UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

☒         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2017

☐         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 333-201037

HUI YING FINANCIAL HOLDINGS CORPORATION 

(Exact name of registrant as specified in its charter)

Issuer’s telephone number: +86 21-23570077

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)    Yes  ☒    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of the last business day of the Company’s most recently completed second fiscal quarter, there was no active public trading for its shares of common stock on OTC QB. Since the Company’s revenue is less than $75 million during the fiscal year ended 2017, the Company is a smaller reporting company.

As of March 19, 2018, there were 72,364,178 shares of the Company’s common stock issued and outstanding.

HUI YING FINANCIAL HOLDINGS CORPORATION

Annual Report on Form 10-K

For the Fiscal Year Ended December 31, 2017

TABLE OF CONTENTS

Except where the context otherwise requires and for purposes of this Annual Report on Form 10-K (this “Report”) only:

Unless otherwise noted, all translations from Chinese Yuan to U.S. dollars using the exchange rate refers to the exchange rate quoted on http://www.oanda.com on December 31, 2017, which was RMB 6.5074 to USD$1.00. We make no representation that the Chinese Yuan amounts referred to in this Report could have been or could be converted into U.S. dollars at any particular rate or at all.

Note Regarding Forward-Looking Statements

This Report contains “forward-looking statements,” which are statements that relate to future events or our future operational or financial performance or prospects that are based upon beliefs of, and information currently available to, our management as well as estimates and assumptions made by our management.  When used in the filings the words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan” or the negative of these terms and similar expressions as they relate to us or our management identify forward looking statements. Such statements reflect the current view of our management with respect to future events and are subject to risks, uncertainties, assumptions and other factors (including the risks contained in the section of this report entitled “Risk Factors”) as they relate to our industry, our operations and results of operations, and any businesses that we may acquire. Should one or more of the events described in these risk factors materialize, or should our underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended or planned.

Although we believe that the expectations reflected in the forward looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the U.S. federal securities laws, we do not intend to update any of the forward-looking statements to conform them to actual results. The following discussion should be read in conjunction with our financial statements and the related notes that are included herein.

PART I 

Item 1. Business.

Overview

We are a holding company that, through our wholly-owned subsidiaries, Benefactum Alliance Holdings Company Limited, a British Virgin Islands company (“Benefactum Alliance”), Benefactum Sino Limited, a Hong Kong company (“Benefactum Sino”) and Benefactum Alliance (Shenzhen) Investment Consulting Company Limited, a People’s Republic of China company (“Benefactum Shenzhen” or “WFOE”) and our contractually controlled and managed company, Benefactum Alliance Business Consultant (Beijing) Co., Ltd., a People’s Republic of China company (“Benefactum Beijing”), operate an electronic online financial platform, www.hyjf.com, which is designed to match investors with small and medium-sized enterprises (“SMEs”) and individual borrowers in China. We believe our services provide an effective solution for under-served SME and individual borrowers who need access to financing. Since the launch of our marketplace in December 2013 through December 31, 2017 we have facilitated over $2.87 billion in loans. As of December 31, 2017, we had 367,893 registered investors and 24 institutional partners.

We generate revenue from our services that facilitate matching lenders, who we refer to as investors, with individual and SME borrowers. We typically charge borrowers a loan origination service fee between 1.5% and 3% of the loan amount, depending on the duration of the loan, for each effected loan facilitated by us. Additionally, we charge a separate fee from borrowers for each loan repayment facilitated by us, which is based on an agreed upon percentage approximately 0.3% on the borrowing times the duration of the loan.

In addition, in June 2017 we engaged a qualified non-banking financial institution to provide entrusted loans to SMEs. Through this process we, as the trustor, provide funds to a trustee, who enters into a three-party loan agreement with us and the borrower. The loans are typically short-term and are guaranteed by a third-party financing guarantor. This is one step forward towards our long-term strategy of building a financial ecosystem aimed at providing full service to our SME customers. We intend to expand our business in both online and offline sectors to meet the demands of various customers.

Due to PRC legal restrictions on foreign ownership and investment in, among other areas, value-added telecommunications services, which include internet content providers, or ICPs, we, similar to all other entities with foreign-incorporated holding company structures operating in our industry in China, have to operate our internet businesses and other businesses in which foreign investment is restricted or prohibited in the PRC through wholly foreign-owned enterprises, majority-owned entities and variable interest entities. Accordingly, we plan to continue to operate our online financial platform in China through Benefactum Beijing, which is wholly-owned by two Chinese shareholders, but is contractually controlled and managed through our wholly-owned WFOE.

The contractual arrangements between WFOE and Benefactum Beijing collectively enable us to exercise effective control over, and realize substantially all of the economic risks and benefits arising from Benefactum Beijing. See “Corporate History and Structure — Contractual Arrangements with Benefactum Beijing.” The contractual arrangements may not be as effective in providing operational control as direct ownership. See “Risk Factors — Risks Related to Our Corporate Structure.” As a result, we include the financial results of Benefactum Beijing in our consolidated financial statements in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, as if it were our wholly-owned subsidiary.

We conduct our business primarily in Beijing, Shanghai and Shandong Province, People’s Republic of China. Our principal executive offices are located at Rooms 2401, 2402, 2403, 2404 and 2412 on 2299 Yan’an West Road, Shanghai, China.

Our Strategy

Our mission is to provide SMEs and individual borrowers with easy and effective access to affordable financing and provide investors with a safe and acceptable investment return. To achieve this goal, we have implemented the following strategies, each of which we intend to continue to expand:

We will continue to expand our base of SMEs and individual borrowers by entering into cooperation agreements with various partners, including without limitation, guarantor institutions, pawn shops, micro-credit companies and asset management companies, who can provide us with recommendations for new borrowers. Currently, our cooperative partners are located in Shandong, Inner Mongolia and other areas in China. Since the inception of our online platform, approximately 88.5% of the loans facilitated through our platform are for SME borrowers. We will continue expanding the number, type and areas of cooperative partners, and seek cooperation with internet companies, e-commerce companies, telecommunication companies and third-party payment platforms which are located throughout China.

We are promoting new personal consumer financing products to individual borrowers, such as automobile financing and consumer financing. In addition, we will continue to design and develop diversified financing products to satisfy market demand.

Our platform also allows investors to diversify their wealth management strategies by providing easy access to various lending opportunities that can be designed with flexible terms.

Currently, all of our investors are individuals. We are introducing mutual fund or other institutional investors to increase our overall number and type of investors. In addition, we have implemented plans to attract more individual and institutional investors by cooperating with institutions so that the cost to the borrowers would be reduced if there are more funds available for loans.

As loan volume in our marketplace grows and consumer financing products expand, we have implemented protocols to enhance our risk management capabilities. As for individual borrowers, we have improved the risk management model for individual credit control so that risk management testing will be more effective and reasonable. For SME borrowers, besides the due diligence process that our cooperative partners undertake, we have enhanced the onsite due diligence process and appointed a risk management team.

In addition, we have enhanced our cooperation with other third-party credit investigators to obtain more accurate information about the credit history of the borrowers so we can make reasonable and accurate assessments of borrower applications to reduce and avoid bad debts.

We have made significant investments in our proprietary technologies in the areas of data collection and processing algorithms to increase the precision, speed and scale at which we match the demand and supply of loans. Enhanced data analytics improves our conversion of online leads into successful borrowers and investors. With the further application of big data, we can acquire members of our target borrower and investor groups in a more focused and cost-efficient way. Furthermore, we will continue to leverage technology to further automate our processes and improve the safety and efficiency of matching the loans with investors. At the same time, we will also benefit from the operating leverage associated with our scalable platform as our loan volume increases. We believe these investments will facilitate the long-term growth of our marketplace.

We will expand strategic relationships with internet financing companies, internet companies, technology companies and financing companies, by mergers and acquisitions to enhance our competitive advantage in the financing technology ecosystem and to improve the efficiency of our products and services

As a long-term strategy, we are planning to build a financial ecosystem for SME customers that are under-served in China’s current financial system. We will seek to expand our intermediary and direct lending services, both online and offline, to meet the demands of various customers. As part of this initiative, we announced the launch of entrusted loan services on June 30, 2017, which leverages our improving financial condition and years of experience in providing financing solutions to our customers in China. We believe the new service allows us not only to generate new revenues but also to expand our scope beyond the existing service of being an intermediary between investors and borrowers through the online platform. We will continue to devise customized product and service offerings to meet customer demands and expand the scale and scope of our operations.

Our Business

We operate our business through an electronic online financial platform, www.hyjf.com (“website”), which is designed to match investors with SME and individual borrowers in China. We have developed user-friendly mobile applications for borrowers and investors (“mobile apps “, collectively with our website, the “platform”), which enable borrowers and investors alike to access our platform at any time or location that is convenient. We launched our first mobile application in September 2015. In calendar years 2017 and 2016, we facilitated over RMB4.12 billion (approximately $609.22 million) and RMB1.28 billion (approximately $188.14 million) in loans through our mobile apps, respectively, representing 46.58% and 22.54 % of the total amount of loans facilitated through our marketplace in the respective periods.

Our platform is also accessible to those who guarantee the loans for our borrowers (“third-party cooperative partners”). Apart from acting as guarantors, these third-party cooperative partners may, if they so choose, also use our platform for purposes of transferring their creditor rights on loans made by them outside our platform (“outside loans”). For this service, we charge these third-party cooperative partners similar loan origination service fees and repayment management fees.

We had 24 third-party cooperative partners as of December 31, 2017, consisting of five pawn shops, four guaranty companies, a micro-loan company, an asset management companies, three information technology companies, three financial consulting companies, four technology companies, and three financial services companies, which frequently serve as guarantors of loans on our platform.

The following diagram illustrates our current business model:

Our Online Marketplace

Our platform embraces significant opportunities presented by a financial system that leaves many creditworthy individuals and SMEs underserved. We match qualified borrowers who have completed profiles that are available on the platform with investors. Once an investor decides to proceed with a specific loan, and the borrower accepts the terms of the loan, our system automatically generates electronic loan contracts for execution. When the closing conditions are satisfied, our system directs the investors to the third-party payment platform to consummate the loan. In addition, our platform allows third-party cooperative partners to assign outstanding loans to other registered investors on our platform. The loans we facilitate are usually short-term loans that range from one month to twelve months with interest rates ranging from 4.5% to 12%.

Online Loan Transaction Process

We provide a streamlined application process combining both online and offline features. To borrowers and investors alike, we have designed the process to appear simple, seamless and efficient, utilizing sophisticated, proprietary technology to make it possible. The entire process, from posting the loan application on our platform to disbursement of funds, takes no longer than 19 days but, more typically, only three to five days. At any given time, a borrower may have only one outstanding loan on our platform, and only after the outstanding loan is paid off, can the borrower enter into a new loan. At such time the borrower submits a new application, we undertake a new review of the borrower’s loan profile prior to making any determination as to whether to facilitate a new loan transaction. This restriction on lending prevents a borrower from borrowing a new loan to pay off the old loan resulting in an increase in the borrower’s total debt. The platform monitors and reviews borrowers, therefore preventing a “roll over” of loans.

We post borrower profiles and their loan information on our online platform, including loan amount, duration, interest rate or rate range they are willing to pay, borrower’s basic information, its total assets and credit score etc. Investors can browse the loan information on our platform and select loan products appropriate for them to invest in, based on their own availability of funds and their risk preferences. Set forth below is a description of the steps in a typical online loan transaction.

Step 1: Online Application Submission and Initial Assessment.

In order to access the services provided by our online financial platform, potential borrowers open an account with us and complete an online loan application form.

Our risk control department determines whether the potential borrower meets our minimum requirements based on initial discussions between our risk control department and the prospective borrower. We evaluate each borrower’s application and decide if we should process his/her application on a case-by-case basis. As part of this process, we conduct an analysis of the borrower’s financial conditions, loan amount and term, business industry and proposed use of the funds.

If the prospective borrower meets our minimum requirements, the application is forwarded to our third-party cooperative partners who guarantee the borrower’s loan after reviewing the borrower’s application materials.

As an alternative, the borrower may also propose a third-party guarantor to guarantee the repayment of its loan. In these instances, we also conduct an assessment of the referred guarantor’s credit-worthiness and financial standing using the same matrix as that for the borrower. The third-party guarantor will be jointly and severally liable with the borrower for the borrower’s debt.

Typically, as part of this process, prospective borrowers will be asked for documents to prove their identity and financial standing, including but not limited to business licenses, tax reports, audited financial statements and appraisal reports (for enterprise borrowers), national identification card and bank statements (for individual borrowers).

Step 2: Offline Anti-Fraud Investigation and Credit Assessment

Our risk control department reviews all borrower application materials and conducts its own due diligence, including third-party verification and onsite visits, and a review of the sufficiency of collateral provided. Our risk management model utilizes big data capabilities to systematically evaluate a borrower’s credit characteristics. After verifying the authenticity of the borrower’s submitted documents, we will assign a credit rating to the borrower based on its credit history, business activities being undertaken, assets and other criteria.

We have established a risk management model for SME borrowers. We use over 120 factors to evaluate SME borrowers, with a weighted total score of 400 and a minimum score of 60. Our risk assessment matrix can be classified into the following categories: enterprise quality assessment, operation and management assessment, repayment funding source assessment, and risk management assessment, and we use these four categories to evaluate SME borrowers. At the same time, we use a third-party system and publicly available credit reporting system to make necessary inquiries on SME borrowers, thereby establishing a risk management model suitable for China’s SME borrowers. Based on a borrower’s credit history, business activities, assets and other criteria, we classify the borrower’s credit rating into the following categories according to its weighted average score: AAA (> 90), AA+ (80-90), AA (70-80), AA- (60-70), and A (< 60). In the order of AAA to A, the expected quality of borrowers decreases, and the expected default rates ascends, even though there have been no defaults of borrowers since the inception of the platform. Explanations of each credit rating are as follows:

AAA:      The SME borrower operates its business normally without the presence of any operational issues; it has abundant repayment funding sources, good financial standing, and no bad credit records. Borrowers with credit rating of AAA are expected to have a default rate of approximately 0%.

AA+:       The SME borrower operates its business normally without the presence of any operational issues; it has multiple repayment funding sources, good financial standing, and no bad credit records or resolved bad records only.

AA:         The SME borrower operates its business normally; it has multiple repayment funding sources, moderate to good financial standing, and resolved bad credit records or minor bad credit records, for which reasonable explanations are required by the Company.

AA-:        The SME borrower operates its business normally; it has some repayment funding sources, moderate financial standing, and resolved bad credit records or minor bad credit records, for which reasonable explanations are required by the Company. For these borrowers, the Company facilitates loans under the condition that the borrower meets stricter collateral requirements asked by the guarantors.

A:            Any SME borrowers that fail to meet the qualifications mentioned in AA- and above are unqualified to receive loans on our platform.

The following table sets forth the outstanding loan amounts for SME borrowers by credit rating at end of each period as indicated:

We are also working on establishing a risk management model for individual borrowers. The model for individual borrowers will have over 440 factors, with a weighted total score of 1,085 and a minimum score of 550. The risk assessment matrix can be classified into the following six controlling categories: borrower’s basic information, existing assets, repayment ability, credit status, indebtedness status and behavioral analysis. At the same time, we obtain from the third-party the borrower’s relevant social activities, telephonic records, creditworthiness, indebtedness status, and these four factors form an all-dimensional holistic assessment mechanism, thereby establishing an objective and realistic risk management model for individual borrowers. Once the model is completely established, we will rely on this model for risk management of individual borrowers.

We have stringent requirements for the collateral in order to protect the investors’ interests. Generally, we only accept collateral that is highly liquid and adequate to repay the loan amount. Borrowers who intend to use real estate to secure their loans will first need to have the real estate appraised by qualified appraisers. The loan amount cannot be more than 80% of the value of the real estate. The collateral provided by borrowers is provided only to third-party guarantors, not to the investors.

Although we typically do not accept personal property as collateral, we may do so under exceptional circumstances when the personal property will be pledged and the loan amount is no more than 70% of the appraised value of the personal property.

Step 3: Approval

Once the borrower is approved, we categorize the borrower’s credit facility into one or more of the following loan products and post it on our platform. We also post the relevant third-party guarantor’s information and its letter of guarantee. The information is accessible to all investors who have registered on our platform. They will have the option of accepting the credit facility per the terms offered online. Once a credit facility is accepted by an investor, our platform automatically prepares the necessary loan documents for execution by the parties online. The electronic signatures generated on platform are certified by China Financial Certification Authority, a financial security certification authority designated by People’s Bank of China.

* Zhai Quan Zhuan Rang is a service that allows investors to transfer their creditors’ rights. The minimum outstanding loan amount requirement before creditor rights may be transferred is not less than RMB 1,000. After holding an investment product for at least 30 days, the investor may then transfer this product at a price of at least 95% of the original price. The service was launched in October 2015. For the years ended December 31, 2017 and 2016, service revenues from Zhai Quan Zhuan Rang product amounted to $158,227 and $55,342, respectively. Revenue is recognized when the service is rendered and service fee is collected from transferor upon the completion of the transfer, which is classified under Revenues on the Income Statement, the same as loan origination service fee collected for other loan products.

Once we successfully match investors and borrowers through our online platform, we provide following services during the loan origination process:

a) Assisting in registering of liens or collaterals with relevant government agencies;

b) Verifying accuracy of documents and loan information and assisting in loan offering transactions. There are often times multiple investors involved in a single loan offering;

c) Facilitating communications with borrowers and guarantors through various means to ensure smooth closings of transactions; and

d) Coordinating with third-party online payment depository institutions to transfer funds upon closing.

Step 4: Funding

Since the inception of our online platform in December 2013 through July 2017, we had contracted with a licensed third-party online payment service, Hui Fu Tian Xia Limited Company (“ChinaPnR”), to assist in the disbursement and repayment of loans. Individual borrowers were charged a processing fee by ChinaPnR in the amount of 0.11% to 0.25% (which varies depending on the bank they use) of the loan amount when it was deposited in their ChinaPnR account. For SME borrowers, they paid RMB 10 per deposit. When borrowers withdrew money from their ChinaPnR account, they would have to pay a processing fee of 0.05% of the withdrawing amount plus RMB1 or just RMB1, depending on how soon they wish for the withdrawal to be effected. When the loan was repaid to ChinaPnR, ChinaPnR would disburse the loan and interest back to the investors, who were not charged for the service provided by ChinaPnR.

However, in February 2017, the CBRC released the Guidance to regulate funds depositories for online lending intermediaries. The Guidance defines depositories as commercial banks that provide online lending fund depository services. In compliance with the regulatory requirement, we engaged Jiangxi Bank, a qualified banking financial institution, in March 2017 as our funding depository service provider. Upon successful system transition from China PnR to Jiangxi Bank in July 2017, Jiangxi Bank started to assist in the disbursement and repayment of loans. Both the investor and the borrower open accounts with Jiangxi Bank and authorize Jiangxi Bank to manage their accounts. The investor funds the loan amount in his/her account with Jiangxi Bank, which disburses loan amount to the borrower net of our service fees, which is remitted to us.

Currently, investors are not charged for deposits made to their accounts in Jiangxi Bank. However, borrowers are charged a processing fee by Jiangxi Bank in the amount of 0.10% (with a minimum of RMB2) of the loan amount when the funds are deposited into the borrower’s Jiangxi Bank account. When borrowers and investors withdraw money from their Jiangxi Bank accounts, they pay a processing fee of RMB1 per transaction.

Our dedicated team closely monitors the whole process and solves any issues promptly to ensure closing of loan transactions are handled in a timely and accurate manner. Once loans are closed and funds are transferred, we consider our loan origination service being rendered. We then recognize revenue from fees collected from loan origination services. The fees are simultaneously deducted from loan proceeds upon transfer of funds from lenders and remitted to our account on the same day. In most cases, the fees will be in our account on the same day or next business day but occasionally may take up to three business days due to bank or internal processing delay. The fees are not refundable. We retain borrowers’ loan records in our system as a part of their credit profile and for reference in their future financing applications.

Step 5: Post-Funding Supervisory

After the debt financing is provided to the borrower, the guarantor monitors the borrower’s performance and provides the platform with the feedback on the borrower’s credit condition, contract performance and debt repayment capabilities. The guarantor initially monitors and examines the borrower’s performance within one month after the loan is provided to the borrower. For longer-term loans, the guarantor conducts additional rounds of examination every two months after the first round. For every round of examinations, the guarantors examine borrowers’ performance from multiple aspects, including reviewing their most recent credit histories, monthly cash flows, operational activities, debt repayment capabilities, and occurrence of any contract breaches. If no material changes are found, a Post-Funding Supervisory Report is provided to the company within five business days after the examination. Examinations are conducted for two primary reasons. First, we create a separate credit file for each borrower on our platform. The Post-Funding Supervisory Reports allow us to update the borrower profiles in a timely manner with additional information and recent business developments. Post-Funding Supervisory Reports ensure the completeness of the borrower profiles. Moreover, additional rounds of examinations give us timely access to the borrower’s financial and operational issues that could potentially result in credit events. In this case, the additional examinations enable the Company to recognize any risks earlier and take actions to avoid losses more promptly than we would have been without the examinations. As noted previously, after the initial examination, the guarantor conducts additional rounds of examination every two months. The two-month period is a minimum requirement that we set and is determined based upon our risk management experience and estimation of the average cash cycle among our borrowers. In practice, we may recommend our guarantors, or the guarantors themselves may choose, to conduct examinations more frequently as needed to better protect their interests. For example, if the default rate of a particular industry or a geographical area surges during a period of time, we would recommend the guarantors to conduct more frequent and detailed examinations.

Since the inception of the platform there have been no credit events giving rise to the possibility of a borrower default. However, we expect that if a guarantor recognizes a credit event with any material changes that could potentially result in a negative turn in a borrower’s financial standing and ability to repay its loan, the guarantor will notify us immediately, or at least within the same day, so that our management can take prompt action to minimize the risk of non-payment. Although we have instituted a minimum two-month period for rounds of examinations, each guarantor has its own terms of disclosure requirements and/or additional examinations included in their guarantee contracts signed with the borrowers and may determine to put in place additional controls to detect a possible credit default prior to an examination. For example, most of our guarantors require borrowers to report monthly on the usage of loans guaranteed by them, the occurrence of any new borrowings and updated financial statements etc. Guarantors may also monitor the borrowers’ credit status through reviewing their monthly credit reports on the People’s Bank of China’s Credit Record Center website. Besides these standard checks, guarantors may also require borrowers to report any significant events, such as equity restructuring and merger & acquisition etc., at least thirty days in advance. With the additional reporting and examinations, the guarantors have comprehensive knowledge on the borrowers’ operational condition and credit status. If any potential default risk is recognized, the guarantors will notify our platform immediately to discuss the severity of the situation and the necessity to take actions to prevent a default.

We do not expect any significant impact on the risk reserve fund since we have a process in place for payment from the fund and reimbursement to the risk reserve fund. In the event of any negative credit event, our management will determine the proper action to take to avert or minimize the risk of non-payment. One week before the loan is due, the risk control department informs Jiangxi Bank (China PnR prior to July 2017), our third-party cooperative partners and the borrower and supervises the repayment of the loan.

Step 6: Collections

Towards the end of each loan term, we provide repayment service to ensure the loan repayment process is handled smoothly through our online platform. All loans originated through our online platform are repaid through our online platform and the terms are agreed upon at the time of the original loan agreement. When loans approach its maturity, our team will typically send our notices to borrowers via several means to remind them of the repayment deadlines. We will then calculate the amounts to be repaid by borrowers, including the principals, accrued interests and service charges, and provide repayment notices to borrowers 7 days before the maturity day. On the maturity day, borrowers log onto their accounts opened with our online platform, transfer funds into their depository accounts in Jiangxi Bank’s depositary system, and process the repayment through our online system. When the borrower repays the loan to Jiangxi Bank, they deposit the loan repayment management fee along with the principal loan amount and interest. Jiangxi Bank then disburses the principal loan amount and interest back to the investor and remits the repayment management fee to us.

The use of our online system is a part of our service provided in connection with the repayment process. Borrowers authorize our platform to send instructions to Jiangxi Bank’s fund depositary system, which, following pre-established rules, deduct calculated repayment amounts from borrower’s depositary accounts and transfer the funds to lender’s depositary accounts. We also help with making arrangement with release of liens or collateral if applicable. Our system closely monitors the whole repayment process and solves any issues promptly to ensure the repayment proceeds arrive at lender accounts in a timely and accurate manner. It’s only up to this point that we consider our loan repayment service has been rendered, we then recognize revenue for repayment services upon the completion of the repayment services. Once loans are successfully repaid, we also retain borrowers’ repayment records through our online platform for a minimum of 3 to 5 years per regulatory requirement, as part of their credit profile and for reference in their future financing applications such as loan amount to be granted or interest rate charged.

Our platform is capable of monitoring and tracking payment activity. With built-in payment tracking functionality and automated missed payment notifications, the platform allows us to monitor the performance of outstanding loans on a real-time basis. Although we are not exposed to credit risks, we assist the investors in collection as a service to the investors.

In the event of a non- or partial repayment of a loan by the borrower, the third-party guarantor will primarily be responsible for the payment of the outstanding amount.

In the event the third-party guarantor defaults on the payment, we will pay the investor the sum owed from the reserve fund (See description of Risk Reserve Fund below) and then commence our collection proceedings. We may assist the guarantor with the sale or auction of collateral or directly initiate actions to recover payment from the guarantor and/or borrower.

Though there have been few cases since our platform’s inception where borrowers prepaid their loans, there are prepayment terms available in our agreement with borrowers and investors. If the borrowers prepay within 8 days before loan maturity, they still need to pay the full interests accrued as if the loans were repaid at the end of the loan term, which amounts are specified in the agreement when entered. If the borrowers prepay more than 8 days (inclusive) before loan maturity, they need to pay interests accrued up to the date of prepayment plus extra three days’ interests to the investors. In either case, however, according to our agreement, the borrowers would still be obligated to pay our platform the full amount of the loan repayment management fee as if the loans were repaid at the end of the loan term.

Third-Party Cooperative Partners Guarantees

Our cooperative partners are party to cooperation agreements. The performance by the cooperative partner is unconditional pursuant to the terms and conditions of the cooperation agreement.

Our management has been in the lending business for more than a decade and has established a network of industry resources including access to many financing guarantors who know many potential borrowers. Since inception in 2013, our online platform has established good brand awareness in the industry and some guarantors come to us proactively. We typically select qualified and sizable guarantors as our platform’s cooperative partners. They refer borrowers to us and assume financing guarantee responsibility. Factors we consider when selecting a cooperative guarantor include its license and qualification, total assets, business process, risk control capability and credit status etc. We conduct an Offline Anti-Fraud Investigation of guarantors by reviewing their credit history, legal disputes, and/or using third-party verifications. However, we do not perform a credit assessment of the guarantors like we perform for borrowers, therefore there are no underlying credit ratings for third-party guarantors. We will also conduct on-site due diligence and sign a cooperative agreement with the guarantor including acceptable methods of liens and collaterals. After that, the guarantor can start referring borrowers to our platform and provide loan guarantee. Guarantors usually charge a separate fee for their loan guarantee service. Guarantors will sign a separate loan guarantee agreement with borrowers and upon receipt of loan proceeds, borrowers will pay guarantors a separate guaranty fee, which is usually around 2% of the loan principal. This arrangement is made offline between the guarantors and borrowers.

Cooperative partners provide investigative reports on the veracity and credit condition of the borrower for every financing project being recommended. After the debt financing is provided to the borrower, the cooperative partner will monitor the borrower’s performance and will provide the platform with the feedback on the borrower’s credit condition, contract performance and debt repayment capabilities. For the financing project, which the cooperative partner has recommended, and has provided the guaranty, the cooperative partner will deposit a certain proportion of the loan into risk reserve fund, thereby fulfilling its duty with a cash deposit. The cooperative partner provides a guaranty letter/guaranty agreement for the financing project it has recommended, providing guaranty for the timely repayment of loans. The terms provided by the cooperation partner are the same terms offered by third-party guarantors who the borrower may propose to guarantee its loan.

Third-Party Creditor Loan Assignment Process

The process described above also applies to third-party creditors (“Creditor Partner(s)”) that seek to sell their rights as creditors on third-party loans with borrowers who are not borrowers on our platform (“Original Borrowers”). This service generated revenues in the amount of $1,740,693 and $493,975 in 2017 and 2016, respectively. Since the inception of the platform, no Original Borrower or Creditor Partner has defaulted on any loan payments, which would have required disbursement of funds from the risk reserve fund. In the loan assignment process, Creditor Partners assume the role of borrowers on our platform and revenues are recognized following the same revenue recognition policy as to other borrowers, which are classified under Revenues on our Income Statement. While the transaction process for Creditor Partners is largely similar to those for individuals and SME borrowers, there are certain procedural differences, as follows:

Step 1: Online Application Submission and Initial Assessment

Similar to individual and SME borrowers, Creditor Partners are required to open an account with us and send us the application materials before a third-party loan may be listed and sold on our platform. These Creditor Partners are usually the third-party cooperative partners discussed above, who refer borrowers to our platform and provide loan guarantee. As we have established cooperative relationships with these Creditor Partners, a prior determination has already been made that they have met our minimum requirements and no additional verification is conducted during the application process. Nonetheless, we re-evaluate these partners’ creditability from time to time, usually every one to three months.

Step 2: Offline Anti-Fraud Investigation and Credit Assessment

Since these Creditor Partners use our platform in order to transfer their rights on third-party loans that were made outside of our platform, they are responsible for conducting their own due diligence investigation into the Original Borrower’s credit-worthiness. Nonetheless, our risk control department conducts its own due diligence on the creditor’s rights sought to be sold and the Original Borrower’s credit-worthiness, using the same standards discussed above. As part of this process, our risk control department reviews the loan contract between the Creditor Partner and the Original Borrower to determine whether the Original Borrower has agreed to the proposed sale of creditor’s rights. We contact the Original Borrower directly to ensure that they have received notice of proposed sale from the Creditor Partner.

Step 3: Approval

Once the Creditor Partner is approved, we categorize the partner’s credit facility into one or more of the loan products discussed under “Step 3: Approval” above and post the loan on our platform. Investors will then have access to information regarding the Original Borrower, the rights that are being transferred, the collateral that secures the amounts borrowed, if any, and other details related to the right to transfer. We will also post the Creditor Partner’s “letter of promise,” which promises that they will guarantee the loans and require them deposit 2% to 5% of the loan amount into the risk reserve fund as usual.

Once a credit facility is accepted by an investor, our platform automatically prepares the necessary assignment documents for online execution by the parties.

Steps 4 to 6: Funding, Post-Funding Supervisory and Collections

The procedures of Funding, Post-Funding Supervisory and Collections are similar with those discussed above for individuals and SME’s. However, because the Creditor Partners usually have a high credit-rating due to their pre-established cooperative relationship with us, we do not require them to provide additional guarantees when they seek to sell their creditor rights on our platform. Therefore, in the event the Original Borrower defaults and the Creditor Partner also defaults on the payment, we will pay the investor the sum owed from the reserve fund (See description of Risk Reserve Fund below).

Fees

For our services that match investors and borrowers through our online platform, we typically charge borrowers and Creditor Partners a loan origination service fee between 1.5% to 3% of the loan amount facilitated by us (or proceeds of sale of the creditors’ rights, as the case may be) depending on, among other things, the duration of the loan. The loan origination service fee is payable when the borrowers or Creditor Partners receive the loans (or in the case of Creditor Partners, the proceeds of the sale of their creditors’ rights) in their accounts with Jiangxi Bank (or China PnR prior to July 2017), which will separate the loan origination service fee from the loan amount (or proceeds of sale, as the case may be) and send it to our account. Additionally, we charge a separate fee from borrowers for each loan repayment facilitated by us, which is based on an agreed upon percentage around 0.3% on the borrowing times the duration of the loan. The loan repayment management fee is payable when the borrower or Creditor Partner repays its loan. In a transaction involving the sale of a Credit Partner’s creditor’s rights, the amount of fees charged to the Credit Partner is the same as that charged to a borrower. In addition to the loan amount, they would have to deposit the repayment management fee to their accounts with Jiangxi Bank, who will allocate the loan repayment to the investors’ accounts and repayment management fee to our account. Currently, we do not charge any service fees to our investors.

Risk Management

Traditional risk management tools and the types of consumer finance data available in developed economies, such as widely available consumer credit reporting services, are currently at an early stage of development in China. We believe our risk management capabilities provide us with a competitive advantage in attracting capital to our marketplace by providing investors with the comfort that they are investing in high quality loans through a sustainable marketplace.

We primarily manage credit risk on behalf of the investors by doing the following:

i. We evaluate the borrower’s repayment ability utilizing our pre-transaction credit and fraud detection assessment using our big data credit assessment system. Our risk management model utilizes big data capabilities to automatically evaluate a borrower’s credit characteristics. Potential borrowers who do not meet our credit assessment grade will be denied loans.

ii. We offer a risk reserve fund which is 2-5% of all the credit extended to the borrowers (in December 2017, we have started to stop requiring new contributions from most of the borrowers and guarantors to the risk reserve fund. Existing reserve funds are being returned to borrowers and /or guarantors as loans mature and are repaid. See description of Risk Reserve Fund below).

iii. Each loan transaction facilitated on our platform is guaranteed by a third-party guarantor who is jointly and severally liable for the loan, except for the third-party loan assignment, in which case Creditor Partners seek to sell their rights as creditors on third-party loans with borrowers who are not borrowers on our platform. Since these Creditor Partners are usually our third-party cooperative partners with pre-established cooperative relationship with us, we do not require them to provide a third-party guarantor when they seek to sell their creditor rights on our platform. They will provide a “letter of promise,” which promises that they will guarantee the loan if the Original Borrower defaults and we require them to deposit 2% to 5% of the loan amount into the risk reserve fund as usual.

Risk management is the core task in the financial activities in which we engage. Our risk management department functions independently, creates detailed risk management policies, loan management rules, and operation manuals. The risk management department provides an independent expert assessment on the borrowers’ credentials in accordance with our loan policy and resolutely denies the applications of unqualified borrowers.

Credit review is a key part of risk management. The risk management department evaluates every application carefully without being affected by any subjective considerations. Determining the borrower’s credentials is a key principle in the credit review. With respect to an individual borrower’s loan application, the risk management department utilizes the risk management model for individual credit loans, and this model both realistically and effectively establishes 440 assessment points for comprehensive evaluations. Weighing different factors, this model requires the individual borrower to reach a threshold of 550 points in order to qualify for personal loans.

For business loans, the risk management department is required to perform on-site visits, inspect the business’ operating conditions, financial condition, use of loan proceeds, and the business owner’s individual reputations, among other factors. The risk management department first provides a risk assessment report and then approves a loan with respect to the underlying project.

In the internet era, our platform utilizes a third-party credit assessment system for our personal loan business. The borrower’s true financial condition and credit history provided by third-party credit assessment agencies greatly assist our evaluation of the borrower’s loan application. An important role of the risk management in the financial business is to minimize the risk of investor’s investment and to protect the safety of the platform.

A key aspect of the Company’s risk management is the full-tracking risk management. As a basic requirement of loan management, the risk management department sets up three management modules: pre-lending, during-lending, and post-lending. “Pre-lending management” emphasizes due diligence, including on-site inspections in order to obtain first-hand materials. “During-lending management” emphasizes standardized operations and execution of operating procedures according to the contract in order to avoid omissions or mistakes. “Post-lending management” emphasizes pre-warning mechanism and implements all-around debt collection mechanism for post-due debt, including on-site inspection, account review, control of material assets, exposure of delinquent activities, and legal recourse of litigation in order to protect the investor’s rights.

After the debt financing is provided to the borrower, the guarantor will monitor the borrower’s performance and will provide the platform with the feedback on the borrower’s credit condition, contract performance and debt repayment capabilities. In the event of any material development resulting in a negative turn in a borrower’s financial standing and potential ability to repay its loan, our management will determine the proper action to take to avert or minimize the risk of non-payment.

Finally, if enforcement action needs to be taken, we assist the investors in taking all legal recourse against the defaulted party. As an intermediary between the borrower and the investor, we deem ourselves to be independent from the debtor-creditor relationship and do not believe that we are a proper party to any lawsuits arising from the borrowers’ and/or guarantors’ defaults. However, we may offer necessary assistance to the investors, such as by disclosing the information of the borrowers and/or guarantors, provided that such disclosure is permitted under any relevant agreement and pertinent laws.

Risk Reserve Fund

In order to better protect our investors’ interests, we have voluntarily established a risk reserve fund which is generally equivalent to 2% to 5% of all credit extended to borrowers. The determination of the reserve fund ratio is made by referencing the overdue default loan data for the industry in which the borrower operates its business. Our risk control department starts with the industry default loan data and credit trend then adjusts it appropriately with information collected from current and past borrower profiles in the same industry on our platform, also taking into consideration communications with and updates from guarantors including changes in guarantee fees they charge borrowers and other measures they would take in providing guarantees. Based on the research results, the risk control department then sets the reserve fund ratio for the industry and reviews and adjusts it regularly if necessary, usually every quarter to six months. The risk reserve account is currently maintained with Jiangxi Bank and China Construction Bank. Under our risk reserve fund arrangement, if a loan is delinquent for a certain period of time, usually within three business days, we will withdraw a sum from the risk reserve fund to repay the investor.

Prior to an application for credit being made on our platform, the borrower (or if a guarantor is needed for the borrower, the guarantor) is required to provide an amount equal to 2% to 5% of the aggregate amount of the loan, which is deposited directly into the risk reserve fund. If the borrower cannot be matched with an investor within the fundraising period (no more than 19 days), all amounts deposited by the borrower or guarantor in the risk reserve fund, as the case may be, will be returned. If the borrower is successfully matched with an investor, the risk reserve fund will be refunded to the borrower if the loan is paid in full at maturity.

In the event that a borrower defaults in repaying the loan when it is due, we advise the guarantor of such default. If the guarantor cannot make the repayment within the period as stipulated (usually three days), we withdraw a sum equivalent to the outstanding loan amount with interest and penalty at a rate of 0.06% per day from the risk reserve fund to repay investors within three business days.

When more than one loan becomes delinquent and the borrower and/or guarantor fail(s) to repay investors, we will use the risk reserve fund to cover the loans in the order in which they become due. When deciding to draw upon the reserve fund to pay back an investor, we calculate the reserve fund to determine whether there are sufficient funds to repay. If the reserve fund is insufficient to repay investors, the fund shall be allocated on a pro rata basis. We notify investors and the third-party guarantors, or Creditor Partner, as the case may be, via website, text messages, email and then we implement a pre-set payment plan with the investors for each overdue loan transaction in which they receive their corresponding pro rata distribution of the reserve fund. In case of a default by a borrower, the investor bears the risk of not receiving a timely repayment or an investment failure, and the cooperative partners, through a series of protective measures, protect the investors’ interest to the maximum possible degree. The defaulting borrower and/or guarantor is/are obligated to reimburse the risk reserve fund account up to the outstanding loan amount owed with interest and penalty at a rate of 0.06% per day on the outstanding loan amount, which will be recorded as part of the balance of the risk reserve fund liability on our balance sheet. According to our Intermediary Service Agreement signed for each loan between the borrower, investors, and the platform, the interest and penalty are paid to investors for the period between the time of a borrower default and the time of a risk-reserve-fund repayment. After the repayment is withdrawn from the risk reserve fund, the guarantor is responsible for collecting loan repayments from the borrower and re-contributing funds to the risk reserve fund. Thus, the guarantor is entitled to the interest and penalty for this period of time.

Since the inception of the platform, no borrower has defaulted on any loan payments. All investors through the platform have timely received repayment of their investment funds. Our platform has not used the reserve fund to advance the repayment to investors, and our cooperative partners have not had to advance any payments as part of their obligation as guarantors.

As a transaction intermediary, we do not assume credit risk for the loans facilitated through our online platform and our risk reserve liability is limited to the balance of risk reserve fund that the borrowers or guarantors deposit with us. When loans that are facilitated through our online platform default, we do not record allowance for loan losses on our consolidated financial statements and if we use risk reserve fund to repay investors, we will make a footnote disclosure to risk reserve fund on withdraws for delinquent loans and subsequent reimbursements by borrowers or guarantors if any.

In March 2017, the Office of Task Force Responsible for Special Rectification of Risks in Internet Finance in Beijing issued Notice for Factual Acknowledge by and Rectification of Online Lending Information Intermediaries in Beijing (the “Notice”), pursuant to which, P2P platforms in Beijing are prohibited from setting up risk reserve fund or security fund for the purpose of providing guarantees to loans or promoting to investors regarding such types of funds. P2P platforms in Beijing have the same transition period to be compliant with the Notice as set forth in the Interim Measures.

Our PRC legal counsel has advised us that the Notice is still subject to further clarification and implementation measures for its enforcement, such as a clear definition of the risk reserve fund, and we believe P2P platforms in Beijing are prohibited from setting up and promoting risk reserve funds by committing their own capital. Our platform, however, sets up the risk reserve fund by requiring borrowers and/or guarantors to contribute their capital equal to 2% to 5% of the loan amount. Nevertheless, starting in December 2017, we have started to stop requiring new contributions from most of the borrowers and guarantors to the risk reserve fund, and stopped advertising the establishment of risk reserve funds on the platform. Existing reserve funds are being returned to borrowers and /or guarantors as loans mature and are repaid. As a result, we do not believe we are in violation of the Notice and there is currently no communication from regulatory agencies regarding such violation. We have not distributed a formal notice to our existing borrowers and/or guarantors about the regulations as the Notice is widely known, and it is expected that participants in this industry are aware of the Notice. If it is determined that we are in violation of the Notice, we would return the existing risk reserve contributions within the time frame provided by the regulatory agency. If there is no such time frame provided or required, we expect we would return the contributions in cash to our borrowers and guarantors within 3 to 5 business days or as soon thereafter as practicable.

As of December 31, 2017, balance of our risk reserve fund was approximately $ 12.1 million.

Information Technology & Cyber Security

Information technology is an important component of an internet company. We have an expert team possessing a depth of technical know-how and expertise, and we have carefully assembled a team of experts to operate the platform, communicate via the network, and for system maintenance.

Our technology team consists of three major working groups, responsible for different technical areas but at the same time mutually supportive of one another’s tasks. The structure working group is responsible for developing the system’s source code and constituting the system’s structure to meet the business needs. The testing working group is responsible for the necessary testing of the already developed operable system in order to examine its reliability and user’s experiences, thereby providing testing data and implementing needed modifications to the operating system. The operation maintenance working group is responsible for the necessary maintenance and inspection of the website’s technical system, including building fire wall, placing patches, preventing hackers’ attacks, thereby ensuring the normal operation of the system.

Our technology department has established a comprehensive system for managing web technology. To prevent external infiltration and theft of data and other illegal activities, we have established three levels of prevention mechanisms, thereby effectively implementing preventions from physical, technical, and authorization aspects.

Our system security protection is implemented from protective archiving and evaluation based on levels of information system security, disaster recovery, and information security. First, we have already entered into a cooperation agreement with Alibaba Cloud Computing, ensuring that the servers used on our platform are well protected and maintained. With respect to the data security on the platform’s computers, besides backing up all data with Alibaba Cloud Computing, our platform also backs up all operation data in order to prevent any data loss and ensure the reliable and prompt reading and retrieving data, therefore guaranteeing the normal operation of the platform.

As a platform used by both investors and borrowers, we have established an emergency response mechanism in the event of an emergency and built a back-up database in order to restore the platform’s operations and minimize downtime of the platform.

Our Products

As discussed above, we categorize the borrower credit facility into one or more loan products and post it on our platform. Those products include Xin Shou Zhuan Qu, Cai Fu Hui, Zun Xiang, Hui Ji Hua, You Xuan Zhai Quan, Zhai Quan Zhuan Rang and Hui Xiao Fei. For more detail regarding these products, please refer to the table listed under the “Step 3: Approval” of the transaction process.

Customers

Our customers comprise mainly Chinese individuals and SMEs. All of our investors are individuals while our borrowers include both individuals and SMEs. Our SME borrower clients are mainly from the heavy industry, wholesale, public transportation and restaurant industries. No one customer or group of customers’ accounts for 10% or more of our revenue. For the year ended December 31, 2017, SME borrowers and individual borrowers accounted for approximately 84.1% and 15.9% of the loan amounts facilitated through our platform, respectively.

Currently, most of our investors are in Shanghai, Shandong, Heilongjiang, Jiangsu, Henan and Jiangxi etc. provinces, and most of our borrowers are currently in Shandong province. All of our current borrowers are referred to us by our guarantors, whose businesses operate only in Mainland China. US-based investors and borrowers are prohibited from borrowing funds or being investors. Prospective borrowers and investors must be Chinese citizens or enterprises located in the PRC in order to register for an account and submit borrowing or investing applications through our platform. Our “Registration Agreement” and “Intermediary Service Agreement” also requires that the borrowers and investors represent and confirm that they are Chinese citizens or enterprises located in the PRC at the time of registration and submission of borrowing or investing applications, respectively, or they won’t be able to proceed. In addition, when submitting an application, a confirmation window will pop up, requesting borrowers or investors to confirm that they are located in the PRC before they can proceed with the submission. In the event that a non-PRC based citizen or enterprise is able to register and submit an application, upon our review of such application, including the implementation of our Step 1 and Step 2 protocols, such an application would be rejected and such registration would be terminated.

Marketing

The borrowers are made known to us primarily via two means, our own platform and referrals from third-party guarantors. The general public may get access to our platform and submit a borrower profile online. We also obtain borrowers through referrals from financial institutions we partner with. As of December 31, 2017, we have entered into cooperation agreements with 24 cooperative partners, including five pawn shops, four guaranty companies, a micro-loan company, an asset management company, three information technology companies, three financial consulting company, four technology companies, and three financial services companies. Besides online investors, we also attract investors through cooperative relationships with institutions. To obtain investors more efficiently, Benefactum Beijing has entered into co-operative agreements with third-party referral service providers, pursuant to which those service providers will refer potential investors to Benefactum Beijing while Benefactum Beijing will pay those service providers service fees based on the value of loans those referred investors actually lend through Benefactum Beijing.

Seasonality

We experience seasonality in our business, reflecting seasonal fluctuations in internet usage and traditional personal consumption patterns, as our individual borrowers typically use their borrowing proceeds to finance their personal consumption needs. For example, we generally experience lower transaction value on our online consumer finance marketplace during national holidays in China, particularly during the Chinese New Year holiday season in the first quarter of each year. While our rapid growth has somewhat masked this seasonality, our results of operations could be affected by such seasonality in the future.

Employees

As of December 31, 2017, we have 160 employees, located in Shanghai, Beijing and in Shandong province in China. The following table sets forth the number of our employees by function as of the same date:

As required by regulations in China, we participate in various employee social security plans that are organized by local governments, including pension, unemployment insurance, childbirth insurance, work-related injury insurance, medical insurance and housing insurance. We are required under Chinese law to make contributions to employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time.

We believe that we maintain a good working relationship with our employees and to date, we have not experienced any significant labor disputes.

Competition

The online financial platform industry in China is intensely competitive. In light of the low barriers of entry in this industry, more players may enter this market which would result in increased competition. We anticipate that more established internet, technology and financial services companies that possess large, existing user bases, substantial financial resources and established distribution channels may enter the market in the future. Based on our research conducted in the database of Wang Dai Zhi Jia (www.wdzj.com), a third-party information platform that specializes in providing information in China’s internet finance industry, we believe the following companies are our major competitors in the various business segments set forth below:

Shanghai Lujiazui International Financial Assets Trading Market Inc. (“Lujinsuo”)- Lujinsuo is the only financial assets trading information service platform that runs its business through the trading platform of the State Counsel of China. It provides investment and financing services to SMEs and individuals. As of December 31, 2017, it had approximately 32.9 million registered users. Lujinsuo offers what is known as “financial instruments beneficial rights transfer” information services to financial and non-financial companies. This is a process in which the borrowers (usually companies) pledge their bank acceptance bills, and then transfer the beneficial interests to investors. Lujinsuo’s role is an informational intermediary between the holders of bank acceptance bills and the investors.

Yirendai Ltd. (“Yirendai”) – Yirendai is a leading online consumer financial platform in China connecting investors and individual borrowers. According to Yirendai reports, they facilitated RMB 47.41 billion ($7.29 billion) in loans from their inception in March 2012 through June 30, 2017. According to the database of Wang Dai Zhi Jia, Yirendai facilitated RMB 4.92 billion (approximately $755.94 million) in loans in December 2017 and was ranked the 7th in the industry. Leveraging the extensive experience of their parent company CreditEase, they have large client bases consisting of underserved investors and individual borrowers in China

Kaixindai Financing Service Jiangsu Co., Ltd. (“Kaixindai”) – Co-founded by China Development Bank, Kaixindai is a state-owned internet finance platform that aims at providing safe, stable and convenient internet lending intermediary services to SMEs and individuals. It facilitated RMB 41.88 billion (approximately $6.16 billion) in loans from December 2012 through June 2017. According to Wang Dai Zhi Jia, Kaixindai facilitated RMB 33.85 million (approximately $5.20 million) in loans in December 2017 and was ranked the 313th in the industry.

We also compete with other financial products and companies that attract borrowers, investors or both. With respect to borrowers, we compete with other online financial platforms and traditional financial institutions, such as financing business units in commercial banks, credit card issuers and other financing companies. With respect to investors, we primarily compete with other investment products and asset classes, such as equities, bonds, investment trust products, bank savings accounts and real estate.

Intellectual Property

Trademark

Our business is dependent on a combination of trademarks, trademark application, trade secrets and industry know-how, copyright and patent, in order to protect our intellectual property rights. We have submitted trademark and patent applications for “Benefactum Beijing” in mainland China.

Set forth below is a detailed description of our trademarks under application.

Country		Trademark		Application Number		Classes*		Status
Mainland China				19915412		9		Approved
Mainland China				19915413		35		Approved
Mainland China				19915414		36		Approved
Mainland China				19915415		38		Approved
Mainland China				19915411		42		Approved
Mainland China				16773973		36		Approved
Mainland China				16774073		36		Approved
Mainland China				17945485		36		Approved
Mainland China				19915410		38		Approved

Country		Trademark		Application Number		Classes*		Status
Mainland China				22745837		9		In process
Mainland China				22746011		35		In process
Mainland China				22745940		42		In process
Mainland China				22746083		45		In process
Mainland China				23328481		36		Partially rejected
Mainland China				25706455		36		In process
Mainland China				27772660		36		In process
Mainland China				29345199		36		In process
Mainland China				29341176		38		In process
Mainland China				29345129		42		In process

* Classes

Class 9

Scientific, nautical, surveying, photographic, cinematographic, optical, weighing, measuring, signaling, checking (supervision), life-saving and teaching apparatus and instruments; apparatus and instruments for conducting, switching, transforming, accumulating, regulating or controlling electricity; apparatus for recording, transmission or reproduction of sound or images; magnetic data carriers, recording discs; compact discs, DVDs and other digital recording media; mechanisms for coin-operated apparatus; cash registers, calculating machines, data processing equipment, computers; computer software; fire-extinguishing apparatus.

Class 35

Advertising; business management; business administration; office functions.

Class 36

Installment loans; capital investment; financial loans; financial evaluation (insurance, banking, real estate); financial service; financial management; mortgage loan; financial analysis; financial consultation; fund investment.

Class 38

Telecommunications services; chat room services; portal services; e-mail services; providing user access to the Internet; radio and television broadcasting.

Class 42

Scientific and technological services and research and design relating thereto; industrial analysis and research services; design and development of computer hardware and software; computer programming; installation, maintenance and repair of computer software; computer consultancy services; design, drawing and commissioned writing for the compilation of web sites; creating, maintaining and hosting the web sites of others; design services.

Patent

As of the date of this prospectus, we have submitted ten patent applications. Set forth below is a detailed description of our patents under application.

In addition, Benefactum Beijing operates an electronic online financial platform at our website www.hyjf.com.

Copyright

As of the date of this report, we have registered with National Copyright Administration of China six pieces of our artwork and received a Copyright Certificate for each of them. Set forth below is a detailed description of our copyrights.

Artwork Copyright

Country		Name of Work		Work		Registration Number		Type
Mainland China		Hui Ying Jin Fu (Whale)				2016 – F – 00288618		Artwork
Mainland China		Hui Ying Jin Fu APP				2016 – F – 00288617		Artwork
Mainland China		Jin Ding Hui Ju				2016 – F – 00337813		Artwork

Country		Name of Work		Work		Registration Number		Type
Mainland China		Si Hai Yi Xin				2016 – F – 00337814		Artwork
Mainland China		Zhong Guo Jin Kong				2016 – F – 00338579		Artwork
Mainland China		Hui Ju Tian Xia				2016 – F – 00338580		Artwork

Software Copyright

Domain Name

Benefactum Beijing has two domain names, www.hyjf.com and www.huiyingdai.com. Both domain names lead to one website, www.hyjf.com, and they have the same ICP Record No.: 13050958.

Benefactum Beijing registered its website, www.hyjf.com, with the Ministry of Industry and Information Technology (Record No. 13050958) for the provision of non-commercial internet information services on August 28, 2015.

However, on August 17, 2016, The Interim Measures for the Administration of Business Activities of Online Lending Information Intermediaries (the “Interim Measures”) were promulgated with immediate effect and require all peer-to-peer lending platforms to apply for value-added telecommunications business licenses in accordance with the relevant provisions of telecommunications authorities after filing with a local financial regulator. Although the Interim Measures took effect on August 17, 2016, peer-to-peer platforms were given up to 12 months to adjust their practices to comply with them. Further in June 2017, the PBOC together with sixteen other PRC regulatory agencies jointly issued a notice titled the Notice on Further Improvement of Internet Finance Risk Rectification and Clearance Task, which, among other things, gave peer-to-peer platforms till end of June 2018 to adjust their practices to be compliant with the Interim Measures and in some complicated cases, up to two years for compliance upon approval by provincial government. For more details, please see “Regulations - Regulations on Value-Added Telecommunication Services” and “Regulations on Peer-to-Peer Lending Service Provider”.

Regulations

This section sets forth a summary of the most significant rules and regulations that affect our business activities in China.

As an online financial platform connecting investors with borrowers, we are regulated by various government authorities, including, among others:

Regulations Relating to Foreign Investment

The Draft PRC Foreign Investment Law

In January 2015, the MOFCOM published a discussion draft of the proposed Foreign Investment Law for public review and comments. The draft law purports to change the existing “case-by-case” approval regime to a “filing or approval” procedure for foreign investments in China. The State Council will determine a list of industry categories that are subject to special administrative measures, which is referred to as a “negative list,” consisting of a list of industry categories where foreign investments are strictly prohibited, or the “prohibited list” and a list of industry categories where foreign investments are subject to certain restrictions, or the “restricted list.” Foreign investments in business sectors outside of the “negative list” will only be subject to a filing procedure, in contrast to the existing prior approval requirements, whereas foreign investments in any industry categories that are on the “restricted list” must apply for approval from the foreign investment administration authority.

The draft for the first time defines a foreign investor not only based on where it is incorporated or organized, but also by using the standard of “actual control.” The draft specifically provides that entities established in China, but “controlled” by foreign investors will be treated as FIEs (“Foreign Invested Enterprises”). Once an entity is considered to be an FIE, it may be subject to the foreign investment restrictions in the “restricted list” or prohibitions set forth in the “prohibited list.” If an FIE proposes to conduct business in an industry subject to foreign investment restrictions in the “restricted list,” the FIE must go through a market entry clearance by the MOC before being established. If an FIE proposes to conduct business in an industry subject to foreign investment prohibitions in the “prohibited list,” it must not engage in the business. However, an FIE that conducts business in an industry that is in the “restricted list,” upon market entry clearance, may apply in writing for being treated as a PRC domestic investment if it is ultimately “controlled” by PRC government authorities and its affiliates and/or PRC citizens. In this connection, “control” is broadly defined in the draft law to cover the following summarized categories: (i) holding 50% or more of the voting rights of the subject entity; (ii) holding less than 50% of the voting rights of the subject entity but having the power to secure at least 50% of the seats on the board or other equivalent decision making bodies, or having the voting power to exert material influence on the board, the shareholders’ meeting or other equivalent decision making bodies; or (iii) having the power to exert decisive influence, via contractual or trust arrangements, over the subject entity’s operations, financial matters or other key aspects of business operations. According to the draft, variable interest entities would also be deemed as FIEs, if they are ultimately “controlled” by foreign investors, and be subject to restrictions on foreign investments. However, the draft law has not taken a position on what actions will be taken with respect to the existing companies with the “variable interest entity” structure, whether or not these companies are controlled by Chinese parties.

The draft emphasizes on the security review requirements, whereby all foreign investments that jeopardize or may jeopardize national security must be reviewed and approved in accordance with the security review procedure. In addition, the draft imposes stringent ad hoc and periodic information reporting requirements on foreign investors and the applicable FIEs. Aside from investment implementation report and investment amendment report that are required at each investment and alteration of investment specifics, an annual report is mandatory, and large foreign investors meeting certain criteria are required to report on a quarterly basis. Any company found to be non-compliant with these information reporting obligations may potentially be subject to fines and/or administrative or criminal liabilities, and the persons directly responsible may be subject to criminal liabilities.

In September 2016, the Standing Committee of the National People’s Congress (the “SCNPC”) published The Decision on Amending Four Laws including the Law of the People’s Republic of China on Wholly Foreign-owned Enterprises (the “Decision”). According to the Decision, one provision is added to the Foreign Invested Enterprise Law, Sino-Foreign Joint Venture Law, Sino-Foreign Cooperative Enterprise Law and the Law on Protection of Investment by Taiwanese Compatriots. Under this new provision, foreign investments in business sectors outside of the “negative list” will only be subject to a filing procedure, in contrast to the existing prior approval requirements, whereas foreign investments in any industry categories that are on the “restricted list” must apply for approval from the foreign investment administration authority. This Decision means that the existing “case-by-case” approval regime has been changed to a “filing or approval” procedure for non-“negative list” foreign investments in China.

In October 2016, the Interim Measures for the Filing Administration for the Establishment and Change of Foreign Invested Enterprises were approved by the Ministry of Commerce’s Office Meeting upon consideration and are being implemented.

The draft is now open for public review and comments. It is still uncertain when the draft would be signed into law and whether the final version would have any substantial changes from the draft. When the Foreign Investment Law becomes effective, the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations, will be abolished. See “Risk Factors—Risks related to Doing Business in China—Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law”.

Industry Catalog Relating to Foreign Investment

Investment activities in the PRC by foreign investors are principally governed by the Guidance Catalog of Industries for Foreign Investment, or the Catalog, which was promulgated and is amended from time to time by the MOC and the National Development and Reform Commission. Industries listed in the Catalog are divided into three categories: encouraged, restricted and prohibited. Industries not listed in the Catalog are generally deemed as constituting a fourth “permitted” category. Establishment of wholly foreign-owned enterprises is generally allowed in encouraged and permitted industries. Some restricted industries are limited to equity or contractual joint ventures, while in some cases Chinese partners are required to hold the majority interests in such joint ventures. In addition, restricted category projects are subject to higher-level government approvals. Foreign investors are not allowed to invest in industries in the prohibited category. Industries not listed in the Catalog are generally open to foreign investment unless specifically restricted by other PRC regulations.

Our PRC subsidiary, Benefactum Shenzhen is mainly engaged in providing investment and financing consultations and technical services, which fall into the “encouraged” or “permitted” category under the Catalog. Benefactum Shenzhen has obtained all material approvals required for its business operations. However, industries such as value-added telecommunication services (except e-commerce), including internet information services, are restricted from foreign investment. We provide the value-added telecommunication services that are in the “restricted” category through our consolidated variable interest entity, Benefactum Beijing.

Regulations on Loans between Individuals

The PRC Contract Law governs the formation, validity, performance, enforcement and assignment of contracts. The PRC Contract Law confirms the validity of loan agreement between individuals and provides that the loan agreement becomes effective when the individual lender provides the loan to the individual borrower. The PRC Contract Law requires that the interest rates charged under the loan agreement must not violate the applicable provisions of the PRC laws and regulations. In accordance with the Provisions on Several Issues Concerning Laws Applicable to Trials of Private Lending Cases issued by the Supreme People’s Court on August 6, 2015, or the Private Lending Judicial Interpretations, which came into effect on September 1, 2015, private lending is defined as financing between individuals, legal entities and other organizations. When private loans between individuals are paid by wire transfer, through online peer-to-peer lending platforms or by other similar means, the loan contracts between individuals are deemed to be validated upon the deposit of funds to the borrower’s account. In the event that the loans are made through an online peer-to-peer lending platform and the platform only provides intermediary services, the courts shall dismiss the claims of the parties concerned against the platform demanding the repayment of loans by the platform as guarantors. However, if the online peer-to-peer lending service provider guarantees repayment of the loans as evidenced by its web page, advertisements or other media, or the court is provided with other proof, the lender’s claim alleging that the peer-to-peer lending service provider shall assume the obligations of a guarantor will be upheld by the courts. The Private Lending Judicial Interpretations also provide that agreements between the lender and borrower on loans with interest rates below 24% per annum are valid and enforceable. As to loans with interest rates per annum between 24% and 36%, if the interest on the loans has already been paid to the lender, and so long as such payment has not damaged the interest of the state, the community and any third parties, the courts will turn down the borrower’s request to demand the return of the interest payment. If the annual interest rate of a private loan is higher than 36%, the excess will not be enforced by the courts. A certain percentage of the loan transactions facilitated over our platform are between individuals currently. The fixed interest rates for the term loans on our platform currently range from 4.5% to 12%. The transaction fee rates we charge borrowers for our services range from 1.5% to 3%. The interest rate component, which is stipulated in the loan agreements, does not and is not expected to exceed the mandatory limit for loan interest rates. In addition, Private Lending Judicial Interpretations also provide that when a private lending contract is necessary for the purposes of production and business operations between legal persons, other organizations or between a legal person and other organization, unless circumstances under Article 52 of the Contract Law of the People’s Republic of China and Article 14 of Private Lending Judicial Interpretations exist, if the party claims that the private lending contract is valid, the People’s Court shall uphold such claim.

Pursuant to the PRC Contract Law, a creditor may assign its rights under an agreement to a third party, provided that the debtor is notified. Upon due assignment of the creditor’s rights, the assignee is entitled to the creditor’s rights and the debtor must perform the relevant obligations under the agreement for the benefit of the assignee. We operate a secondary loan market on our platform where investors can transfer the loans they hold to other investors before the loan reaches maturity. To facilitate the assignment of the loans, the loan agreement applicable to the lenders and borrowers specifically provides that a lender has the right to assign his/her rights under the loan agreement to any third parties and the borrower agrees to such assignment.

In addition, according to the PRC Contract Law, an intermediation contract is a contract whereby an intermediary presents to its client an opportunity for entering into a contract or provides the client with other intermediary services in connection with the conclusion of a contract, and the client pays the intermediary service fees. Our business of connecting investors with individual borrowers may constitute intermediary service, and our service agreements with borrowers and investors may be deemed as intermediation contracts under the PRC Contract Law. Pursuant to the PRC Contract Law, an intermediary must provide true information relating to the proposed contract. If an intermediary conceals any material fact intentionally or provides false information in connection with the conclusion of the proposed contract, which results in harm to the client’s interests, the intermediary may not claim for service fees and is liable for the damages caused.

Regulations on Illegal Fund-Raising

Raising funds by entities or individuals from the general public must be conducted in strict compliance with applicable PRC laws and regulations to avoid administrative and criminal liabilities. The Measures for the Banning of Illegal Financial Institutions and Illegal Financial Business Operations promulgated by the State Council in July 1998, and the Notice on Relevant Issues Concerning the Penalty on Illegal Fund-Raising issued by the General Office of the State Council in July 2007, explicitly prohibit illegal public fund-raising. The main features of illegal public fund-raising include: (i) illegally soliciting and raising funds from the general public by means of issuing stocks, bonds, lotteries or other securities without obtaining the approval of relevant authorities, (ii) promising a return of interest or profits or investment returns in cash, properties or other forms within a specified period of time, and (iii) using a legitimate form to disguise the unlawful purpose.

To further clarify the criminal charges and punishments relating to illegal public fund-raising, the Supreme People’s Court promulgated the Judicial Interpretations to Issues Concerning Applications of Laws for Trial of Criminal Cases on Illegal Fund-Raising, or the Illegal Fund-Raising Judicial Interpretations, which came into force in January 2011. The Illegal Fund-Raising Judicial Interpretations provide that a public fund-raising will constitute a criminal offense related to “illegally soliciting deposits from the public” under the PRC Criminal Law, if it meets all the following four criteria: (i) the fund-raising has not been approved by the relevant authorities or is concealed under the guise of legitimate acts; (ii) the fund-raising employs general solicitation or advertising such as social media, promotion meetings, leafleting and SMS advertising; (iii) the fundraiser promises to repay, after a specified period of time, the capital and interests, or investment returns in cash, properties in kind and other forms; and (iv) the fund-raising targets at the general public as opposed to specific individuals. An illegal fund-raising activity will be fined or prosecuted in the event that it constitutes a criminal offense. Pursuant to the Illegal Fund-Raising Judicial Interpretations, an offender that is an entity will be subject to criminal liabilities, if it illegally solicits deposits from the general public or illegally solicits deposits in disguised form (i) with the amount of deposits involved exceeding RMB1,000,000 (approximately $153,671), (ii) with over 150 fund-raising targets involved, or (iii) with the direct economic loss caused to fund-raising targets exceeding RMB500,000 (approximately $76,836), or (iv) the illegal fund-raising activities have caused baneful influences to the public or have led to other severe consequences. An individual offender is also subject to criminal liabilities but with lower thresholds. In addition, an individual or an entity who has aided in illegal fund-raising from the general public and charges fees including but not limited to agent fees, rewards, rebates and commission, constitute an accomplice of the crime of illegal fund-raising. In accordance with the Opinions of the Supreme People’s Court, the Supreme People’s Procurator and the Ministry of Public Security on Several Issues concerning the Application of Law in the Illegal Fund-Raising Criminal Cases, the administrative proceeding for determining the nature of illegal fund-raising activities is not a prerequisite procedure for the initiation of criminal proceeding concerning the crime of illegal fund-raising, and the administrative departments’ failure in determining the nature of illegal fund-raising activities does not affect the investigation, prosecution and trial of cases concerning the crime of illegal fund-raising.

We have taken measures to avoid conducting any activities that are prohibited under the illegal-funding related laws and regulations. We act as a platform for borrowers and investors and are not a party to the loans facilitated through our platform. In addition, we do not directly receive any funds from investors in our own accounts as funds loaned through our platform are deposited into and settled by a third-party online payment service Hui Fu Tian Xia Limited Company.

Regulations on Peer-to-Peer Lending Service Provider

In July 2015, ten PRC central government ministries and regulators, including the PBOC, the CBRC, the Ministry of Finance, the Ministry of Public Security and the Cyberspace Administration of China, together released the Guidelines to Promote the Healthy Growth of Internet Finance (the “Guidelines”), which identified the CBRC as the supervisory regulator for the online lending industry. According to the Guidelines, online marketplace lending platforms shall only serve as intermediaries to provide information services to borrowers and investors, and shall not provide credit enhancement services or illegally conduct fundraising. The Guidelines also outlined certain regulatory propositions, which would require Internet finance companies, including marketplace lending platforms, to (i) complete website registration procedures with the administrative departments overseeing telecommunications; (ii) use banking financial institutions’ depository accounts to hold lending capital, and engage an independent auditor to audit such accounts and publish audit results to customers; (iii) improve the disclosure of operational and financial information, provide sufficient risk disclosure, and set up thresholds for qualified investors to provide better protections to investors; (iv) enhance online security management to protect customers’ personal and transactional information; and (v) take measures against anti-money laundering and other financial crimes.

In August 2016, the CBRC, the MIIT, the Ministry of Public Security and the State Internet Information Office jointly promulgated the Interim Measures. Apart from what had already been emphasized in the Guidelines and other previously released guidance, the Interim Measures include (i) general principles; (ii) filing administration; (iii) business rules and risk management guidelines; (iv) protection measures for investors and borrowers; (v) rules on information disclosure; (vi) supervision and administrative mechanisms; and (vii) legal liabilities.

Under the general principles and filing administration sections, the Interim Measures provide that online lending intermediaries shall not engage in credit enhancement services, direct or indirect cash concentration or illegal fundraising. The sections also stipulate a supervisory system and list the administrative responsibilities of different supervisory authorities, including the CBRC and its local counterpart and local financial regulators. Furthermore, these sections require online lending intermediaries to file with the local financial regulators, to apply for value-added telecommunications business licenses thereafter in accordance with the provisions of the relevant telecommunications authorities and to include serving as an Internet lending information intermediary in its business scope.

Under the business rules and risk management guidelines section, the Interim Measures stipulate that online lending intermediaries shall not engage in or be commissioned to engage in thirteen prohibited activities, including: (i) directly or indirectly financing its own projects; (ii) directly or indirectly receiving or collecting lenders’ funds; (iii) directly or indirectly offering guarantees to lenders or guaranteeing principal and interest payments; (iv) commissioning or authorizing a third-party to advertise or promote financing projects at any physical locations other than through electronic channels such as the Internet and mobile phones; (v) providing loans (unless otherwise permitted by laws and regulations); (vi) dividing the term of financing projects; (vii) offering its own wealth management products or other financial products to raise funds or act as a proxy in the selling of banks’ wealth management products, brokers’ asset management products, funds, insurance or trust products; (viii) providing services similar to asset-based securitization services or conducting credit assignment activities in the form of asset packaging, asset securitization, asset trusts or fund shares; (ix) mixing with, bundling with or acting as a proxy in relation to investment, sales agent and brokerage services of other businesses (unless permitted by laws and regulations); (x) fabricating or exaggerating the authenticity or earnings outlook of a financing project, concealing its flaws and risks, falsely advertising or promoting a project with intentional ambiguity or other deceptive means, or spreading false or incomplete information to damage the commercial reputation of others, or to mislead lenders or borrowers; (xi) providing intermediary services for loans used to invest in high-risk financing projects such as stocks, over-the-counter margin financing, futures contracts, structured products and other derivatives; (xii) operating equity-based crowd-funding; and (xiii) other activities prohibited by laws and regulations. The Interim Measures, under the business rules and risk management section, also stipulate specific obligations or business principles of online lending intermediaries, including but not limited to online dispute resolution services, examination and verification functions, anti-fraud measures, risk education and training, information reporting, anti-money laundering, anti-terrorist financing, systems, facilities and technologies, service fees, electronic signatures and loan management. In addition, the Interim Measures stipulate that online lending intermediaries shall not operate businesses other than risk management and necessary business processes such as information collection and confirmation, post-loan tracking and pledge management in accordance with online-lending regulations, via offline physical locations. Furthermore, the Interim Measures provide that online lending intermediaries shall, based on their risk management capabilities, set upper limits on the loan balance of a single borrower borrowing both from one online lending intermediary and from all online lending intermediaries. In the case of natural persons, this limit shall not be more than RMB200,000 (approximately $30,734) for one online lending intermediary and not more than RMB1 million (approximately $153,671) in total from all platforms, while the limit for a legal person or organization shall not be more than RMB1 million (approximately $153,671) for one online lending intermediary and not more than RMB5 million (approximately $768,356) in total from all platforms.

In the protection for investors and borrowers section, the Interim Measures require that online lending intermediaries (i) separate their own capital from funds received from lenders and borrowers and (ii) select a qualified banking financial institution as their funding depository institution, which shall perform depository and administration responsibilities as required. In the remaining sections, the Interim Measures provide for other miscellaneous requirements for online lending intermediaries, including but not limited to, risk assessment and disclosure, auditing and authentication, industry association, reporting obligations, information security and disclosure and legal liabilities. Online lending intermediaries established prior to the effectiveness of the Interim Measures have a transition period of twelve months to rectify any activities that are non-compliant with the Interim Measures, except with respect to criminal activity, which must be terminated immediately.

In October 2016, several regulations on Internet finance were publicly announced, including but not limited to, the Notice of the General Office of the State Council on the Issuance of Special Rectification Implementation Plan regarding Internet Finance, Special Rectification Implementation Plan regarding Online Marketplace Lending Risks, Special Rectification Implementation Plan for Risks of Asset Management Business through the Internet and Trans-subject Business, Special Rectification Implementation Plan for Risks regarding Non-Bank Payment Institutions, Special Rectification Implementation Plan for Risks of Internet Financing Advertising and Financial Activities in the form of financial investment (together the “Special Rectification Implementation Plans”). The Special Rectification Implementation Plans emphasize principles and rules in related to Internet financial regulations, and stipulate that (i) “look-through” supervision method shall be adopted, and (ii) companies in the same group that hold a number of financial business qualifications shall not violate rules of related party transactions and other related business regulations.

In November 2016, the CBRC, the MIIT and the Industry and Commerce Administration Department, jointly issued the Guidance to the Administration of Filling and Registration of Online Lending Information Intermediaries (the “Filling Guideline”), which provides the general filing rules for online lending intermediaries, and delegates the filing authority to local financial authorities. The Guidance of Administration sets forth that online lending intermediaries are approved locally. Under the general filing procedures for online lending intermediaries, before a filing application is submitted to local financial regulators, the online lending intermediaries may be required to: (i) rectify any breach of applicable regulations as required by local financial regulators; and (ii) apply to the Industry and Commerce Administration Department to amend or register such entity’s the business scope.

The CBRC also authorizes local financial regulators to make detailed implementation rules regarding filing procedures. However, relevant local financial regulators are also in the process of making such implementation rules, which may require us to complete filing records under such future requirements within a grace period.

In February 2017, the CBRC released the Guidance to regulate funds depositories for online lending intermediaries (the “Depositories Guideline”). The Guidance defines depositories as commercial banks that provide online lending fund depository services, and stipulates that the depositories shall not be engaged in offering any guarantee, including: (i) offering guarantees for lending transaction activities conducted by online lending intermediaries, or undertaking any liability for breach of contract related to such activities; (ii) offering guarantees to lenders, guarantying principal and dividend payments or bearing the risks associated with fund lending operations for lenders..

The Guidance also stipulates certain conditions that must be met before depositories are entitled to develop an online lending fund depository business, including: (i) having a good credit record and not having been included on the List of Enterprises with Abnormal Operations or the List of Enterprises with Serious Illegal and Dishonest Acts; (ii) satisfying various requirements relating to the technological systems of such entity’s depository fund business and general operations, including but not limited to assuming fund administration responsibilities and not outsourcing or assigning such entity’s responsibilities to third parties to set up accounts, process trading information or verify trading passwords; and (iii) setting up special deposit accounts to hold online lending capital and sub-accounts for online lenders and borrowers as well as guarantors, and in order to assure fund security, use separate accounts to hold private capital of online lending intermediaries. In addition, the Guidance prohibits depositories from outsourcing or assigning their responsibilities to set up capital accounts, deal with transaction information, verify trading passwords and various other services to third parties, provided, however, that certain cooperation regarding payment services with third-party payment companies and depository banks is permitted in accordance with clarifications by the CBRC.

Apart from the requirements set forth in the Interim Measures and the Guidance of Administration, the Guidance imposes certain responsibilities on online lending intermediaries, including requiring them to enter into fund depository agreements with only one commercial bank to provide fund depository services, organize independent auditing on funds depository accounts of borrowers and investors and various other services. The Guidance also provides that online lending intermediaries are permitted to develop an online lending fund depository business only after satisfying certain conditions, including: (i) completing registration, filing records and obtaining a business license from the Industry and Commerce Administration Department; (ii) filing records with the local financial regulator; and (iii) applying for a corresponding value-added telecommunications business license pursuant with the relevant telecommunication authorities. The Guidance also requires online lending intermediaries to perform various obligations, and prohibits them advertising their services with the information of their depository except for in accordance with necessary exposure requirements, the interpretation and applicability of which is unclear, as well as oversight requirements. The Guidance also raises other business standards and miscellaneous requirements for depositories and online lending intermediaries as well. Online lending intermediaries and commercial banks conducting the online depository services prior to the effectiveness of the Guidance have a six-month grace period to rectify any activities not in compliance with the Guidance.

In March 2017, the Office of Task Force Responsible for Special Rectification of Risks in Internet Finance in Beijing issued Notice for Factual Acknowledge by and Rectification of Online Lending Information Intermediaries in Beijing (the “Notice”), pursuant to which, P2P platforms in Beijing are prohibited from setting up risk reserve fund or security fund for the purpose of providing guarantees to loans or promoting to investors regarding such types of funds. P2P platforms in Beijing have the same transition period to be compliant with the Notice as set forth in the Interim Measures.

Some elements of our marketplace may not currently be operating in full compliance with the Guidelines, the rules proposed by the Interim Measures and other principles that have been announced in recent years. Moreover, the Interim Measures also stipulated a 12-month transition period from the time of its effectiveness for online lending intermediaries to adjust their business models.

In addition, pursuant to the Guideline of CBRC on Risk Prevention and Control in Banking Industry promulgated by CBRC on April 7, 2017, the promotion for the special risk rectification for internet lending platform (P2P) shall be continued. Internet lending intermediaries shall not market the borrowers who do not have the repayment ability; and they are also prohibited to provide Internet loan services to university students who are under the age of 18. It is also emphasized that the advertisement and sales which are fraud or false shall be prohibited.

In June 2017, the PBOC together with sixteen other PRC regulatory agencies jointly issued a notice titled the Notice on Further Improvement of Internet Finance Risk Rectification and Clearance Task, or the Task Notice. The Task Notice, among other things, gave peer-to-peer platforms till end of June 2018 to adjust their practices to be compliant with the Interim Measures and in some complicated cases, up to two years for compliance upon approval by provincial government. During such compliance period, no new non-compliant activities shall be practiced and existing non-compliant practices shall gradually drop down to nil.

On August 23, 2017, CBRC issued Disclosure Guideline for Information Regarding Business Activities of Online Lending Information Intermediaries (the “Disclosure Guideline”) which clarifies, among other things, the items, timing, frequency and objects of disclosure and gives online lending Intermediaries 6 months to rectify its existing non-compliance business. If online lending Intermediaries fail to make rectification, then the related rule set forth in Interim Measures and Guidance of Administration shall be governed.

In December 2017, the Office of Task Force Responsible for Special Rectification of Risks in P2P Online Lending issued the Notice on Inspection Acceptance of Special Rectification of Risks in P2P Online Lending Intermediaries, or the Circular 57, which requires the Office together with local financial regulatory authorities, local branches of the CBRC and the People’s Bank of China, public security bureaus, telecommunication administrative agencies and local administration of industry and commerce (“AIC”) to jointly inspect and determine whether a P2P platform complies with the Interim Measures. Circular 57 further clarifies several matters including, among other things, the assignment of creditor’s right, the risk reserve fund, the fund depository, the comprehensive return rate of lending amount and cash loan, the registration requirements for P2P company and its branches, offline operation and the scale of businesses for P2P platforms, co-operations between P2P platforms and local financial exchanges, the outsourcing of the business and establishment of branches and disclosure of the information of P2P platforms and its infrastructure etc. Additionally, Circular 57 promulgates that a P2P platform can be registered with the local financial regulatory authority only after passing inspection and receiving acceptance certificate or document issued jointly by local financial regulatory authority and local counterparts of CBRC. Circular 57 requires that the registration of major P2P platforms shall be completed before April 2018 and no later than end of June 2018 for highly complicated cases.

Regulations on Financing Guarantee Company

On August 2, 2017, the State Council issued Administrative Regulations on Supervision of Financing Guarantee Companies (“Financing Guarantee Company Regulation”), which will be effective on October 1, 2017. The Financing Guarantee Company Regulation increases the minimum requirement of registered capital from RMB 5,000,000 to RMB 20,000,000. Financing Guarantee Company Regulation also provides that the balance amount of guarantee liability of a financing guarantee company shall not exceed 10 times the amount of its net assets. Where a financing guarantee company mainly provides services to small and micro enterprises, agriculture sector, rural villages and farmers, the balance amount of guarantee liability may be up to 15 times the amount of its net assets.

Foreign Investment in Value-Added Telecommunication Services

The Provisions on Administration of Foreign Invested Telecommunications Enterprises promulgated by the State Council in December 2001 and subsequently amended in September 2008 prohibit a foreign investor from owning more than 50% of the total equity interest in any value-added telecommunications service business in China and require the major foreign investor in any value-added telecommunications service business in China have a good and profitable record and operating experience in this industry. The Guidance Catalog of Industries for Foreign Investment amended in 2015 and Circular 196 promulgated by MIIT in June 2015 allow a foreign investor to own more than 50% of the total equity interest in an E-Commerce business.

In July 2006, the Ministry of Information Industry, the predecessor of MIIT, issued the Circular on Strengthening the Administration of Foreign Investment in the Operation of Value-added Telecommunications Business, pursuant to which a domestic PRC company that holds an operating license for value-added telecommunications business is prohibited from leasing, transferring or selling such license to foreign investors in any form and from providing any assistance, including resources, sites or facilities, to foreign investors that conduct a value-added telecommunications business illegally in China. Further, the domain names and registered trademarks used by an operating company providing value-added telecommunications services must be legally owned by that company or its shareholders. In addition, the value-added telecommunication business license holder must have the necessary facilities for its approved business operations and to maintain the facilities in the regions covered by its license.

In light of the above restrictions and requirements, we operate our website through Benefactum Beijing, our consolidated variable interest entity. Benefactum Beijing registered its website www.hyjf.com with the Ministry of Industry and Information Technology (Record No. 13050958) for the provision of non-commercial internet information services on August 28, 2015.

The Interim Measures took effect immediately on August 17, 2016 and the regulations now explicitly require peer-to-peer lending platforms to apply for value-added telecommunication business licenses for providing telecommunication services. An online lending intermediary information agency is not allowed to provide telecommunication services without such licenses. Further in June 2017, the PBOC together with sixteen other PRC regulatory agencies jointly issued a notice titled the Notice on Further Improvement of Internet Finance Risk Rectification and Clearance Task, which, among other things, gave peer-to-peer platforms till end of June 2018 to adjust their practices to be compliant with the Interim Measures and in some complicated cases, up to two years for compliance upon approval by provincial government. We plan to apply for the appropriate value-added telecommunication business license immediately after we have rectified incompliance with applicable regulations as required by local financial regulators, provided that the relevant telecommunication authority clarifies which sub-set of telecommunication business certificates need to be obtained by online lending platforms and how to apply for such certificate.

Anti-Money Laundering Regulations

The PRC Anti-money Laundering Law, which became effective in January 2007, sets forth the principal anti-money laundering requirements applicable to financial institutions as well as non-financial institutions with anti-money laundering obligations, including the adoption of precautionary and supervisory measures, establishment of various systems for client identification, retention of clients’ identification information and transactions records, and reports on large transactions and suspicious transactions. According to the PRC Anti-money Laundering Law, financial institutions subject to the PRC Anti-money Laundering Law include banks, credit unions, trust investment companies, stock brokerage companies, futures brokerage companies, insurance companies and other financial institutions as listed and published by the State Council, while the list of the non-financial institutions with anti-money laundering obligations will be published by the State Council. The PBOC and other governmental authorities issued a series of administrative rules and regulations to specify the anti-money laundering obligations of financial institutions and certain non-financial institutions, such as payment institutions. However, the State Council has not promulgated the list of the non-financial institutions with anti-money laundering obligations.

The Guidelines jointly released by ten PRC regulatory agencies in July 2015, purport, among other things, to require internet finance service providers, including online peer-to-peer lending platforms, to comply with certain anti-money laundering requirements, including the establishment of a customer identification program, the monitoring and reporting of suspicious transactions, the preservation of customer information and transaction records, and the provision of assistance to the public security department and judicial authority in investigations and proceedings in relation to anti-money laundering matters. The PBOC will formulate implementing rules to further specify the anti-money laundering obligations of internet finance service providers.

The Interim Measures require the online lending information intermediaries to comply with anti-money laundering and antiterrorism fund raising requirements, including identifying their clients, reporting suspicious transactions, documenting and storing client identification information and transaction records. We cannot assure you that our current risk control procedures will be deemed to be in full compliance with any anti-money laundering laws and regulations that may become applicable to us in the future.

Regulations on Value-Added Telecommunication Services

The Telecommunications Regulations promulgated by the State Council and its related implementation rules, including the Catalog of Classification of Telecommunications Business issued by the MIIT, categorize various types of telecommunications and telecommunications-related activities into basic or value-added telecommunications services, and internet information services, or ICP services, are classified as value-added telecommunications businesses. In 2009, the MIIT promulgated the Administrative Measures on Telecommunications Business Operating Licenses, which set forth more specific provisions regarding the types of licenses required to operate value-added telecommunications services, the qualifications and procedures for obtaining such licenses and the administration and supervision of such licenses. Under these regulations, a commercial operator of value-added telecommunications services must first obtain a license for value-added telecommunications business from the MIIT or its provincial level counterparts.

The Guidelines jointly released by ten PRC regulatory agencies in July 2015, purport, among other things, to require internet finance service providers, including online peer-to-peer lending platforms, to complete registration with the relevant local counterpart of the MIIT in accordance with implementation regulations that may be promulgated by the MIIT or/and the Office for Cyberspace Affairs pursuant to the Guidelines. On August 17, 2016, the Interim Measures were promulgated to implement and enforce the principles set out in the Guidelines.

Pursuant to the Circular issued on November 28, 2016, internet lending information intermediaries are required to register with the local financial regulatory agency and with such registration, they can apply for the value-added telecommunication business licenses in accordance with the relevant provisions of the telecommunication department.

As discussed above, Benefactum Beijing, our consolidated variable interest entity, does not have the value-added telecommunication business license yet. Because the Interim Measures took effect immediately on August 17, 2016, peer-to-peer lending platforms are required to hold licenses for providing telecommunication services. Although the Interim Measures took effect immediately on August 17, 2016, peer-to-peer platforms were given a year to adjust their practices to comply with them. Further in June 2017, the PBOC together with sixteen other PRC regulatory agencies jointly issued a notice titled the Notice on Further Improvement of Internet Finance Risk Rectification and Clearance Task, which, among other things, gave peer-to-peer platforms till end of June 2018 to adjust their practices to be compliant with the Interim Measures and in some complicated cases, up to two years for compliance upon approval by provincial government.

Regulations on Internet Information Security

Internet information in China is also regulated and restricted from a national security standpoint. The National People’s Congress, China’s national legislative body, has enacted the Decisions on Maintaining Internet Security, which may subject violators to criminal punishment in China for any effort to: (i) gain improper entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak state secrets; (iv) spread false commercial information; or (v) infringe intellectual property rights. The Ministry of Public Security has promulgated measures that prohibit use of the internet in ways which, among other things, result in a leakage of state secrets or a spread of socially destabilizing content. If an internet information service provider violates these measures, the Ministry of Public Security and the local security bureaus may revoke its operating license and shut down its websites.

In addition, the Guidelines jointly released by ten PRC regulatory agencies in July 2015 purport, among other things, to require internet finance service providers, including peer-to-peer lending platforms, to improve technology security standards, and safeguard customer and transaction information. The PBOC and other relevant regulatory authorities will jointly adopt the implementing rules and technology security standards.

On November 7, 2016, the Standing Committee of the National People’s Congress released the Cyber Security Law, which will take effect on June 1, 2017. The Cyber Security Law requires network operators to perform certain functions related to cyber security protection and the strengthening of network information management. For instance, under the Cyber Security Law, network operators of key information infrastructure generally shall, during their operations in the PRC, store the personal information and important data collected and produced within the territory of PRC.

Regulations on Internet Advertising

The Interim Measures for Administration of Internet Advertising, or the Internet Advertising Measures, were adopted by the State Administration for Industry and Commerce and became effective on September 1, 2016. The Internet Advertising Measures regulate Internet advertising activities. According to the Internet Advertising Measures, Internet advertisers are responsible for the authenticity of the content of advertisements. The identity, administrative license, cited information and other certificates that advertisers are required to obtain in publishing Internet advertisements shall be true and valid. Internet advertisements shall be distinguishable and prominently marked as “advertisements” in order to enable consumers to identify them as advertisements. Publishing and circulating advertisements through the Internet shall not affect the normal use of the Internet by users. It is not allowed to induce users to click on the content of advertisements by any fraudulent means, or to attach advertisements or advertising links in the emails without permission. The Internet Advertising Measures also impose several restrictions on the forms of advertisements and activities used in advertising. “Internet advertising” as defined in the Internet Advertising Measures refers to commercial advertisements that directly or indirectly promote goods or services through websites, web pages, Internet applications or other Internet media in various forms, including texts, pictures, audio clips and videos. Where Internet advertisements are not identifiable and marked as “advertisements”, a fine of not more than RMB100,000 (approximately $15,367) may be imposed in accordance with Advertising Law. A fine ranging from RMB5,000 (approximately $768) to RMB30,000 (approximately $4,610) may be imposed for any failure to provide a prominently marked “CLOSE” button to ensure “one-click closure”. Advertisers who induce users to click on the content of advertisements by fraudulent means or without permission, attach advertisements or advertising links in the emails shall be imposed a fine ranging from RMB10,000 (approximately $1,537) to RMB30,000 (approximately $4,610). We are in the process of complying with the new Internet Advertising Measures during our advertising activities.

Regulations on Privacy Protection

In recent years, PRC government authorities have enacted laws and regulations on internet use to protect personal information from any unauthorized disclosure. Under the Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT in December 2011, an ICP service operator may not collect any user personal information or provide any such information to third parties without the consent of a user. An ICP service operator must expressly inform the users of the method, content and purpose of the collection and processing of such user personal information and may only collect such information necessary for the provision of its services. An ICP service operator is also required to properly maintain the user personal information, and in case of any leak or likely leak of the user personal information, the ICP service operator must take immediate remedial measures and, in severe circumstances, make an immediate report to the telecommunications regulatory authority. In addition, pursuant to the Decision on Strengthening the Protection of Online Information issued by the Standing Committee of the National People’s Congress in December 2012 and the Order for the Protection of Telecommunication and Internet User Personal Information issued by the MIIT in July 2013, any collection and use of user personal information must be subject to the consent of the user, abide by the principles of legality, rationality and necessity and be within the specified purposes, methods and scopes. An ICP service operator must also keep such information strictly confidential, and is further prohibited from divulging, tampering or destroying of any such information, or selling or providing such information to other parties. An ICP service operator is required to take technical and other measures to prevent the collected personal information from any unauthorized disclosure, damage or loss. Any violation of these laws and regulations may subject the ICP service operator to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown of websites or even criminal liabilities. The Guidelines jointly released by ten PRC regulatory agencies in July 2015 also prohibit internet finance service providers, including online peer-to-peer lending platforms, from illegally selling or disclosing customers’ personal information. The PBOC and other relevant regulatory authorities will jointly adopt the implementing rules. Pursuant to the Ninth Amendment to the Criminal Law issued by the Standing Committee of the National People’s Congress in August 2015 and becoming effective in November, 2015, any internet service provider that fails to fulfill the obligations related to internet information security administration as required by applicable laws and refuses to rectify upon orders, shall be subject to criminal penalty for the result of (i) any dissemination of illegal information on a large scale; (ii) any severe effect due to the leakage of the client’s information; (iii) any serious loss of criminal evidence; or (iv) other severe situation, and any individual or entity that (i) sells or provides personal information to others in a way violating the applicable law, or (ii) steals or illegally obtain any personal information, shall be subject to criminal penalty in a severe situation.

In operating our online platform, we collect certain personal information from borrowers and investors, and also need to share the information with our business partners such as third-party online payment service and third-party cooperative partners for the purpose of facilitating loan transactions between borrowers and investors over our platform. We have obtained consent from the borrowers and investors on our platform to collect and use their personal information, and have also established information security systems to protect the user information and privacy. However, as the implementing rules of the Guidelines have not been published, there is uncertainty as to how the requirements for protecting customers’ personal information in the Guidelines will be interpreted and implemented. We cannot assure you that our existing policies and procedures will be deemed to be in full compliance with any laws and regulations that may become applicable to us in the future.

Regulation on Intellectual Property Rights

Patent. Patents in the PRC are principally protected under the Patent Law of the PRC. The duration of a patent right is either 10 years or 20 years from the date of application, depending on the type of patent right.

Copyright. Copyright in the PRC, including copyrighted software, is principally protected under the Copyright Law of the PRC and related rules and regulations. Under the Copyright Law, the term of protection for copyrighted software is 50 years.

Trademark. Registered trademarks are protected under the Trademark Law of the PRC and related rules and regulations. Trademarks are registered with the Trademark Office of the SAIC. Where registration is sought for a trademark that is identical or similar to another trademark which has already been registered or given preliminary examination and approval for use in the same or similar category of commodities or services, the application for registration of such trademark may be rejected. Trademark registrations are effective for a renewable ten-year period, unless otherwise revoked.

Domain names. Domain name registrations are handled through domain name service agencies established under the relevant regulations, and applicants become domain name holders upon successful registration.

Regulations Relating to Dividend Withholding Tax

Pursuant to the Enterprise Income Tax Law and its implementation rules, if a non-resident enterprise has not set up an organization or establishment in the PRC, or has set up an organization or establishment but the income derived has no actual connection with such organization or establishment, it will be subject to a withholding tax on its PRC-sourced income at a rate of 10%. Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise is reduced to 5% from a standard rate of 10% if the Hong Kong enterprise directly holds at least 25% of the PRC enterprise. Pursuant to the Notice of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, or Circular 81, a Hong Kong resident enterprise must meet the following conditions, among others, in order to enjoy the reduced withholding tax: (i) it must directly own the required percentage of equity interests and voting rights in the PRC resident enterprise; and (ii) it must have directly owned such percentage in the PRC resident enterprise throughout the 12 months prior to receiving the dividends. There are also other conditions for enjoying the reduced withholding tax rate according to other relevant tax rules and regulations. In August 2015, the State Administration of Taxation promulgated the Administrative Measures for Non-Resident Taxpayers to Enjoy Treatments under Tax Treaties, or Circular 60, which became effective on November 1, 2015. Circular 60 provides that non-resident enterprises are not required to obtain pre-approval from the relevant tax authority in order to enjoy the reduced withholding tax rate. Instead, non-resident enterprises and their withholding agents may, by self-assessment and on confirmation that the prescribed criteria to enjoy the tax treaty benefits are met, directly apply the reduced withholding tax rate, and file necessary forms and supporting documents when performing tax filings, which will be subject to post-tax filing examinations by the relevant tax authorities. Accordingly, Benefactum Sino, our Hong Kong subsidiary, may be able to enjoy the 5% withholding tax rate for the dividends they receive from Benefactum Shenzhen, our PRC subsidiary, if it satisfies the conditions prescribed under Circular 81 and other relevant tax rules and regulations. However, according to Circular 81 and Circular 60, if the relevant tax authorities consider the transactions or arrangements we have are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.

Regulations Relating to Foreign Exchange

Regulation on Foreign Currency Exchange

The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, most recently amended in August 2008. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital account items, such as direct investments, repayment of foreign currency-denominated loans, repatriation of investments and investments in securities outside of China. On February 28, 2015, the SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Notice 13. After SAFE Notice 13 became effective on June 1, 2015, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE, entities and individuals will be required to apply for such foreign exchange registrations from qualified banks. The qualified banks, under the supervision of the SAFE, will directly examine the applications and conduct the registration.

In August 2008, SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of foreign currency-registered capital into RMB by restricting how the converted RMB may be used. SAFE Circular 142, provides that the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested enterprises. The use of such RMB capital may not be changed without SAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. Violations may result in severe monetary or other penalties.

In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds derived by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition, SAFE promulgated another circular in May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC must be conducted by way of registration and banks must process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches.

In July 2014, SAFE issued SAFE Circular 36, which purports to reform the administration of settlement of the foreign exchange capitals of foreign-invested enterprises in certain designated areas on a trial basis. Under the pilot program, some of the restrictions under SAFE Circular 142 will not apply to the settlement of the foreign exchange capitals of the foreign-invested enterprises established within the designated areas and the enterprises are allowed to use its RMB capital converted from foreign exchange capitals to make equity investment. On March 30, 2015, the SAFE promulgated Circular 19, to expand the reform nationwide. Circular 19 came into force and replaced both Circular 142 and Circular 36 on June 1, 2015. Circular 19 allows foreign-invested enterprises to make equity investments by using RMB fund converted from foreign exchange capital. However, Circular 19 continues to, prohibit foreign-invested enterprises from, among other things, using RMB fund converted from its foreign exchange capitals for expenditure beyond its business scope, providing entrusted loans or repaying loans between non-financial enterprises.

On January 26, 2017, SAFE issued SAFE Circular 3, which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities, including (i) under the principle of genuine transaction, banks shall check board resolutions regarding profit distribution, the original version of tax filing records and audited financial statements; and (ii) domestic entities shall hold income to account for previous years’ losses before remitting the profits. Moreover, pursuant to SAFE Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements, and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment.

Regulations on Dividend Distribution

Under our current corporate structure, our Nevada holding company may rely on dividend payments from Benefactum Shenzhen, which is a wholly foreign-owned enterprise incorporated in China, to fund any cash and financing requirements we may have. The principal regulations governing distribution of dividends of foreign-invested enterprises include the Foreign-Invested Enterprise Law, as amended in October 2000, and its implementation rules. Under these laws and regulations, wholly foreign-owned enterprises in China may pay dividends only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned enterprises in China are required to allocate at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until these reserves have reached 50% of the registered capital of the enterprises. Wholly foreign-owned companies may, at their discretion, allocate a portion of their after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserves are not distributable as cash dividends.

Regulations on Overseas Listings

Six PRC regulatory agencies, including the CSRC, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective in September 2006. The M&A Rules, among other things, require offshore special purpose vehicles, or SPVs, formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange.

While the application of the M&A Rules remains unclear, we believe, based on the advice of our PRC counsel, we are not required to submit an application to the CSRC for the approval of our listing on a national securities exchange because (i) the CSRC currently has not issued any definitive rule or interpretation concerning whether the initial public offering we are contemplating is subject to this regulation, and (ii) we did not acquire any equity interest or assets of a “PRC domestic company” as such term is defined under the M&A Rules, and (iii) there is no statutory provision that clearly classifies the contractual arrangement among our WFOE, and our PRC varies interest entity, Benefactum Beijing and its shareholders as transactions regulated by the M&A Rules. However, as there has been no official interpretation or clarification of the M&A Rules, there is uncertainty as to how this regulation will be interpreted or implemented.

Regulations Relating to Employment

The PRC Labor Law and the Labor Contract Law require that employers must execute written employment contracts with full-time employees. If an employer fails to enter into a written employment contract with an employee within one year from the date on which the employment relationship is established, the employer must rectify the situation by entering into a written employment contract with the employee and pay the employee twice the employee’s salary for the period from the day following the lapse of one month from the date of establishment of the employment relationship to the day prior to the execution of the written employment contract. All employers must compensate their employees with wages equal to at least the local minimum wage standards. Violations of the PRC Labor Law and the Labor Contract Law may result in the imposition of fines and other administrative sanctions, and serious violations may result in criminal liabilities.

Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance funds, namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan, and a housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries, including bonuses and allowances, of the employees as specified by the local government from time to time at locations where they operate their businesses or where they are located. Failure to make adequate contributions to various employee benefit plans may be subject to fines and other administrative sanctions.

Although we have made significant contributions to employee benefits plans, we do not believe those are adequate contributions as required by applicable PRC laws and regulations. See “Risk Factors—Risks Related to Doing Business in China—Failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.”

Corporate History and Structure

We were incorporated as “Tapioca Corp.” in the State of Nevada on April 18, 2014. We were previously in the business of selling bubble tea from mobile stands in Romania. However, we were not successful in implementing our business plan and only recognized $1,180 in revenue for the year ended December 31, 2015. Accordingly, we were re-classified as a “shell company” under Rule 405 of the Securities Act of 1933, as amended.

On February 22, 2016, Slav Serghei, our previous sole director, President, Treasurer and Secretary, and holder of 3,500,000 shares of the Company’s common stock representing approximately 64% of our issued and outstanding securities, entered into a stock purchase agreement to sell his shares equally to Ms. Zhixian Jiang and Mr. Zhenqi Zhao for an aggregate cash consideration of $182,400 (the “Sale”). The Sale was consummated on March 2, 2016.

As a result of the Sale on March 2, 2016, a change in control occurred in the Board of Directors and executive management of the Company. Slav Serghei, our previous sole director, President, Treasurer and Secretary resigned from all of his positions with the Company effective March 1, 2016. Concurrently therewith, Mr. Jing Xie was appointed to serve as our then sole director, Chief Executive Officer, Chief Financial Officer and Secretary.

Effective April 18, 2016, we amended our Articles of Incorporation (i) to change our name from “Tapioca Corp.” to “Sino Fortune Holding Corporation”; (ii) to increase our authorized capital stock from 75,000,000 shares to 3,000,000,000 shares; and (iii) to designate 10,000,000 of our authorized capital stock as preferred stock (the “Preferred Stock”), with the designations, rights, preferences or other variations of each class or series within each class of the shares of Preferred Stock be designated by the Board of Directors at a later time without shareholder approval.

On May 13, 2016, we entered into a share exchange agreement (the “Share Exchange Agreement”) and on September 14, 2016, we entered into an amendment to the Share Exchange Agreement (the “Amendment”) with Benefactum Alliance and all the shareholders of Benefactum Alliance, namely, Mr. Bodang Liu, Avis Genesis Inc. and Manor Goldie Inc. (each a “Shareholder” and collectively the “Shareholders”), to acquire all the issued and outstanding capital stock of Benefactum Alliance in exchange for the issuance to the Shareholders an aggregate of 337,500,000 restricted shares of our common stock (the “Reverse Merger”).The Reverse Merger closed on September 29, 2016.

Immediately after the closing of the Reverse Merger, we had a total of 342,960,000 issued and outstanding shares of common stock, all of which are held by the Shareholders. As a result of the Reverse Merger, Benefactum Alliance is now our wholly-owned subsidiary.

Upon closing of the Reverse Merger, Mr. Jing Xie resigned from all officers and director positions he held with the Company and Mr. Bodang Liu was appointed as the Chief Executive Officer and sole director of the Company. In addition, Ms. Wei Zheng was appointed as the Chief Financial Officer of the Company.

Benefactum Alliance is a holding company incorporated under the laws of British Virgin Islands on March 15, 2016. On April 7, 2016, Benefactum Sino was incorporated in Hong Kong SAR which is currently 100% owned by Benefactum Alliance. Benefactum Sino, in turn, incorporated Benefactum Shenzhen, or the WFOE in the People’s Republic of China with a registered capital of RMB100,000 on April 21, 2016. WFOE has entered into a series of contractual agreements with Benefactum Beijing, a company incorporated in the People’s Republic of China on September 10, 2013 with a registered capital of RMB50,000,000.

Benefactum Beijing incorporated Puhui Equity Investment Co., Ltd (“Puhui”) on February 24, 2017 and incorporated Qianhai Zhonghui Business Information Consulting Co., Ltd (“Qianhai”) on May 9, 2017. Both Puhui and Qianhai are located in Xinjiang Khorgos Economic Development Zone in China, where a favorable income tax holiday is offered for service-oriented entities.

On September 1, 2017, Puhui acquired 4.4538% of equity interests in Shenzhen TouZhiJia Financial Information Service Co., Ltd. (“Shenzhen TouZhiJia Financial”), a company incorporated in the People’s Republic of China. The equity interest Puhui acquired is held through three limited partnerships wherein each partnership’s sole purpose is to hold the equity interest of Shenzhen TouZhiJia Financial.

On September 29, 2017, we amended our Articles of Incorporation to change our name from “Sino Fortune Holding Corporation” to “Hui Ying Financial Holdings Corporation”. The following diagram illustrates our current corporate structure:

Contractual Arrangements with Benefactum Beijing

Due to PRC legal restrictions on foreign ownership and investment in value-added telecommunications services, and internet content provision services in particular, we currently conduct these activities through Benefactum Beijing, which we effectively control through a series of contractual arrangements. These contractual arrangements allow us to:

As a result of these contractual arrangements, we have become the primary beneficiary of Benefactum Beijing, and we treat Benefactum Beijing as our variable interest entity under U.S. GAAP. We have consolidated the financial results of Benefactum Beijing in our consolidated financial statements in accordance with U.S. GAAP.

The following is a simplified illustration of the ownership structure and contractual arrangements that we have in place for Benefactum Beijing and a summary of the currently effective contractual arrangements by and among our wholly-owned subsidiary, Benefactum Shenzhen, our consolidated variable interest entity, Benefactum Beijing, and the shareholders of Benefactum Beijing.

Each of the contractual agreements is described in detail below:

Trademarks, Technologies & Management and Consulting Service Agreement

Pursuant to the Trademarks, Technologies & Management and Consulting Service Agreement between WFOE and Benefactum Beijing, Benefactum Beijing would transfer all its rights to its trademarks, technologies and other intellectual property to WFOE. Additionally, Benefactum Beijing has engaged WFOE as its exclusive management consultant to provide client management, marketing counseling, corporate management, finance consulting and personnel training services. As consideration for the provision of such services, Benefactum Beijing pays WFOE a management and consulting fee equivalent to its net profits after tax.

The Trademarks, Technologies& Management and Consulting Service Agreement remains effective until the date when the WFOE terminates this agreement or when Benefactum Beijing ceases to exist.

The Equity Interest Pledge Agreement

Under the Equity Interest Pledge Agreement by and among WFOE, the shareholders of Benefactum Beijing (the “Benefactum Beijing Shareholders”) and Benefactum Beijing, WFOE has lent RMB200 to the Benefactum Beijing Shareholders, who, in turn, pledged all of their equity interests in Benefactum Beijing to WFOE to guarantee the performance of their obligations to repay the loan. The term of the loan is for 100 years and repayment of the loan can only occur on the loan maturity date or if WFOE decides to receive the repayment.

Under the terms of the agreement, WFOE, as pledgee, will be entitled to all the dividends generated by the pledged equity interests.

Exclusive Right and Option to Purchase Agreement

Under the Exclusive Right and Option to Purchase Agreement, the Benefactum Beijing Shareholders irrevocably granted WFOE an exclusive option to purchase all assets and equity interests of Benefactum Beijing. The purchase price for the said assets and equity interests shall be the lowest price allowed by the laws and regulations of the People’s Republic of China.

When WFOE considers it necessary, feasible under the laws and regulations of the People’s Republic of China and mandatory at the request of the U.S. Securities and Exchange Commission, WFOE shall exercise this exclusive right and option. When excising its exclusive right, WFOE shall serve written notice to the Benefactum Beijing Shareholders. Within 7 days of receiving the written notice from WFOE, the Benefactum Beijing Shareholders and Benefactum Beijing shall provide necessary assistance to transfer the assets and equity interest.

Equity Interest Holders’ Voting Rights Proxy Agreement

Under the Equity Interest Holders’ Voting Rights Proxy Agreement, the Benefactum Beijing Shareholders have agreed to authorize a representative/representatives designated by WFOE to exercise their voting rights at a general meeting of equity interest holders of Benefactum Beijing to, amongst other things, appoint the Chairman and directors of Benefactum Beijing. Additionally, the Benefactum Beijing Shareholders have undertaken not to transfer any of their equity interests except to either WFOE or its representative(s). The term of this agreement shall be the same term as the Equity Interest Pledge Agreement.

Emerging Growth Company Status

We are an “emerging growth company”, as defined in the Jumpstart Our Business Startups Act enacted on April 5, 2012 (the “JOBS Act”). For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding advisory “say-on-pay” and “say-when-on-pay” votes on executive compensation and stockholder advisory votes on golden parachute compensation. Under the JOBS Act, we will remain an emerging growth company until the earliest of:

The JOBS Act also provides that an emerging growth company may utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. However, we are choosing to “opt out” of such extended transition period, and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for companies that are not emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

As a smaller reporting company we are not required to provide the information required by this Item 1A.

Not applicable.

We have three offices in Beijing, Shanghai and Shandong Province.

In Beijing, we lease approximately 1,839 square feet of office space at Room 1105 and 1106 on the 10^th Floor of #1 Building at 6 Danleng Street, Beijing. The lease started on March 29, 2016 and expires on March 28, 2018. This lease provides for a monthly rent of RMB 59,513(approximately $9,145), a semi-annual property maintenance fee of RMB 24,607 (approximately $3,781) and a yearly heating fee of RMB 16,063 (approximately $2,468). The lease is recently renewed to March 29, 2020, which provides for a monthly rent of RMB 62,371 (approximately $9,585), a semi-annual property maintenance fee of RMB 24,607 (approximately $3,781) and a yearly heating fee of RMB 16,063 (approximately $2,468).

In Shandong, we lease approximately 7,153 square feet of office space on the 19th Floor of Ya Mai International Center, 7 Hong Kong Road, Southern District, Qingdao City, Shandong Province. The lease started on July 1 2016 and expires on June 30, 2019. This lease provides for a yearly rent of RMB1,100,000 (approximately $169,038).

We have three separate office spaces in Shanghai:

We know of no material, active, pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant in any material proceeding or pending litigation.

Not applicable.

PART II 

Market Information

Our common stock is currently quoted on the OTCQB under the symbol “SFHD.”

Trading in stocks quoted on the OTCQB is often thin and is characterized by wide fluctuations in trading prices due to many factors that may have little to do with a company’s operations or business prospects. We cannot assure you that there will be a market for our common stock in the future.

For the periods indicated, the following table sets forth the high and low bid prices per share of common stock based on inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. These high and low bid prices per share of common stock have been adjusted to give effect to the 1-for-5 reverse stock split of our common stock effected on June 20, 2017.

Holders of Our Common Stock

As of March 19, 2018, we had 226 shareholders of our common stock, including the shares held in street name by brokerage firms. The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders of the common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.

Dividend Policy

We have not paid dividends on our common stock and do not anticipate paying such dividends in the foreseeable future. We will rely on dividends from our China operation entity for our funds and Chinese regulations may limit the amount of funds distributed to us from our China operation entity, which will affect our ability to declare any dividends.

Recent Sales of Unregistered Securities

None.

Securities Authorized for Issuance under Equity Compensation Plans

We currently do not have any equity compensation plan.

Repurchase of Equity Securities

None.

Not applicable.

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes to those statements included in this filing. In addition to historical financial information, this discussion may contain forward-looking statements reflecting our current plans, estimates, beliefs and expectations that involve risks and uncertainties. As a result of many important factors, our actual results and the timing of events may differ materially from those anticipated in these forward-looking statements.

Restatement of Prior Financial Information

In this Annual Report on Form 10-K, the Company restated its Consolidated Balance Sheet as of December 31, 2016 and the related Statements of Operations and Comprehensive (Loss) Income, Consolidated Statements of Changes in Shareholders’ Equity and Consolidated Statements of Cash flows for the fiscal years ended December 31, 2016

The effects of the accounting adjustments made as a part of the restatement of our consolidated financial statements are more fully discussed in Note 2 — “Restatement of Previously Issued Consolidated Financial Statements” to our consolidated financial statements contained in this Annual Report on Form 10-K.  For a description of the material weaknesses identified as a result of the audit and our internal reviews, including management’s plan to remediate those material weaknesses (the “Material Weaknesses”), refer to Item 9A. “Controls and Procedures” contained in this Annual Report on Form 10-K.  Annual Reports on Form 10-K for the fiscal year ended December 31, 2016 has not been amended.  Accordingly, investors should no longer rely upon the Company’s previously released consolidated financial statements for the period and any earnings releases or other communications relating to the period. These activities are referred to in this Management’s Discussion and Analysis as the “Restatement.”

Overview

We are a holding company that, through our wholly-owned subsidiaries, Benefactum Alliance, Benefactum Sino and Benefactum Shenzhen and our contractually controlled and managed company, Benefactum Beijing, operates an electronic online financial platform, www.hyjf.com, which is designed to match investors with SMEs and individual borrowers in China. We believe our services provide an effective financial credit facility solution to under-served SMEs and individual borrowers. In addition, our online financial platform provides investors with attractive returns ranging from 4.5%-12% based on the amount and term of different investment. Investors have the option to individually select specific loans to invest in. We also set aside a risk reserve fund with the aim of limiting losses to investors from borrower defaults. In addition, we provide investors with access to a liquid secondary market, giving them an opportunity to exit their investments before the underlying loans become due.

Due to PRC legal restrictions on foreign ownership and investment in, among other areas, value-added telecommunications services, which include internet content providers, or ICPs, we, similar to all other entities with foreign-incorporated holding company structures operating in our industry in China, have to operate our internet businesses and other businesses in which foreign investment is restricted or prohibited in the PRC through wholly foreign-owned enterprises, majority-owned entities and variable interest entities. Accordingly, we operate our online financial platform in China through Benefactum Beijing, which was founded in September 2013.

We generate revenue from our services that facilitate matching investors with individual and SME borrowers through our online platform. The Company’s revenues are composed of fees collected from services provided with facilitating loan originations and services provided with assisting in the repayment process through our online platform.

Loan Origination Service Fee

For our services that match investors and borrowers through our online platform, we charge a service fee from borrowers for each effected loan facilitated by us, which is accounted for as revenue, and immediately deducted from the proceeds to the borrowers when a loan is initiated. The service fee is 1.5%-3.0% of the total amount of each loan, depending on the duration of the loan.

Loan Repayment Management Fee

For our services that assist in repayments of outstanding loans through our online platform, we charge a separate fee from borrowers for each loan repayment facilitated by us, which is accounted for as revenue, and immediately remitted to us when a loan matures and the borrower repays the loan. The loan repayment management fee is based on an agreed upon percentage around 0.3% of the borrowing amount times the duration of the loan and is collected from the borrower upon repayment of the loan.

Key Operating Metrics

From the launch of our marketplace in December 2013 through December 31, 2017, we have facilitated a total of $2.87 billion in loans. As of December 31, 2017, we had 367,893 registered investors and 24 cooperative partners who frequently serve as guarantors of loans on our platform.

Total number of loans facilitated through our online platform increased from 8,739 in 2016 to 23,263 in 2017. The value of loans facilitated increased from $818.5 million in 2016 to $1.31 billion in 2017. The number of borrowers increased from 1,067 in 2016 to 8,047 in 2017, with repeat borrower rates decreasing from 14.7% in 2016 to 7.8% in 2017.

The number of investors increased by 73.1% from 39,999 in 2016 to 69,232 in 2017. The number of investors significantly increased in 2017 resulted from our continuous efforts in marketing with our referral service providers.

Repeat investor rates was consistently at 55.7% in 2016 and 54.7% in 2017. Loans outstanding increased from $246.1 million as of December 31, 2016 to $436.3 million as of December 31, 2017. In anticipation of the implementation of the Draft Measures, we altered our strategy in 2016 and shifted our business focus toward attracting more small-enterprise borrowers, which required us to gradually decrease the loan amounts facilitated for each loan in order to meet the requirements of the Draft Measures. This led to the decrease in the average loan amount from $93,658 in 2016 to $56,258 in 2017. The loan origination service fee we charge is 1.5% to 3% of the loan amount, depending on duration of the loan. The lower average loan amount will lead to lower loan origination service fee per transaction for loans with the same duration. However, the aggregate amount of service fees earned in 2016 and 2017 were unaffected since the platform was able to increase the total volume of loans facilitated.

The main operating metrics we consider are set forth in the table below for the periods indicated:

The following tables set forth loan volume facilitated through our online platform by product and guarantor type, including both number and value of loans.

(1) Xin Shou Zhuan Qu: loan projects exclusive for new investors for them to experience the online registration, fund injection and investing processes.

(2) Cai Fu Hui: the blanket name for all loan products which are approved and posted on our platform after their borrowers’ profiles are collected and assessed for credit risk but cannot be classified into any of the other six product types.

(3) Zun Xiang: exclusive service for qualified VIP investors which offers premiere services with higher investment returns.

(4) Hui Ji Hua: convenient and efficient automatic investment service that, with the investors’ prior authorizations, offers automatic and diversified investment portfolio.

(5) You Xuan Zhai Quan: asset trading products promoted in conjunction with local financial asset exchanges.

(6) Zhai Quan Zhuan Rang: specially designed service that allows investors to transfer their creditors’ rights on our platform prior to the expiration date of the loans.

(7) Hui Xiao Fei: loan products designed jointly with cooperative partners with focus on consumer financing.

Important Factors Affecting Our Results of Operations

Major factors affecting our results of operations include the following:

The demand for online financing marketplace services from borrowers and investors is dependent upon overall economic conditions in China. General economic factors, including the interest rate environment and unemployment rates, may affect borrowers’ willingness to seek loans and investors’ ability and desire to invest in loans. For example, significant increases in interest rates could cause potential borrowers to defer obtaining loans as they wait for interest rates to become stable or decrease. Additionally, a slowdown in the economy, such as a rise in the unemployment rate and a decrease in real income, may affect individuals’ level of disposable income. This may negatively affect borrowers’ repayment capability, which in turn may decrease their willingness to seek loans or potentially cause an increase in default rates. If actual or expected default rates increase generally in China or the online financing market, investors may delay or reduce their investments in loan products in general, including on our marketplace.

Our ability to increase the loan volume facilitated through our marketplace largely depends on our ability to attract potential borrowers and investors through sales and marketing efforts. Our sales and marketing efforts include those related to borrower and investor acquisition and retention, and general marketing. We intend to continue to dedicate significant resources to our sales and marketing efforts and constantly seek to improve the effectiveness of these efforts, in particular with regard to borrower and investor acquisition.

We primarily attract borrowers through our own platform and referrals from third-party guarantors, although the general public may also access our platform and submit a borrower profile online. We also acquire borrowers through referrals from financial institutions we partner with. As of December 31, 2017, we have entered into cooperation agreements with five pawn shops, three guaranty companies, a micro loan companies, an asset management company, two information technology companies, four financial consulting companies, five technology companies, an investment management company and two financial services companies. Other than online investors, we attract investors through cooperative relationships with institutions. To obtain investors more efficiently, Benefactum Beijing has entered into co-operative agreements with several third-party referral service providers, pursuant to which those service providers will refer potential investors to Benefactum Beijing while Benefactum Beijing will pay those service providers service fees based on the value of loans those referred investors actually lend through Benefactum Beijing.

Although we do not provide incentives to borrowers to apply to the platform, as part of our strategy to attract investors, we offer investment principal coupons and interest premium coupons to investors during promotions. Investment principal coupon has a face value usually under RMB 300 each, which may be combined for use not to exceed RMB 1,000 by an investor at any given time and which can be used at the time of investment to be added to the investment principal, thereby reducing the cash contribution made by the investor. Interest premium coupon, with face value of 0.5%, 1%, 1.5% or 2% each, not to be used in combination, can be applied at the time of investment to “boost” the interest rate the investor will receive. Our platform pays the added investment principals and interests to investors for using investment principal coupons when investors receive their investment principal back and when they receive interest payments, respectively; our platform also pays the added interests to investors for using interest premium coupons.

We manage credit risk on behalf of the investors primarily in the following ways:

Our ability to effectively segment borrowers into appropriate risk profiles affects our ability to offer attractive pricing to borrowers as well as our ability to offer investors attractive returns, both of which directly relate to the level of user confidence in our marketplace.

Our growth to date has in part depended on, and our future success will depend on, successfully meeting borrower and investor demand with new and innovative loan and investment products. We have made and intend to continue to make efforts to develop loan and investment products for borrowers and investors. We regularly evaluate the popularity of our existing product offerings and develop new products and services that cater to the ever-evolving needs of our borrowers and investors. Over time we will continue to expand our offerings by introducing new products. From the borrower perspective, we will continue to develop tailored credit products to meet the specific needs of our target borrowers. We plan to expand our ability to implement risk-based pricing by developing more pricing grades to optimize loans based on a borrower’s credit criteria, enabling us to facilitate customized loans tailored to borrowers’ specific credit profiles.

The regulatory environment for the peer-to-peer lending service industry in China is developing and evolving, creating both challenges and opportunities that could affect our financial performance. Due to the relatively short history of the peer-to-peer lending service industry in China, the PRC government is in the process of building a regulatory framework governing our industry.

We will continue to make efforts to ensure that we are compliant with the existing laws, regulations and governmental policies relating to our industry and to comply with new laws and regulations or changes under existing laws and regulations that may arise in the future. While new laws and regulations or changes to existing laws and regulations could make loans more difficult to be accepted by investors or borrowers on terms favorable to us, or at all, these events could also provide new product and market opportunities. For more details, please see “Regulations - Regulations on Value-Added Telecommunication Services” and “Regulations on Peer-to-Peer Lending Service Provider”.

Recent Developments

In March 2017, we engaged Jiangxi Bank to provide fund depository services for our marketplace, pursuant to which Jiangxi Bank will set up separate accounts for borrowers and investors, and assume fund depository functions including settlement, accounting and safeguarding online lending capital. Third-party payment agents operate as the payment channels and only transfer funds to and from fund depository accounts. Relevant Chinese regulations require us to enter into a fund depository agreement with only one commercial bank to provide fund depository services. For more details, see “Regulations on Peer-to-Peer Lending Service Provider.”

On September 1, 2017, Puhui Equity Investment Co., Ltd. (“Puhui”), a wholly owned subsidiary of Benefactum Beijing acquired 4.4538% of equity interests in Shenzhen TouZhiJia Financial Information Service Co., Ltd. (“Shenzhen TouZhiJia Financial”) from three individuals with a total cash consideration of $2,935,121 (RMB 19.1 million). The equity interest the Company acquired was held through three limited partnerships wherein each partnership’s sole purpose is to hold the equity interest of Shenzhen TouZhiJia Financial. For the purpose of investment, the Company acquired 35.1%, 61.7% and 65.54% equity interests of these three limited partnerships, respectively, which represent 1.4259%, 0.7175% and 2.3104% of the ownership interest in Shenzhen TouZhiJia Financial, respectively. Shenzhen TouZhiJia Financial’s main businesses include vertical Peer-to-Peer (“P2P”) search engine, private wealth management and secondary loan exchange services. Shenzhen TouZhiJia Financial, as a service provider, refers potential investors to the Company through online channel. The Company believes this investment could offer new opportunities for operational synergies in the financial information service industry.

On June 20, 2017 the Board of Directors approved a reverse stock split of the Company’s issued and outstanding shares of common stock, par value $0.001 per share (the “Common Stock”), at a ratio of 1-for-5 (the “Reverse Stock Split”). The Reverse Stock Split was effective on June 20, 2017 (the “Effective Date”). On August 7, 2017, the Reverse Stock Split was reflected on the OTCQB. As a result of the Reverse Stock Split, every five issued and outstanding shares of the Company’s Common Stock have been automatically combined into one issued and outstanding share. This reduced the total number of issued and outstanding shares of Common Stock from 361,820,246 to approximately 72.4 million, and the Company’s authorized shares of Common Stock also have been reduced from 2,990,000,000 to 598,000,000. No fractional shares were issued. All fractional shares created by the Reverse Stock Split were rounded up to the nearest whole share.

On June 30, 2017, we entered into a securities purchase agreement with various investors, pursuant to which we issued and sold senior convertible promissory notes in the aggregate principal amount of $13,189,163.87 (RMB 90,357,316.73) (the “Notes”), convertible into shares of the Company’s Common Stock following June 30, 2018 at a conversion price of $2.00 per share (the “Conversion Price”) in a private placement. The Notes mature on June 30, 2020 and accrue interest at a rate of 6%, 7% and 8% per annum for each of the first, second and third year, respectively, with such interest payable annually. In event of a conversion of the Notes, the investors have agreed to a one year lock-up period with respect to the shares of Common Stock issuable upon conversion of the Notes commencing on the applicable conversion date of the Notes. The Notes are secured by a pledge of shares of the Common Stock pursuant to a stock pledge agreement (the “Stock Pledge Agreement”) between Avis Genesis Inc., a majority shareholder of the Company, and the Note investors on the basis of one share of Common Stock per $1 loaned under the Note, for an aggregate of 13,189,450 shares. Other than the shares pledged pursuant to the Stock Pledge Agreement, there is no recourse against the Company upon a default of the Notes.

From June 30, 2017 to July 20, 2017, Benefactum Beijing provided RMB180,000,000 (approximately $26.56 million) in capital to Qingdao Weichuang Private Capital Management Co., Ltd. (“Qingdao Weichuang”), as trustee, to lend funds directly to 18 SME borrowers as evidenced by entrusted loan agreements. This is our first series of transactions in which we, through Qingdao Weichuang, are lending funds directly to SME borrowers. The loans are short-term loans between three and six months with interest rates between 10% and 11%. In connection with the entrusted loan contracts, Benefactum Beijing also entered into entrusted loan guarantee contracts with guarantors, pursuant to which the guarantors have agreed to guarantee the obligations under the entrusted loan contracts. Benefactum Beijing pays a processing fee equal to 0.15% of the aggregate loan amounts to Qingdao Weichuang for issuing the entrusted loans. The sister of Mr. Bodang Liu, our chief executive officer and chairman, owns 48.41% of the outstanding equity interests in Qingdao Weichuang.

On September 27 and September 29, 2017, we filed Articles of Merger and a Certificate of Correction, respectively, with the Secretary of State of Nevada to effect a change in our corporate name from “Sino Fortune Holding Corporation” to “Hui Ying Financial Holdings Corporation”. The name change was the result of a merger of our wholly-owned subsidiary, “Hui Ying Financial Holdings Corporation”, with and into us to effect the name change.

Results of Operations

The following table sets forth a breakdown of revenue for the periods indicated, both in dollar amount and as a percentage of total revenues. The information should be read together with our consolidated financial statements and related notes included elsewhere in this report.

For the Years Ended December 31, 2017 and 2016

The following table sets forth a breakdown of revenue for the periods indicated, both in dollar amount and as a percentage of total revenues. The information should be read together with our consolidated financial statements and related notes included elsewhere in this Report.

Revenue

Our revenues for the years ended December 31, 2017 and 2016 consist of loan origination service fees and repayment management fees we charge the borrowers on the loans facilitated through our platform as well as financing income from entrusted loan lending transactions. The online Peer-to-Peer lending platform industry has experienced rapid growth in China in recent years. Our revenue increased 88.4% from approximately $24.7 million for the year ended December 31, 2016 to approximately $46.5 million for the year ended December 31, 2017, primarily due to the substantial increase in the volume of loans facilitated through our platform, which increased from approximately RMB 5.7 billion in 2016 to approximately RMB 8.8 billion in 2017, a 55.6% increase. Loan origination service fee and repayment management fee accounted for 57% and 40% of our revenue in 2017, respectively, as compared to 71% and 29% in 2016. The change is due to the shift in structure of our loan products towards longer duration loans. Since our loan repayment management fee is based on a certain percentage of the borrowing times the duration of a loan, .the more loans with longer terms, the more loan repayment management fees we generate. For all the loans facilitated through the Company’s platform, approximately 70% of loans had three to six months term in fiscal 2017, while only 58% of loans had three to six months term in fiscal 2016. As a result, our loan repayment management fee more than doubled from last year. We expect this trend will continue as the industry becomes more regulated and investors are getting more comfortable to invest in loans with longer terms. We will continue to adjust our loan product offerings accordingly.

In addition, In June 2017, the Company started to lend entrusted loans through a licensed loan provider to SME and individual borrowers in China. The Company has engaged Qingdao Weichuang as partner at launch of the service. As of December 31, 2017, the Company granted entrusted loans in the aggregate principal amount of $40.5 million to SME borrowers with related financing income of $1.6 million in fiscal 2017. This is our first series of transactions in which the Company, through a partner, are lending funds directly to borrowers. The loans are short-term loans between three and six months with interest payable on a monthly basis.

Operating Expenses

Our total operating expenses increased 41.2% from approximately $20.2 million in 2016 to approximately $28.5 million in 2017, primarily attributable to an increase of approximately $6.1 million in sales and marketing expenses. Our general administrative expense also increased by approximately $2.8 million from last year.

The following table sets forth the main components of our operating expenses for the years ended December 31, 2017 and 2016:

Our sales and marketing expenses increased by 37.7% from approximately $16.2 million in 2016 to approximately $22.3 million in 2017, which was primarily due to the increase in variable promotion and marketing expenses driven by increased loan origination volume. Our general and administrative expenses increased by 88.1% from approximately $3.2 million in 2016 to approximately $5.9 million in 2017. The increase in general and administrative expense was primarily due to over $1.2 million professional, consulting and related expense associated with the Company’s uplisting efforts onto NASDAQ. The rest of increase in general and administrative expense was mainly from higher salary and employee benefits incurred in fiscal 2017.

Depreciation expense decreased by 81.1% from approximately $0.7 million in fiscal 2016 to $0.1 million in fiscal 2017. The higher depreciation expense in fiscal 2016 was primarily because of a $0.5 million amortization charge on our leasehold improvements during 2016.

Net Income

For the year ended December 31, 2017, we recorded net income of approximately $15.3 million, a 32.8% net profit margin, compared to net income of approximately $3.4 million in 2016 with 13.9% net profit margin. The significant increase in net profit margin was due to following reasons:

a. For all the loans facilitated through the Company’s platform, approximately 70% of loans had over 2 months term in fiscal 2017 with typical term of three to six months, while only 58% of loans had over 2 months term in fiscal 2016. The Company earned more loan repayment management fee for loans with three to six months term since the fee is calculated based on the length of loan term. In addition, the Company charged higher loan facilitation fee for longer term loans. We have generated more revenue from the loans with longer terms while we still incur the same amount of expenses.

b. Investors invested in our platform are either from online channels or referred by offline referral companies. The Company generally incurs higher marketing expenses to referral companies to attract investors. With the increasing brand awareness of our platform, more investors are flowing through from online channel. The percentage of investor from online channel increased from 8% in fiscal 2016 to 22% in fiscal 2017, as a result, the Company had less increase in marketing expense in relation to the overall revenue growth.

c. In June 2017, the Company started to lend entrusted loans through a licensed loan provider to SME and individual borrowers in China. For fiscal 2017, the Company earned $1.6 million financing income from entrusted loans.

Changes in Financial Position

The following table sets forth selected information from our consolidated balance sheet as of December 31, 2017 and 2016. This information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus.

Cash and Cash Equivalents

As of December 31, 2017, our cash and cash equivalents balance was approximately $12.7 million, representing an increase of $4.1 million from approximately $8.56 million as of December 31, 2016. During fiscal 2017, we received cash proceeds in the amount of approximately $13.4 million from the issuance of convertible notes, and net cash provided by operating activities amounted to approximately $24.1 million, which was offset by negative net cash flows from investing activities of approximately $34.0 million. The rest of the increase in the cash balance is attributable to the exchange rate change of approximately $0.7 million.

Short-term Investments

Short-term investments consist of principal-guaranteed investments placed with investment management companies and wealth management products offered by commercial banks, with maturities within six months. Balance of short-term investments as of December 31, 2016 was approximately $8.3 million, consisting of the six-month wealth management products purchased with Shandong Wenye Investment Co., Ltd., which expired in the second quarter of 2017 and fully collected by the Company.

Short-term Loans Receivable

In June 2017, the Company launched entrusted loan service through a licensed loan provider to small and medium-sized enterprises (“SME”) and individual borrowers in China. As of December 31, 2017, all the entrusted loans issued were short-term with maturities within six months and the balance of loans receivable amounted to approximately $40.5 million. We did not have such service for the year ended December 31, 2016.

Prepayments

As of December 31, 2017, the balance of prepayments decreased by approximately $1.5 million from December 31, 2016, which was mainly due to less prepaid service fees to our referral service providers . The prepaid service fees are refundable if the service providers fail to refer potential investors to us.

Investment in equity

On September 1, 2017, the Company acquired 4.4538% of equity interests in Shenzhen TouZhiJia Financial Information Service Co., Ltd. from three individuals with a total cash consideration of $2.9 million. Shenzhen TouZhiJia Financial Service Co., Ltd’s main businesses include vertical Peer-to-Peer (“P2P”) search engine, private wealth management and secondary loan exchange services. Shenzhen TouZhiJia Financial, as a service provider, refers potential investors to the Company through online channel. The Company believes this investment could offer new opportunities for operational synergies in the financial information service industry.

Liabilities from risk reserve fund guarantee, without recourse to the Company

To minimize default risk, we offer a private loan risk reserve fund which is 2-5% of the credit extended to the third-party guarantors or borrowers who do not have a guarantor, though a risk reserve fund is not a regulatory requirement. Prior to an application for credit being made on our platform, borrower (or if a guarantor is needed for the borrower, the guarantor) is required to provide an amount equal to 2-5% of the amount being loaned, which shall be deposited directly into the risk reserve account and will be refunded to the borrowers (or guarantors) if the loan is paid in full at maturity. Balance of the risk reserve fund increased by 65.9% from approximately $7.3 million as of December 31, 2016 to approximately $12.1 million as of December 31, 2017, primarily due to the significant growth of loans facilitated through our online platform. In December 2017, we started to stop requiring new contributions from most of the borrowers and guarantors to the risk reserve fund, and stopped advertising the establishment of risk reserve funds on the platform. Existing reserve funds are being returned to borrowers and /or guarantors as loans mature and are repaid.

Convertible Notes Payable

On June 30, 2017, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain investors (the “Investors”), pursuant to which we issued and sold senior convertible promissory notes in the aggregate principal amount of $13,189,164 (RMB 90,357,317) (the “Notes”), convertible into shares of the Company’s common stock (the “Common Stock”) following June 30, 2018 at a conversion price of $2.00 per share (the “Conversion Price”) in a private placement (the “Private Placement”). The Notes mature on June 30, 2020 and accrue interest at a rate of 6%, 7% and 8% per annum for each of the first, second and third year, respectively, with such interest payable annually. In event of a conversion of the Notes, the Investors have agreed to a one year lock-up period with respect to the shares of Common Stock issuable upon conversion of the Notes commencing on the applicable conversion date of the Notes. Among other terms, the Notes contain various events of default provisions which if breached, may result in the acceleration of all obligations under the Notes.

Taxes payable

The taxes payable balance increased from approximately $1.3 million in 2016 to approximately $3.3 million in 2017. The higher taxes payable balance was primarily due to an increase of $2.2 million in income tax payable balance, which was in line with our growth in earnings during the periods presented.

Retained Earnings

Retained earnings increased from approximately $2.2 million as of December 31, 2016 to approximately $17.4 million as of December 31, 2017, as a result of our increased profitability during the period.

Liquidity and Capital Resources

Sources of Liquidity

Cash balances at December 31, 2017 and 2016 were $12.7 million and $8.6 million, respectively. The cash balance included cash held in private loan risk reserve accounts of $12.1 million and $7.3 million as of December 31, 2017 and 2016, respectively.

In fiscal 2017, our principal sources of liquidity were cash generated from operating activities and proceeds from the issuance and sale of equity and convertible notes in private placements.

The following table sets forth a summary of our cash flows for the periods indicated:

For the years ended December 31, 2017 and 2016, net cash provided by operating activities totaled $24.1 million and $4.8 million, respectively. The increase in cash flows from operating activities for the year ended December 31, 2017 was primarily due to $11.9 million increase in net income and less prepayments of referral service fees to third-party partners well as more risk reserve funds collected within increasing loan volume facilitated through our platform.

For the years ended December 31, 2017 and 2016, net cash used in investing activities totaled $34.0 million and $9.2 million, respectively. The increase in cash flows used in investing activities for the year ended December 31, 2017 was primarily due to $39.0 million entrusted loan investments in fiscal 2017. In June 2017, the Company started to lend entrusted loans through Qingdao Weichuang, a licensed loan provider under the PRC regulations, to SME and individual borrowers in China. As of December 31, 2017, the Company granted entrusted loans in the aggregate principal amount of $40.5 million to SME borrowers. The loans are short-term loans with typical loan terms between three and six months, and interest payable on a monthly basis. Interest rates charged are based on negotiation with borrowers, taking into consideration of factors such as duration of the loan, the industry in which the borrower conducts its business, its credit history, financial condition, operating results and cash flows etc. During fiscal 2016, in order to increase return of the Company’s excess cash in bank, the Company entered into two short-term entrusted financial management contracts with Wenye on November 7 and December 16, 2016, respectively. The total short-term investment through Wenye was $8.6 million, which was fully collected by the Company during fiscal 2017.

For the years ended December 31, 2017 and 2016, net cash provided by the financing activities totaled $13.4 million and $7.9 million, respectively. The increase in cash flows provided by the financing activities for the year ended December 31, 2017 was primarily due to proceeds of $13.4 million from convertible debt issued on June 30, 2017. During fiscal 2016, the Company completed a private placement of $7.9 million financing closed on October 18, 2016.

As of December 31, 2017, we had $55.2 million in total current assets and $17.5 million in total current liabilities, representing a current ratio of 3.2. As of December 31, 2016, we had $19.9 million in total current assets and $9.1 million in total current liabilities, with a current ratio of 2.2.

Operating Leases

The Company leases office space for its headquarters in Shanghai and branches in Beijing and Shandong province, and future minimum lease payments under non-cancellable operating leases with a term of one year or more consist of the following:

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits.

Critical Accounting Policies

Basis of presentation and principles of consolidation

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The consolidated financial statements include the accounts of Hui Ying Financial, Benefactum Alliance, including its wholly owned subsidiaries Benefactum Sino and WFOE, and its variable interest entity Benefactum Beijing, and have been reported in United States dollars. All inter-company balances and transactions have been eliminated in consolidation.

The series of contractual agreements between WFOE and Benefactum Beijing (see Footnote 1 to financial statements) collectively enable us to exercise effective control over, and realize substantially all of the economic risks and benefits arising from Benefactum Beijing, as well as give us an exclusive option to purchase all or part of the equity interests in it when and to the extent permitted by PRC law. As a result of these contractual arrangements, we have become the primary beneficiary of Benefactum Beijing and determined Benefactum Beijing is our variable interest entity subject to consolidation under U.S. GAAP. Accordingly, the financial statements of Benefactum Beijing are included in the consolidated financial statements of the Company.

Use of Estimates

Preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates required to be made by management include, but are not limited to, allowance for loan principal receivables, allowance for doubtful accounts, fair value of investments, useful lives of property and equipment, intangible assets, the recoverability of long-lived assets, and deferred income tax. Actual results could differ from those estimates.

Short-term Investments

Short-term investments other than highly liquid ones are classified and accounted for as available-for-sale. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the classifications at each balance sheet date. The Company classifies its investments as either short-term or long-term based on each instrument’s underlying contractual maturity date, the nature of the investment and its availability for use in current operations. The Company’s investments are carried at fair value, with unrealized gains and losses, net of taxes, reported as a component of accumulated other comprehensive income in shareholders’ equity, with the exception of unrealized losses believed to be other-than-temporary, which are reported in earnings in the current period. When we sell an investment, the cost is based on the specific identification method.

Short-term loans receivable, net

Short-term loans receivable represents the outstanding balance of the entrusted loans extended by the Company to borrowers. The Company currently does not have lending license required by relevant PRC laws to extend loans to borrowers directly. Instead, it entrusts a third party who has proper license to facilitate loans with funds provided by the Company. The Company started the lending business of entrusted loans in June 2017 through Qingdao Weichuang private Capital Management Co., Ltd (“Qingdao Weichuang”) as a partner. The Company pays a fixed processing fee equal to 0.15% of the aggregate loan amount to Qingdao Weichuang for facilitating these entrusted loans. All loans receivable consist of loans to small and medium sized enterprise (“SME”) with the term period ranging from 3 months to 6 months.

Loans receivable are recorded at unpaid principal balances, net of allowance for loan losses that reflects the Company’s best estimate of the amounts that will not be collected. As of December 31, 2017, the Company did not provide any provision for loan losses.

The allowance for loan losses is determined at a level believed to be reasonable to absorb probable losses inherent in the loan portfolio as of each balance sheet date. The allowance is provided based on an assessment performed on a portfolio basis. All loans are assessed individually depending on factors such as delinquency rate, size, and other risk characteristics of the portfolio.

Loan principal are charged off when a settlement is reached for an amount that is less than the outstanding balance or when the Company has determined the balance is uncollectable. In accordance with ASC 310-10-35-41, the Company determines that any loans with outstanding balance that are 90 days past due are deemed uncollectible and therefore charged-off.

The Company started the lending business of entrusted loan on June 30, 2017 through Qingdao Weichuang private Capital Management Co., Ltd (“Qingdao Weichuang”) as an agent. All loans receivable consists of loans to small and medium sized enterprise (“SME”) with the term period ranging from 3 months to 6 months. For the year ended December 31, 2017, the Company provided Nil provision for loan losses, respectively.

Risk Reserve Fund

In order to better protect the investors’ interests on our online platform, the Company has voluntarily established a risk reserve fund which is generally equivalent to 2% to 5% of all credit extended to borrowers. Prior to an application for credit being made on our platform, the borrower (or if a guarantor is needed for the borrower, the guarantor) is required to provide an amount equal to 2% to 5% of the aggregate amount of the loan, which is deposited directly into the risk reserve fund and recorded as liabilities from risk reserve fund guarantee on the balance sheet. If the borrower cannot be matched with an investor within the fundraising period (no more than 19 days), all amounts deposited by the borrower or guarantor in the risk reserve fund, as the case may be, will be returned. If the borrower is successfully matched with an investor, the risk reserve fund will be refunded to the borrower if the loan is paid in full at maturity.

In the event that a borrower defaults in repaying the loan when it is due, the Company advises the guarantor of such default. If the guarantor cannot make the repayment within the period as stipulated (usually three days), we withdraw a sum equivalent to the outstanding loan amount with interest and penalty at a rate of 0.06% per day from the risk reserve fund to repay investors within three business days. When more than one loan becomes delinquent and the borrower and/or guarantor fail(s) to repay investors, we will use the risk reserve fund to cover the loans in the order in which they become due. If the reserve fund is insufficient to repay investors, the fund shall be allocated on a pro rata basis. The defaulting borrower and/or guarantor is/are obligated to reimburse the risk reserve fund account up to the outstanding loan amount owed with interest and penalty at a rate of 0.06% per day on the outstanding loan amount, which will be recorded as part of the balance of the risk reserve fund liability on the balance sheet.

The risk reserve fund applies to loans facilitated through our online platform, including third-party loan assignments in which case Creditor Partners seek to sell their rights as creditors on third-party loans with borrowers who are not borrowers on our platform. In the role of transaction intermediary, the Company does not assume credit risk for loans including third-party loan assignments facilitated through our online platform and our risk reserve liability is limited to the balance of risk reserve fund that the borrowers or guarantors deposit with us. The determination of the risk reserve fund ratio is made by referencing the overdue default loan data for the industry in which the borrower operates its business. Our risk control department starts with the industry default loan data and credit trend then adjusts it appropriately with information collected from current and past borrower profiles in the same industry on our platform, also taking into consideration communications with and updates from guarantors including changes in guarantee fees they charge borrowers and other measures they would take in providing guarantees. Based on the research results, the risk control department then sets the reserve fund ratio for the industry and reviews and adjusts it regularly if necessary, usually every quarter to six months.

As of December 31, 2017, each loan transaction facilitated on our platform is guaranteed by a third-party guarantor who is jointly and severally liable for the loan, except for the third-party loan assignments by our Creditor Partners. Since these Creditor Partners are usually our third-party cooperative partners who refer borrowers to our platform and provide loan guarantee, the Company does not require them to provide a third-party guarantor when they seek to sell their creditor rights on our platform. They will provide a “letter of promise,” which promises that they will guarantee the loan if the Original Borrower defaults and the Company requires them to deposit 2% to 5% of the loan amount into the risk reserve fund as usual. In the event the Original Borrower defaults and the Creditor Partner also defaults on loan repayment, the Company will pay the investors the sum owed from the risk reserve fund. In December 2017, we started to stop requiring new contributions from most of the borrowers and guarantors to the risk reserve fund, and stopped advertising the establishment of risk reserve funds on the platform. Existing reserve funds are being returned to borrowers and /or guarantors as loans mature and are repaid.

Revenue Recognition

Revenues are primarily composed of fees collected from services provided with facilitating loan originations and services provided with assisting in loan repayment process through our online platform.

Loans facilitated through our online platform are mostly short-term loans for working capital purpose, with average duration of loan around 3 to 4 months. Pursuant to the agreements among the Company, the borrowers and the investors, all principal and interest payments are due and paid off in lump sum at the end of the loan term, with no payments of interest or principal over the duration of the loan. We generally sign electronically a three-party intermediary service agreement with borrowers and investors at the inception of the loan, which also specifies the repayment terms with the amounts of principal and interest due at the end of the loan term. The borrowers are obligated to pay a loan origination service fee to us upfront at the time of loan issuance and a loan repayment management fee at the time when the loan is repaid. All loans originated through our online platform are repaid through our online platform. Borrowers are allowed to prepay the loan before the due date, but the borrowers are obligated to pay us the full amount of the loan repayment management fee as if the loans are repaid at the end of the original loan term in accordance with the agreement.

The Company recognizes revenues under ASC 605 when the following four revenue recognition criteria are met for each revenue type: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured.

These criteria as they relate to each of the following major revenue generating activities are described below:

Transactions with online marketplace’s borrowers and investors

The Company generates loan origination service fees and loan repayment management fees by providing the following services:

Loan origination service is rendered when a loan is successfully matched between the lenders and the borrowers; and when a loan is originated. The origination of a loan takes place when the funds provided by the investor are transferred to the borrower. The borrower is obligated to pay loan origination service fee upfront at loan inception and such service fee is not refundable. Revenue is recognized when loan origination service is rendered and fee is collected from borrower upon the closing of the loan. The aforementioned fee is an agreed upon percentage of the total principal which varies based on the duration of the loan.

Towards the end of each loan term, the Company also provides repayment service to ensure loan repayment process is handled smoothly through our online platform and to assist in release of liens or collaterals if applicable. The Company charges a separate fee for loan repayment service, which is determined based on an agreed upon percentage on the borrowing times the duration of the loan and is not refundable. Borrowers are obligated to pay loan repayment management fee upon repayment of the loan. Loan repayment management fee is recognized upon the borrower paying the principal, interest and our management fee for the loan repayment service through our online platform.

Entrusted loan lending transactions

Interest on loans receivable is accrued and recognized as income when earned. Accrual of interest is discontinued when reasonable doubt exists as to the full, timely collection of interest or principal (e.g. when the loans have been past due by 90 days). Subsequent recognition of income for loans in non-accrual status occurs only to the extent payment is received, subject to the management’s assessment of the collectability of the remaining interest and principal.

Incentives to investors on the online platform

To attract investors to our online platform, the Company provides cash incentives from time to time to qualified investors within a limited period. During the relevant incentive program period, the Company sets certain thresholds for the investor to qualify in order to enjoy the cash incentive. When qualified investment is made, the cash incentive is provided to the investor. The cash incentives provided are accounted for as a reduction of revenue from investors in accordance with ASC subtopic 605-50.

Given the fact that the Company has not generated any revenue from investors since inception, when recording these incentives as a reduction in revenue from investors results in negative revenue for the investors on a cumulative basis, the cumulative shortfalls are re-characterized as an expense in accordance with ASC 605-50-45-9, given the inherent uncertainties with the incentive program which may not result in sufficient probable future revenue to the Company to recover such shortfalls. For the years ended December 31, 2017 and 2016, we recorded cash incentives of $2,145,576 and $276,226, respectively, all of which were re-characterized and recognized as sales and marketing expenses.

Earnings Per Share (“EPS”)

Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (i.e., options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

Reverse Stock Split

On June 20, 2017, the Board of Directors approved a reverse stock split of the Company’s issued and outstanding shares of common stock, par value $0.001 per share (the “Common Stock”), at a ratio of 1-for-5 (the “Reverse Stock Split”). The Reverse Stock Split was effected by the Company filing a Certificate of Change (the “Certificate”) with the Secretary of State of the State of Nevada on June 20, 2017 (the “Effective Date”). As a result of the filing of the Certificate, the number of shares of the Company’s authorized Common Stock was reduced from 2,990,000,000 shares to 598,000,000 shares and the issued and outstanding number of shares of the Company’s Common Stock was correspondingly decreased. The Company received FINRA’s approval of the Reverse Stock Split on August 7, 2017. The Company has retroactively restated all shares and per share data for all the periods presented.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. In August 2015, the FASB issued ASU 2015-14, which deferred the effective date of ASU 2014-09 to fiscal years beginning after December 31, 2017, and interim periods within those fiscal years, with early adoption permitted for reporting periods beginning after December 15, 2016. Subsequently, the FASB issued ASUs in 2016 containing implementation guidance related to ASU 2014-09, including: ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations; ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which is intended to clarify two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance; ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which contains certain provisions and practical expedients in response to identified implementation issues; and ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which is intended to clarify the Codification or to correct unintended application of guidance. ASU 2014-09 allows for either full retrospective or modified retrospective adoption. The Company adopted ASU 2014-09 and the related ASUs on January 1, 2018 using the modified retrospective method, which will not result in a cumulative catch-up adjustment to the opening balance sheet of retained earnings at the effective date.

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. ASC 606 also impacts certain other areas, such as the accounting for costs to obtain or fulfill a contract. The standard also requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

The Company has performed an assessment of our revenue contracts and concluded that there will be no change to (1) the timing and pattern of revenue recognition for its current revenue streams in scope of Topic 606, which includes loan facilitation fees, loan repayment management fees, and financing income from entrusted loan lending transactions, (2) the presentation of revenue as gross versus net, or (3) the amount of capitalized contract costs upon adoption of Topic 606. Because there will be no change to the timing and pattern of revenue recognition, we believe there will be no material changes to the Company’s consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires an entity to recognize lease assets and lease liabilities on the balance sheet and to disclose key information about the entity’s leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. A modified retrospective approach is required. The Company anticipates the adoption of ASU 2016-02 will have a material impact on the Company’s consolidated financial position; however, the Company does not believe adoption will have a material impact on the Company’s results of operations. The Company believes the most significant impact relates to our accounting for operating leases for office space and equipment.

In June 2016, the FASB amended guidance related to impairment of financial instruments as part of ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which will be effective January 1, 2020. The guidance replaces the incurred loss impairment methodology with an expected credit loss model for which a company recognizes an allowance based on the estimate of expected credit loss. The Company is evaluating the impact this ASU will have on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01 “Business Combinations (Topic 805): Clarifying the Definition of a Business “, which provides guidance to evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. If substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single asset or a group of similar assets, the assets acquired (or disposed of) are not considered a business. Management does not believe the adoption of this ASU would have a material effect on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The amendments in this ASU clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Basically these amendments provide a screen to determine when a set is not a business. If the screen is not met, the amendments in this ASU first, require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and second, remove the evaluation of whether a market participant could replace missing elements. These amendments take effect for public businesses for fiscal years beginning after December 15, 2017 and interim periods within those periods, and all other entities should apply these amendments for fiscal years beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.

In February 2017, the FASB issued ASU No. 2017-05 (“ASU 2017-05”) to provide guidance for recognizing gains and losses from the transfer of nonfinancial assets and in-substance nonfinancial assets in contracts with non-customers, unless other specific guidance applies. The standard requires a company to derecognize nonfinancial assets once it transfers control of a distinct nonfinancial asset or distinct in substance nonfinancial asset. Additionally, when a company transfers its controlling interest in a nonfinancial asset, but retains a noncontrolling ownership interest, the company is required to measure any noncontrolling interest it receives or retains at fair value. The guidance requires companies to recognize a full gain or loss on the transaction. As a result of the new guidance, the guidance specific to real estate sales in ASC 360-20 will be eliminated. ASU 2017-05 is effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. The effective date of this guidance coincides with revenue recognition guidance. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.

In May 2017, the FASB issued ASU No. 2017-09 (“ASU 2017-09”) to provide guidance to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the changes in terms or conditions. ASU 2017-09 is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted and application is prospective. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.

In September 2017, the FASB has issued ASU No. 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.” The amendments in ASU No. 2017-13 amends the early adoption date option for certain companies related to the adoption of ASU No. 2014-09 and ASU No. 2016-02. Entities may still adopt using the public company adoption guidance in the related ASUs, as amended. The effective date is the same as the effective date and transition requirements for the amendments for ASU 2014-09 and ASU 2016-02. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.

Not applicable.

Our consolidated financial statements and notes thereto are set forth on pages F-1 through F-23 of this report.

As previously reported on a Current Report on Form 8-K on June 5, 2017, we dismissed Anton & Chia, LLP (“A&C”) as the Company’s independent registered public accounting firm. During the fiscal years ended December 31, 2017 and 2016, we have had no disagreements with A&C, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of A&C, would have caused it to make reference to the subject matter of such disagreements in its report on our financial statements for such periods and there have been no reportable events as defined under Item 304(a)(1)(v) of Regulation S-K adopted by the Securities and Exchange Commission (the “SEC”).

Our Board of Directors appointed Friedman LLP, Certified Public Accountants (“Friedman”) as our new independent registered public accounting firm, effective June 1, 2017.

Evaluation of Disclosure Controls and Procedures

Our management maintains disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that the material information required to be disclosed by us in our periodic reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

As of December 31, 2017, our management, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2017, as a result of the material weaknesses identified in our internal control over financial reporting, which are discussed below.

Management’s Annual Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on the Company’s assessment, management has concluded that its internal control over financial reporting was not effective as of December 31, 2017.

Specifically, our management identified certain matters involving internal control and our operations that it considered to be material weaknesses. As defined in the Exchange Act, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified by our management as of December 31, 2017, are that we did not design, implement, or maintain effective entity-level controls related to our control environment, resulting in the following material weaknesses:

These material weaknesses resulted in the restatement of our consolidated financial statements for the year ended December 31, 2016. 

Planned Remediation

As financial conditions permit, we plan to take the following actions to improve our internal control over financial reporting.

Our management will continue to monitor and evaluate the effectiveness of its disclosure controls and procedures, as well as its internal control over financial reporting, on an ongoing basis, and is committed to taking further action and implementing additional improvements, as necessary and as funds allow. However, our management cannot guarantee that the measures taken or any future measures will remediate the material weaknesses identified or that any additional material weaknesses or significant deficiencies will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting.

Notwithstanding the material weaknesses described above, our management believes that there are no material inaccuracies or omissions of material fact and, to the best of its knowledge, believes that the consolidated financial statements included in this annual report present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

Changes in Internal Control Over Financial Reporting

We plan to adopt the new revenue recognition standard in the first quarter of 2018. We plan to enhance our internal controls over financial reporting related to this new adoption to ensure all related accounting policy and disclosures to reflect this change.

There were no other changes in the Company’s internal control over financial reporting during the fourth quarter of 2017, which were identified in connection with management’s evaluation that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

None.

PART III 

The following table sets forth the respective positions and ages of the directors (including director nominees) and executive officers of the Company as of the date of this report Each director nominee’s appointment will be effective immediately prior to our contemplated listing on a national securities exchange. After such time, each director shall hold office until the next annual meeting of shareholders and thereafter until his or her successor is elected and has qualified.

Biographical Information

Bodang Liu. Mr. Liu has served as our Chief Executive Officer, Chairman and a Director since September 29, 2016. He also has been serving as the Executive Director of Benefactum Beijing since September 2013 and as Executive Director and General Manager of Benefactum Shenzhen since April 2016. In addition, he has been serving as Executive Director at Ningsheng Financial Information Service (Shanghai) Ltd. since December 2013. Mr. Liu took business management courses at Tsinghua University in October 2010. He also attended Cheung Kong Graduate School of Business from August 2011 to December 2011, focusing on executive management studies. In addition, Mr. Liu took courses in financing and secured transactions at Renmin University of China in March 2013 and received a course-completion certificate. To further his studies in management, Mr. Liu took Executive Master of Business Administration courses in international finance at Beijing University of Posts and Telecommunications from July 2016 to August 2016.

Wei Zheng. Ms. Zheng has served as our Chief Financial Officer since September 29, 2016 and has been nominated to serve as a director on the Board of Directors. Ms. Zheng is a senior accounting and financial manager with more than 10 years of progressive experience in finance and operations management. Ms. Zheng was appointed as the Chief Financial Officer of Benefactum Beijing in September 2016. She served as the Finance Manager of CWT Commodities (Shanghai) Co., Ltd from March 2015 to August 2016. In addition, Ms. Zheng worked as the Accounting Manager of Hyundai Heavy Industries (China) Investment Co., Ltd from July 2011 to January 2015. She also served as the Company Consultant to Xieli Management Consulting (Shenzhen) Co., Ltd from June 2010 to July 2011. Ms. Zheng’s professional experience also includes serving as the Chief Accountant of Shanghai Sunway Co., Ltd from April 2008 to June 2010. From February 2005 to April 2008, Ms. Zheng was an accountant at New Chen Yi (Shanghai) Industrial Development Co., Ltd. Ms. Zheng received her bachelor’s degree in accounting from Harbin University of Commerce in 2005. Ms. Zheng is a member of the Chinese Institute of Certified Public Accountants (CPA).

Henry F. Schlueter. Mr. Schlueter has been the managing director of Schlueter & Associates, P.C., practicing in the areas of securities, mergers and acquisitions, finance and corporate law, since 1992. Mr. Schlueter has been a director of Bonso Electronics International Inc. (NASDAQ: BNSO) since October 2001. Mr. Schlueter was admitted to practice law in Colorado and Wyoming, as well as before the U.S. District Courts for the District of Wyoming and the District of Colorado, and the Tenth Circuit Court of Appeals. Mr. Schlueter is a registered foreign lawyer with the Hong Kong Law Society and a fellow of the Chartered Institute of Arbitrators, and is qualified as an arbitrator for the Financial Industry Regulatory Authority (“FINRA”). Mr. Schlueter is a certified public accountant (inactive) and a member of the American Institute of Certified Public Accountants. Mr. Schlueter holds a bachelor’s degree in economics from the University of Wyoming, an MBA degree in accounting from the University of Wyoming, and a J.D. degree from the University of Wyoming. Based on Mr. Schlueter’s substantial experience in the areas of securities, mergers and acquisitions, finance and corporate law, we believe that Mr. Schlueter is well qualified to serve on our Board.

Io Wai (Alice)Wu. Ms. Wu has extensive experience in both auditing financial statements and internal controls of public and private companies. Ms. Wu currently provides accounting, consulting and advisory services to public and private companies through her own company Wu & Company, Inc., and has served as a director and the chair of the audit committee of Kingold Jewelry, Inc. since May 2016. Ms. Wu also served as a director and chaired the audit committee of Yulong Eco-Materials Limited from June 2015 and February 2017. Ms. Wu had previously held a variety of positions with accounting firms and companies, including serving as the chief financial officer of The Future Education Group Inc., a Chinese company providing online and mobile education platforms and contents from February 2015 to December 2015, being a partner of Anton & Chia, LLP from August 2013 to May 2014, being a partner at Cacciamatta Accounting Corporation from January 2009 to July 2013. Ms. Wu graduated from California State University, Fullerton, with a bachelor’s degree in business administration with accounting concentration. Given Ms. Wu’s extensive experience in accounting, auditing and internal controls, we believe that Ms. Wu is well qualified to serve on our Board.

Dr. Fangyu Fei. Dr. Fei is a professional researcher in economics. Dr. Fei has engaged in research and development in economics with China Academy of Financial Research of Shanghai Jiao Tong University since January 2016. Prior to this, Dr. Fei had held various positions as Vice Dean, Professor, Researcher with China Academy of Financial Research of Shanghai Jiao Tong University for six years since April 2009. Dr. Fei currently serves as a director of Shanghai Fuiou Payment Service. Dr Fei has deep understanding and knowledge in economics, the reform of state-owned enterprises and the supervision and management of state-owned assets, and is an author of over ten published books. Dr. Fang holds a Ph.D. degree in economics from Shanghai University of Finance and Economics, a master’s degree in economics from Peking University and a bachelor’s degree in law from Shanghai Normal University. Based on Dr. Fei’s extensive research experience in China’s economy and in the area of financial research in particular, we believe that Dr. Fei is well qualified to serve on our Board.

None of the events listed in Item 401(f) of Regulation S-K has occurred during the past ten years that is required to be disclosed hereunder.

Family Relationships

There are no family relationships between the Company and any of our directors or executive officers.

Director Independence

Our board of directors has identified and nominated for appointment each of Henry F. Schlueter, Io Wai (Alice) Wu and Fangyu Fei to serve as independent directors. Each of Mr. Schlueter, Ms. Wu and Dr. Fei have agreed to serve on our board of directors and their appointment will be effective immediately prior to our contemplated listing on a national securities exchange. The board of directors has determined that each of Mr. Schlueter, Ms. Wu and Dr. Fei are “independent” under the current independence standards of Rule 5605(a)(2) of the Marketplace Rules of The NASDAQ Stock Market, LLC and meet the criteria for independence set forth in Rule 10A(m)(3) under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our board of directors has also determined that these persons have no material relationships with us — either directly or as a partner, shareholder or officer of any entity — which could be inconsistent with a finding of their independence as members of our board of directors.

Corporate Governance

We have applied to list our shares of common stock on the NASDAQ Capital Market. Under The NASDAQ Marketplace Rules, we are required to comply with certain corporate governance standards at the time of listing, which include (i) having a majority of independent directors on our board; and (ii) establishing an audit committee in compliance with Section 3(a)(58)(A) of the Exchange Act, a compensation committee and a nominating and governance committee comprised of independent directors. Our audit committee, compensation committee and nominating and corporate governance committee shall be established immediately prior to our contemplated listing on a national securities exchange, and each of Mr. Schlueter, Ms. Wu and Dr. Fei shall serve on all of the committees. Each committee shall adopt a charter containing detailed descriptions of the committees’ duties and responsibilities.

Audit Committee

The members of the audit committee shall consist of Henry F. Schlueter, Io Wai (Alice) Wu and Dr. Fangyu Fei. Ms. Wu will serve as chair of the audit committee. Each member of the audit committee qualifies as an independent director under the corporate governance standards of the NASDAQ Listing Rules and the independence requirements of Rule 10A-3 of the Exchange Act. Our board of directors has determined that Ms. Wu qualifies as an “audit committee financial expert” as such term is currently defined in Item 407(d)(5) of Regulation S-K and meets the financial sophistication requirements of the NASDAQ Listing Rules. The audit committee will adopt a written charter that satisfies the applicable standards of the SEC and the NASDAQ Listing Rules, which we will post on our website immediately prior to our contemplated listing on a national securities exchange.

The audit committee will assist the Board by overseeing the performance of the independent auditors and the quality and integrity of our internal accounting, auditing and financial reporting practices. The audit committee is responsible for retaining (subject to shareholder ratification) and, as necessary, terminating the engagement of, the independent auditors, annually reviews the qualifications, performance and independence of the independent auditors and the audit plan, fees and audit results, and pre-approves audit and non-audit services to be performed by the auditors and related fees.

Compensation Committee

The members of the compensation committee shall consist of Henry F. Schlueter, Io Wai (Alice) Wu and Dr. Fangyu Fei. Mr. Schlueter shall serve as chair of the compensation committee. Each member of the compensation committee shall be an independent director within the meaning of Rule 16b-3 of the rules promulgated under the Exchange Act, each is an outside director as defined by Section 162(m) of the United States Internal Revenue. The compensation committee will adopt a written charter that satisfies the applicable standards of the SEC and the NASDAQ Listing Rules, which we will post on our website immediately prior to our contemplated listing on a national securities exchange.

The compensation committee will make recommendations to the Board concerning salaries and incentive compensation for our officers, including our principal executive officer, and employees and administers our stock option plans.

Nominating and Corporate Governance Committee

The members of the nominating and corporate governance committee shall consist of Henry F. Schlueter, Io Wai (Alice) Wu and Fangyu Fei. Dr. Fei shall serve serves as chair of the nominating and corporate governance committee. Each member of the nominating and corporate governance committee shall be an independent director as defined by the NASDAQ Listing Rules. The nominating and corporate governance committee will adopt a written charter that satisfies the applicable standards of the NASDAQ Listing Rules, which we will post on our website immediately prior to our contemplated listing on a national securities exchange.

The nominating and corporate governance committee will assist the Board in identifying qualified individuals to become board members, in determining the composition of the Board and in monitoring the process to assess Board effectiveness.

Board Leadership Structure and Role in Risk Oversight

Mr. Liu holds the positions of chief executive officer and chairman of the board of the Company. The board believes that Mr. Liu’s services as both chief executive officer and chairman of the board is in the best interest of the Company and its shareholders. Mr. Liu possesses detailed and in-depth knowledge of the issues, opportunities and challenges facing the Company in its business and is thus best positioned to develop agendas that ensure that the Board’s time and attention are focused on the most critical matters relating to the business of the Company. His combined role enables decisive leadership, ensures clear accountability, and enhances the Company’s ability to communicate its message and strategy clearly and consistently to the Company’s shareholders, employees and customers.

The board has not designated a lead director given the limited number of directors comprising the Board. At such time that the independent director appointees officially join the Board, we will consider the need for a lead director.

Management is responsible for assessing and managing risk, subject to oversight by the board of directors. The board oversees our risk management policies and risk appetite, including operational risks and risks relating to our business strategy and transactions. Once establishe, each of the committees of the board will assist the board in this oversight responsibility in their respective areas of expertise.

Code of Business Conduct and Ethics

Our Board of Directors has adopted a code of business conduct and ethics that applies to our directors, officers and employees, which was filed as Exhibit 14.1 to Form S-1/A on September 22, 2017. A copy of this code is available on our website. We intend to disclose on our website any amendments to the Code of Business Conduct and Ethics and any waivers of the Code of Business Conduct and Ethics that apply to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions.

Section 16 Compliance

As of the date of this report, we are not subject to Section 16(a) of the Exchange Act.

Material Changes to the Procedures by which Security Holders May Recommend Nominees to the Board

In connection with the formation of a Nominating and Corporate Governance Committee that will be established immediately prior to our listing on a national securities exchange, the Board has prepared a Nominating and Corporate Governance Charter. Among other things, the Nominating and Corporate Governance Committee is obligated to search for, identify, evaluate and recommend for the selection by the Board, candidates to fill new positions or vacancies on the Board, and review any candidates recommended by stockholders. However at this time, we do not have such a committee because Mr. Liu is the sole director. Mr. Liu has identified and evaluated each director candidate in accordance with the qualifications set forth below under the heading “Director Qualifications.” The Company expects that upon establishment of the Nominating and Corporate Governance Committee the same criteria will be used to qualify future candidates. At such time the Committee will also adopt a policy and procedures to be followed by security holders in submitting such recommendations for board members.

Director Qualifications

The Board of Directors is responsible for overseeing the Company’s business consistent with their fiduciary duty to the stockholders. This significant responsibility requires highly-skilled individuals with various qualities, attributes and professional experience. There are general requirements for service on the Board that are applicable to directors and there are other skills and experience that should be represented on the Board as a whole but not necessarily by each director. Mr. Liu, as the sole director, considers the qualifications of director and director candidates individually and in the broader context of the Board’s overall composition and the Company’s current and future needs.

In its assessment of each potential candidate, including those recommended by the stockholders, Mr. Liu will consider the nominee’s judgment, integrity, experience, independence, understanding of the Company’s business or other related industries and such other factors it determines are pertinent in light of the current needs of the Board. Mr. Liu also takes into account the ability of a director to devote the time and effort necessary to fulfill his or her responsibilities to the Company.

Mr. Liu requires that each director be a recognized person of high integrity with a proven record of success in his or her field. Each director must demonstrate innovative thinking, familiarity with and respect for corporate governance requirements and practices, an appreciation of multiple cultures and a commitment to sustainability and to dealing responsibly with social issues. In addition to the qualifications required of all directors, Mr. Liu conducts interviews of potential director candidates to assess intangible qualities including the individual’s ability to ask difficult questions and, simultaneously, to work collegially.