Financial Performance - Total interest income decreased by 10.9% to RMB51.5 million (US$7.4 million) in the first six months of 2023, down from RMB57.8 million in the same period of the prior year[2] - Net profit for the first six months of 2023 was RMB30.5 million (US$4.4 million), a decrease of 49.3% from RMB60.2 million in the same period of the prior year[2] - Earnings per American Depositary Share (ADS) was US$0.34 in the first six months of 2023, compared to US$0.99 in the same period of the prior year[2] - Profit before income taxes decreased from RMB 60,169 million in the first half of 2022 to RMB 30,463 million in the first half of 2023, a decline of about 49.3%[21] - Operating profit before working capital changes decreased from RMB 45,264 million to RMB 38,249 million, a drop of approximately 15.5%[21] Loan and Receivables - Total outstanding principal balance of loans was RMB753.0 million (US$103.8 million), unchanged from December 31, 2022[2] - Loans receivable, net of credit impairment losses, increased by 8.1% to RMB601.3 million (US$82.9 million) as of June 30, 2023, from RMB556.1 million as of December 31, 2022[2] - Loans receivable increased from RMB 556,112 million to RMB 601,346 million, reflecting a growth of approximately 8.1%[20] Credit and Impairment - Credit impairment losses amounted to RMB6.3 million (US$0.9 million) for the first six months of 2023, reflecting challenges in the economic environment for SMEs[7] Operating Expenses and Cash Flow - Operating expenses increased to RMB4.2 million (US$0.6 million) for the first six months of 2023, up from RMB3.9 million in the same period of the prior year[9] - Net cash used by operating activities for the first six months of 2023 was RMB164,000, compared to RMB29,000 in the same period of the prior year[13] - Net cash used in operating activities increased from RMB (29) million to RMB (164) million, indicating a worsening cash flow situation[21] Assets and Liabilities - Total assets increased from RMB 600,269 million as of December 31, 2022, to RMB 644,288 million as of June 30, 2023, representing a growth of approximately 7.3%[20] - Current assets rose from RMB 561,036 million to RMB 606,530 million, an increase of about 8.1%[20] - Total liabilities increased from RMB 312,111 million to RMB 324,022 million, a rise of about 3.8%[20] - Shareholders' equity grew from RMB 288,158 million to RMB 320,266 million, marking an increase of approximately 11.1%[20] Cash and Restricted Cash - Cash and restricted cash as of June 30, 2023, was RMB289,000 (US$40,000), slightly down from RMB295,000 as of December 31, 2022[11] - Cash and restricted cash at the end of the period increased from RMB 197 million to RMB 289 million, reflecting a growth of approximately 46.6%[21] Loans Payable - Loans payable to third parties, related parties, and shareholders amounted to RMB161.4 million (US$22.3 million), all overdue as of June 30, 2023[12] Interest Payable - The company reported an increase in interest payable from RMB 72,810 million to RMB 81,797 million, an increase of about 12.8%[20]

Operational Risks - The company faces significant risks related to its operations in China, including potential changes in government policies that could adversely affect its business and financial condition[31]. - The company is subject to extensive regulation and supervision by government authorities, which may impact its microfinance business operations[35]. - The company may face delisting of its American Depositary Shares (ADSs) if the Public Company Accounting Oversight Board (PCAOB) cannot inspect auditors located in China[31]. - The PRC government exercises substantial control over economic activities, which may adversely affect the company's operations and financial condition[45]. - The Foreign Investment Law introduces uncertainty regarding the recognition of VIE structures as foreign investment, which could impact business operations if deemed illegal[44]. - The company may encounter difficulties in protecting shareholder interests due to operational complexities in China and the location of its management[55]. - The recognition and enforcement of foreign judgments in China remain uncertain, which could complicate legal actions against the company[56]. - Adverse changes in PRC government policies could negatively impact overall economic growth, affecting the company's business operations[62]. - The company may face challenges in transferring funds to its PRC subsidiary due to regulatory limitations on foreign-invested enterprises, which could negatively impact liquidity and business expansion[66]. - Recent regulations from SAFE may limit the company's ability to effectively use proceeds from future financing activities, adversely affecting liquidity and business funding in the PRC[68]. - The PRC government has increased oversight on overseas offerings, which could hinder the company's ability to offer securities and may lead to a decline in their value[71]. - The CSRC has implemented new filing requirements for PRC domestic companies seeking to list securities overseas, which may affect the company's future offerings[75]. - The company may be classified as an Existing Listed Enterprise, subjecting it to new filing requirements that could complicate future securities offerings[80]. - Cybersecurity reviews are now required for online platform operators with over one million users before public listings, introducing additional regulatory hurdles for the company[81]. - The company must comply with confidentiality regulations when disclosing sensitive information during overseas offerings, which may complicate compliance efforts[82]. - Failure to obtain necessary regulatory approvals in a timely manner could result in sanctions, fines, or operational restrictions, adversely affecting the company's operations and investor interests[83]. - The approval from the CSRC or other PRC governmental authorities may be required for offerings, and the timeline for obtaining such approval is uncertain, which could lead to sanctions affecting the company's operations in China[84]. - The M&A Rules impose complex procedures for foreign investors, potentially making growth through acquisitions more difficult and time-consuming[87]. Financial Condition - The company has experienced severe liquidity issues due to difficulties in collecting loan payments, which have negatively impacted its ability to pay taxes and service providers[31]. - The company has limited cash reserves and requires additional capital, which may lead to dilution or significant debt obligations if not obtained on favorable terms[35]. - The company's independent auditors have expressed substantial doubt about its ability to continue as a going concern, indicating potential financial instability[35]. - The company has experienced an increase in delinquency rates on loans since 2019, materially affecting its business and operational results[31]. - The company incurred a net loss of RMB128.1 million (US$20.1 million) in 2021 and RMB30.3 million (US$4.5 million) in 2022[151]. - As of December 31, 2022, the company had cash balances totaling RMB295,000 (US$43,000), a decrease from RMB396,000 (US$62,000) as of December 31, 2021[156]. - The company provided credit loss allowances of RMB640.3 million (US$92.8 million) as of December 31, 2022, representing 53.5% of outstanding loans[164]. - The company has faced severe liquidity issues, leading to defaults on loans payable since early 2019[157]. - The company has not been able to pay employees on regularly scheduled payment dates due to severe financial constraints[144]. - The company has defaulted on loan repayments since 2019, leading to a cessation of financing options from securities exchanges, adversely affecting liquidity and operations[169]. Market and Economic Conditions - The Chinese economy's GDP growth was 3% in 2022, indicating a slowdown compared to previous years[61]. - China is liberalizing interest rates and deposit rates, which may increase competition and narrow the interest rate spread for loan products, potentially adversely affecting the company's business operations[14]. - Future inflation in China could lead to government actions that restrict credit availability, which may inhibit economic activity and adversely affect the company's operations[64]. - Changes in interest rates could negatively impact the company's revenues and financial condition due to reliance on net interest income[175]. - The company lacks product and business diversification, making future revenues and earnings more susceptible to fluctuations[178]. - Approximately 100% of the company's revenue was generated from operations in Wuhan City in 2022, limiting diversification and increasing exposure to local economic conditions[177]. - The company's operations are currently limited to Hubei Province, lacking diversification in products and business[35]. - The company does not foresee paying cash dividends in the foreseeable future, with investors relying on capital appreciation for returns[188]. - The company faces intense competition in the microfinance industry, with larger competitors potentially impacting market share and revenues[180]. Regulatory and Compliance Issues - The company relies on contractual arrangements with a Variable Interest Entity (VIE) for its operations, which may not provide the same level of control as direct ownership[36]. - The VIE Agreements have not been tested in a court of law, leading to uncertainties in enforceability[205]. - The PRC tax authorities may challenge the payment arrangements under the VIE Agreements, potentially resulting in higher tax liabilities[208]. - The company's PRC subsidiary is required to set aside at least 10% of its after-tax profits each year to fund a statutory reserve until it reaches 50% of its registered capital, limiting available cash for dividends[96]. - The company may face penalties for non-compliance with labor-related laws due to late payment of wages[144]. - The company may face scrutiny and negative publicity similar to other U.S.-listed Chinese companies, which could impact its reputation and stock price[112]. - Regulatory authorities in China may impose additional burdens on companies regarding data security and cybersecurity reviews for overseas listings[107]. - The company is monitoring regulatory developments regarding necessary approvals for overseas listings, with significant uncertainty remaining[110]. - The Holding Foreign Companies Accountable Act may lead to the delisting of the company's ADSs if PCAOB cannot inspect auditors in China[114]. - The SEC has implemented amendments to the HFCA Act, reducing the inspection period for auditors from three years to two years, increasing delisting risks[119]. Corporate Governance - The company's articles of association contain anti-takeover provisions that may adversely affect shareholders' rights and opportunities to sell shares at a premium[218]. - The board of directors has the authority to issue preferred shares, which could delay or prevent a change in control and adversely affect the rights of ordinary shareholders[218]. - Dunxin is incorporated under Cayman Islands law, which may limit shareholders' ability to protect their rights through U.S. federal courts[219]. - The rights of shareholders and fiduciary responsibilities of directors under Cayman Islands law are less clearly established compared to U.S. jurisdictions[219]. - There is uncertainty regarding the recognition and enforcement of U.S. court judgments in the Cayman Islands[220]. - Public shareholders may face more difficulties in protecting their interests compared to those in U.S. incorporated companies[221]. - The Cayman Islands do not have statutory recognition of U.S. judgments, although some non-penal judgments may be recognized under certain circumstances[220]. - The company may not have standing to initiate a shareholder derivative action in a U.S. federal court[219]. - The Cayman Islands have a less developed body of securities laws compared to the United States[219].

Financial Performance - Total interest income for the first six months of 2022 was RMB57.8 million (US$8.9 million), representing a decrease of 30.0% from RMB82.6 million in the same period of the prior year[2] - Net interest income fell by 34.5% to RMB47.7 million (US$7.3 million) in the first six months of 2022, down from RMB72.8 million in the same period of the prior year[5] - Net profit for the first six months of 2022 was RMB60.2 million (US$9.3 million), a decrease of 14.9% from RMB70.7 million in the same period of the prior year[10] - Earnings per American Depositary Share (ADS) was US$0.35 in the first six months of 2022, compared to US$0.52 in the same period of the prior year[10] - Operating profit before working capital changes was RMB 45,264,000, down from RMB 71,772,000, a decline of 37.0%[26] Loan and Asset Management - Total outstanding principal balance of loans decreased to RMB753.6 million (US$112.5 million) as of June 30, 2022, a decline of 0.1% from RMB754.4 million as of December 31, 2021[2] - Loans receivable, net of credit impairment losses, increased by 13.2% to RMB628.6 million (US$93.8 million) as of June 30, 2022, compared to RMB555.1 million as of December 31, 2021[2] - Loans receivable increased to RMB 628,608,000 from RMB 555,133,000, a rise of 13.2%[23] Cash and Liquidity - As of June 30, 2022, cash and restricted cash amounted to RMB197,000 (US$29,000), a decrease from RMB396,000 as of December 31, 2021[11] - Net cash used by operating activities for the first six months of 2022 was RMB29,000, compared to RMB1,000 in the same period of the prior year, indicating limited liquidity[13] - Cash and restricted cash at the end of the period was RMB 197,000, compared to RMB 396,000 at the beginning, showing a decrease of 50.3%[26] Expenses and Impairment - The company reversed credit impairment losses to RMB16.4 million for the first six months of 2022, primarily due to the revaluation of the present value of interest receivable[7] - Operating expenses increased to RMB3.9 million (US$0.6 million) for the first six months of 2022, up from RMB2.5 million in the same period of the prior year[9] Overall Growth and Equity - Total current assets rose to RMB 629,811,000, up from RMB 556,377,000, reflecting a 13.1% increase[23] - Total assets increased to RMB 670,519,000, compared to RMB 598,562,000, marking a 12.0% growth[24] - Total comprehensive income for the period was RMB 70,689,000, up from RMB 59,999,000, indicating an 18.3% increase[22] - Total liabilities increased to RMB 292,217,000 from RMB 280,259,000, reflecting a 4.0% increase[24] - Non-controlling interests in equity rose to RMB 75,661,000 from RMB 63,661,000, a growth of 18.8%[24] Earnings Per Share - Earnings per share (basic and diluted) increased to RMB 0.07 from RMB 0.05, representing a 40% growth[22]

Corporate Structure and Operations - The company completed a divestiture and acquisition on December 28, 2017, divesting Xiniya Holdings Limited for RMB 228 million (US$ 34.59 million) and acquiring True Silver for the same amount, along with the issuance of 772,283,308 ordinary shares at RMB 1.00 (US$ 0.15) per share [240]. - True Silver operates under a VIE structure, consolidating 80% of the financial results of Chutian, the company's microfinance lending business in Hubei Province, China [241]. - The VIE, Hubei Chutian Microfinance Co., Ltd., is the primary revenue generator for the company, and any deconsolidation of the VIE could materially affect operations and the value of securities [252]. - The company operates through a series of contractual arrangements with Chutian, which may not be as effective as direct ownership, posing risks to control over the VIE [252]. - The company has maintained cash management policies that dictate the purpose, amount, and procedure of cash transfers among itself, the VIE, and non-VIE subsidiaries [263]. - The company primarily engaged in providing loan facilities to micro-sized enterprises, SMEs, sole proprietors, and individuals in Hubei province, China [359]. - The company operates through a VIE structure, consolidating 80% of the financial results of Chutian, which holds all requisite licenses for microfinance lending [358]. Financial Performance - Total interest income on loans for the year ended December 31, 2021, was $20,627, while total interest expense was $(21,826), resulting in a net interest loss of $(1,199) [255]. - Credit impairment losses amounted to $(119,078) for the year ended December 31, 2021, leading to a net interest loss after impairment of $(120,277) [255]. - Non-interest and other income was $387 for the year ended December 31, 2021, while total operating costs and expenses were $(8,182), resulting in a net loss of $(128,072) [255]. - For the year ended December 31, 2020, interest income on loans was $105,570, with a net interest income after impairment of $28,093 [256]. - The company’s results are influenced by China's economic conditions, regulatory changes, and the complexity of the non-banking financial industry [361]. - Interest income on loans decreased by RMB85.0 million ($13.2 million) or 80.5% from RMB105.6 million in 2020 to RMB20.6 million ($3.2 million) in 2021, primarily due to the suspension of new loans since the second half of 2019 [392]. - Credit impairment losses increased significantly by RMB63.8 million ($10.0 million) or 115.5% from RMB55.3 million ($8.6 million) in 2020 to RMB119.1 million ($18.7 million) in 2021, reflecting the challenging economic environment for SMEs [396]. - Net profit decreased to RMB(128.1) million ($19.9 million) in 2021 from RMB19.9 million ($3.1 million) in 2020, indicating a substantial loss attributable to increased credit impairment losses [391]. Regulatory Environment - As of the date of the annual report, the company and its subsidiaries have received all necessary licenses and approvals to conduct business in China, with long-term validity for all permissions held [248]. - The company has not received any regulatory objections regarding securities offerings in the United States, but there remains uncertainty about future regulatory requirements that could impact operations [250]. - The PRC Measures for the Security Review of Foreign Investment require foreign investors acquiring PRC companies in military-related industries to undergo a security review before the acquisition [290]. - The CSRC has not issued any inquiries or sanctions regarding offshore offerings as of the date of the annual report [291]. - Companies with personal data of over 1 million users must apply for cybersecurity approval when seeking listings abroad due to national security risks [293]. - The Draft Rules Regarding Overseas Listing may impose additional compliance requirements for companies seeking to list overseas [296]. - The establishment of new online microfinance companies has been suspended as per the regulatory notice issued on November 21, 2017 [304]. - Non-compliance with regulatory requirements may result in penalties, including warnings, restrictions on operations, or revocation of operating permits [321]. Market Conditions and Strategy - The company suspended offering loans in the second half of 2019 due to severe financial restraints and is exploring new opportunities based on metaverse-related technologies [269]. - The company intends to improve its cash position by collecting existing loan and interest receivables while exploring new business opportunities in various sectors, including medical health and blockchain [278]. - SMEs account for over 99% of China's total enterprises and nearly 60% of the GDP, highlighting the significant demand for financing in this sector [270]. - The number of microfinance lending companies in Hubei Province decreased from 275 in September 2019 to 246 by December 2021, indicating a consolidation in the industry [287]. Corporate Governance and Management - The board of directors underwent changes with the resignation of two directors and the appointment of two new directors in April 2021, followed by another resignation and appointment in August 2021 [434][435]. - Ricky Qizhi Wei has served as the Chairman and CEO since December 2017, focusing on the development of China's micro-credit industry [437]. - The company was recognized as one of the "Top 100 Most Competitive Micro-credit Companies in China" for three consecutive years, emphasizing its commitment to customer-friendly services [438]. Financial Management and Liquidity - The company experienced severe liquidity issues, exacerbated by COVID-19, affecting its ability to meet obligations [414]. - The company's total debt obligations amounted to RMB 161,569,000, all due within one year, with a weighted average annual interest rate of 12.7% [432]. - The company plans to actively seek equity financing from private placements to meet its liabilities and continue operations [415]. - The provision for loan losses is a noncash item that reflects management's assessment of future loan loss risks, impacting financial condition and results of operations [362].

Business Transition and Operations - Dunxin Financial Holdings Limited transitioned from an apparel business to a microfinance lending business following the acquisition of True Silver for RMB228 million ($34.6 million) and the issuance of 772 million ordinary shares[176]. - The company operates its microfinance lending business through Chutian, which consolidates 80% of its financial results due to a VIE structure[179]. - The company transitioned from an apparel business to a microfinance lending business in Hubei Province following the CIB Transaction[252]. - The company primarily provides short-term loans to micro-sized enterprises, SMEs, sole proprietors, and individuals in Hubei Province[253]. - The company aims to restore operations and expand by recovering existing loan receivables and increasing lending capacity through diversified institutional funding sources[197]. Financial Performance - As of December 31, 2020, all outstanding loans amounting to RMB763 million ($116.5 million) were in default, leading to a suspension of new loans since 2019[192]. - Interest income on loans decreased by RMB12.8 million ($1.9 million) or 10.8% from RMB118.4 million in 2019 to RMB105.6 million ($15.3 million) in 2020, primarily due to the suspension of new loans since the second half of 2019[281]. - Net interest income after provision for loan losses was RMB28.1 million ($4.1 million) in 2020, a decrease from RMB73.4 million in 2019[279]. - Credit impairment losses increased to RMB55.3 million ($8.0 million) in 2020 from RMB24.7 million in 2019, indicating a significant rise in credit risk[279]. - Net profit attributable to equity holders of the Company was RMB15.9 million ($2.3 million) in 2020, compared to RMB46.9 million in 2019[279]. Market Opportunity and Competition - SMEs account for over 48% of China's total enterprises and nearly 60% of the GDP, indicating a significant market opportunity for microfinance lending[189]. - The company is facing increasing competition in the microfinance industry, with 273 registered microfinance companies in Hubei Province as of December 31, 2020[206]. Regulatory Environment - The microfinance industry in China is primarily regulated at the provincial level, with specific regulations established for Hubei Province[209]. - The registered and paid-up capital for a microfinance company must be at least RMB30 million ($4.4 million) for limited liability companies and RMB50 million ($7.3 million) for joint stock companies[222]. - Microfinance companies must establish a corporate governance structure in compliance with the Company Law, ensuring effective internal controls and audit systems[226]. Loan Products and Terms - Typical loan sizes are around RMB4 million ($0.6 million) for individuals and RMB7 million ($1.1 million) for companies, with terms generally due within 12 months[192]. - The company offers various loan products, including consumer loans ranging from RMB10,000 ($1,440) to RMB100,000 ($14,402) and enterprise loans from RMB3 million ($436,000) to RMB7 million ($1.0 million)[193][196]. - The application process for microfinance loans is generally easier and faster compared to traditional bank loans, although fees and interest rates are typically higher[190]. Operational Challenges - The company's operations and financial results have been adversely affected by the COVID-19 epidemic, leading to defaults on loan receivables[254]. - Cash balances totaled RMB97,000 ($15,000) as of December 31, 2020, reflecting ongoing liquidity challenges[308]. - Net cash used in operating activities for the year ended December 31, 2020 was RMB626,000 ($91,000), primarily due to credit impairment losses and non-payment of interest[309]. Corporate Governance and Management - The company maintains a nominating and corporate governance committee to identify qualified individuals for board positions and ensure compliance with corporate governance laws[339]. - The audit committee oversees the financial reporting processes and is responsible for appointing independent auditors and reviewing related party transactions[336]. - The compensation committee is responsible for approving and overseeing the compensation package for executive officers, including performance evaluations and recommendations for long-term incentive compensation[337]. Employee and Shareholder Information - As of December 31, 2020, the company employed 11 full-time employees, a decrease from 34 employees in 2018[202]. - The beneficial ownership of the company is concentrated, with Mr. Ricky Qizhi Wei owning approximately 81.3% of the outstanding ordinary shares[351]. - As of April 20, 2021, the company had 1,002,201,016 ordinary shares issued and outstanding, with Deutsche Bank Trust Company Americas holding approximately 18.5% of the total[352]. Legal and Financial Obligations - Legal proceedings related to loans and contracts are ongoing, but the company believes these will not materially affect its financial position[375]. - Loans payable to related parties included RMB60.0 million borrowed at a 9% interest rate, with overdue interest expenses of RMB4.7 million in both 2019 and 2020[357]. - The company plans to actively seek equity financing from private placements to meet its liabilities and continue operations[303].

20-F 1 dxf_20f.htm FORM 20-F UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F ☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITI ...

Financial Data and Key Metrics Changes - The company's loan interest income increased from approximately RMB 120 million in 2017 to about RMB 142 million in 2018, achieving a growth rate of 18.6% [8][17] - Net profit decreased by RMB 20.6 million or 71.5% from RMB 29 million in 2017 to RMB 8.2 million in 2018, primarily due to significant increases in credit impairment losses [21] Business Line Data and Key Metrics Changes - Interest income on loans rose by RMB 23.3 million or 18.6%, attributed to an increase in effective interest rate from 20.4% in 2017 to 24.3% in 2018 [17] - Interest expenses on loans decreased by RMB 7.3 million or 21.6% from RMB 33.8 million in 2017 to RMB 26.5 million in 2018, due to a decrease in effective interest rate on borrowings from 15.9% to 11.8% [18] Market Data and Key Metrics Changes - The road transportation industry in China reached a market size of about RMB 5 trillion, with most participants being small and medium enterprises [10] Company Strategy and Development Direction - The company is transitioning from traditional micro-lending to supply chain financial services, focusing on the logistics industry [10][12] - Plans to expand nationwide through independent operations, partnerships, or potential acquisitions while developing various financial products in the supply chain industry [12][13] Management Comments on Operating Environment and Future Outlook - The management noted that the Chinese economy is facing downward pressure, with GDP growth slowing and SMEs experiencing significant challenges [7] - The company aims to leverage its leadership in the regional market to strengthen its market position and expand its presence by offering differentiated products and services [13] Other Important Information - The company adopted IFRS 9, resulting in a credit impairment loss of RMB 234 million as of December 31, 2017, which was adjusted to the opening balance of January 1, 2018 [16] Q&A Session Summary - The Q&A session was not detailed in the provided content, and no specific questions or answers were recorded [22][23]

Financial Performance - Interest income on loans increased from RMB 104.9 million in 2016 to RMB 141.9 million in 2018, representing a growth of 35.3%[48] - Net profit decreased significantly from RMB 41.9 million in 2016 to RMB 8.2 million in 2018, a decline of 80.4%[36] - Total assets grew from RMB 802.8 million in 2016 to RMB 641.8 million in 2018, a decrease of 20%[38] - Total current liabilities increased from RMB 223.1 million in 2016 to RMB 274.7 million in 2018, an increase of 23%[38] - The company reported a net interest income after provision for loan losses of RMB 47.9 million in 2018, down from RMB 81.6 million in 2017, a decline of 41.3%[36] - Cash and cash equivalents decreased from RMB 96.8 million in 2016 to RMB 3.2 million in 2018, a decline of 96.7%[38] Internal Control and Compliance - The company identified material weaknesses in internal control over financial reporting as of December 31, 2018, which could lead to additional material misstatements[45] - The company is in the process of developing a remediation plan to address identified material weaknesses in internal controls[46] - The company identified material weaknesses in its internal control over financial reporting as of December 31, 2018, which could negatively impact investor confidence and the trading price of its ADSs[100] - The company may incur considerable costs to comply with Section 404 of the Sarbanes-Oxley Act, impacting its financial resources and management time[100] Market and Economic Risks - The company relies heavily on loans to customers in Wuhan City, and failure to maintain or increase lending may adversely affect results[52] - Approximately 96% to 99% of the company’s revenue comes from Wuhan City, indicating limited diversification of economic risks[77] - The company is subject to greater credit risks due to lending primarily to small and medium-sized enterprises and individuals with fewer financial resources[76] - The company’s operations are limited to Hubei Province, which may restrict growth opportunities and expose it to local economic downturns[71] - China's GDP growth was reported at 6.6% in 2018, indicating a slowdown compared to previous years, which may adversely affect the company's business and financial condition[123] - Future inflation in China may lead to government controls on credit and prices, which could inhibit economic activity and adversely affect business operations[143] Regulatory Environment - The company has not strictly adhered to the principle of "small sum and decentralization," which may lead to regulatory scrutiny[70] - The company faces growing competition in the microfinance industry, which could impact market share and revenues[83] - The company faces risks related to the enforceability of VIE Agreements under PRC law, which could lead to significant operational and financial challenges[106] - The complexity and uncertainties in PRC regulations regarding microfinance operations may adversely affect business activities and growth, potentially leading to sanctions or monetary penalties[136] - The Foreign Investment Law of the People's Republic of China will replace three major foreign investment laws effective January 1, 2020, aiming to protect foreign investors' rights and interests[131] - The approval of the CSRC may be required for initial public offerings, and failure to obtain such approval could materially affect business operations and reputation[152] - The M&A Rules set forth complex procedures for acquisitions by foreign investors, potentially complicating growth through acquisitions[156] - Regulatory changes may limit the ability to effectively use proceeds from financing activities, adversely affecting liquidity and business expansion[148] Financial Structure and Capital Needs - The company may require additional capital to support expansion, which could result in dilution or significant debt service obligations[49] - As of December 31, 2018, the company provided credit loss allowances of RMB397.3 million ($57.8 million), representing 40.7% of outstanding loans[61] - The delinquent loans subject to 100% loan loss allowance were RMB46.3 million ($6.7 million) as of December 31, 2018[61] - The company may require additional cash resources for growth or future developments, which could lead to dilution of existing shareholders if additional equity is sold[185] - The ability to obtain additional capital is subject to uncertainties, including market conditions and regulatory environments in China[186] - If the company fails to raise additional funds, it may need to reduce growth to a level supported by cash flow[187] Shareholder and Market Considerations - The market price of the company's ADSs has been highly volatile, influenced by various factors including business changes and regulatory scrutiny[181] - Negative perceptions regarding corporate governance in Chinese companies may affect investor attitudes towards the company[182] - Future changes in regulations could restrict the ability to remit profits out of China, impacting liquidity and dividend distribution[165] - The company is subject to delisting from the NYSE American if it fails to comply with continued listing standards, which could significantly affect trading price and liquidity[190] - The articles of association contain anti-takeover provisions that could adversely affect shareholders' rights and the market price of ADSs[195] - The depositary for the company's ADSs may give discretionary proxies to vote ordinary shares if shareholders do not vote, potentially limiting shareholder influence[206] - The company may not be able to make distributions available to ADS holders if it is illegal or impractical, which could lead to a decline in the value of ADSs[209] Business Operations - Dunxin Financial Holdings Limited transitioned from an apparel business to a microfinance lending business following the acquisition of True Silver for RMB228 million ($34.59 million) and the issuance of 772,283,308 ordinary shares[216] - The company operates its microfinance lending business through Chutian, which consolidates 80% of its financial results under a VIE structure[220] - Dunxin Financial primarily provides short-term loans to micro, small, and medium-sized enterprises and sole proprietors in Hubei Province, China[228] - The company focuses on maintaining short-term loan facilities that are small in size and plans to diversify its customer base across multiple industries[229] - Chutian is authorized to operate a microfinance business and provide loans to individuals and businesses in Hubei Province, supported by requisite licenses[228] - The company generates virtually all of its revenues through VIE Agreements with Chutian[228] - The Exclusive Consigned Management Service Agreement allows Chutian Holding to collect service fees equal to 80% of Chutian's net operating income[222] - The Shareholders' Voting Proxy Agreement grants Chutian Holding the right to exercise voting rights on behalf of shareholders holding 80% equity interests in Chutian[224] - The Share Pledge Agreement secures the performance of Chutian's obligations under the main agreements, ensuring continuous guarantee until obligations are fulfilled[225]