Filing and reporting period
The supplied filing is Golden Bull Limited’s audited Form 20-F for the fiscal year ended December 31, 2017, prepared under U.S. GAAP. It is not a Bit Digital filing and does not report a standalone 2017 fourth quarter. Golden Bull operated a China-focused online marketplace for short-term, automobile-secured consumer and small-business loans.
Key financial results and liquidity
| Metric | 2017 | 2016 |
|---|---|---|
| Net operating revenue | $6.95 million | $3.71 million |
| Operating income (loss) | ($1.36 million) | $216,854 |
| Net income (loss) | ($996,825) | $164,811 |
| Net income (loss) attributable to Golden Bull | ($942,368) | $160,905 |
| Net cash used in operating activities | ($1.91 million) | ($1.09 million) |
| Cash and cash equivalents at year-end | $5.46 million | $7.38 million |
| Total assets | $12.91 million | $9.10 million |
| Total liabilities | $469,232 | $282,293 |
| Total shareholders’ equity, including noncontrolling interest | $12.45 million | $8.82 million |
Revenue rose approximately 87.6%, while total operating expenses increased 138.3%. Operating margin, calculated from reported figures, was approximately negative 19.6% in 2017 versus positive 5.9% in 2016; net margin was approximately negative 14.3% versus positive 4.4%. The filing does not present a gross margin. No material interest-bearing debt is reported; year-end liabilities were principally payables, accruals and taxes. Current assets were $10.06 million against current liabilities of $469,232, although current assets included substantial prepaid expenses and IPO costs.
Material changes versus 2016
- Loan volume facilitated increased to approximately $130.0 million from $54.9 million. Cumulative facilitated volume since inception was reported as $183.7 million.
- Average transaction and management fee rates declined to 2.5% and 3.1% of loan principal, respectively, from 2.84% and 4.1%; management said the reductions were intended to attract borrowers.
- Selling expenses rose 172.6% to $3.91 million, driven by brand promotion, lender incentives and servicing costs. General and administrative expenses rose 139.4% to $3.92 million, including higher consulting and IPO-related professional fees.
- The company shifted toward loans made directly by underlying borrowers to lenders in response to PRC loan-size restrictions. At year-end, 87 borrowers (21.8%) had loans exceeding the limits, all facilitated before the measures took effect; the company said substantially all such loans had been repaid by the filing date.
- Cash declined by approximately $1.92 million. Operating cash use increased, largely reflecting losses and prepaid marketing and promotion costs. Investing cash use was $31,214; financing cash use was $389,635, primarily prepaid IPO costs, according to the cash flow statement.
Outlook, commentary, risks and unusual items
- Management expected loan volume and borrower acquisition to grow, and planned to invest in marketing, the platform and mobile app, staffing, and borrower acquisition. It provided no quantified revenue or earnings guidance and said current working capital was expected to support operations for 12 months.
- Management expected selling, marketing and general and administrative costs to continue increasing. Average lender acquisition cost rose sharply to $1,519.63 in fourth-quarter 2017, compared with $83.43 in first-quarter 2016; management attributed the increase to lender incentives and seasonal spending.
- Regulatory compliance is a central risk. Golden Bull planned to complete required PRC inspection and P2P registration by the applicable 2018 deadline, but acknowledged uncertain implementation, possible required business changes, and the risk of suspension, fines or loss of operating permissions if it failed to qualify or register.
- Letter No. 141 could require changes to how borrower fees and commissions were collected. The company believed it was compliant except that regulators might consider fees charged at loan disbursement noncompliant.
- Revenue remained concentrated: one borrower accounted for 16.8% of 2017 revenue; two borrowers accounted for 45.8% and 31.1% in 2016. The filing also states that borrowers above regulatory loan limits generated 76.3% of 2017 revenue and 66% in 2016.
- No facilitated loans had defaulted by December 31, 2017, so collateral recovery and collection processes had not been tested. Golden Bull was not obligated to reimburse lenders for defaults and had no risk reserve fund.
- Other significant risks include the PRC VIE structure and its enforceability, evolving foreign-investment and internet-service licensing requirements, dependence on third-party custodians and payment providers, currency controls and RMB exchange movements, customer-data and cyber risks, and lack of business interruption and general liability insurance.
- Unusual items include $4.03 million of shares issued to service providers in 2017, including $2.0 million for IPO services and $2.03 million for consulting services; the cash flow statement reports $488,334 of stock-compensation amortization. After year-end, the IPO and over-allotment generated net proceeds of approximately $5.22 million and $842,000, respectively; $600,000 was placed in an underwriter indemnity escrow.
- The auditor issued an unqualified opinion on the financial statements. Management assessed disclosure controls as effective at December 31, 2017; the filing did not include an auditor attestation on internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer identity: this is Golden Bull Limited, not Bit Digital, Inc.; verify the intended company and reporting period before relying on this summary.
- Reconcile reported 2017 operating loss, net loss, and company-attributable loss, and assess the effect of noncash share-based service costs and deferred tax benefits.
- Review the quality, duration and recoverability of prepaid marketing, professional-service and IPO-cost balances, and the composition of year-end cash held with banks and third-party platform accounts.
- Verify P2P registration and licensing status, the treatment of historical over-limit loans, and whether fee practices and the revised loan structure met PRC requirements.
- Track borrower concentration, lender acquisition costs, loan defaults and collections, and whether guarantors and collateral provide effective protection in a downturn.
- Assess actual post-IPO cash availability, including offering costs and escrow restrictions, against continuing operating cash outflows and planned spending.