Filing summary
Identity and period: The supplied filing is China Internet Nationwide Financial Services, Inc.’s annual report on Form 20-F for the fiscal year ended December 31, 2017—not a Freight Technologies, Inc. filing and not a standalone 2017 Q4 report. The company reported under ticker CIFS and prepared its financial statements under U.S. GAAP.
Business context
The company provided financial advisory services mainly to Chinese small and medium-sized enterprises, arranging commercial payment, domestic bank-loan and international corporate financing. Commercial payment advisory services were the largest business. It also earned interest by lending company funds directly or through entrusted loans. In 2017 it acquired data-services provider Anytrust and launched supply-chain financing, which had no material revenue by year-end.
Financial performance
| Metric | FY 2017 | FY 2016 | Change |
|---|---|---|---|
| Revenue | $25.12 million | $15.82 million | +59% |
| Gross profit | $24.39 million | $15.44 million | +58% |
| Operating expenses | $3.78 million | $1.90 million | +100% |
| Operating income | $20.60 million | $13.55 million | +52% |
| Interest income from third-party loans | $4.07 million | $2.79 million | +46% |
| Net income | $24.05 million | $13.89 million | +69% |
| Comprehensive income | $26.43 million | $12.42 million | +108% |
| Basic and diluted EPS | $1.152 | $0.694 | Up |
Gross margin was approximately 97% versus 98% in 2016; operating margin was approximately 82% versus 86%. Revenue growth reflected more clients and financing arranged: 47 clients and approximately $2.43 billion of advised financing in 2017, compared with 29 clients and $1.47 billion in 2016. Commercial payment advisory services generated $16.87 million, or 67% of revenue; domestic bank-loan advisory generated $5.71 million; international financing advisory generated $2.47 million; and technical services generated $63,578.
Cash, liquidity and capital
- Cash increased to $27.17 million from $1.88 million. Operating cash flow was $27.60 million; investing cash flow was a $22.31 million outflow, mainly reflecting increased lending and the Anytrust acquisition; financing cash flow was $19.64 million, principally IPO proceeds.
- Current assets were $75.98 million and current liabilities $7.87 million at year-end. Loans to third parties totaled $41.69 million, up from $19.24 million; accounts receivable was $6.29 million.
- The filing reports no outstanding bank borrowings and no off-balance-sheet arrangements. It lists $163,659 due to founder Jianxin Lin, unsecured, non-interest-bearing and payable on demand.
- The July 2017 IPO sold 2,023,146 shares at $10 each; net IPO proceeds were approximately $18.97 million. Outstanding shares at year-end were 22,114,188. The company reported $12.28 million of restricted PRC net assets and lease commitments of $4.38 million.
Changes, outlook and notable risks
- General and administrative expense rose 135%, mainly due to increased office rent and staffing; selling and marketing expense rose 51%. Income tax expense fell to $633,315 from $2.45 million, largely due to the tax holiday for Kashgar SYX. Foreign-currency translation shifted from a $1.47 million loss to a $2.38 million gain.
- Management described plans to expand geographically, build its online platform and FinTech capabilities, develop supply-chain finance, and pursue new services and acquisitions. No quantified revenue, earnings or cash-flow guidance was provided. Management said it expected operating cash flows to meet ordinary working-capital and capital-expenditure needs for the next 12 months, while cautioning that additional financing might be needed.
- Direct-lending regulatory exposure: The company disclosed historical direct corporate lending that its PRC counsel considered inconsistent with provisions of the Lending General Provisions. The filing estimated a potential PBOC fine of approximately $6.1 million to $30.5 million, while management’s counsel considered penalties unlikely; the company could not assure that no action would be taken. The company also reported $36.73 million of entrusted loans outstanding at year-end and disclosed new direct lending in 2018, despite stating an intention to avoid direct loans.
- Credit and concentration: The company’s loan assets expose it to borrower default. Six customers represented 22.3%, 18.8%, 14.1%, 12.9%, 10.7% and 10.2% of accounts receivable, respectively. Management recorded no allowance for doubtful accounts or loans at year-end.
- Structure and regulatory risks: Substantially all revenue depended on PRC operating entities controlled through contractual VIE arrangements, rather than direct ownership. The filing highlights uncertainty around PRC regulation, enforceability of VIE contracts, foreign investment limits, cash remittance and currency conversion. The company also identified evolving financial-services rules, competition, reliance on key executives and bank relationships, and cybersecurity and operational risks.
- The filing says there were no material legal proceedings and no significant changes since the audited financial statements. It reports no business interruption, casualty or key-person insurance and no planned cash dividends in the foreseeable future.
Important facts to verify
- Confirm the issuer: the document identifies China Internet Nationwide Financial Services, Inc., not Freight Technologies, Inc.; confirm the requested company and period before relying on this summary.
- Reconcile net-income figures: the audited statements report $24.05 million for 2017, while one narrative passage states $23.46 million.
- Review the status and potential financial impact of the disclosed direct-lending compliance issue, including any regulator action or subsequent resolution.
- Validate recoverability, maturities, collateral and concentration of the $41.69 million loan portfolio and the concentrated receivables; confirm subsequent collections and credit-loss assessment.
- Assess the VIE arrangements, PRC cash-transfer restrictions and tax-holiday assumptions, including the stated Kashgar exemption through 2020.
- Check post-year-end developments: the filing disclosed $9 million of new direct loans in early 2018 and a May 2018 factoring facility agreement; neither should be mistaken for year-end 2017 balances or performance.