Gome Fin Tech (00628) announced that on August 28, 2024, its WFOE (a non-wholly-owned subsidiary of the company), the operating company Beijing Liheng Enterprise Management Co., Ltd. and the registered shareholder in China entered into a VIE contract. The WFOE will have actual control over the financial and operational aspects of the operating company and will enjoy all the economic benefits generated by the operating company.

After the contract arrangement, the company will essentially acquire 100% equity of the operating company. The financial performance of the operating company group will be consolidated into the group's performance, as if the operating company were a subsidiary of the company.

As China's financial regulatory environment becomes increasingly strict and competition in the internet finance sector intensifies, the group's future business will face greater challenges. At the same time, the iteration of global chip technology has helped improve computing power, and the thriving development of artificial intelligence, blockchain, and other fields is driving the internet economy into the era of WEB 3.0.

In order to enhance the group's risk resistance and realize the strategic layout of "social + business" in emerging markets, the group needs to diversify and transform its existing business. Through this acquisition, the group will have multiple-dimensional internet social platforms, creating a business ecosystem that connects users and merchants in multiple ways. In addition, relying on the rich technology, brand reputation, and supply chain accumulated by the group and its controlling shareholders in the field of internet finance, it is expected that the group will accelerate its transformation into a comprehensive social internet platform business.

The board of directors believes that through the layout of new business lines through this acquisition, the group will create a new growth curve and bring greater returns to shareholders.

The operating company group is currently engaged in B21 online data processing and transaction processing business (limited to e-commerce) and B25 information service business (both are value-added telecommunication services) based on the telecommunication and information services business operation license issued by China Telecom; and engaged in network performance business through the network culture operation license. According to the advice of Chinese legal counsel, the B25 internet information service and network performance businesses conducted by the operating company group are respectively classified as "restricted" or "prohibited" categories under the Special Management Measures for Foreign Investment Access (Negative List) (2021 Edition) and the Special Management Measures for Foreign Investment Access in the Hainan Free Trade Port (Negative List) (2020 Edition) promulgated and revised from time to time by the Ministry of Commerce and the National Development and Reform Commission of China. Therefore, the company (as a foreign investor) is restricted and prohibited from holding the equity of the operating company. The Chinese legal counsel has also made oral inquiries to the Ministry of Culture and Tourism of China, the Ministry of Industry and Information Technology of China, and the Communication Administration of Hainan Province, and has been informed that network performance business conducted under the network culture operation license is prohibited from foreign investment; and the B25 internet information service business conducted under the telecommunication and information service business operation license is a restricted business, and the proportion of foreign investment shall not exceed 50%.

The business strategy of the operating company group is to integrate resources, build a comprehensive and all-round service platform, create a new model of "social network + business ecology" under Web3.0, which is consistent with the overall strategic transformation direction of the group. Therefore, several major operating subsidiaries of the operating company group need to have both the operating license of China Telecom and information services and the operating license of network culture at the same time to carry out their business, and the two are inseparable. Therefore, in order to comply with applicable Chinese laws and regulations, WFOE, the operating company, and Chinese registered shareholders have entered into VIE contracts, so that the financial performance, all economic benefits, and business risks of the operating company group will flow into the WFOE and the WFOE will obtain control over the operating company group.

Once the relevant Chinese laws and regulations allow WFOE to register as a shareholder of the operating company, and according to the applicable Chinese laws and regulations, the business of the operating company group will no longer be restricted to foreign investors, the company will immediately terminate the VIE contracts.

In view of the above situation, the group believes that the acquisition and contractual arrangement will bring opportunities for the diversification and transformation of the group's existing business. The VIE contract will enable the WFOE to effectively control the finance and operation of the operating company, and enjoy all the economic benefits generated by the operating company.

It is reported that the operating company group is currently or will mainly engage in social networking, artificial intelligence and blockchain services, digital asset auctions, e-commerce, news and short video publishing, information technology services, and technical research and development business in China. The subsidiary companies of the operating company hold multiple licenses for the operation of the operating company group's business, including business licenses, online data processing and trading business licenses, operating licenses for China Telecom and information services, and operating licenses for network culture.