Business Context and Reporting Period
This Form 6-K filing by Dragon Victory International Limited (referred to in metadata as Metalpha Technology Holding Ltd) covers the month of March 2018, with the report dated March 26, 2018. The filing details a significant restructuring of the Company's Variable Interest Entity (VIE) arrangements in the People's Republic of China (PRC). The Company terminated its existing VIE agreements with Hangzhou Long Yun Network Technology Co., Ltd. ("Long Yun") and its original wholly-owned subsidiary ("WFOE I") effective March 20, 2018. Simultaneously, the Company established a new wholly-owned subsidiary ("WFOE II") in Shangcheng District, Hangzhou, to enter into new VIE agreements with Long Yun. This restructuring was executed to secure preferential tax treatments and subsidies from the local government.
Key Financial Metrics
The filing text does not provide specific financial performance data such as revenue, profit, cash flow, margins, debt, or liquidity for the reporting period. The document focuses exclusively on corporate governance and contractual restructuring. The only monetary figure disclosed is the aggregate registered capital of Long Yun, which serves as the option exercise price under the new Exclusive Option Agreement, amounting to approximately $1.5 million.
Material Changes Versus Prior Period
- Termination of Old Structure: The Company terminated all VIE agreements (Exclusive Business Cooperation, Share Pledge, Exclusive Option, and Powers of Attorney) between WFOE I and Long Yun. WFOE I is in the process of dissolution.
- Establishment of New Structure: WFOE II replaced WFOE I as the contracting party in the VIE structure. The new agreements grant WFOE II absolute control rights and rights to the assets, property, and revenue of Long Yun, equivalent to sole equity ownership.
- Strategic Rationale: The change in the location of the WFOE (from the previous location to Shangcheng District) was driven by the desire to access specific local government tax incentives and subsidies.
- Operational Continuity: There is no change to Long Yun's capital structure or its business scope, which includes internet crowdfunding and incubation management services.
Guidance, Outlook, and Risks
Management Commentary: Management states that the New VIE Agreements enable the Company to continue exercising control over Long Yun, having exposure to variable returns, and affecting those returns through control. The service fee paid by Long Yun to WFOE II is designed to be approximately equal to Long Yun's net income.
Risks and Contingencies: The filing highlights the reliance on contractual arrangements rather than direct equity ownership. Risks include the potential for the Long Yun shareholders to breach obligations, though the Share Pledge Agreement provides WFOE II with the right to foreclose on equity interests or dispose of pledged shares in such events. The Exclusive Option Agreement allows WFOE II to purchase Long Yun's equity at the registered capital price ($1.5 million) if permitted by PRC law.
Unusual Items: The filing notes that the Exclusive Business Cooperation Agreement does not prohibit related party transactions, provided they are reviewed and approved in advance by the Company's audit committee.
Investor Verification Checklist
- Verify the legal enforceability of the new VIE agreements under current PRC laws and regulations.
- Confirm the specific details and magnitude of the "preferential tax treatments and subsidies" granted by the Shangcheng District government to WFOE II.
- Monitor the dissolution status of WFOE I to ensure no lingering liabilities remain.
- Review the audit committee's approval process for related party transactions between WFOE II and Long Yun.
- Assess the financial impact of the service fee structure, which effectively transfers Long Yun's net income to WFOE II.