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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of December 2022
Commission File Number: 001-38820
Futu Holdings Limited
11/F, Bangkok Bank Building
No. 18 Bonham Strand W, Sheung Wan
Hong Kong S.A.R., People’s Republic of China
+852 2523-3588
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | |
| FUTU HOLDINGS LIMITED |
| | | |
| By | : | /s/ Leaf Hua Li |
| Name | : | Leaf Hua Li |
| Title | : | Chairman of the Board of Directors and Chief Executive Officer |
| | | |
Date: December 22, 2022 | | | |
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Exhibit 99.1
FUTU HOLDINGS LIMITED
INDEX TO UNAUDITED INTERIM CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
FUTU HOLDINGS LIMITED
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except for share and per share data)
| | | | | | |
| | | | As of December 31, | | As of June 30, |
| | Note | | 2021 | | 2022 |
| | | | HK$ | | HK$ |
ASSETS | | | | | | |
Cash and cash equivalents | | | | 4,555,096 | | 6,300,400 |
Cash held on behalf of clients | | | | 54,734,351 | | 63,262,436 |
Term deposit | | | | — | | 5,750 |
Restricted cash | | | | 2,065 | | 1,971 |
Short-term investments | | 4 | | 1,169,741 | | 17,501 |
Securities purchased under agreements to resell | | | | 106,203 | | — |
Loans and advances (net of allowance of HK$12,258 thousand and HK$20,142 thousand as of December 31, 2021 and June 30, 2022, respectively) | | 6 | | 29,587,306 | | 28,829,926 |
Receivables: | | | | | | |
Clients | | | | 469,577 | | 1,438,510 |
Brokers | | | | 7,893,927 | | 6,125,217 |
Clearing organizations | | | | 1,961,121 | | 1,915,872 |
Fund management companies and fund distributors | | | | 72,340 | | 120,537 |
Interest | | | | 50,829 | | 89,458 |
Prepaid assets | | | | 18,306 | | 19,711 |
Other current assets | | 7 | | 81,594 | | 108,740 |
Total current assets | | | | 100,702,456 | | 108,236,029 |
| | | | | | |
Operating lease right-of-use assets | | 5 | | 243,859 | | 212,529 |
Long-term investments | | 8 | | 23,394 | | 249,588 |
Other non-current assets | | 7 | | 568,805 | | 1,060,134 |
Total non-current assets | | | | 836,058 | | 1,522,251 |
Total assets | | | | 101,538,514 | | 109,758,280 |
| | | | | | |
LIABILITIES | | | | | | |
Amounts due to related parties | | 27(b) | | 87,459 | | 64,439 |
Payables: | | | | | | |
Clients | | | | 59,127,439 | | 67,951,394 |
Brokers | | | | 7,599,233 | | 14,365,158 |
Clearing organizations | | | | 393,782 | | 1,359,746 |
Fund management companies and fund distributors | | | | 56,690 | | 49,545 |
Interest | | | | 15,359 | | 10,334 |
Borrowings | | 9 | | 6,357,405 | | 4,353,919 |
Securities sold under agreements to repurchase | | | | 4,467,861 | | — |
Operating lease liabilities - current | | 5 | | 96,860 | | 104,121 |
Accrued expenses and other current liabilities | | 10 | | 2,176,213 | | 1,807,086 |
Total current liabilities | | | | 80,378,301 | | 90,065,742 |
| | | | | | |
Operating lease liabilities - non-current | | 5 | | 163,719 | | 123,624 |
Other non-current liabilities | | 10 | | 10,935 | | 16,094 |
Total non-current liabilities | | | | 174,654 | | 139,718 |
Total liabilities | | | | 80,552,955 | | 90,205,460 |
| | | | | | |
Commitments and Contingencies (Note 26) | | | | | | |
FUTU HOLDINGS LIMITED
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
(In thousands, except for share and per share data)
| | | | | | |
| | | | As of December 31, | | As of June 30, |
| | Note | | 2021 | | 2022 |
| | | | HK$ | | HK$ |
SHAREHOLDERS’ EQUITY | | | | | | |
Class A ordinary shares(US$0.00001 par value; 48,700,000,000 and 48,700,000,000 shares authorized as of December 31, 2021 and June 30, 2022, respectively; 737,944,914 and 739,142,450 shares issued and outstanding as of December 31, 2021 and June 30, 2022, respectively) | | 11 | | 58 | | 58 |
Class B ordinary shares (US$0.00001 par value; 800,000,000 and 800,000,000 shares authorized as of December 31 2021 and June 30, 2022, respectively; 494,552,051, and 494,552,051 shares issued and outstanding as of December 31, 2021 and June 30, 2022, respectively) | | 11 | | 38 | | 38 |
Additional paid-in capital | | | | 17,935,752 | | 18,039,055 |
Treasury stock (29,462,760 and 109,041,760 shares as of December 31, 2021 and June 30, 2022, respectively) | | 11 | | (1,178,755) | | (3,909,782) |
Accumulated other comprehensive income | | | | 75,994 | | 57,454 |
Retained earnings | | | | 4,152,472 | | 5,365,997 |
Total shareholders’ equity | | | | 20,985,559 | | 19,552,820 |
Total liabilities and shareholders’ equity | | | | 101,538,514 | | 109,758,280 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
FUTU HOLDINGS LIMITED
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(In thousands, except for share and per share data)
| | | | | | |
| | | | Six months ended June 30, |
| | Note | | 2021 | | 2022 |
| | | | HK$ | | HK$ |
Revenues | | | | | | |
Brokerage commission and handling charge income | | 16 | | 2,122,679 | | 2,001,246 |
Interest income | | 17 | | 1,268,940 | | 1,195,661 |
Other income | | 18 | | 389,842 | | 190,821 |
Total revenues | | | | 3,781,461 | | 3,387,728 |
Costs | | | | | | |
Brokerage commission and handling charge expenses | | 19,22 | | (359,002) | | (183,221) |
Interest expenses | | 20 | | (246,967) | | (65,827) |
Processing and servicing costs | | 21,22 | | (116,024) | | (186,799) |
Total costs | | | | (721,993) | | (435,847) |
Total gross profit | | | | 3,059,468 | | 2,951,881 |
| | | | | | |
Operating expenses | | | | | | |
Research and development expenses | | 22 | | (310,787) | | (574,174) |
Selling and marketing expenses | | 22 | | (652,036) | | (507,235) |
General and administrative expenses | | 22 | | (174,365) | | (388,532) |
Total operating expenses | | | | (1,137,188) | | (1,469,941) |
| | | | | | |
Others, net | | | | (19,593) | | (115,819) |
| | | | | | |
Income before income tax expenses and share of loss from equity method investment | | | | 1,902,687 | | 1,366,121 |
| | | | | | |
Income tax expenses | | 23 | | (206,497) | | (143,198) |
Share of loss from equity method investment | | | | — | | (9,398) |
| | | | | | |
Net income | | | | 1,696,190 | | 1,213,525 |
| | | | | | |
Net income attributable to ordinary shareholders of the Company | | | | 1,696,190 | | 1,213,525 |
| | | | | | |
Net income | | | | 1,696,190 | | 1,213,525 |
Other comprehensive income/(loss), net of tax | | | | | | |
Foreign currency translation adjustment | | | | 2,954 | | (18,540) |
Total comprehensive income | | | | 1,699,144 | | 1,194,985 |
| | | | | | |
Net income per share attributable to ordinary shareholders of the Company | | 14 | | | | |
Basic | | | | 1.45 | | 1.05 |
Diluted | | | | 1.42 | | 1.04 |
| | | | | | |
Net income per ADS | | | | | | |
Basic | | | | 11.56 | | 8.38 |
Diluted | | | | 11.36 | | 8.30 |
| | | | | | |
Weighted average number of ordinary shares used in computing net income per share | | 14 | | | | |
Basic | | | | 1,173,661,489 | | 1,158,972,163 |
Diluted | | | | 1,194,580,873 | | 1,169,572,515 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
FUTU HOLDINGS LIMITED
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
(In thousands, except for share and per share data)
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Accumulated | | | | |
| | | | Class A ordinary shares | | Class B ordinary shares | | Treasury stock purchases | | Additional | | other | | | | |
| | | | Number of | | | | Number of | | | | Number of | | | | paid in | | comprehensive | | Retained | | |
| | Note | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | capital | | (loss)/income | | earnings | | Total equity |
| | | | | | HK$ | | | | HK$ | | | | HK$ | | HK$ | | HK$ | | HK$ | | HK$ |
| | | | | | | | | | | | | | | | | | | | | | |
As of January 1, 2022 | | | | 737,944,914 | | 58 | | 494,552,051 | | 38 | | (29,462,760) | | (1,178,755) | | 17,935,752 | | 75,994 | | 4,152,472 | | 20,985,559 |
Profit for the period | | | | — | | — | | — | | — | | — | | — | | — | | — | | 1,213,525 | | 1,213,525 |
Share-based compensation | | 13 | | — | | — | | — | | — | | — | | — | | 97,251 | | — | | — | | 97,251 |
Shares issued upon exercise of employee share options | | 13 | | 1,197,536 | | — | | — | | — | | — | | — | | 6,052 | | — | | — | | 6,052 |
Treasury share purchases | | 11 | | — | | — | | — | | — | | (79,579,000) | | (2,731,027) | | — | | — | | — | | (2,731,027) |
Foreign currency translation adjustment, net of tax | | | | — | | — | | — | | — | | — | | — | | — | | (18,540) | | — | | (18,540) |
Balance at June 30, 2022 | | | | 739,142,450 | | 58 | | 494,552,051 | | 38 | | (109,041,760) | | (3,909,782) | | 18,039,055 | | 57,454 | | 5,365,997 | | 19,552,820 |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Accumulated | | | | |
| | | | Class A ordinary shares | | Class B ordinary shares | | Treasury stock purchases | | Additional | | other | | | | |
| | | | Number of | | | | Number of | | | | Number of | | | | paid in | | comprehensive | | Retained | | |
| | Note | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | capital | | income | | earnings | | Total equity |
| | | | | | HK$ | | | | HK$ | | | | HK$ | | HK$ | | HK$ | | HK$ | | HK$ |
| | | | | | | | | | | | | | | | | | | | | | |
As of January 1, 2021 | | | | 590,139,760 | | 47 | | 494,552,051 | | 38 | | — | | — | | 6,960,369 | | 4,974 | | 1,342,262 | | 8,307,690 |
Profit for the period | | | | — | | — | | — | | — | | — | | — | | — | | — | | 1,696,190 | | 1,696,190 |
Share-based compensation | | 13 | | — | | — | | — | | — | | — | | — | | 33,416 | | — | | — | | 33,416 |
Issuance of ordinary shares upon follow-on public offering | | | | 87,400,000 | | 7 | | — | | — | | — | | — | | 10,856,518 | | — | | — | | 10,856,525 |
Exercise of Pre-funded warrants | | | | 53,599,890 | | 4 | | — | | — | | — | | — | | (4) | | — | | — | | — |
Shares issued upon exercise of employee share options | | 13 | | 2,395,392 | | — | | — | | — | | — | | — | | 8,122 | | — | | — | | 8,122 |
Foreign currency translation adjustment, net of tax | | | | — | | — | | — | | — | | — | | — | | — | | 2,954 | | — | | 2,954 |
Balance at June 30, 2021 | | | | 733,535,042 | | 58 | | 494,552,051 | | 38 | | — | | — | | 17,858,421 | | 7,928 | | 3,038,452 | | 20,904,897 |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
FUTU HOLDINGS LIMITED
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
| | | | | | |
| | | | Six months ended June 30, |
| | Note | | 2021 | | 2022 |
| | | | HK$ | | HK$ |
Cash flows from operating activities | | | | | | |
Net income | | | | 1,696,190 | | 1,213,525 |
Adjustments for: | | | | | | |
Depreciation and amortization | | 22 | | 15,368 | | 27,537 |
Expected credit loss expenses | | | | 8,819 | | 7,849 |
Share of loss from equity method investment | | | | — | | 9,398 |
Impairment from equity method investment and other non-current assets | | | | — | | 32,326 |
Foreign exchange (gains) | | | | (27,008) | | (92,231) |
Share-based compensation | | 13 | | 33,416 | | 97,251 |
Realized gain from short-term investments | | | | — | | (12,491) |
Fair value losses | | | | — | | 6,867 |
Deferred income tax benefit | | 23 | | (8,791) | | (534) |
Amortisation of right-of-use assets | | | | 36,571 | | 47,948 |
| | | | | | |
Changes in operating assets: | | | | | | |
Net decrease in securities purchased under agreements to resell | | | | — | | 106,203 |
Net (increase)/decrease in loans and advances | | | | (34,368,174) | | 749,496 |
Net (increase)/decrease in accounts receivable from clients and brokers | | | | (4,327,609) | | 799,777 |
Net decrease in accounts receivable from clearing organizations | | | | 607,850 | | 49,169 |
Net decrease/(increase) in accounts receivable from fund management companies and fund distributors | | | | 153,270 | | (48,197) |
Net increase in interest receivable | | | | (16,563) | | (38,629) |
Net (increase)/decrease in prepaid assets | | | | (20,698) | | 156 |
Net increase in other assets | | | | (3,318) | | (485,889) |
| | | | | | |
Changes in operating liabilities: | | | | | | |
Net (decrease)/increase in amounts due to related parties | | | | (59,635) | | 12,708 |
Net increase in accounts payable to clients and brokers | | | | 20,794,806 | | 15,589,859 |
Net increase in accounts payable to clearing organizations | | | | 512,718 | | 965,964 |
Net decrease in accounts payable to fund management companies and fund distributors | | | | (31,236) | | (7,145) |
Net (decrease)/increase in payroll and welfare payable | | | | (23,472) | | 66,425 |
Net increase/(decrease) in interest payable | | | | 8,649 | | (5,025) |
Net decrease in operating lease liabilities | | | | (31,120) | | (32,540) |
Net increase/(decrease) in securities sold under agreements to repurchase | | | | 182,982 | | (4,467,861) |
Net increase/(decrease) in other liabilities | | | | 515,257 | | (473,827) |
Net cash (used in)/generated from operating activities | | | | (14,351,728) | | 14,118,089 |
FUTU HOLDINGS LIMITED
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(In thousands)
| | | | | | |
| | | | Six months ended June 30, |
| | Note | | 2021 | | 2022 |
| | | | HK$ | | HK$ |
Cash flows from investing activities | | | | | | |
Purchase of property and equipment and intangible assets | | | | (28,622) | | (62,660) |
Purchase of short-term investments | | | | — | | (3,361,817) |
Proceeds from disposal of short-term investments | | | | — | | 4,548,040 |
Acquisition of long-term investments | | | | — | | (235,434) |
Maturity of term deposits | | | | 300,000 | | — |
Cash paid for acquisition, net of cash acquired | | | | — | | (102,008) |
Net cash generated from investing activities | | | | 271,378 | | 786,121 |
| | | | | | |
Cash flows from financing activities | | | | | | |
Proceeds from public offering, net of issuance costs | | | | 10,856,525 | | — |
Proceeds from exercise of employee share options | | | | 18,548 | | 12,937 |
Purchase of treasury stock | | | | — | | (2,731,027) |
Proceeds from other borrowings | | | | 50,788,801 | | 37,827,127 |
Repayment of other borrowings | | | | (26,942,607) | | (39,827,600) |
Payment of other financing expenses | | | | — | | (1,570) |
Net cash generated from/(used in) financing activities | | | | 34,721,267 | | (4,720,133) |
| | | | | | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | | | 30,620 | | 89,218 |
| | | | | | |
Net increase in cash, cash equivalents and restricted cash | | | | 20,671,537 | | 10,273,295 |
Cash, cash equivalents and restricted cash at beginning of the period | | | | 43,521,758 | | 59,291,512 |
| | | | | | |
Cash, cash equivalents and restricted cash at end of the period | | | | 64,193,295 | | 69,564,807 |
| | | | | | |
Cash, cash equivalents and restricted cash | | | | | | |
Cash and cash equivalents | | | | 1,773,938 | | 6,300,400 |
Cash held on behalf of clients | | | | 62,419,357 | | 63,262,436 |
Restricted Cash | | | | — | | 1,971 |
Cash, cash equivalents and restricted cash at end of the period | | | | 64,193,295 | | 69,564,807 |
| | | | | | |
Supplemental disclosure | | | | | | |
Interest paid | | | | (238,318) | | (70,852) |
Income tax paid | | | | (79,825) | | (216,122) |
Cash paid for amounts included in operating lease liabilities | | | | (39,704) | | (52,028) |
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
FUTU HOLDINGS LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION, ORGANIZATION AND PRINCIPAL ACTIVITIES
Futu Holdings Limited (the “Company”) is an investment holding company incorporated in the Cayman Islands with limited liability and conducts its business mainly through its subsidiaries, variable interest entities (“VIEs”) and subsidiaries of the VIEs (collectively referred to as the “Group”). The Group principally engages in online financial services including securities and derivative trades brokerage, margin financing and fund distribution services based on internally developed software and digital platform “Futubull” and “Moomoo”. The Group also provides financial information and online community services, etc. The Company completed its IPO on March 8, 2019 on the Nasdaq Global Market. Each American Depositary Shares (“ADSs”) of the Company represents eight Class A ordinary shares.
As of June 30, 2022, the Company’s principal subsidiaries, consolidated VIE are as follows:
| | | | | | | | |
| | Country/place and | | Attributable equity | | | | |
Company name | | date of Incorporation/ | | interest of | | | | |
Subsidiaries | | Establishment | | the Group | | Principal activities | | Statutory auditors |
Futu Securities International (Hong Kong) Limited (“Futu Securities”) | | Hong Kong,
April 17, 2012 | | 100 | % | Financial services | | PricewaterhouseCoopers Certified Public Accountants |
Futu Securities (Hong Kong) Limited | | Hong Kong,
May 2, 2014 | | 100 | % | Investment holding | | Gary K. K. Leung & Co. |
Futu Network Technology Limited | | Hong Kong,
August 17, 2015 | | 100 | % | Research and development and technology services | | Gary K. K. Leung & Co. |
Futu Network Technology (Shenzhen) Co., Ltd. | | Shenzhen, PRC,
October 14, 2015 | | 100 | % | Research and development and technology services | | Shenzhen Yuanfeng Certified Public Accountants |
Shen Si Network Technology (Beijing) Co., Ltd. ("Shen Si") | | Beijing, PRC,
September 15,2014 | | 100 | % | No substantial business | | N/A |
Moomoo Financial Inc(1) (previous name: Futu Inc.) | | Delaware, USA,
December 17, 2015 | | 100 | % | Financial services | | Baker Tilly US, LLP |
Futu Clearing Inc. | | Delaware, USA,
August 13, 2018 | | 100 | % | Financial services | | Baker Tilly US, LLP |
Moomoo Financial Singapore Pte. Ltd(1) (previous name: Futu Singapore Pte. Ltd) | | Singapore
December 17, 2019 | | 100 | % | Financial services | | BDO LLP, Singapore |
Futu Securities (Australia) Ltd. | | New South Wales,
Australia,
February 15, 2001 | | 100 | % | Financial services | | Hall Chadwick |
| | | | | | | | |
VIE | | | | | | | | |
Shenzhen Futu Network Technology Co., Ltd.(2) ("Shenzhen Futu") | | Shenzhen, PRC,
December 18, 2007 | | 100 | % | Research and development and technology services | | Shenzhen Yuanfeng Certified Public Accountants |
Notes:
(1) | These subsidiaries changed company names in June 2022. |
(2) | Mr. Leaf Hua Li and Ms. Lei Li are beneficiary owners of the Company and held 85% and 15% equity interest in Shenzhen Futu, respectively. Mr. Leaf Hua Li is the founder, chairman and chief executive officer of the Company, and Ms. Lei Li is Mr. Leaf Hua Li’s spouse. |
FUTU HOLDINGS LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The unaudited interim condensed consolidated financial statements of the Group have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements. In the opinion of the Company, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of June 30, 2022, its results of operations and cash flows for the six months ended June 30, 2021 and 2022. The unaudited interim condensed consolidated balance sheet as of December 31, 2021, was derived from audited financial statements as of that date, but does not contain all of the footnote disclosures required by U.S. GAAP for a complete set of financial statements. Accordingly, these financial statements should be read in conjunction with the audited consolidated financial statements and related footnotes for the year ended December 31, 2021. Significant accounting policies followed by the Group in the preparation of the accompanying consolidated financial statements are summarized below.
Basis of Consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries, the VIEs and subsidiary of the VIEs for which the Company or its subsidiary is the primary beneficiary.
A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to appoint or remove the majority of the members of the Board of Directors; or to cast a majority of votes at the meeting of directors; or has the power to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.
A consolidated VIE is an entity in which the Company, or its subsidiary, through contractual arrangements, has the power to direct the activities that most significantly impact the entity’s economic performance, bears the risks of and enjoys the rewards normally associated with ownership of the entity, and therefore the Company or its subsidiary is the primary beneficiary of the entity.
All transactions and balances among the Company, its subsidiaries, the VIEs and subsidiaries of the VIEs have been eliminated upon consolidation.
VIE Companies
1) Contractual Agreements with VIEs
The following is a summary of the contractual agreements (collectively, “Contractual Agreements”) between the Company’s PRC subsidiary, Shen Si, and the VIEs. Through the Contractual Agreements, the VIEs are effectively controlled by the Company.
Shareholders’ Voting Rights Proxy Agreements. Pursuant to the Shareholders’ Voting Rights Proxy Agreements, each shareholder of VIEs irrevocably authorized Shen Si or any person(s) designated by Shen Si to exercise such shareholder’s rights in VIEs, including without limitation, the power to participate in and vote at shareholder’s meetings, the power to nominate and appoint the directors, senior management, and other shareholders’ voting right permitted by the articles of association of VIEs. The shareholders’ voting rights proxy agreements remain irrevocable and continuously valid from the date of execution until the expiration of the business term of Shen Si and can be renewed upon request by Shen Si.
Business Operation Agreements. Pursuant to the Business Operation Agreements, VIEs and their shareholders undertake that without Shen Si’s prior written consent, VIEs shall not enter into any transactions that may have a material effect on VIEs’ assets, business, personnel, obligations, rights or business operations. VIEs and their shareholders shall elect directors nominated by Shen Si and such directors shall nominate officers designated by Shen Si. The business operation agreements will remain effective until the end of Shen Si’s business term, which will be extended if Shen Si’s business term is extended or as required by Shen Si.
FUTU HOLDINGS LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
VIE Companies (Continued)
1) Contractual Agreements with VIEs (Continued)
Equity Interest Pledge Agreements. Pursuant to the Equity Interest Pledge Agreements, each shareholder of VIEs agrees that, during the term of the Equity Interest Pledge Agreements, he or she will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests without the prior written consent of Shen Si. The Equity Interest Pledge Agreements remain effective until the latter of the full payment of all secured debt under the equity interest pledge agreements and VIEs and their shareholders discharge all their obligations under the contractual arrangements.
Exclusive Technology Consulting and Services Agreements. Under the Exclusive Technology Consulting and Services Agreements between Shen Si and the VIEs, Shen Si has the exclusive right to provide VIEs with technology consulting and services related to, among other things, technology research and development, technology application and implementation, maintenance of software and hardware. Without Shen Si’s written consent, VIEs shall not accept any technology consulting and services covered by these agreements from any third party. VIEs agree to pay a service fee at an amount equivalent to all of its net profit to Shen Si. Unless otherwise terminated in accordance with the terms of these agreements or otherwise agreed with Shen Si, these agreements will remain effective until the expiration of Shen Si’s business term, and will be renewed if Shen Si’s business term is extended.
Exclusive Option Agreements. Pursuant to the Exclusive Option Agreements, each shareholder of VIEs has irrevocably granted Shen Si an exclusive option, to the extent permitted by PRC laws, to purchase, or have its designated person or persons to purchase, at its discretion, all or part of the shareholder’s equity interests in VIEs. Unless PRC laws and/or regulations require valuation of the equity interests, the purchase price shall be RMB1.00 or the lowest price permitted by the applicable PRC laws, whoever is higher. Each shareholder of VIEs undertakes that, without the prior written consent of Shen Si, he or she will not, among other things, (i) create any pledge or encumbrance on his or her equity interests in VIEs, (ii) transfer or otherwise dispose of his or her equity interests in VIEs, (iii) change VIEs’ registered capital, (iv) amend VIEs’ articles of association, (v) liquidate or dissolve VIEs, or (vi) distribute dividends to the shareholders of VIEs. In addition, VIEs undertake that, without the prior written consent of Shen Si, they will not, among other things, dispose of VIEs’ material assets, provide any loans to any third parties, enter into any material contract with a value of more than RMB500,000, or create any pledge or encumbrance on any of their assets, or transfer or otherwise dispose of their material assets. Unless otherwise terminated by Shen Si, these agreements will remain effective until the expiration of Shen Si’s business term, and will be renewed if Shen Si’s business term is extended.
FUTU HOLDINGS LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
VIE Companies (Continued)
2) Risks in relation to the VIE structure
The following table sets forth the assets, liabilities, results of operations and changes in cash and cash equivalents of the VIEs and their subsidiary taken as a whole, which were included in the Group’s consolidated financial statements with intercompany balances and transactions eliminated between the VIEs and their subsidiary:
| | | | |
| | As of December 31, | | As of June 30, |
| | 2021 | | 2022 |
|
| | (HK$ in thousands) |
Total assets | | 254,602 | | 296,738 |
Total liabilities | | 176,204 | | 179,039 |
| | | | |
| | Six months ended June 30, |
| | 2021 | | 2022 |
|
| | (HK$ in thousands) |
Total operating revenue | | 86,930 | | 144,398 |
Net income | | 22,456 | | 37,236 |
| | | | |
| | Six months ended June 30, |
| | 2021 | | 2022 |
|
| | (HK$ in thousands) |
Net cash (used in)/generated from operating activities | | (3,204) | | 26,055 |
Net cash generated from financing activities | | — | | 7,388 |
Net (decrease)/increase in cash and cash equivalents | | (3,204) | | 33,443 |
Cash and cash equivalents at beginning of the period | | 3,738 | | 2,751 |
Cash and cash equivalents at end of the period | | 534 | | 36,194 |
Transactions between the VIE and other entities in the consolidated group
As of December 31, 2021 and June 30, 2022, total assets include amounts due from internal companies in the consolidated group in the amount of HK $190,424 thousand and HK$211,692 thousand, respectively. Total liabilities include amounts due to the internal companies in the amount of HK$ 80,435 thousand and HK$ 91,479 thousand, respectively. For the six months ended June 30, 2021 and 2022, the VIE earned inter-company revenues in the amounts of HK$75,000 thousand and HK$131,834 thousand, respectively. In addition, for the six months ended June 30, 2021 and 2022, the repayment of advances to Group companies by the VIE are in the amount of nil and nil, and VIE proceeded from advances from Group companies in the amount of nil and HK$7,388 thousand, respectively. All of these balances and transactions have been eliminated in consolidation.
FUTU HOLDINGS LIMITED
NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
VIE Companies (Continued)
2) Risks in relation to the VIE structure (Continued)
Under the Contractual Agreements with the VIEs, the Company has the power to direct activities of the VIEs and VIEs’ subsidiaries, and can have assets transferred out of the VIEs and VIEs’ subsidiaries. Therefore, the Company considers itself the ultimate primary beneficiary of the VIEs and there is no asset of the VIEs that can only be used to settle obligations of the VIEs and VIEs’ subsidiaries, except for registered capital of the VIEs and their subsidiary amounting to RMB10 million as of December 31, 2021 and June 30, 2022, respectively. Since the VIEs are incorporated as limited liability companies under the PRC Company Law, creditors of the VIEs do not have recourse to the general credit of the Company. There is currently no contractual arrangement that would require the Company to provide additional financial support to the VIEs. However, as the Company is conducting certain businesses through its VIEs and VIEs’ subsidiary, the Company may provide such support on a discretionary basis in the future, which could expose the Company to a loss.
In the opinion of the Company’s management, the contractual arrangements among its subsidiary, the VIEs and their respective Nominee Shareholders are in compliance with current PRC laws and are legally binding and enforceable. However, uncertainties in the interpretation and enforcement of the PRC laws, regulations and policies could limit the Company’s ability to enforce these contractual arrangements. As a result, the Company may be unable to consolidate the VIEs and VIEs’ subsidiaries in the consolidated financial statements.
On March 15, 2019, the Foreign Investment Law was formally passed by the thirteenth National People’s Congress and it was taken effect on January 1, 2020. The Foreign Investment Law replaces the Law on Sino-Foreign Equity Joint Ventures, the Law on Sino-Foreign Cooperative Joint Ventures and the Law on Foreign-Capital Enterprises to become the legal foundation for foreign investment in the PRC.
The Foreign Investment Law stipulates certain forms of foreign investment. However, the Foreign Investment Law does not explicitly stipulate contractual arrangements such as those we rely on as a form of foreign investment. Notwithstanding the above, the Foreign Investment Law stipulates that foreign investment includes “foreign investors investing through any other methods under laws, administrative regulations or provisions prescribed by the State Council.” Future laws, administrative regulations or provisions prescribed by the State Council may possibly regard Contractual Arrangements as a form of foreign investment. In the event that the State Council in the future promulgates laws and regulations that deem inve
