Freight Technologies, Inc. annual report, Q4 FY2018

Filing summary

Filing and period discrepancy: The supplied document is China Internet Nationwide Financial Services, Inc.’s audited Form 20-F for the fiscal year ended December 31, 2018—not a Freight Technologies, Inc. filing or a standalone 2018 Q4 report. The filing’s financial figures are annual; it does not provide clear standalone fourth-quarter results.

Business context and reporting period

The company, then named China Internet Nationwide Financial Services, provided financial advisory and factoring services mainly to Chinese small and medium-sized enterprises. Its principal services included commercial payment advisory, intermediary bank loan advisory, international corporate financing advisory, and factoring. Most operations and revenue were conducted through a China variable interest entity (VIE) controlled by contractual arrangements. Financial statements are prepared under U.S. GAAP and cover fiscal 2018, with comparisons to 2017 and 2016.

Key financial metrics

Current assets were $64.78 million and current liabilities were $1.96 million at year-end 2018. The company reported no outstanding bank borrowings. Loans to third parties were $39.85 million net of a $7.12 million allowance; accounts receivable were $18.84 million. The filing says approximately 75% of accounts receivable, excluding factoring principal, had been collected by February 28, 2019. Restricted net assets in China were approximately $11.32 million. No dividends were planned for the foreseeable future.

Material changes versus 2017

• Revenue fell 42.7%, primarily as financing advised declined to $1.15 billion from $2.43 billion. The company attributed the reduction largely to China’s economic slowdown and lower commercial payment and international financing activity.
• Commercial payment advisory revenue decreased 63.5% to $6.15 million; international corporate financing revenue fell 55.0% to $1.11 million. Intermediary bank loan advisory revenue rose 6.6% to $6.09 million. Factoring contributed $0.50 million.
• Operating expenses increased 316.5% to $15.75 million. General and administrative expense rose to $11.66 million, while research and development expense increased to $3.51 million.
• Other expenses included a $7.42 million impairment charge on loans and property and equipment, a $2.06 million loss on disposal of Anytrust, and a $2.42 million foreign-currency translation loss. The company reported a $1.70 million income-tax benefit.
• Cash declined by $25.59 million during the year. Operating cash outflow included a $13.33 million increase in accounts receivable; investing cash outflow included net lending to third parties.

Outlook, risks, contingencies, and unusual items

Management described plans to prioritize commercial payment advisory services, expand factoring and geographic coverage, and develop its online platform. It disposed of Anytrust on December 30, 2018 and said it would no longer provide technical services. Management said it intended to avoid direct lending and use bank-arranged entrusted loans selectively, while also stating that such lending was not expected to become a significant income source. No quantified revenue or earnings guidance was provided. Management stated it believed operating cash flows would cover ordinary working-capital and capital-expenditure needs for the next 12 months, but cautioned that additional financing might be needed.

• Direct-lending regulatory exposure: The filing says prior direct lending to corporate clients may have violated PRC lending rules. It describes a potential fine of approximately $6.1 million to $30.5 million; counsel considered a fine unlikely, but the company could not assure that no penalty would be imposed.
• Credit and collection risk: Two entrusted loans to one borrower, totaling about $8.74 million, were overdue at year-end and had not subsequently been collected as described in the filing. The company recorded a $6.12 million impairment on entrusted loans and a $1.00 million provision on direct loans. Three customers represented 20.88%, 19.34%, and 11.63% of accounts receivable, respectively.
• Related-party transaction: Anytrust was transferred to CEO and Chairman Jianxin Lin for no consideration. The company also wrote off approximately RMB20.53 million (about $3.06 million) owed by Anytrust, which it deemed uncollectible. Anytrust had generated about $0.55 million revenue against approximately $2.6 million in overhead and was described as technically insolvent.
• Structural and jurisdictional risks: Revenue depends on a PRC VIE held by PRC individuals and controlled through contracts; PRC authorities could challenge the structure or restrict operations. The filing also highlights evolving financial-services regulation, currency controls, restricted transfers of PRC cash, and foreign-exchange risk.
• Other liquidity and governance considerations: Cash fell sharply while receivables and lending exposures remained substantial. The filing identifies related-party balances, including $184,961 due from related parties and $32,005 payable on demand to Mr. Lin. The auditor issued an unqualified opinion on the 2018 financial statements; management assessed internal control over financial reporting as effective, but the auditor was not engaged to audit those controls.

Most important facts for investors to verify

1. Confirm the issuer and reporting period: this is a CIFS fiscal-year 2018 Form 20-F, not Freight Technologies or a Q4-only filing.
2. Review loan-level aging, collateral, subsequent collections, and the basis for the $7.12 million loan allowance and $7.42 million total impairment charge.
3. Assess collectability and timing of the $18.84 million receivables balance and the concentration in three customers.
4. Verify the status of the potential PBOC penalty and whether any regulatory inquiry or enforcement action has arisen.
5. Examine the Anytrust transfer, debt write-off, valuation, and related-party approvals and disclosures.
6. Reconcile the filing’s service-line disclosures: some narrative and table labels appear inconsistent, although the reported total revenue is $14.40 million.
7. Evaluate accessible cash and transfer restrictions, given $1.58 million year-end cash, negative operating cash flow, and PRC restricted net assets.