Business context and reporting period
Filing identity: The supplied filing is Hudson Capital Inc.’s (formerly China Internet Nationwide Financial Services Inc.) Form 20-F for the fiscal year ended December 31, 2019—not a filing for Freight Technologies, Inc. The company was a China-focused financial advisory and factoring business serving mainly SMEs. It filed on June 15, 2020, using an SEC COVID-19 filing extension. This is an annual report, not a standalone fourth-quarter report.
- The company reported under U.S. GAAP. Its ordinary shares outstanding at year-end were 22,114,188.
- In 2020, after the reporting period, the company changed its name to Hudson Capital Inc. and its Nasdaq ticker to HUSN.
Key financial results and condition
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $1.366 million | $14.402 million |
| Gross profit | $1.366 million | $13.747 million |
| Operating loss | $0.628 million | $2.006 million |
| Net loss | $61.996 million | $3.819 million |
| Cash from operating activities | $(1.071) million | $(17.266) million |
| Cash and cash equivalents at year-end | $13,567 | $1.579 million |
- Revenue fell 90.5% year over year. Gross margin was approximately 100% in 2019 because reported cost of revenue was only $123; the operating margin was approximately negative 46%.
- The net loss included $57.942 million of impairment losses on loans and property and equipment, and $5.611 million of other expenses. Management attributed the loan impairments to deteriorating collectability after pursuing repayment.
- Net loans to third parties were $4.800 million at year-end, after a $41.803 million allowance against $46.603 million of gross direct and entrusted loans. The filing says the full $34.403 million entrusted-loan balance was not subsequently collected and was impaired.
- Total assets were $5.569 million; total liabilities were $3.049 million, including $2.089 million of current liabilities and a $0.960 million provision for other liabilities. Shareholders’ equity was $2.520 million, down from $64.881 million. Related-party payables were $279,925, unsecured, non-interest bearing, and due on demand. The filing reports no outstanding bank borrowings.
- Cash used in investing activities was $0.200 million and cash used in financing activities was $0.031 million. Cash declined by $1.565 million during the year.
- The company reported $11.354 million of restricted PRC net assets, limiting the transfer of cash to the offshore parent. Its current assets included net loans, which face substantial collection risk.
Material changes versus the prior comparable period
- Revenue declined from $14.402 million in 2018 to $1.366 million in 2019. Financing advised fell to $22 million from $1.153 billion, and the reported number of clients advised fell to one from 47.
- Intermediary bank-loan advisory revenue dropped 93.1% to $417,347. Commercial payment and international corporate financing advisory revenue were both zero, versus $6.153 million and $1.112 million, respectively, in 2018.
- Factoring revenue increased 90.1% to $949,070, becoming 69.5% of revenue, but remained small in absolute terms. The company said it was shifting its focus toward factoring.
- Operating expenses fell 87.3% to $1.994 million, reflecting downsizing, lease terminations, and no research and development expense after the 2018 disposal of Anytrust. Operating loss narrowed, but the substantial loan impairment drove the much larger net loss.
- Year-end cash fell to $13,567 from $1.579 million. Operating cash outflow was lower than in 2018, but the 2019 accounts still reflected severe losses and asset impairment.
Outlook, commentary, risks, and unusual items
- Going concern: The 2019 auditor’s report states that operating losses, accumulated deficits, insufficient operating cash generation, and negative operating cash flow raise substantial doubt about the company’s ability to continue as a going concern. The company said it might seek additional capital and pursue measures to improve cash flow.
- Strategy: Management planned to prioritize factoring, expand geographically and seek new service or licensing opportunities. It said direct lending would not be resumed as a normal business and entrusted lending was expected to be infrequent, with loan balances not expected to increase significantly.
- Credit and concentration risks: The loan impairments and uncollected entrusted loans are material. Three customers represented 44.01%, 19.38%, and 17.95% of year-end accounts receivable, although no customer contributed more than 10% of 2019 revenue.
- Regulatory contingency: The company disclosed that past direct lending to corporate clients may have violated PRC lending rules. It estimated a potential PBOC fine of approximately $6.1 million to $30.5 million, while stating counsel considered penalties unlikely; it could not assure that no fines or other action would occur.
- COVID-19: The filing says the pandemic disrupted operations and delayed preparation of the annual report. Management warned that the outbreak could harm customers’ ability to repay and adversely affect 2020 results, financial position, and cash flow; the scale and duration of the impact were uncertain.
- Nasdaq listing: The company disclosed notices concerning minimum stockholders’ equity, bid price, and market value of publicly held shares. It faced compliance deadlines and warned that failure to regain compliance could lead to delisting.
- Corporate structure and governance: The company relies on contractual VIE arrangements to control key China operations and obtain their economic benefits; PRC authorities or courts could take a contrary view of their enforceability. The company also disclosed management and director changes in 2020 and a related-party transfer of Anytrust in 2018 for no consideration, alongside writing off approximately $3.060 million owed by Anytrust.
- Subsequent financing: After year-end, the company completed a private placement of 2 million shares at $0.40 per share for $800,000 gross proceeds, intended for working capital. No cash dividends were planned for the foreseeable future.
Important facts for investors to verify
- Confirm that this filing belongs to Hudson Capital Inc., not Freight Technologies, Inc., and that the period is FY 2019 rather than Q4 alone.
- Review the audited notes and subsequent collections to establish recoverability of the remaining loan balances, the related impairment assumptions, and the status of the uncollected entrusted loans.
- Assess the auditor’s going-concern warning against the company’s very low year-end cash, 2020 private-placement proceeds, and actual cash needs.
- Check the status and potential exposure from the disclosed direct-lending regulatory issue, including whether any fine or other penalty was assessed.
- Verify Nasdaq compliance outcomes and the continuing enforceability and operation of the PRC VIE arrangements.
- Reconcile filing inconsistencies in reported cash-flow narrative amounts and loan or financing metrics against the audited financial statements and underlying disclosures.