to supply
chain solutions business launched in January 2020, (ii) an increase in account payable of $1.0 million, (iii) a decrease in other payable
of $2.1 million, and (iv) an increase in tax payable of $1.6 million due to higher earnings.
Investing Activities
Net cash used in investing activities was $25.3 million for fiscal
year 2021, primarily attributable to (i) $39.5 million of investment in debt securities and structured deposits, (ii) the $7.0 million
cash paid in connection with the Company’s acquisition of Nami, (iii) the $15.0 million cash received on disposal of discontinued
operations, (iv) cash received from sale of debt securities and structured deposits, and (v) $1.6 million of repayment from loans to third
parties.
Net cash used in investing
activities was $4.7 million for fiscal year 2020, primarily attributable to (i) the $5.0 million in cash acquired in connection with the
Company’s acquisition of Nami, (ii) $15.6 million of investment in debt securities, (iii) $3.1 million of investment in short-term
investment, and (iv) $11.0 million of repayment of loans to third parties less $1.8 million in new loans to third parties
Financing activities
Net cash provided by financing activities was $70.5 million for fiscal
year 2021, primarily attributable to (i) the net proceeds of $70.8 million from $77 million public offering of common shares and pre-funded
warrants, (ii) $1.8 million of repayments to related parties, (iii) $0.7 million capital contribution from non-controlling interest in
Liaogang Yingkou, and (iv) $0.8 million cash received from short-term bank loans.
Net cash provided by financing
activities was $19.1 million for fiscal year 2020, primarily attributable to (i) the proceeds of $6.5 million from the private placement,
(ii) $10.5 million of loans from Nisun Cayman, (iii) $3.1 million capital contribution from non-controlling interest in Taiding, (iv)
$4.6 million of capital contribution from Nisun Cayman, and (v) $6.8 million of repayments to related parties.
Material Cash Requirements
Other than the ordinary cash
requirements for our operations, our material cash requirements as of December 31, 2021 and any subsequent interim period primarily
include our capital expenditures and operating lease obligations, as well as cash requirements for potential investments.
Our capital expenditures
primarily consist of purchases of servers, computers, other office equipment and intangible assets. Our capital expenditures were $204,896
in 2021, $299,304 in 2020 and $237,548 in 2019. We will continue to make capital expenditures to meet the expected growth of our business.
Our operating lease obligations
primarily represent consist of the commitments under the lease agreements for our office premises. We lease our office facilities under
non-cancelable operating leases with various expiration dates. Our leasing expense was RMB 680,033, RMB 578,689 and RMB 63,749 for the years
ended December 31, 2021, 2020, and 2019, respectively. The majority of our operating lease commitments are related to our office
lease agreements in China.
We intend to fund our existing
and future material cash requirements with our existing cash balance and other financing alternatives. We will continue to make cash commitments,
including capital expenditures, to support the growth of our business.
We have not entered into
any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We do not have retained or contingent
interests in assets transferred. We have not entered into contractual arrangements that support the credit, liquidity or market risk for
transferred assets. We do not have obligations that arise or could arise from variable interests held in an unconsolidated entity, or
obligations related to derivative instruments that are both indexed to and classified in our own equity, or not reflected in the statement
of financial position.
Other than as discussed above,
we did not have any significant capital and other commitments, long-term obligations or guarantees as of December 31, 2021.
Impact of Inflation
We do not believe the impact
of inflation on our Company has been material. Almost all our operations are in China and China’s inflation rates have been relatively
stable in the last three years: 0.9% in 2021, 2.39% in 2020, and 2.9% in 2019.
Holding Company Structure
Nisun International. is a
holding company with no material operations of its own. We conduct our operations through our PRC subsidiaries and our VIEs in China.
As a result, our ability to pay dividends depends significantly upon dividends paid by our PRC subsidiaries. If our existing PRC subsidiaries
or any newly formed ones incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability
to pay dividends to us. In addition, our wholly foreign-owned subsidiaries in China are permitted to pay dividends to us only out of their
accumulated after-tax profits, if any, as determined in accordance with PRC accounting standards and regulations. Under the PRC law, each
of our PRC subsidiaries and our VIEs in China is required to set aside at least 10% of its after-tax profits each year, if any, after
making up previous years’ accumulated losses, if any, to fund certain statutory reserve funds until such reserve funds reach
50% of its registered capital. In addition, each of our wholly foreign-owned subsidiaries in China may allocate a portion of its after-tax
profits based on PRC accounting standards to enterprise expansion funds and staff bonus and welfare funds at its discretion, and our VIE
may allocate a portion of its after-tax profits based on PRC accounting standards to a discretionary surplus fund at its discretion. The
statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned
company out of China is subject to examination by the banks designated by the SAFE. Our PRC subsidiaries have not paid dividends and will
not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds.
Research and Development
During fiscal year 2021,
the Company spent $1.6 million on enhancing and developing the functionalities of the Company’s supply chain solution and other
financing service Apps and platform. During fiscal year 2020, we spent $0.8 million on developing our proprietary financial technology
platform “Huijingshe” and supply chain fintech platform.
Impact of Foreign Currency Fluctuations
We do not believe the impact
of foreign currency fluctuations on our Company is material.
We have not and do not have
any foreign currency hedge investments, borrowings, or other hedging instruments. We manage our price risks through productivity improvements
and cost-containment measures.
Recent Developments
Strategic Collaborations to further expand
the supply chain business:
The Company has cooperated with enterprises in various industries to
further expand its supply chain business. These collaborations are expected to enhance the Company’s development advantages in five
core industries of agriculture, e-commerce, gold, coal and chemicals, connecting innovative resources to facilitate value sharing.
| ● | The Company started to focus on agricultural industries in
2021 and entered into strategic collaborations with renowned domestic enterprises, such as Henan Wanbang International Agricultural Product
Logistics Park and Henan Fulushi Industrial Co., Ltd., cooperating on supply chain procurement services to support the trade of agricultural
products. |
| ● | The Company held an investment cooperation ceremony with Gansu Silu
Huixiang Trading Co., Ltd., a wholly-owned subsidiary of Jiuquan Jingtou Group. During the ceremony, the two parties entered into an agreement
to establish a supply chain joint venture company in Jiuquan City, Gansu Province, to provide specialized supply chain services to local
enterprises. |
| ● | The Company entered into a strategic cooperation agreement with Shanghai Bailian Group to procure information
appliances, such as computer, communication and consumer electronics (“3C Products”). The two parties will share resources
and create an effective bridge between supply and demand to establish a new supply chain model and further develop new communicative channels
in China’s retail industry. In addition, the two parties will join together to promote the ongoing expansion and transformation of the
3C Products market in China. |
| ● | The Company entered into a strategic cooperation with Zhumadian Industry
Investment Group, a state-owned enterprise located in south Henan Province. Under this cooperation, the two parties will establish a new
company, Zhumadian City Industry Investment Nisun Supply Chain Co., Ltd. with RMB 500 million in registered capital. This newly established
company will serve as a link between the local government and enterprises to further growth of the local economy and small businesses. |
Acquisition:
On January 14, 2022, Fintech (Henan) Supply Chain Management Co., Ltd,
a subsidiary of Fintech (Shanghai) Digital Technology Co., Ltd and a controlled affiliate of the Company, entered into a share acquisition
agreement with Youjiatian and its sole shareholder to acquire a 51% equity interest in Youjiatian for a cash consideration of RMB 0.51
million, or approximately $80,280. This acquisition is expected to further facilitate Nisun’s expansion into the agricultural industry.
$77 Million Financing:
On December 13, 2021, the
Company completed on a firm commitment underwritten public offering of 19.25 million Class A common shares and pre-funded warrants to
purchase Class A common shares with gross proceeds of $77 million to the Company before deducting underwriting discounts and commissions
and other expenses. The pre-funded warrants were offered at the same $4.00 price per share as the common shares, less the $0.001 per share
exercise price of each pre-funded warrant. The Company intends to use the net proceeds from this offering for general corporate purposes,
including, but not limited to, working capital and other business opportunities.
Critical Accounting Estimates
We have not entered any derivative
contracts that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our consolidated financial
statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves
as credit, liquidity, or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides
financing, liquidity, market risk or credit support or that engages in leasing, hedging or research and development services with us.
Recently issued and adopted accounting pronouncements
The Company considers the
applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards
that are issued.
In December 2019, the FASB
issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance removes certain exceptions to
the general principles in Topic 740 and enhances and simplifies various aspects of the income tax accounting guidance, including requirements
such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments,
and interim-period accounting for enacted changes in tax law. This standard is effective for the Company for the annual reporting periods
beginning January 1, 2022 and interim periods beginning January 1, 2023. Early adoption is permitted. The Company does not expect any
material impact on the Company’s consolidated financial statements.
In January 2020, the FASB
issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives
and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. This guidance addresses accounting
for the transition into and out of the equity method and provides clarification of the interaction of rules for equity securities, the
equity method of accounting, and forward contracts and purchase options on certain types of securities. This standard is effective for
the Company beginning January 1, 2022 including interim periods within the fiscal year. Early adoption is permitted. The Company does
not expect any material impact on the Company’s consolidated financial statements.
Except for the above-mentioned
pronouncements, there are no new recently issued accounting standards that will have material impact on the Company’s consolidated
financial position, statements of operations and cash flows.
Safe Harbor
See “SPECIAL CAUTIONARY
NOTICE REGARDING FORWARD-LOOKING STATEMENTS.”
Item 6. Directors, Senior Management and Employees
A. |
Directors and Management |
The following table provides
information regarding our executive officers and directors:
Name |
|
Age |
|
Position(s) |
Xiaoyun Huang |
|
37 |
|
Chief Executive Officer and Chairman of the Board |
Changjuan Liang |
|
38 |
|
Chief Financial Officer |
Jinbao Li |
|
42 |
|
Director |
Xin Liu |
|
33 |
|
Director |
Christian DeAngelis |
|
52 |
|
Independent Director |
Xiaofeng Ma |
|
46 |
|
Independent Director |
Sheng Tang |
|
44 |
|
Independent Director |
Haiying Xiang |
|
40 |
|
Independent Director |
The business address of each
of the directors and senior management is c/o Nisun International Enterprise Development Group Co., Ltd, C9, 99 Danba Rd, Putuo District,
Shanghai, PRC 200336.
Xiaoyun Huang. Mr.
Huang has served as the Chairman of the Board and Chief Executive Officer since September 2020. Prior to join our Company, he had held
the President and Chief Executive Officer of Huizhong Business Consulting (Beijing) Co., Ltd. From June 2018 to September 2020. In those
roles, he oversees and is responsible for all aspects of the company’s business operations, planning and development. From June
2017 to May 2018, he had served as the General Manager and Chairman of the board of directors of Beijing Hengtai Puhui Information Service
Co., Ltd., a subsidiary company we acquired in 2019. Mr. Huang had been the President and Chief Executive Officer of Hangzhou Rongdu Technology
Co., Ltd. from 2015 to May 2017. Mr. Huang received a bachelor’s degree in Computer Science and Technology in 2007 from Shanghai
University of Electric Power. We have chosen Mr. Huang to serve as a director because of his entrepreneurial experience holding the top
leadership positions as CEOs and Chairmen of the companies he had previously served and his expertise in financial technologies.
Changjuan Liang. Ms.
Liang has been our Chief Financial Officer since August 2019. Ms. Liang has served as Chief Financial Officer of Fintech (Shanghai) Investment
Holding Co., Ltd. since May 2019. From August 2018 through April 2019, Ms. Liang was a senior financial manager for Shanghai NiSun Enterprise
Management Group Co., Ltd., a PRC company controlled by Bodang Liu, the largest shareholder of our Company. From October 2010 through
August 2017, Ms. Liang was a Financial Officer of Chubutsu Precise Electronic Company Limited, a PRC company engaged in the air conditioning
industry. Ms. Liang obtained her bachelor’s degree in Accounting from China Central Radio and TV University in January 2010.
Jinbao Li.
Mr. Li has served as a director since September 2020. Since April 2016, Mr. Li has been the Chief Executive Officer of Shanghai Nami Financial
Consulting Co., Ltd (“Shanghai Nami”), a consolidated affiliate of our Company. Mr. Li is also the controlling shareholder
of Shanghai Nami. As the CEO of Nami, he oversees and is responsible for all aspects of business operations, financial performance, and
development of Shanghai Nami. From July 2014 to April 2016, he was the general manager of Shandong branch of Huizhong Business Consulting
(Beijing) Co., Ltd. Mr. Li received an associate degree in Marketing in 2008 from Shandong Technology University. We have chosen Mr. Li
to serve as a director because of his marketing and customer resources and business management experience as a senior business executive.
Xin Liu. Mr.
Liu has served as a director since September 2020. Mr. Liu has been the Vice President of Shanghai Nima since April 2016. In that role,
he manages operations aspects of Shanghai Nami’s business. From October 2014 to March 2016, he was the Head Manager of the administration
and operations department of Shandong branch of Huizhong Business Consulting (Beijing) Co. Mr. Li had been the Head of the International
Trade department of Qingdao Antaixin Group Co., Ltd. from September 2012 to October 2014. Mr. Liu received a bachelor’s degree in
International Business in 2012 from Shandong University of Technology. We have chosen Mr. Liu to serve as a director because of his management
skills and cross-border trade and business experience.
Christian DeAngelis. Mr.
DeAngelis has served as an independent director since September 2020. From March 2009, Mr. DeAngelis has served as the General Manager
and Head of China office of Alliance Business Consulting and Advisory Company in Beijing, China. Mr. DeAngelis received a bachelor’s
degree in Accounting in 1992 from Lehigh University in Pennsylvania. He received a master’s degree in Business Administration in
1999 from Columbia Business School. We have chosen Mr. DeAngelis as a director because of his expertise in the business consulting and
advisory industry and his business management experience as a senior business executive.
Xiaofeng Ma. Dr.
Ma has served as an independent director since September 2020. Dr. Ma has been an associate professor at Tongji University in Shanghai,
China since 2012. From 2017, Dr. Ma has also served as the Chairman of the Board of Directors of Hangzhou Blockchain Research Institute
Co., Ltd. with oversight responsibility for the strategic planning and development of the blockchain enterprise. In these roles, Dr. Ma
has leveraged his expertise in the finance and innovative technology industries. Dr. Ma received a bachelor’s degree in Industrial
Electrical Automation in 1997 from Taiyuan University of Technology, China and a master’s degree in Control Science and Engineering
in 2000 from Tongji University, China. Dr. Ma received a doctorate degree in Technology Management in 2008 from Leiden University in the
Netherlands. We have chosen Mr. Ma to serve as a director because of the perspective he brings to innovative finance industry in China
and his reputation as a well-respected scholar.
Sheng Tang.
Dr. Tang has served as an independent director since September 2020. Dr. Tang has served as the Director of the Dean’s Office
at Shanghai Advanced Institute of Finance since February 2009. In that role, Dr. Tang is responsible for the operations of Dean’s
Office and administering of the Board Council. From January 2008 to January 2009, Dr. Tang was the General Manager of the electric power
business unit of Shanghai Huahong Group Co., Ltd. and managed the overall operations of the business unit. From April 2003 to December
2007, Dr. Tang was a marketing director of Shanghai Huahong Group Co., Ltd. promoting the sale of semiconductor products for the company.
Dr. Tang received a bachelor’s degree in Civil Engineering in 2000 and a master’s degree in Computer Science in 2003 from
Zhejiang University. Dr. Tang received a doctorate degree in Business Administration in 2011 from Shanghai Jiaotong University. We have
chosen Mr. Tang to serve as a director because of his expertise in the financial technology industry and management experience.
Haiying Xiang. Ms.
Xiang is a Commercial Officer at China Tiesiju Civil Engineering Group Co., Ltd Angolan Branch and responsible for contract management,
commercial information management and marketing management. Previously she was a Senior Internal Controller with Siemens Limited China
where she worked since 2012. She works in the Controlling Department of Industry Sector and is tasked with Sarbanes-Oxley compliance and
support, coordination of compliance with global risk management and internal control programs for eighteen operating companies and analysis
and optimization of business processes. She has been a Supervisor of Shanghai Bobo Biological Technology Co., Ltd. since 2011. Previously
she was an Internal Controller at Siemens Mechanical Drive (Tianjin) Co., Ltd. from 2008 through 2011, where she focused on compliance,
internal controls and risk control. Before that, Ms. Xiang was a member of the Trading Department of Qingdao Far East Gem and Jewelry
Co., Ltd. from 2006 through 2007. Ms. Xiang obtained her certified Internal Auditor qualification in 2012. She received her bachelor’s
degree in Economics from Nankai University in 2004. She also received her master’s degree in Economics from Nankai University in
2006. We have chosen Ms. Xiang as a director because of her experience with financial matters and experience with public company compliance
matters. We appointed Ms. Xiang as our audit committee financial expert.
Election of Officers
Our executive officers are
elected by, and serve at the discretion of, our board of directors. There is no family relationship among any of our directors or executive
officers.
Board of Directors and Board Committees
Our board of directors consists
of seven (7) directors. We expect that all current directors will continue to serve until the next annual meeting of shareholders at which
their respective class of directors is re-elected or until their successors have been duly elected and qualified. A majority of our Board
of Directors (namely, Mr. Christian DeAngelis, Mr. Xiaofeng Ma, Mr. Sheng Tang and Ms. Haiying Xiang) are independent, as such term is
defined by The Nasdaq Capital Market.
The directors are divided
into three classes, as nearly equal in number as the then total number of directors permits. Class II directors shall face re-election
at our annual general meeting of shareholders in 2021 and every three years thereafter. Class III directors shall face re-election at
our annual general meeting of shareholders in 2022 and every three years thereafter. Class I directors shall face re-election at our annual
general meeting of shareholders in 2023 and every three years thereafter.
If the number of directors
changes, any increase or decrease will be apportioned among the classes so as to maintain the number of directors in each class as nearly
as possible. Any additional directors of a class elected to fill a vacancy resulting from an increase in such class will hold office for
a term that coincides with the remaining term of that class. Decreases in the number of directors will not shorten the term of any incumbent
director. These board provisions could make it more difficult for third parties to gain control of our company by making it difficult
to replace members of the Board of Directors.
A director may vote in respect
of any contract or transaction in which he is interested, provided, however that the nature of the interest of any director in any such
contract or transaction shall be disclosed by him at or prior to its consideration and any vote on that matter. A general notice or disclosure
to the directors or otherwise contained in the minutes of a meeting or a written resolution of the directors or any committee thereof
of the nature of a director’s interest shall be sufficient disclosure and after such general notice it shall not be necessary to
give special notice relating to any particular transaction. A director may be counted for a quorum upon a motion in respect of any contract
or arrangement which he shall make with our company, or in which he is so interested and may vote on such motion.
Mr. Xiaoyun Huang currently
holds both the positions of Chief Executive Officer and Chairman of the Board. We do not have a lead independent director because we believe
our independent directors are encouraged to freely voice their opinions on a relatively small company board. We believe this leadership
structure is appropriate because we are a relatively small company; as such we deem it appropriate to be able to benefit from the guidance
of Mr. Sun as both our principal executive officer and Chairman of the Board. Our Board of Directors plays a key role in our risk oversight.
The Board of Directors makes all relevant Company decisions. As a smaller company with a relatively small board of directors, we believe
it is appropriate to have the involvement and input of all of our directors in risk oversight matters.
Board Committees
We have established three
standing committees under the board: the audit committee, the compensation committee and the nominating committee. The audit committee
is responsible for overseeing the accounting and financial reporting processes of our Company and audits of the financial statements of
our Company, including the appointment, compensation and oversight of the work of our independent auditors. The compensation committee
of the board of directors reviews and makes recommendations to the board regarding our compensation policies for our officers and all
forms of compensation, and also administers our incentive compensation plans and equity-based plans (but our board retains the authority
to interpret those plans). The nominating committee of the board of directors is responsible for the assessment of the performance of
the board, considering and making recommendations to the board with respect to the nominations or elections of directors and other governance
issues. The nominating committee considers diversity of opinion and experience when nominating directors.
Haiying Xiang qualifies as
an audit committee financial expert and she is the chair of the audit committee. Christian DeAngelis and Xiaofeng Ma serve on the audit
committee. Xiaofeng Ma is the chair of the compensation committee. Christian DeAngelis and Sheng Tang serve on the compensation committee.
Sheng Tang is the chair of the nominating committee. Xiaofeng Ma and Haiying Xiang are members of the nomination committee. Each member
of the three committees is an independent director.
Duties of Directors
Under British Virgin Islands
law, our directors have a duty to act honestly, in good faith and with a view to our best interests. Our directors also have a duty to
exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their
duty of care to us, our directors must ensure compliance with our amended and restated memorandum and articles of association. We have
the right to seek damages if a duty owed by our directors is breached.
The functions and powers
of our board of directors include, among others:
|
● |
appointing officers and determining the term of office of the officers; |
|
● |
authorizing the payment of donations to religious, charitable, public or other bodies, clubs, funds or associations as deemed advisable; |
|
● |
exercising the borrowing powers of the company and mortgaging the property of the company; |
|
● |
executing checks, promissory notes and other negotiable instruments on behalf of the company; and |
|
● |
maintaining or registering a register of mortgages, charges or other encumbrances of the company. |
Interested Transactions
A director may vote, attend
a board meeting or sign a document on our behalf with respect to any contract or transaction in which he or she is interested. A director
must promptly disclose the interest to all other directors after becoming aware of the fact that he or she is interested in a transaction
we have entered into or are to enter into. A general notice or disclosure to the board or otherwise contained in the minutes of a meeting
or a written resolution of the board or any committee of the board that a director is a shareholder, director, officer or trustee of any
specified firm or company and is to be regarded as interested in any transaction with such firm or company will be sufficient disclosure,
and, after such general notice, it will not be necessary to give special notice relating to any particular transaction.
Remuneration and Borrowing
The directors may receive
such remuneration as our board of directors may determine from time to time. Each director is entitled to be repaid or prepaid all traveling,
hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our board of directors or committees
of our board of directors or shareholder meetings or otherwise in connection with the discharge of his or her duties as a director. The
compensation committee will assist the directors in reviewing and approving the compensation structure for the directors. Our board of
directors may exercise all the powers of the company to borrow money and to mortgage or charge our undertakings and property or any part
thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or
obligation of the Company or of any third party.
Qualification
There are no membership qualifications
for directors. Further, there are no share ownership qualifications for directors unless so fixed by us in a general meeting. There are
no other arrangements or understandings pursuant to which our directors are selected or nominated.
Limitation of Director and Officer Liability
Under British Virgin Islands
law, each of our directors and officers, in performing his or her functions, is required to act honestly and in good faith with a view
to our best interests and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
British Virgin Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for
indemnification of officers and directors, except to the extent any such provision may be held by the British Virgin Islands courts to
be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime.
Under our memorandum and
articles of association, we may indemnify our directors, officers and liquidators against all expenses, including legal fees, and against
all judgments, fines and amounts paid in settlement and reasonably incurred in connection with civil, criminal, administrative or investigative
proceedings to which they are party or are threatened to be made a party by reason of their acting as our director, officer or liquidator.
To be entitled to indemnification, these persons must have acted honestly and in good faith with a view to the best interest of the company
and, in the case of criminal proceedings, they must have had no reasonable cause to believe their conduct was unlawful. Such limitation
of liability does not affect the availability of equitable remedies such as injunctive relief or rescission. These provisions will not
limit the liability of directors under United States federal securities laws.
We may indemnify any of our
directors or anyone serving at our request as a director of another entity against all expenses, including legal fees, and against all
judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings.
We may only indemnify a director if he or she acted honestly and in good faith with the view to our best interests and, in the case of
criminal proceedings, the director had no reasonable cause to believe that his or her conduct was unlawful. The decision of our board
of directors as to whether the director acted honestly and in good faith with a view to our best interests and as to whether the director
had no reasonable cause to believe that his or her conduct was unlawful, is in the absence of fraud sufficient for the purposes of indemnification,
unless a question of law is involved. The termination of any proceedings by any judgment, order, settlement, conviction or the entry of
no plea does not, by itself, create a presumption that a director did not act honestly and in good faith and with a view to our best interests
or that the director had reasonable cause to believe that his or her conduct was unlawful. If a director to be indemnified has been successful
in defense of any proceedings referred to above, the director is entitled to be indemnified against all expenses, including legal fees,
and against all judgments, fines and amounts paid in settlement and reasonably incurred by the director or officer in connection with
the proceedings.
We may purchase and maintain
insurance in relation to any of our directors or officers against any liability asserted against the directors or officers and incurred
by the directors or officers in that capacity, whether or not we have or would have had the power to indemnify the directors or officers
against the liability as provided in our amended and restated memorandum and articles of association.
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted for our directors, officers or persons controlling our company under
the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
Involvement in Certain Legal Proceedings
To the best of our knowledge,
none of our directors or officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, nor
has any been a party to any judicial or administrative proceeding during the past five years that resulted in a judgment, decree or final
order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding
of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Except as
set forth in our discussion below in “Related Party Transactions,” our directors and officers have not been involved in any
transactions with us or any of our affiliates or associates which are required to be disclosed pursuant to the rules and regulations of
the SEC.
Code of Business Conduct and Ethics
The Company has adopted a
Code of Business Conduct and Ethics that applies to the Company’s directors, officers, employees and advisors. The Code of Ethics
is attached as an exhibit to this annual report. We have also posted a copy of our code of business conduct and ethics on our website
at https://www.fintaike.com/.
Director Compensation
All directors hold office
until the next annual meeting of shareholders at which their respective class of directors is re-elected or until their successors have
been duly elected and qualified. Officers are elected by and serve at the discretion of the Board of Directors. Employee directors do
not receive any compensation for their services. Non-employee directors are entitled to receive compensation in cash or stock, or both,
for serving as directors and may receive option grants from our company. We also reimburse all directors for any out-of-pocket expenses
incurred by them in connection with their services provided in such capacity. Non-employee directors are entitled to receive reimbursement
for their actual travel expenses for each Board of Directors meeting attended. In addition, from time to time, we may grant our directors
incentive grants of stock, options or other securities convertible into or exchangeable for, our securities.
Haiying Xiang is entitled
to receive $10,000 per year for serving as a director and may receive stock or option grants from our company. Christian DeAngelis is
entitled to receive $30,000 in cash and 1,500 common shares per year. Sheng Tang and Xiaofeng Ma are each entitled to receive 3,000 common
shares per year.
During the years ended December
31, 2021 and 2020, no employee members of our Board of Directors received compensation in their capacity as directors.
During the year ended December
31, 2021, Christian DeAngelis, Sheng Tang and Xiaofeng Ma received 1,500, 3,000 and 3,000 common shares for their services as our directors,
respectively, under our 2019 One Million Share Incentive Plan.
During the year ended December
31, 2020, we paid an annual director fee of $10,000 to each of three former independent directors (Xianpang Hu, Xuesong Liu and Hua Zhang)
and two current directors (Haiying Xiang and Christian DeAngelis).
Executive Compensation
We have a compensation committee
approving our salary and benefit policies. Our compensation committee determines the compensation to be paid to our executive officers
based on our financial and operating performance and prospects, and contributions made by the officers’ to our success. Each of
the named officers will be measured by a series of performance criteria by the board of directors, or the compensation committee on a
yearly basis. Such criteria will be set forth based on certain objective parameters such as job characteristics, required professionalism,
management skills, interpersonal skills, related experience, personal performance and overall corporate performance.
Our board of directors has
not adopted or established a formal policy or procedure for determining the amount of compensation paid to our executive officers. The
board of directors will make an independent evaluation of appropriate compensation to key employees, with input from management. The board
of directors has oversight of executive compensation plans, policies and programs.
Summary Compensation Table
The following table presents
summary information regarding the total compensation awarded to, earned by, or paid to each of the named executive officers for services
rendered to us for the year ended December 31, 2021 and 2020.
Name and Principal Position |
|
Fiscal
Year |
|
|
Salary
($) |
|
|
Bonus
($) |
|
|
Stock
Awards
($) |
|
|
All Other
Compensation
($) |
|
|
Total
($) |
|
Xiaoyun Huang |
|
2021 |
|
|
|
120,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
120,000 |
|
Chief Executive Officer(1) |
|
2020 |
|
|
|
40,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
40,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anyuan Sun(2) |
|
2021 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Former Chief Executive Officer |
|
2020 |
|
|
|
48,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
48,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changjuan Liang |
|
2021 |
|
|
|
62,868 |
|
|
|
- |
|
|
|
251,260 |
|
|
|
- |
|
|
|
314,128 |
|
Chief Financial Officer |
|
2020 |
|
|
|
48,468 |
|
|
|
- |
|
|
|
243,870 |
|
|
|
- |
|
|
|
292,338 |
|
(1) |
Xiaoyun Huang was appointed as our Chief Executive Officer, effective on September 4, 2020. |
(2) |
Anyuan Sun resigned as the Chief Executive Officer, effective on September 4, 2020. |
Equity-Based Compensation
In addition to base salary,
we also offer certain equity-based incentive compensation awards to employees, directors or consultants. Our stock-based incentive compensation
plan, the 2019 One Million Share Incentive Plan, was approved by our Board of Directors on November 20, 2019 and ratified by shareholders
on December 20, 2019. This plan serve as the primary vehicle by which we offer long-term incentives and rewards to our executive officers
and key employees. We regard the 2019 stock incentive plan as a key retention tool. Retention serves as an important factor in our determination
of the type of award to grant and the number of underlying shares that are granted in connection with that award.
In March 2020, our Compensation
Committee approved the grant of stock awards of an aggregate of 300,000 Class A common shares to three members of our management (100,000
shares per person) under the 2019 One Million Share Incentive Plan. One-third of the shares vested on the date of the grant, and one-third
of the shares will vest on each of the first and second anniversary of the grant date, respectively.
The Company terminated the
2019 One Million Share Incentive Plan on December 13, 2021 in connection with our December 2021 capital raise and deregistered all common shares that were previously
registered pursuant to the Registration Statement on the Form S-8 (File No. 333-236843) and were available for grant under the Plan or
subject to awards under the Plan.
Employment Agreements
Our employment agreements
with our officers generally provide for employment for a specific term (typically approximately two years at a time) and pay annual salary,
health insurance, pension insurance, and paid vacation and family leave time. The agreement may be terminated by either party as permitted
by law. In the event of a breach or termination of the agreement by our company, we may be obligated to pay the employee twice the ordinary
statutory rate. In the event of a breach or termination causing loss to our company by the employee, the employee may be required to indemnify
us against loss.
Xiaoyun Huang
We entered an employment
agreement with our Chief Executive Officer, Mr. Xiaoyun Huang, effective as of September 4, 2020 and running through December 31, 2024
that provided a base gross annual salary of $120,000.00.
Changjuan Liang
We entered an employment
agreement with our Chief Financial Officer, Mr. Changjuan Liang, effective as of August 8, 2019 and running through July 31, 2022 that
provides an annual salary of $48,468. In 2021, Ms. Liang received an annual compensation of $62,868 as a result of a pay increase.
On April 6, 2020, Mr. Liang was granted a one-time stock award of 100,000 Class A common shares for her services to our company and performance.
Item 7. Major Shareholders and Related Party Transactions
Major Shareholders
The following table sets
forth information with respect to beneficial ownership of our common shares as of May 13, 2022 by:
|
● |
Each person who is known by us to beneficially own more than 5% of our outstanding common shares; |
|
● |
Each of our director, director nominees and named executive officers; and |
|
● |
All directors and named executive officers as a group. |
The number and percentage of Common Shares beneficially owned are based
on 35,752,629 Common Shares issued as of May 13, 2022. Information with respect to beneficial ownership has been furnished by each director,
officer or beneficial owner of 5% or greater of our Common Shares. Beneficial ownership is determined in accordance with the rules of
the SEC and generally requires that such person have voting or investment power with respect to securities. In computing the number of
Common Shares beneficially owned by a person listed below and the percentage ownership of such person, Common Shares underlying options,
warrants or convertible securities held by each such person that are exercisable or convertible within 60 days of May 13, 2022 are deemed
outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Except as otherwise indicated
in the footnotes to this table, or as required by applicable community property laws, all persons listed have sole voting and investment
power for all Common Shares shown as beneficially owned by them. Unless otherwise indicated in the footnotes, the address for each principal
shareholder is in the care of NISUN INTERNATIONAL ENTERPRISE DEVELOPMENT GROUP CO., LTD, C9, 99 Danba Rd, Putuo District, Shanghai, People’s
Republic of China PRC 200336. As of May 13, 2022, we had 117 shareholders of record.
Named Executive Officers and Directors | |
Amount of Beneficial Ownership(1) | | |
Percentage Ownership | |
Directors and Named Executive Officers: | |
| | |
| |
Xiaoyun Huang, Chief Executive Officer and Chairman(2) | |
| 288,179 | | |
| * | |
Changjuan Liang, Chief Financial Officer(3) | |
| 67,000 | | |
| * | |
Jinbao Li, Director(4) | |
| 1,562,726 | | |
| 4.37 | % |
Xin Liu, Director | |
| - | | |
| - | |
Christian DeAngelis, Director(5) | |
| 1,500 | | |
| * | |
Xiaofeng Ma, Director(6) | |
| 3,000 | | |
| * | |
Sheng Tang, Director(7) | |
| 3,000 | | |
| * | |
Haiying Xiang, Director | |
| - | | |
| - | |
All directors and executive officers as a group (8 persons) | |
| 1,925,405 | | |
| 5.39 | % |
| |
| | | |
| | |
5% Beneficial Owners: | |
| | | |
| | |
NiSun International Enterprise Management Group Co., Ltd.(8) | |
| 7,778,400 | | |
| 21.76 | % |
| * | Less than 1% of our outstanding
shares. |
(1) |
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the Common Shares. All shares represent only Common Shares held by shareholders as no options are issued or outstanding. |
(2) |
Hong Kong D&L Technology Co., Limited, a Hong Kong company, owning 288,179 Class A Common Shares of the Company, is controlled by Mr. Xiaoyun Huang, who may be deemed to have the voting and dispositive power of such shares. |
(3) |
67,000 Class A Common Shares were part of the shares granted to Company employees under the restricted stock award on April 6, 2020 pursuant to the Company’s 2019 One Million Share Incentive Plan. |
(4) |
Nami Holding (BVI) Co., Ltd, owning 1,562,726 Class A Common Shares of the Company, is controlled by Mr. Jinbao Li, who may be deemed to have the voting and dispositive power of such shares. |
(5) |
1,500 Class A Common Shares were granted on September 7, 2021 under the Company’s 2019 One Million Share Incentive Plan. |
(6) |
3,000 Class A Common Shares were granted on September 7, 2021 under the Company’s 2019 One Million Share Incentive Plan. |
(7) |
3,000 Class A Common Shares were granted on September 7, 2021 under the Company’s 2019 One Million Share Incentive Plan. |
(8) |
NiSun International Enterprise Management Group Co., Ltd., a Cayman Islands company, holding 7,778,400 Class A Common Shares of the Company, is solely owned by Mr. Bodang Liu, who may be deemed to have the voting and dispositive power of such shares. |
Related party transactions
In addition to the executive
officer and director compensation arrangements discussed in “Executive Compensation,” below we describe transactions since
January 1, 2010, to which we have been a participant, in which the amount involved in the transaction is material to our company and in
which any of the following is a party: (a) enterprises that directly or indirectly through one or more intermediaries, control or are
controlled by, or are under common control with, our Company; (b) associates; (c) individuals owning, directly or indirectly, an interest
in the voting power of our Company that gives them significant influence over our Company, and close members of any such individual’s
family; (d) key management personnel, that is, those persons having authority and responsibility for planning, directing and controlling
the activities of our Company, including directors and senior management of companies and close members of such individuals’ families;
and (e) enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described in (c)
or (d) or over which such a person is able to exercise significant influence.
There are no other related
party transactions for the years ended December 31, 2021, 2020 and 2019, except the transactions mentioned below.
The table below sets forth
major related parties of our Company and their relationships with our Company:
Entity or individual name |
|
Relationship with the Group |
Shanghai NiSun Enterprise Management Group Co., Ltd (“NiSun Shanghai”) |
|
An affiliated entity controlled by our ultimate controlling shareholder |
Huizhong Business Consulting (Beijing) Co., Ltd. (“Huizhong”) |
|
An affiliated entity controlled by our ultimate controlling shareholder |
Nisun International Enterprise Management Group Co., Ltd (“Nisun Cayman”) |
|
The largest shareholder who owns 23.75% of the shares of the Company |
Mr. Bodang Liu |
|
The ultimate controlling shareholder of the Company |
Mr. Anyuan Sun |
|
Former CEO and former Chairman of the Board |
Mr. Jian Lin |
|
The shareholder of Wenzhou Jinda |
Hong Kong Xibolun Technology Limited (“Xibolun HK”) |
|
The entity disposed by us on November 30, 2020 |
| (a) | We entered into the following
related party transactions: |
Starting on July 12, 2019,
we rented office from NiSun Shanghai and incurred $136,532, $127,565 and $63,749 of rent expense for the years ended December 31, 2021,
2020 and 2019, respectively.
We have commercial arrangements with Huizhong
Business Consulting (Beijing) Co., Ltd. (“Huizhong”) to provide SME financing solution services. In connection with the services
provided by Nami Shanghai to Huizhong, we generated revenue of $3,908,134.0 (RMB26,982,503) from SME financing solutions for the
period from May 31, 2020, the acquisition date of Nami, to December 31, 2020.
| (b) | We had the following significant
related party balances: |
As of December 31, 2021 and 2020, we had a due from related party balance
of nil and $393,148, respectively, owing to Mr. Bodang Liu. For the year ended December 31, 2021, we paid off all the balance of $393,148
due to Mr. Liu. For the year ended December 31, 2020, we paid approximately $6.5 million (RMB 45.9 million) related to the purchase price
payable for the acquisition of Nisun BVI. The due to related party balance was non-interest bearing and due on demand.
As of December 31, 2021, we had a due from related party balance of
$10,662 from Nisun Shanghai, an affiliated entity controlled by our controlling shareholder. As of December 31, 2020, we had a due to
related party balance of $1,379,310 to Nisun Shanghai. The due to related party balance was non-interest bearing and was repaid on March
9, 2022 and February 26, 2021, respectively.
As of December 31, 2021,
and 2020, we had a due to related party balance of $295,336 and $298,851, respectively, due to Mr. Jian Lin, the shareholder of Wenzhou
Jinda. We own a 23.08% equity interest in Wenzhou Jinda. The due to related party balance is non-interest bearing and due on demand.
For the year ended December
31, 2020, the Company transferred Xibolun HK to the Purchaser, Wise Metro Development Co., Ltd., which agreed to pay the purchase price
of approximately $15.0 million (RMB98.3 million) in accordance with the Equity Transfer Agreement. As of December 31, 2020, we had a consideration
receivable of approximately $15.0 million from the disposition. The receivable from sale of discontinued operations was fully collected
in April 2021.
Our former chief executive
office, Mr. Sun and his immediate family members had jointly provided guarantees or personal assets as collateral to our loan agreements,
trade financing agreements, letters of guarantee, funding agreements and other credit agreements with commercial banks. For the years
ended December 31, 2021, 2020 and 2019, the outstanding bank loan balance amounted to nil, $861,846, and $1,698,058, respectively, were
guaranteed by the former chief executive officer and his immediate family members.
Future Related Party Transactions
Our Corporate Governance
Committee of our board of directors (which consists solely of independent directors) have approved all related party transactions. All
material related party transactions are made or entered into on terms that are no less favorable to use than can be obtained from unaffiliated
third parties.
| C. | Interests of experts and counsel |
Not applicable for annual
reports on Form 20-F.
Item 8. Financial Information
| A. | Consolidated Statements and
Other Financial Information |
Please refer to Item 18.
We incorporate by reference
in the Registration Statement on Form F-3 (File No. 333- 256550) our consolidated balance sheets as of December 31, 2021 and 2020, and
the related consolidated statements of operations and comprehensive income, changes in equity and cash flows for each of the years in
the three-year period ended December 31, 2021, which appears in this Annual Report on Form 20-F.
Legal and Administrative Proceedings
We are currently not a party
to any material legal or administrative proceedings and are not aware of any pending or threatened material legal or administrative proceedings
against us. We were a party to one legal proceeding in 2021. On June 3, 2020, a short seller issued a report alleging that, among other
things, the private placement we consummated in December 2019, Hengpu and Nami acquisitions were related party transactions which we failed
to disclose. We had conducted an independent investigation by special counsel that concluded that the allegations were substantially unfounded.
On June 9, 2020, plaintiffs filed a class action lawsuit with the United States District Court for the Southern District of New York (the
“Court”) against the Company and its then CEO and CFO on behalf of a class of purchasers of the Company’s common shares
between April 24, 2020 and June 3, 2020, inclusive, alleging violations of federal securities law. Specifically, the plaintiffs alleged
that the Company had misrepresented and omitted material information in public statements by failing to disclose certain transactions
as related party transactions in violations of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 and the SEC rules thereunder.
The Company responded by filing a motion to dismiss the case for failure to state a claim. On September 22, 2021, the Court granted the
motion and dismisses the lawsuit in its entirety, and the case was closed.
Except the above proceeding,
we are not aware of any other material legal or administrative proceedings against us. We may from time to time become a party to various
legal or administrative proceedings arising in the ordinary course of our business.
Dividend Policy
We have never declared or
paid any cash dividends on our common shares. We anticipate that we will retain any earnings to support operations and to finance the
growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination
relating to our dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including
future earnings, capital requirements, financial conditions and future prospects and other factors the Board of Directors may deem relevant.
Under British Virgin Islands
law, we may only pay dividends from surplus (the excess, if any, at the time of the determination of the total assets of our company over
the sum of our liabilities, as shown in our books of account, plus our capital), and we must be solvent before and after the dividend
payment in the sense that we will be able to satisfy our liabilities as they become due in the ordinary course of business; and the realizable
value of assets of our company will not be less than the sum of our total liabilities, other than deferred taxes as shown on our books
of account, and our capital.
If we determine to pay dividends
on any of our common shares in the future, as a holding company, we will be dependent on receipt of funds from our operating subsidiaries.
Current PRC regulations permit our PRC subsidiaries to pay dividends to NiSun HK (or NiSun BVI) only out of their accumulated profits,
if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is
required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches
50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to
fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors.
Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess
of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.
Our subsidiaries in China are required to set aside statutory reserves and have done so.
In addition, pursuant to
the EIT Law and its implementation rules, dividends generated after January 1, 2008 and distributed to us by our PRC subsidiaries are
subject to withholding tax at a rate of 10% unless otherwise exempted or reduced according to treaties or arrangements between the PRC
central government and governments of other countries or regions where the non-PRC-resident enterprises are incorporated.
Under existing PRC foreign
exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related
foreign exchange transactions, can be made in foreign currencies without prior approval of the State Administration of Foreign Exchange,
or SAFE, by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval
of SAFE, cash generated from the operations in China may be used to pay dividends to our company.
We have not experienced any
significant changes since the date of our audited consolidated financial statements included in this annual report.
Item 9. The Offer and Listing
| A. | Offer and listing details |
Our common shares (or Class
A common shares since March 19, 2018) have been listed and traded on the Nasdaq Capital Market since December 27, 2016 under the symbol
“HEBT” until November 15, 2020 and under the symbol “NISN” since November 16, 2020.
Not applicable for annual
reports on Form 20-F.
Our Class A common shares
are listed on the Nasdaq Capital Market under the symbol “NISN.”
Not applicable for annual
reports on Form 20-F.
Not applicable for annual
reports on Form 20-F.
Not applicable for annual
reports on Form 20-F.
Item 10. Additional Information
Not applicable for annual
reports on Form 20-F.
| B. | Memorandum and articles of
association |
The information required
by this item is incorporated by reference to the material headed “Description of Share Capital” in our Registration Statement
on Form F-1, File no. 333-208583, filed with the SEC on July 13, 2016, as amended. We incorporate by reference into this annual report
our Fifth Amended and Restated Memorandum and Second Amended and Restated Articles of Association filed as Exhibit 3.1 to our current
report on Form 6-K with the Securities and Exchange Commission on February 9, 2022.
We have not entered into
any material contracts other than in the ordinary course of business and otherwise described elsewhere in this annual report.
Foreign Currency Exchange
The principal regulations
governing foreign currency exchange in China are the Foreign Exchange Administration Regulations. Under the PRC foreign exchange regulations,
payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, may be made
in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. By contrast, approval from or
registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of
China to pay capital expenses such as the repayment of foreign currency-denominated loans or foreign currency is to be remitted into China
under the capital account, such as a capital increase or foreign currency loans to our PRC subsidiaries.
In August 2008, SAFE issued
the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign
Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of
foreign currency-registered capital into RMB by restricting how the converted RMB may be used. In addition, SAFE promulgated Circular
45 on November 9, 2011 in order to clarify the application of SAFE Circular 142. Under SAFE Circular 142 and Circular 45, the RMB capital
converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business
scope approved by the applicable government authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened
its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested enterprises.
The use of such RMB capital may not be changed without SAFE’s approval, and such RMB capital may not in any case be used to repay
RMB loans if the proceeds of such loans have not been used.
In November 2012, SAFE promulgated
the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which substantially
amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign
exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment
of RMB proceeds by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise
to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity
may be opened in different provinces, which was not possible previously. In addition, SAFE promulgated the Circular on Printing and Distributing
the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in
May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC
shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC
based on the registration information provided by SAFE and its branches.
We typically do not need
to use our offshore foreign currency to fund our PRC operations. In the event we need to do so, we will apply to obtain the relevant approvals
of SAFE and other PRC government authorities as necessary.
SAFE Circular 75
Under the Circular on Relevant
Issues Concerning Foreign Exchange Control on Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose
Vehicles, or SAFE Circular 75, issued by SAFE on October 21, 2005 and its implementation rules, a PRC resident (whether a natural or legal
person) is required to complete an initial registration with its local SAFE branch before incorporating or acquiring control of an offshore
special purpose vehicle, or SPV, with assets or equity interests in a PRC company, for the purpose of offshore equity financing. The PRC
resident is also required to amend the registration or make a filing upon (1) the injection of any assets or equity interests in an onshore
company or undertaking of offshore financing, or (2) the occurrence of a material change that may affect the capital structure of a SPV.
SAFE also subsequently issued various guidance and rules regarding the implementation of SAFE Circular 75, which imposed obligations on
PRC subsidiaries of offshore companies to coordinate with and supervise any PRC-resident beneficial owners of offshore entities in relation
to the SAFE registration process.
Regulation of Dividend Distribution
The principal laws, rules
and regulations governing dividend distribution by foreign-invested enterprises in the PRC are the Company Law of the PRC, as amended,
the Wholly Foreign-owned Enterprise Law and its implementation regulations and the Equity Joint Venture Law and its implementation regulations.
Under these laws, rules and regulations, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any,
as determined in accordance with PRC accounting standards and regulations. Both PRC domestic companies and wholly-foreign owned PRC enterprises
are required to set aside as general reserves at least 10% of their after-tax profit, until the cumulative amount of such reserves reaches
50% of their registered capital. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have
been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.
The following sets forth
the material British Virgin Islands, Chinese and U.S. federal income tax consequences related to an investment in our Class A common shares.
It is directed to U.S. Holders (as defined below) of our Class A common shares and is based upon laws and relevant interpretations thereof
in effect as of the date of this annual report, all of which are subject to change. This description does not deal with all possible tax
consequences relating to an investment in our Class A common shares, such as the tax consequences under state, local and other tax laws.
The following brief description
applies only to U.S. Holders (defined below) that hold Class A common shares as capital assets and that have the U.S. dollar as their
functional currency. This brief description is based on the tax laws of the United States in effect as of the date of this annual report
and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this annual report, as well as judicial and
administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which
change could apply retroactively and could affect the tax consequences described below.
The brief description below
of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficial owner of shares and
you are, for U.S. federal income tax purposes,
|
● |
an individual who is a citizen or resident of the United States; |
|
● |
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia; |
|
● |
an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
|
● |
a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
Generally
Nisun International and Nisun
BVI are tax-exempt companies incorporated in the British Virgin Islands. Nami Cayman is tax-exempt company incorporated in the Cayman
Islands. Nisun HK and Nami Hong Kong are subject to Hong Kong profits tax rate. The rest of the Company’s subsidiaries and VIEs
and subsidiaries of VIEs in PRC are governed by PRC laws.
Our company pays PRC enterprise
income taxes, value added taxes and business taxes in China for revenues from our subsidiaries, VIEs and VIEs’ subsidiaries (The
business tax has been incorporated into VAT since May 1, 2016.).
People’s Republic of China Enterprise
Taxation
The following brief description
of Chinese enterprise laws is designed to highlight the enterprise-level taxation on our earnings, which will affect the amount of dividends,
if any, we are ultimately able to pay to our shareholders. See “Dividend Policy.”
PRC enterprise income tax
is calculated based on taxable income determined under PRC accounting principles. The Enterprise Income Tax Law (the “EIT Law”),
effective as of January 1, 2008, enterprises pay a unified income tax rate of 25% and unified tax deduction standards are applied equally
to both domestic-invested enterprises and foreign-invested enterprises.
Fintech is recognized as
a High-technology Company by the Chinese government and is subject to a favorable income tax rate of 15%. Fintech’s High-technology
certificate is valid for three years and subjects to renewal. In accordance with the implementation rules of the Income Tax Law of the
PRC, for the enterprises newly established in the Horgos Development Zone within the scope of “preferential catalogue of income
tax for key industries encouraged to develop in Xinjiang’s difficult areas”, the enterprise income tax shall be exempt for
five years from the tax year of the first production and operations income. Khorgos is established in the Horgos Development Zone and
its income tax is eligible to be exempt for five years starting from 2019. For the year ended December 31, 2021, Jilin Lingang, Jilin
Lingang Hengda, Liaogang Nisun (Shanghai), Fintech Zibo, Fintech Inner Mongolia, Fintech Shanxi, Fintech SX, Fintech Ningbo, Fintech Shandong,
Nisun Gold, and Fintech Jiangxi are subject to a favorable income tax rate of 2.5% due to being small-scale taxpayers. The remaining Group’s
subsidiaries, VIEs and VIEs’ subsidiaries from the financial services business are subject to corporate income tax at the PRC unified
rate of 25%.
Under the EIT Law, an enterprise
established outside of the PRC with “de facto management bodies” within the PRC is considered a resident enterprise and will
normally be subject to the enterprise income tax at the rate of 25% on its global income. If the PRC tax authorities subsequently determine
that we, NiSun BVI, NiSun HK, Nami Cayman, Nami HK, or any future non-PRC subsidiary should be classified as a PRC resident enterprise,
then such entity’s global income will be subject to PRC income tax at a tax rate of 25%. In addition, under the EIT Law, payments
from our subsidiaries and VIEs in PRC to us may be subject to a withholding tax. The EIT Law currently provides for a withholding tax
rate of 20%. If NiSun HK or Nami HK is deemed to be a non-resident enterprise, then it will be subject to a withholding tax at the rate
of 10% on any dividends paid by its Chinese subsidiaries to such entity. In practice, the tax authorities typically impose the withholding
tax rate of 10% rate, as prescribed in the implementation regulations; however, there can be no guarantee that this practice will continue
as more guidance is provided by relevant government authorities. We are actively monitoring the proposed withholding tax and are evaluating
appropriate organizational changes to minimize the corresponding tax impact.
According to the Sino-U.S.
Tax Treaty which was effective on January 1, 1987 and aimed to avoid double taxation disadvantage, income that is incurred in one nation
should be taxed by that nation and exempted from the other nation, but for the dividend that is generated in China and distributed to
foreigner in other nations, a rate 10% tax will be charged.
Our Company will have to
withhold that tax when we are distributing dividends to our foreign investors. If we do not fulfill this duty, we will receive a fine
up to five times of the amount we are supposed to pay as tax or other administrative penalties from government. The worst case could be
criminal charge of tax evasion to responsible persons. The criminal penalty for this offense depends on the tax amount the offender evaded,
and the maximum penalty will be 3-7 years imprisonment plus fine.
PRC Value Added Tax
Pursuant to the Provisional
Regulation of China on Value Added Tax and its implementing rules, issued in December 1993, all entities and individuals that are engaged
in the businesses of sales of goods, provision of services and importation of goods into China are generally subject to a VAT at a rate
ranging from 6% to 13% of the gross sales proceeds received, less any VAT already paid or borne by the taxpayer on the goods or services
purchased by it and utilized in the production of goods or provisions of services that have generated the gross sales proceeds.
PRC Business Tax
Companies in China are generally
subject to business tax and related surcharges by various local tax authorities at rates ranging from 3% to 20% on revenue generated from
providing services and revenue generated from the transfer of intangibles. However, since May 1, 2016, the Business Tax has been incorporated
into Value Added Tax in China, which means there will be no more Business Tax and accordingly some business operations previously taxed
in the name of Business Tax will be taxed in the manner of VAT thereafter. In general, this newly implemented policy is intended to relieve
many companies from heavy taxes under currently slowing down economy. In the case of our Chinese subsidiaries, even though the VAT rate
ranges from 6% to 13%, with the deductibles the company may get in the business process, it will bear less burden than previous Business
Tax.
British Virgin Islands Taxation
Under the BVI Business Companies
Act as currently in effect, a holder of common shares who is not a resident of the British Virgin Islands is exempt from British Virgin
Islands income tax on dividends paid with respect to the common shares and all holders of common shares are not liable to the British
Virgin Islands for income tax on gains realized during that year on sale or disposal of such shares. The British Virgin Islands does not
impose a withholding tax on dividends paid by a company incorporated or re-registered under the BVI Business Companies Act.
There are no capital gains,
gift or inheritance taxes levied by the British Virgin Islands on companies incorporated or re-registered under the BVI Business Companies
Act. In addition, shares of companies incorporated or re-registered under the BVI Business Companies Act are not subject to transfer taxes,
stamp duties or similar charges.
There is no income tax treaty
or convention currently in effect between the United States and the British Virgin Islands or between China and the British Virgin Islands.
Cayman Islands Taxation
The Cayman Islands currently
levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature
of inheritance tax or estate duty. There are no other taxes likely to be material to our company levied by the Government of the Cayman
Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction
of the Cayman Islands. The Cayman Islands is not a party to any double tax treaties. There are no exchange control regulations or currency
restrictions in the Cayman Islands.
United States Federal Income Taxation
The following does not address
the tax consequences to any particular investor or to persons in special tax situations such as:
| ● | regulated investment companies; |
| ● | real estate investment trusts; |
| ● | traders that elect to mark-to-market; |
| ● | persons liable for alternative
minimum tax; |
| ● | persons holding our common
shares as part of a straddle, hedging, conversion or integrated transaction; |
| ● | persons that actually or constructively
own 10% or more of our voting shares; |
| ● | persons who acquired our common
shares pursuant to the exercise of any employee share option or otherwise as consideration; or |
| ● | persons holding our common
shares through partnerships or other pass-through entities. |
Prospective purchasers are
urged to consult their own tax advisors about the application of the U.S. Federal tax rules to their particular circumstances as well
as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our common shares.
Tax Treaties
As above mentioned, according
to the Sino-U.S. Tax Treaty which was effective on January 1, 1987 and aimed to avoid double taxation disadvantage, income that is incurred
in one nation should be taxed by that nation and exempted from the other nation, but for the dividend that is generated in China and distributed
to foreigners in other nations, a rate 10% tax will be charged.
Taxation of Dividends and Other Distributions
on our Common Shares
Subject to the passive foreign
investment company rules discussed below, the gross amount of distributions made by us to you with respect to the common shares (including
the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of receipt
by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under
U.S. federal income tax principles). The dividends will not be eligible for the dividends-received deduction allowed to corporations in
respect of dividends received from other U.S. corporations.
With respect to non-corporate
U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to qualified dividend
income, provided that (1) the common shares are readily tradable on an established securities market in the United States, or we are eligible
for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program,
(2) we are not a passive foreign investment company (as discussed below) for either our taxable year in which the dividend is paid or
the preceding taxable year, and (3) certain holding period requirements are met. Under U.S. Internal Revenue Service authority, common
shares are considered for purpose of clause (1) above to be readily tradable on an established securities market in the United States
if they are listed on The NASDAQ Capital Market. You are urged to consult your tax advisors regarding the availability of the lower rate
for dividends paid with respect to our common shares.
Dividends will constitute
foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed
above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to
the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends.
The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose,
dividends distributed by us with respect to our common shares will constitute “passive category income” but could, in the
case of certain U.S. Holders, constitute “general category income.”
To the extent that the amount
of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles),
it will be treated first as a tax-free return of your tax basis in your Class A common shares, and to the extent the amount of the distribution
exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal
income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution
would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.
Taxation of Dispositions of Common Shares
Subject to the passive foreign
investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of
a share equal to the difference between the amount realized (in U.S. dollars) for the share and your tax basis (in U.S. dollars) in the
common shares. The gain or loss will generally be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual
U.S. Holder, who has held the Class A common shares for more than one year, you will generally be eligible for reduced tax rates. The
deductibility of capital losses is subject to limitations. Any such gain or loss that you recognize will generally be treated as United
States source income or loss for foreign tax credit limitation purposes.
Passive Foreign Investment Company
A non-U.S. corporation is
considered a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year if either:
| ● | at least 75% of its gross income
is passive income, defined as income from interest, dividends, rents, royalties, gains on property producing foreign personal holding
company income and certain other income that does not involve the active conduct of a trade or business; or |
| ● | at least 50% of the value of
its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or
are held for the production of passive income (the “asset test”). |
We will be treated as owning
our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly
or indirectly, at least 25% (by value) of the stock.
Based on the market price
of our common shares, the value of our assets and the composition of our assets and income, we believe that we were not a PFIC for our
taxable year ended December 31, 2021, 2020 or 2019. However, given the factual nature of the analyses and the lack of guidance, no assurance
can be given. We do not expect to be a PFIC for our taxable year ending December 31, 2022. However, because PFIC status is a factual determination
for each taxable year which cannot be made until the close of the taxable year, our actual PFIC status will not be determinable until
the close of the taxable year and, accordingly, there is no guarantee that we will not be a PFIC for the current taxable year or any future
taxable year.
We must make a separate determination
each year as to whether we are a PFIC. As a result, our PFIC status may change. In particular, because the value of our assets for purposes
of the asset test will generally be determined based on the market price of our common shares, our PFIC status will depend in large part
on the market price of our common shares. Accordingly, fluctuations in the market price of the common shares may cause us to become a
PFIC. In addition, the application of the PFIC rules is subject to uncertainty in several respects and the composition of our income and
assets will be affected by how, and how quickly, we spend the cash we raised in our initial public offering. If we are a PFIC for any
year during which you hold common shares, we will continue to be treated as a PFIC for all succeeding years during which you hold common
shares. However, if we cease to be a PFIC, you may avoid some of the adverse effects of the PFIC regime by making a “deemed sale”
election with respect to the common shares.
If we are a PFIC for any
taxable year during which you hold common shares, you will be subject to special tax rules with respect to any “excess distribution”
that you receive and any gain you realize from a sale or other disposition (including a pledge) of the common shares, unless you make
a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of
the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the common
shares will be treated as an excess distribution. Under these special tax rules:
| ● | the excess distribution or
gain will be allocated ratably over your holding period for the common shares; |
| ● | the amount allocated to the
current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income,
and |
| ● | the amount allocated to each
other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments
of tax will be imposed on the resulting tax attributable to each such year. |
The tax liability for amounts
allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses
for such years, and gains (but not losses) realized on the sale of the common shares cannot be treated as capital, even if you hold the
common shares as capital assets.
A U.S. Holder of “marketable
stock” (as defined below) in a PFIC may make a mark-to-market election for such stock to elect out of the tax treatment discussed
above. If you make a mark-to-market election for the common shares, you will include in income each year an amount equal to the excess,
if any, of the fair market value of the common shares as of the close of your taxable year over your adjusted basis in such common shares.
You are allowed a deduction for the excess, if any, of the adjusted basis of the common shares over their fair market value as of the
close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains on the common shares included
in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual
sale or other disposition of the common shares, are treated as ordinary income. Ordinary loss treatment also applies to the deductible
portion of any mark-to-market loss on the common shares, as well as to any loss realized on the actual sale or disposition of the common
shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such common shares.
Your basis in the common shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election,
the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us, except that the lower
applicable capital gains rate for qualified dividend income discussed above under “Taxation of Dividends and Other Distributions
on our Common shares” generally would not apply.
The mark-to-market election
is available only for “marketable stock”, which is stock that is traded in other than de minimis quantities on at least 15
days during each calendar quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable U.S.
Treasury regulations), including The NASDAQ Capital Market. If the common shares are regularly traded on The NASDAQ Capital Market and
if you are a holder of common shares, the mark-to-market election would be available to you were we to be or become a PFIC.
Alternatively, a U.S. Holder
of stock in a PFIC may make a “qualified electing fund” election with respect to such PFIC to elect out of the tax treatment
discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross
income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. However,
the qualified electing fund election is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings
and profits as required under applicable U.S. Treasury regulations. We do not currently intend to prepare or provide the information that
would enable you to make a qualified electing fund election. If you hold common shares in any year in which we are a PFIC, you will be
required to file U.S. Internal Revenue Service Form 8621 regarding distributions received on the common shares and any gain realized on
the disposition of the common shares.
You are urged to consult
your tax advisors regarding the application of the PFIC rules to your investment in our common shares and the elections discussed above.
Information Reporting and Backup Withholding
Dividend payments with respect
to our common shares and proceeds from the sale, exchange or redemption of our common shares may be subject to information reporting to
the U.S. Internal Revenue Service and possible U.S. backup withholding. Backup withholding will not apply, however, to a U.S. Holder who
furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9
or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide
such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application
of the U.S. information reporting and backup withholding rules.
Backup withholding is not
an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may
obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the
U.S. Internal Revenue Service and furnishing any required information.
Under the Hiring Incentives
to Restore Employment Act of 2010, certain United States Holders are required to report information relating to common shares, subject
to certain exceptions (including an exception for common shares held in accounts maintained by certain financial institutions), by attaching
a complete Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in
which they hold common shares. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information
reporting and backup withholding rules.
| F. | Dividends and paying agents |
Not applicable for annual
reports on Form 20-F.
Not applicable for annual
reports on Form 20-F.
We are subject to the information
requirements of the Exchange Act. In accordance with these requirements, the Company files reports and other information with the SEC.
You may read and copy any materials filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You
may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web
site at http://www.sec.gov that contains reports and other information regarding registrants that file electronically with the
SEC.
Not applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a variety
of financial risks, including market risk (including currency risk, price risk and cash flow and fair value interest rate risk), credit
risk and liquidity risk. Our overall risk management program focuses on preservation of capital and the unpredictability of financial
markets and has sought to minimize potential adverse effects on our financial performance and position.
Foreign Exchange Risk
While our reporting currency
is the U.S. Dollar, all of our consolidated sales and consolidated costs and expenses are denominated in the RMB. All of our assets are
denominated in the RMB. As a result, we are exposed to foreign exchange risk as our sales and results of operations may be affected by
fluctuations in the exchange rate between the U.S. Dollar and the RMB. If the RMB depreciates against the U.S. Dollar, the value of our
RMB sales, earnings and assets as expressed in our U.S. Dollar financial statements will decline.
Assets and liabilities are
translated at exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholders’
equity is translated at historical exchange rates. Any resulting translation adjustments are not included in determining net income but
are included in determining other comprehensive income, a component of stockholders’ equity. We have not entered into any hedging
transactions in an effort to reduce our exposure to foreign exchange risk.
The value of the RMB against
the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions. Since
July 2005, the RMB has not been pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign
exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly
in value against the U.S. dollar or the Euro in the medium to long term. Moreover, it is possible that in the future, PRC authorities
may lift restrictions on fluctuations in RMB exchange rate and lessen intervention in the foreign exchange market. The RMB depreciated
approximately 2% in 2020.
Interest Rate Risk
Our interest rate risk arises
from short and long-term borrowings. As of December 31, 2021 and 2020, we had no borrowings with variable rates and we were not exposed
to cash flow interest rate risk. Borrowings issued at fixed rates expose us to fair value interest rate risk.
As of December 31, 2021 and
2020, we had no long-term interest-bearing assets or long-term interest-bearing liabilities.
Credit Risk
Our cash is invested primarily
in savings and deposit accounts with original maturities of three months or less. Savings and deposit accounts generate a small amount
of interest income.
Financial instruments that
potentially subject the Company to significant concentrations of credit risk consist primarily of cash, and accounts receivable. As of
December 31, 2021 and 2020, $25,263,391 and $2,781,506 of our cash and cash equivalents and restricted cash was on deposit at financial
institutions in the PRC, which the management believes are of high credit quality. In May 1, 2015, China’s new Deposit Insurance
Regulation came into effect, pursuant to which banking financial institutions, such as commercial banks, established in China are required
to purchase deposit insurance for deposits in RMB and in foreign currency placed with them. Such Deposit Insurance Regulation would not
be effective in providing complete protection for the Group’s accounts, as its aggregate deposits are much higher than the compensation
limit. However, the Group believes that the risk of failure of any of these Chinese banks is remote. Bank failure is uncommon in China
and the Group believes that those Chinese banks that hold the Group’s cash and cash equivalents, restricted cash and short-term
investments are financially sound based on public available information.
Accounts receivables are
typically unsecured and derived from revenue earned from customers, thereby they are exposed to credit risk. The risk is mitigated by
the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.
Inflation
Inflationary factors such
as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that
inflation has had a material effect on our financial position or results of operations to date, a high rate of inflation in the future
may have an adverse effect on our ability to maintain current levels of gross profit and selling, general and administrative expenses
as a percentage of net sales if the selling prices of our products do not increase with these increased costs.
Item 12. Description of Securities Other than Equity Securities
With the exception of Items
12.D.3 and 12.D.4, this Item 12 is not applicable for annual reports on Form 20-F. As to Items 12.D.3 and 12.D.4, this Item 12 is not
applicable, as the Company does not have any American Depositary Shares.