China Art Financial : SUPPLEMENTAL ANNOUNCEMENT IN RELATION TO THE USE OF PROCEEDS DISCLOSED IN THE ANNUAL REPORT AND CHANGE OF USE OF PROCEEDS

Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

CHINA ART FINANCIAL HOLDINGS LIMITED

中 國 藝 術 金 融 控 股 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1572)

SUPPLEMENTAL ANNOUNCEMENT IN RELATION TO THE USE OF PROCEEDS DISCLOSED IN THE ANNUAL REPORT AND

CHANGE OF USE OF PROCEEDS

Reference is made to the annual report of China Art Financial Holdings Limited (the "Company", together with its subsidiaries, the "Group") for the financial year ended 31 December 2019 (the "Annual Report").

USE OF PROCEEDS DISCLOSED IN THE ANNUAL REPORT

As disclosed in the Annual Report, the net proceeds after deducting the underwriting commission and issuing expenses arising from the listing of the shares of the Company on the main board of The Stock Exchange of Hong Kong Limited (the "Stock Exchange") (the "IPO") amounted to HK$237.7 million (equivalent to approximately RMB212.6 million). Up to 31 December 2019, (i) HK$118.9 million (equivalent to approximately RMB106.3 million) has been used to increase the registered capital of Jiangsu Hexin Pawn Company Limited ("Hexin Pawn"), a non-wholly owned subsidiary of the Company (ii) HK$47.5 million (equivalent to approximately RMB42.5 million) has been used in establishing branches of the Group in Hong Kong and Shanghai, (iii) HK$1.7 million (equivalent to approximately RMB1.5 million) has been used in strengthening the Group's online auction platform and developing online loan financing platform, and (iv) HK$23.8 million (equivalent to approximately RMB21.3 million) has been used for general operation expenses. The remaining net proceeds of HK$45.8 million (equivalent to approximately RMB41.0 million) (the "Unutilised Net Proceeds") were deposited with certain licensed financial institutions as of 31 December 2019.

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The board of directors of the Company (the "Board") would like to provide additional information pursuant to paragraph 11(8) of Appendix 16 of the Rules Governing the Listing of Securities on the Stock Exchange in relation to the use of net proceeds raised from the IPO as follows:

		Planned use
		of proceeds
		as disclosed		Actual use
		in the		of proceeds
	prospectus of		from the	Unutilised
	the Company		listing	proceeds
		dated		date to	as at
		27 October		31 December	31 December
	2016	2019		2019
		HK$		HK$	HK$
Increase the registered capital of Hexin		118.9 million		118.9 million	-
Pawn
Strengthening online auction platform		47.5 million		1.7 million	45.8 million
and developing online loan financing
platform
Establishment of new loan offices in		47.5 million		47.5 million	-
other part of China and new auction
branches or subsidiaries in Beijing,
Shanghai and Hong Kong
Funding of general operations		23.8 million		23.8 million	-
Total		237.7 million		191.9 million	45.8 million

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CHANGE OF USE OF PROCEEDS

For reasons set out in the paragraph headed "Reasons for and benefits of the change in use of proceeds" of this announcement, the Board has resolved to reallocate the Unutilised Net Proceeds, which were originally allocated for strengthening online auction platform and developing online loan financing platform, for trading of artworks. The revised allocation of the net proceeds from the IPO (the "Reallocation") is set out as follows:

Remaining

Planned use of proceeds

Utilisation as

net proceeds

as disclosed in the prospectus

at the date

as at the

of the Company dated

of this

date of this

Revised allocation of

27 October 2016

announcement

announcement

the net proceeds

% of

% of revised

HK$

net proceeds

HK$

HK$

HK$

allocation

Increase the registered capital

of Hexin Pawn

118.9 million

50

118.9 million

-

118.9 million

50

Strengthening online auction

platform and developing

online loan financing

platform

47.5 million

20

2.0 million

45.5 million

2.0 million

1

Establishment of new loan

offices in other part of

China and new auction

branches or subsidiaries in

Beijing, Shanghai and Hong

Kong

47.5 million

20

47.5 million

-

47.5 million

20

Trading of artworks

-

-

-

-

45.5 million

19

Funding of general operations

23.8 million

10

23.8 million

-

23.8 million

10

Total

237.7 million

100

192.2 million

45.5 million

237.7 million

100

Reasons for and benefits of the change of use of proceeds

The Group provides art finance services under two business segments, namely (i) art and asset pawn business, and (ii) art and asset auction business. The Group has established good and stable relationship with artwork artists, agents, merchants, collectors and art galleries (collectively, the "Artwork Sellers") which enables the Group to source high-value artworks. The Group also has a professional authentication and appraisal team (the "Appraisal Team") to check the authenticity and assess the value of the artworks.

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Due to the outbreak of COVID-19 and the adverse market conditions, some of the Artwork Sellers have not been able to sell their artworks and are willing to sell them at a significant discount. Leveraging on the Group's relationships with the Artwork Sellers and the expertise of the Appraisal Team, the Group believes that it will be able to identify suitable artworks for trading for the Group. The Group intends to sell the artworks acquired at its future auctions and/or private sales and expects that it will be able to generate profit for the Group through (i) gain on the difference between their acquisition price and sale price; and (ii) auction commissions when selling the artworks through its future auctions.

The Company noted that the outcomes of investment made in strengthening of online platform is below expectation and the high net worth buyers prefer viewing and inspecting the artworks in person to viewing the photos of the artworks online. The Board therefore considers that further investment in strengthening online auction platform and developing online loan financing platform may not be able to make a breakthrough in the Group's business and generate satisfactory financial results and return for the Group.

Having considered the above, the Board is of the view that the Unutilised Net Proceeds originally allocated for strengthening online auction platform and developing online loan financing platform can be better utilised for generating profit for the Group by reallocating to trading of artworks. The Unutilised Net Proceeds is intended to be fully utilised for trading of artworks by June 2021. The Board is of the view that the Reallocation is in the best interests of the Company and its shareholders as a whole.

The above supplemental information does not affect other information contained in the Annual Report and save as disclosed above, all other information in the Annual Report remains unchanged.

Save as disclosed above, there is no material delay or change in the use of proceeds. Should there be any material delay or further change in the use of proceeds, further announcement(s) will be made by the Company as and when appropriate.

By order of the Board

China Art Financial Holdings Limited

Fan Zhijun

Chairman

Hong Kong, 29 July 2020

As at the date of this announcement, the Board comprises (1) Mr. Fan Zhijun and Mr. Li Cheng as the executive Directors and (2) Mr. Leung Shu Sun, Sunny, Mr. Liu Jian and Ms. Yin Xu Hong as the independent non-executive Directors.

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