Business Context and Reporting Period
This Form 6-K filing by China Internet Nationwide Financial Services Inc. (CIFS), dated December 26, 2019, announces unaudited financial results for the six months ended June 30, 2019. CIFS operates primarily in China, providing financial advisory services, supply chain financing, and factoring services. The company has suspended several domestic banking-related advisory business lines due to macroeconomic slowdowns and deteriorating client creditworthiness.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 |
|---|---|---|
| Revenue | $1,229,981 | $11,419,246 |
| Gross Profit | $1,229,855 | $11,040,370 |
| Gross Margin | 99.9% | 96.7% |
| Operating Income | $26,869 | $3,308,373 |
| Net Income (Loss) | $(55,881,292) | $6,850,140 |
| Cash and Cash Equivalents | $207,835 | $1,578,828 |
| Total Assets | $11,874,779 | $66,845,092 |
| Net Cash Used by Operations | $(957,994) | $5,952,280 |
Material Changes Versus Prior Period
- Revenue Collapse: Total revenue decreased 89.2% year-over-year. The company generated no revenue from commercial payment advisory or international corporate financing advisory services in the current period, compared to significant revenue in 2018. This was offset partially by a 981% increase in factoring service revenue ($805,053 vs. $74,457).
- Impairment Loss: The company recorded a massive impairment loss on loans to third parties of $51,563,170, compared to zero in the prior period. This was the primary driver of the net loss.
- Expense Reduction: Operating expenses decreased 84.4% to $1,202,986. Research and development expenses dropped to $0 following the disposal of a subsidiary in late 2018. General and administrative expenses fell 78.8% due to staff layoffs and lease terminations.
- Liquidity Decline: Cash and cash equivalents dropped by approximately 86.8% to $207,835. Total assets decreased by 82.3% largely due to the write-down of loans and receivables.
Guidance, Outlook, and Risks
Management Commentary: Management attributes the revenue decline to the slowdown of the Chinese macroeconomy and the deterioration of potential clients' creditworthiness. The company has suspended domestic banking-related advisory lines and is focusing on supply chain financing services.
Risks and Contingencies:
- Asset Quality: The $51.6 million impairment loss indicates significant credit risk in the company's loan portfolio. Management determined that a provision was necessary against entrusted and direct loans.
- Liquidity Constraints: Cash reserves are critically low ($207,835) relative to the scale of previous operations. Net cash used by operations was nearly $1 million.
- Dividend Restrictions: PRC laws restrict the ability of subsidiaries to transfer net assets to the parent company in the form of dividends, loans, or advances, limiting capital flexibility.
- Forward-Looking Statements: The filing includes standard disclaimers that actual results may differ materially from projections due to uncertainties in the business environment.
Investor Verification Checklist
- Verify the specific composition and collectability of the remaining $7.2 million in "Loans to third parties" on the balance sheet following the $51.6 million impairment.
- Confirm the sustainability of the factoring service revenue stream, which now represents the majority of total revenue.
- Assess the company's ability to meet current liabilities ($2.38 million) given the cash balance of only $207,835.
- Review the status of the suspended business lines to determine if they can be revived or if the business model has permanently shifted.
- Investigate the "Other expenses" line item of $(4.55 million) to understand the nature of these costs beyond the impairment loss.