| BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Financial Statement Preparation and Presentation The accompanying consolidated financial statements
have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”)
and generally accepted accounting principles in the United States (“U.S. GAAP”). As mentioned in Note 4, the Company is winding
down its commercial vehicle sales, leasing and support business and its insurance agency business and therefore has classified
them as discontinued operations. The results of discontinued operations have been reflected separately in the consolidated statements
of operations as a single line item for all periods presented in accordance with U.S. GAAP. In October 2016, the Company acquired 100% of
the equity interest of Eastern Eagle and its subsidiaries from Smart Success. For all periods presented, the Company, Smart Success,
and Eastern Eagle and its subsidiaries were all under the control of Mr. Li, this transaction was accounted for as a combination
of commonly controlled entities and accounted for as if the acquisition had been consummated at the beginning of the earliest period
presented, with no gain or loss being recognized. The acquired assets and liabilities of Eastern Eagle and its subsidiaries were
recorded at carrying value. The consolidated and combined financial statements for all periods presented are retrospectively adjusted
to reflect the acquisition under common control of Eastern Eagle and its subsidiaries. Principles of Consolidation The consolidated financial statements include
the financial statements of the Company, its subsidiaries and VIEs. All significant inter-company balances and transactions have
been eliminated in consolidation. Reclassification The Company has reclassified certain comparative
amounts in the consolidated statements of operations for the year ended December 31, 2017 to conform to the current year’s
presentation. The principal reclassifications are related to the provision for CeraVest loan products held by the investors being
reclassified from the selling and marketing to marketing expense which is categorized separately on the income statement. The reclassification
did not have an impact on the reported total assets, liabilities, stockholders’ equity and net income. Use of Estimates The preparation of financial statements in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues
and expenses during the periods presented. The most significant estimates and related assumptions include the assessment of the
provision for credit losses and accrued marketing expenses, the assessment of the impairment of tangible long-lived assets, and
the assessment of the valuation allowance on deferred tax assets and uncertain tax position. Actual results could differ from these
estimates. Cash and Cash Equivalents For purposes of the consolidated statements
of cash flows, cash equivalents include all highly liquid debt instruments with original maturities of three months or less which
are not securing any corporate obligations. As of December 31, 2018 and 2017, the majority of cash, including restricted cash,
was in RMB on deposit in PRC financial institutions, which the management believes are of high credit quality. Restricted Cash As of December 31, 2018 and 2017, the restricted
cash was RMB714 and RMB127,762, respectively. After the Company entered into an agreement with XWBank and implemented the custodian
system on March 20, 2018, the uninvested cash balances in CeraVest customer accounts were no longer deposited in the Company’s
bank account. Therefore, the restricted cash as of as of December 31, 2018 were mainly fixed-term bank deposits. Loans, net Loans, net primarily represent loans to CeraVest
borrowers and loans to other borrowers, and related interest receivable, net of provision for credit losses that reflects the Company’s
best estimate of the amounts that will not be collected. Other financing Receivables Other financing receivables represent financing
transactions with CeraPay borrowers that would not be facilitated for funding by CeraVest investors. Provision for Credit Losses The allowance for credit losses, which includes
the allowance for loans, long-term loans, net and other financing receivables represents management’s estimate of probable
losses inherent in the Company’s internet-based and other business. The Company determines to collectively assess provision
for credit losses based on homogeneous risk characteristics, combined with targeted analysis on certain large individual balances.
The allowance attributed to these loans, long-term loans, net and other financing receivables is established via a process that
estimates the probable losses inherent in the specific portfolio. For the loans and other financing receivables with similar risk
characteristics and small outstanding balance, this process includes migration analysis in which historical delinquency and credit
loss experience is applied to the current aging of the portfolio. For loans with significant outstanding balance,
the Company would apply impairment testing individually. Such loan is impaired when, based on current information and events, it
is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.
Impairment measurement is based on a combination of considerations including 1) the present value of expected future cash flows
discounted at the loan’s effective interest rate and 2) the fair value of the collateral, if any. The Company performs periodic and systematic
detailed reviews of its loans and other financing receivables, to identify credit risks and to assess the overall collectability
of those portfolios, and may adjust its estimates on allowance of credit losses when new circumstances arise. Marketing expenses Marketing expense, provided for the off-balance
sheet loans which are held by third-party investors, represents management’s estimate of promotional cost for providing guarantee
to the investors inherent in the Company’s internet-based business. In consideration of the same homogeneous risk characteristics,
it shares the same estimation methodology as that used in “Provision for credit loss”. Reversal of the marketing expense
occurs upon the underlying investments are ultimately collected by the Company, which was a result of successfully transferring
those non-performing loans to third-parties buyers, after the Company first purchases the loans from the initial investors. Concentration of Credit Risk Financial instruments that potentially subject
the Company to concentration of credit risk consist principally of loans and other financing receivables. Credit risk concentration
with respect to these instruments is reduced because a large number of diverse customers over a wide geographic area make up the
Company’s customer base. Product Development Expense Our product development expense includes the
costs associated with the engineering and technical headcount responsible for product development, as well as their associated
costs. It includes labor and facilities-related costs for employees responsible for research and development of our existing and
new products and services, as well as depreciation and equipment-related expenses. Property, Equipment and Leasehold Improvements,
net Property and equipment are recorded at cost
and depreciated using the straight-line method over their estimated useful lives. All depreciation is included in operating expenses
on the accompanying consolidated statements of operations. Leasehold improvements are capitalized and amortized over the lesser
of the life of the lease or the useful life of the related asset. The estimated useful lives of property, equipment
and leasehold improvements are as follows:
Useful life
Buildings 40 years
Equipment 5 - 10 years
Furniture and fixtures 5 - 10 years
Company automobiles 3 - 5 years
Leasehold improvements Shorter of the remaining lease terms and estimated useful lives Except for the leasehold improvements, all other
assets are deemed to have a residual value of 5%. Expenditures for major additions or improvements
that extend the useful lives of assets are capitalized. Minor replacements, maintenance and repairs that do not improve or extend
the lives of such assets are expensed as incurred. The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable.
When these events occur, the Company assesses the recoverability of the long-lived assets by comparing the carrying value of the
long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual
disposition where the fair value is lower than the carrying value, measurement of an impairment loss is recognized in the consolidated
statements of operations for the difference between the fair value, using the expected future discounted cash flows, and the carrying
value of the assets. No impairment of long-lived assets was recognized for the periods presented. Fair Value of Financial Instruments Financial instruments consist primarily of cash
and cash equivalents, restricted cash, loans, other financing receivables, short-term bank borrowings, financing payables, related
parties and long-term bank borrowings. The carrying amounts of the short-term financial instruments at December 31, 2018 and 2017
approximated their fair values because of their short maturities or existence of variable interest rates, which reflect current
market rates. For long-term financial instruments, the carrying amount approximates its fair value since the interest rates applied
to determine the carrying amount is close to the market interest rates for similar types of long-term instruments. When available,
the Company measures the fair value of financial instruments based on quoted market prices in active markets, valuation techniques
that use observable market-based inputs or unobservable inputs that are corroborated by market data. Pricing information that the
Company obtains from third parties is internally validated for reasonableness prior to use in the consolidated financial statements.
When observable market prices are not readily available, the Company generally estimates fair value using valuation techniques
that rely on alternate market data or inputs that are generally less readily observable from objective sources and are estimated
based on pertinent information available at the time of the applicable reporting periods. In certain cases, fair values are not
subject to precise quantification or verification and may fluctuate as economic and market factors vary and the Company’s
evaluation of those factors changes. Although the Company uses its best judgment in estimating the fair value of these financial
instruments, there are inherent limitations in any estimation technique. In these cases, a minor change in an assumption could
result in a significant change in its estimate of fair value, thereby increasing or decreasing the amounts of the Company’s
consolidated assets, liabilities, equity and net income or loss. A financial instrument’s categorization
within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three
levels of inputs are used to measure fair value: Level 1 applies to assets or liabilities for
which there are quoted prices in active markets for identical assets or liabilities. Level 2 applies to assets or liabilities for
which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as
quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs
are observable or can be derived principally from, or corroborated by, observable market data. Level 3 applies to assets or liabilities for
which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the
assets or liabilities. As of December 31, 2018 and 2017, there were
no assets or liabilities were measured and reported at fair value on a recurring basis. Commitments and Contingencies In the normal course of business, the Company
is subject to contingencies, including legal proceedings and claims arising out of the business that relate to a wide range of
matters. The Company recognizes a liability for such contingency if it determines it is probable that a loss has occurred and a
reasonable estimate of the loss can be made. The Company may consider many factors in making these assessments including historical
and the specific facts and circumstances of each matter. Revenue Recognition Management has adopted this standard effective
January 1, 2018 using the modified-retrospective approach, in which case the cumulative effect of applying the standard would be
recognized at the date of initial application. In accordance with ASC Topic 606, revenues are
recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects
the consideration the Company expects to be entitled to in exchange for those goods or services. In determining when and how much
revenue is recognized from contracts with customers, the Company performs the following five-step analysis: (1) identify the contract(s)
with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the
transaction price to the performance obligations in the contract; (5) recognize revenue when (or as) the entity satisfies a performance
obligation. The Company’s contracts with customers
do not include variable consideration, significant financing component, nor any clause concerning with returns, refunds or other
similar obligations. Currently, the Company recognizes revenue under ASC Topic 606 for each type of its performance obligation
either over time or at a point in time as follows: Facilitation Fee Facilitation fee represents fees which the Company
charges borrowers for matching their loan requests with investors on the CeraVest platform. These fees are charged by the
Company in return for services including evaluating the borrower’s credit, examining the loan application and provided information,
connecting investors to qualified borrowers, facilitating the execution of the loan between the parties through the CeraVest platform.
Facilitation fee is variable depending on the types of loan products. These fees are deducted upfront from borrowers, are recognized
at loans inception when facilitated successfully through CeraVest platform. Service Charges Service charges represent transaction fees charged
on merchants for the offline vehicle-related purchases, between registered consumers and merchants, completed solely under CeraPay,
in which the Company uses its self-owned capital to pay for the consumer and collect the repayment subsequently in full. Merchants
are entitled to receive the sales proceeds net of the service charge. These fees are recognized upon the completion of the purchase.
The Company does not have this revenue item to report beginning in the third quarter of 2018 due to the business transaction change
to 30-day and 12-month installment loans and loans being completely facilitated through CeraVest. Interest Income Interest income is generated from loans and
other financing receivables, recognized based on the effective interest rate method over the contract term. Company stops recognizing
the interest income for any subsequent periods upon when a loan is in default. Property lease and management Minimum contractual rental income related to
office leases are recognized on a straight-line basis over the terms of the respective leases. Straight-line rental revenue commences
when the tenant assumes control of the leased premises. In accordance with the Company’s standard lease terms, rental payments
are generally due on a monthly basis. Tenant recovery revenue includes payments from tenants as reimbursements for management fees
and utilities, etc., which are recognized when the related expenses are incurred. Rental from office lease and tenant recovery
revenue together is recorded as “Property lease and management.” Revenues related to the Hotel are primarily
related to rooms rentals, food and beverage sales, and are recognized on an accrual basis. For guest rooms, revenue is recognized
when the rooms are occupied and the services are performed. Food and beverage revenues are recognized when the services are performed
or products delivered to the customer. Deferred revenue consisting of deposits paid in advance is recognized as revenue when the
services are performed for hotels and restaurants. Hotel revenue is also recorded as “Property lease and management.” Other income Other income mainly includes penalty and late
fees, and gain from debt assignment. Penalty and late fees are charged to borrowers of loans and other financing receivables if
they become delinquent in repaying. These fees are recognized at a point of time when collected from borrowers. Gain from debt
assignment are the proceeds collected when a loan and all the associated rights and obligations is transferred from the Company
to a third party. These proceeds are collected upon sales contract is signed at which point it is recognized. Promotional cash
incentives are accounted for as reduction of revenue while the referral incentives are recorded as sales and marketing expense
when used by the investors. Below is the summary presenting the Company’s
revenues disaggregated by products and services and timing of revenue recognition:
Twelve Months Ended
December 31,
2018 2017
Facilitation Fee 658,686 231,709
Interest income 194,855 310,289
Service charges 19,396 201,386
Property lease and management 75,006 58,474
Hotel revenue 137,020 133,747
Debt assignment income 203,409 15,646
Other income 123,644 72,600
Total revenues 1,412,016 1,023,851
Twelve Months Ended
December 31,
2018 2017
Revenue recognized over time 269,861 368,763
Revenue recognized at a point in time 1,142,155 655,088
Total revenues 1,412,016 1,023,851 Contract Balances For the twelve months ended December 31, 2018,
the Company did not have any significant incremental costs of obtaining contracts with customers incurred and/or costs incurred
in fulfilling contracts with customers within the scope of ASC Topic 606, that shall be recognized as an asset and amortized to
expenses in a pattern that matches the timing of the revenue recognition of the related contract. Other than the interest receivables
of the 180-day loans held by the Company which are accrued by the Company but unbilled until the loans mature, amounted to RMB
9,256 as of December 31, 2018, the Company does not have any other contract assets (unbilled receivables) since revenue is recognized
when the performance obligation is fulfilled and the payment from customers is not contingent on a future event. Advances received from customers related to
unsatisfied performance obligations are recorded as contract liabilities (advance from customers), which will be recognized as
revenues upon the satisfaction of performance obligations through the transfer of related promised goods and services to customers. The Company’s contract liabilities consist
of advance from customers related to the deposits paid in advance for hotels accommodations and restaurants service, and rent paid
in advance for leasing office. All contract liabilities are recognized when the services are performed for hotels and restaurants.
Below is the summary presenting the movement of the Company’s contract liabilities for the twelve months ended December 31,
2018:
Advance from
Customers
RMB (’000)
Balance as of January 1, 2018 15,907
Revenue recognized from beginning contract liability balance (11,843)
Advances received from customers related to unsatisfied performance obligations 12,637
Balance as of December 31, 2018 16,701 Allocation to Remaining Performance Obligations The Company has elected to apply the practical
expedient in paragraph ASC Topic 606-10-50-14 and did not disclose the information related to transaction price allocated to the
performance obligations that are unsatisfied or partially unsatisfied as of December 31, 2018, because either the performance obligation
of the Company’s contracts with customers has an original expected duration of one year or less or the Company has a right
to consideration from a borrower or a customer in an amount that corresponds directly with the value to the borrower or the customer
of the Company’s performance completed to date, therefore the Company may recognize revenue in the amount to which the Company
has a right to invoice or collect. Advertising The Company expenses advertising costs as incurred.
Advertising expenses totaled approximately RMB9,337, RMB5,516 and RMB2,747 for the years ended December 31, 2018, 2017 and 2016,
respectively, and are included in selling and marketing expense in the accompanying consolidated statements of operations. Value added Tax and Business Tax In the PRC, before May 1st ,2018, value added
tax (the “VAT”) of 17% on invoice amount was collected in respect of the sales of goods on behalf of tax authorities.
After May 1st, 2018, the VAT has changed to 16%. The VAT collected is not revenue of the Company; instead, the amount is recorded
as a liability on the balance sheet until such VAT is paid to the authorities. Since May 2016, all entities that were originally
subject to a business tax are subject to VAT only under the National VAT Reform Program launched by the People's Congress of PRC.
For the tax rates applicable, those that were initially charged at 5% of business tax are now subject to a 6% VAT for a general
VAT payer, or 3% for a small-scale VAT payer, for the Company’s PRC subsidiaries’ revenue from the internet-based business,
rental income, hotel revenue, membership fee, interest from sales-type leases, management servicing fee, commission fee and revenues
from tires, fuel and insurance financing services. Income Taxes Income taxes are accounted for using an asset
and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates in the applicable tax jurisdiction expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Deferred income
tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. Realization of the
deferred tax asset is dependent on generating sufficient taxable income in future years. The Company recognizes interest on non-payment
of income taxes under requirement by tax law and penalties associated with tax positions when a tax position does not meet the
minimum statutory threshold to avoid payment of penalties. According to the PRC Tax Administration and Collection Law, the statute
of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding
agent. The statute of limitations is extended to five years under special circumstances, where the underpayment of taxes is more
than RMB 100,000. In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation
in the case of tax evasion. The tax returns of the Company’s PRC VIEs and subsidiaries are subject to examination by the
relevant tax authorities. The Company’s Chinese subsidiaries are
subject to taxation in the PRC. The PRC income tax returns are generally not subject to examination by the tax authorities for
tax years before 2012. With a few exceptions, the tax years 2012 to 2018 remain open to examination by tax authorities in the PRC. Uncertain tax positions The Company adopted the guidance on accounting
for uncertainties in income taxes, which prescribes a more likely than not threshold for financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. Guidance was also provided on de-recognition of income tax assets
and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties
associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures. Significant judgment
is required in evaluating the Company’s uncertain tax positions and determining its provision for income taxes. The Company has elected to classify interest
related to an uncertain tax position (if and when required) to interest expense, and classify penalties related to an uncertain
tax position (if and when required) as part of income tax expense in the consolidated statements of operations. For the years ended
December 31, 2018, 2017 and 2016, the Company did not have any significant interest and penalties associated with uncertain tax
positions. As of December 31, 2018 and 2017, the Company did not have any significant unrecognized uncertain tax positions and
the Company does not believe that its unrecognized tax benefits will change over the next twelve months. Segment Reporting Operating segments are defined as components
of an enterprise about which separate financial information is available that is evaluated regularly by the chief executive officer
(“CODM”), in deciding how to allocate resources and assessing performance. All of the Company’s sales are generated
in the PRC and substantially all of the Company’s assets are located in the PRC. The Company’s operations consist of
three reporting and operating segments, the internet-based business, property lease and management business and hotel business
(Note 18). Earnings (Loss) Per Share The Company computes earnings (loss) per share
(“EPS”) in accordance with generally accepted accounting principles. Companies with complex capital structures are
to present basic and diluted EPS. Basic EPS is measured as the income (loss) available to ordinary shareholders divided by the
weighted average ordinary shares outstanding for the period. For basic EPS, the weighted average number of shares outstanding for
the period includes contingently issuable shares (i.e., shares issuable for little or no cash consideration upon the satisfaction
of the conditions of a contingent stock agreement) as of the date that all necessary conditions have been met. Diluted earnings
per share reflect the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised
or converted into ordinary stock. Ordinary shares issuable upon the conversion of the convertible preferred shares are included
in the computation of diluted earnings per share on an “if-converted” basis when the impact is dilutive. The dilutive
effect of outstanding ordinary share warrants and options are reflected in the diluted earnings per share by application of the
treasury stock method when the impact is dilutive. Potential ordinary shares that have an anti-dilutive effect are excluded from
the calculation of diluted EPS. Basic and diluted earnings per share for each
of the periods presented are calculated as follows:
Year ended December 31,
2018 2017 2016
RMB RMB RMB
Net income/(loss) 274,801 (8,382 ) (12,270 )
Weighted average number of common shares outstanding – Basic 48,604,738 47,271,473 47,113,656
Stock options — — —
Weighted average number of common shares outstanding – Diluted 50,456,098 47,271,473 47,113,656
Loss per share
Basic 5.65 (0.18 ) (0.26 )
Diluted 5.45 (0.18 ) (0.26 ) Due to the gain from continued operations for
the years ended December 31, 2018, 1,851,360 stock options were included into the calculation of diluted net earnings per share.
Due to the loss from continued operations for the years ended December 31, 2017 and 2016, 4,369,527 and 4,655,384 stock options
were excluded from the calculation of diluted net loss per share, respectively, because the effect would be anti-dilutive. Foreign Currency Translation and Change
in Reporting Currency Starting from the second quarter of 2017, the
Company changed its reporting currency from USD to RMB. The change in reporting currency was undertaken to reduce the effect of
increased volatility of the RMB to USD exchange rate on the Company’s reported operating results and to increase comparability
with its peer companies in China. The related financial statements prior to April 1, 2017 have been recast to RMB as if the financial
statements originally had been presented in RMB since the earliest periods presented. The Company’s operations are principally
conducted through the subsidiaries and VIEs located in the PRC where RMB is the functional currency. Assets and liabilities denominated in foreign
currencies are translated into the functional currency at the exchange rates prevailing at the balance sheet date. Exchange gains
and losses are included in earnings as a component of general and administration expense. Translations of amounts from RMB into USD are
solely for the convenience of the reader and were calculated at the rate of USD1.00 = RMB6.8632 on December 31, 2018, representing
the certificated exchange rate published by the People’s Bank of China’s Monetary Policy Division. No representation
is intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into US$ at such rate, or
at any other rate. Share-Based Payments The Company records all share-based payments
grants of employee stock options to employees and non-employees in the financial statements based on their fair values on the grant
date and amortizes to expense on a straight-line basis over the vesting period. The Company used the Black-Scholes option-pricing
model to estimate the fair value of the options at the date of grant for both the 2009 incentive plan and the 2015 incentive plan.
The Company used the binomial model to estimate the fair value of repriced options as the Company has reassessed the exercise pattern
and determined that the Binomial Pricing model was a better model for estimating the fair values of the repriced options. The Company
recognizes expenses related to share-based payments as part of general and administrative expense. Recently Issued and Adopted Accounting
Standards In January 2016, the FASB issued ASU No. 2016-01,
Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update
address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments in this
update require public business entities that are required to disclose fair value of financial instruments measured at amortized
cost on the balance sheet to measure that fair value using the exit price notion consistent with Topic 820, Fair Value Measurement.
The amendments in this update require an entity to present separately in other comprehensive income the portion of the total change
in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to
measure the liability at fair value in accordance with the fair value option. The amendments in this update require separate presentation
of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans
and receivables) on the balance sheet or in the accompanying notes to the financial statements. Early application by public business
entities to financial statements of fiscal years or interim periods that have not yet been issued or, by all other entities, that
have not yet been made available for issuance of the following amendments in this update are permitted as of the beginning of the
fiscal year of adoption: an entity shou |
