ITEM 1A – RISK FACTORS
Our business and an investment in our
securities are subject to a variety of risks. The following risk factors describe the most significant events, facts or circumstances
that could have a material adverse effect upon our business, financial condition, results of operations, ability to implement our
business plan and the market price for our securities. Additional risks and uncertainties that presently are not considered material
or are not known to us, and therefore are not mentioned herein, may impair our business operations. Many of these events are
outside of our control. If any of these risks actually occurs, our business, financial condition or results of operations may be
materially adversely affected. In such case, the trading price of our common stock could decline and investors in our common stock
could lose all or part of their investment.
Risks Related to Our Business
An occurrence of an uncontrollable
event such as the COVID-19 pandemic may negatively affect our operations and financial results.
In recent years, there have been outbreaks
of epidemics in various countries, including China. Recently, there was an outbreak of a novel strain of coronavirus (COVID-19)
in China, which has spread rapidly to many parts of the world, including the U.S. In March 2020, the World Health Organization
declared COVID-19 a pandemic. The COVID-19 pandemic has resulted in, among other things, quarantines, travel restrictions, and
the temporary closure of office buildings and facilities in China and in the U.S.
Substantially all of our revenues are generated
in China. Consequently, our results of operations have been and may continue to be adversely affected, to the extent that COVID-19
harms the Chinese and global economy. Any potential impact to our results will depend on, to a large extent, future developments
and new information that may emerge regarding the duration and severity of COVID-19 and the actions taken by government authorities
and other entities to contain COVID-19 or treat its impact, almost all of which are beyond our control. Potential impacts include,
but are not limited to, the following:
Because of the uncertainty surrounding
the COVID-19 outbreak, the future impact related to the outbreak and potential resurgence as well as the local and global response
cannot be reasonably estimated at this time.
The global economy
has also been materially negatively affected by the COVID-19 and there is continued severe uncertainty about the duration and intensity
of its impacts. The Chinese and global growth forecast is extremely uncertain, which would seriously affect the consumer spending
in shopping malls.
While the potential
economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result
in significant disruption of global financial markets, reducing our ability to access capital, which could negatively affect our
liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business
and the value of our common stock.
Further, as we
do not have access to a revolving credit facility, there can be no assurance that we would be able to secure commercial debt financing
in the future in the event that we require additional capital. We currently believe that our financial resources will be adequate
to see us through the outbreak. However, in the event that we do need to raise capital in the future, outbreak-related instability
in the securities markets could adversely affect our ability to raise additional capital.
In general, our business could be adversely
affected by the epidemics, including, but not limited to, COVID-19, avian influenza, severe acute respiratory syndrome (SARS),
the influenza A virus, the Ebola virus, or other outbreaks. In response to an epidemic or other outbreaks, governments and other
organizations may adopt regulations and policies that could lead to severe disruption to our daily operations, including temporary
closure of our offices and other facilities. These severe conditions may cause us and/or our partners to make internal adjustments,
including but not limited to, temporarily closing down business, limiting business hours, and setting restrictions on travel and/or
visits with clients and partners for a prolonged period of time. Various impacts arising from severe conditions may cause business
disruption, resulting in material, adverse effects to our financial condition and results of operations.
Economic conditions have had and
may continue to have an adverse effect on consumer spending on our products.
The worldwide economy remains volatile
and may have entered in global recession. The adverse effect of a sustained international economic downturn, including sustained
periods of decreased consumer spending, high unemployment levels, declining consumer or business confidence and continued volatility
and disruption in the credit and capital markets, would likely result in reduced demand for our products and service as consumers
may forego certain purchases. To the extent an international economic downturn develops, we could experience a reduction in sales
volume. If we are unable to reduce our operating costs and expenses proportionately, many of which are fixed, our results of operations
would be adversely affected.
We may not be able to effectively
control and manage our growth, and a failure to do so could adversely affect our operations and financial condition.
If our newly developed blockchain based
e-commerce business and markets experience significant growth, we will need to expand our business to maintain our competitive
position. We may face challenges in managing and financing expansion of our business, facilities and product offerings, including
challenges relating to integration of acquired businesses and increased demands on our management team, employees and facilities.
Failure to effectively deal with increased demands on us could interrupt or adversely affect our operations and cause production,
service and transportation backlogs, longer new products or services development time frames and administrative inefficiencies.
Other challenges involved with expansion, acquisitions and operation include:
● unanticipated costs;
● the diversion of management’s attention from other business concerns;
● obtaining sufficient working capital to support expansion;
● successfully integrating any future acquisitions; and
Even if we obtain benefits of expansion
in the form of increased sales, there may be delay between the time when the expenses associated with an expansion or acquisition
are incurred and the time when we recognize such benefits, which could negatively affect our earnings.
We may engage in future acquisitions
involving significant expenditures of cash, the incurrence of debt or the issuance of stock, all of which could have a materially
adverse effect on our operating results.
As part of our business strategy, we review
acquisition and strategic investment prospects that we believe would complement our current product offerings, augment our market
coverage, enhance our technological capabilities or otherwise offer growth opportunities. From time to time, we review investments
in new businesses and we expect to make investments in, and to acquire, businesses, products or technologies in the future. We
are in the process to acquire an asset management company in Hong Kong and a supply chain financial service company in China and
plan to complete these transactions during the first half of this year. In the event of any future acquisitions, we may expend
significant cash, incur substantial debt and/or issue equity securities and dilute the percentage ownership of current shareholders,
all of which could have a material adverse effect on our operating results and the price of our stock. We cannot guarantee that
we will be able to successfully integrate any businesses, products, technologies or personnel that we may acquire in the future,
and our failure to do so could have a material adverse effect on our business, operating results and financial condition.
If we fail to maintain membership
loyalty or sustain membership growth, or fail to maintain member relationships effectively and retain existing members, our business
and operating results may be materially and adversely affected.
We are a membership-based value sharing
e-commerce platform and therefore membership loyalty and growth are essential to our business. The growth of our business depends
on our ability to maintain and increase the number of members on our platform and improve the level of their engagement. Individuals
can become our members mainly by purchasing our membership at a fixed price. Our failure to anticipate needs of and provide value-added
services to our members, among other things, could also diminish membership loyalty and reduce activity of members on our platform,
which could cause our revenue and operating income to decline and negatively impact our profitability. If our existing and new
business opportunities and incentives, products, services and other initiatives do not generate sufficient enthusiasm and economic
incentive to retain our existing members or attract new members on a sustained basis, our operating results could be adversely
affected. As a result, in order to maintain our business growth in the future, we need to increase our retention of existing members
and continue to successfully attract additional members.
We may not be able to prevent others
from unauthorized use of our intellectual property, which could harm our business and competitive position.
Our success depends, in part, on our ability
to protect our proprietary technologies. The process of seeking intellectual property protection can be lengthy and expensive and
we cannot guarantee that our existing or future intellectual property rights will be fully protected or bring us the commercial
advantages. We also cannot guarantee that our current or potential competitors do not have, and will not obtain, intellectual property
rights that will prevent, limit or interfere with our ability to use our technology or sell our products and services in the PRC
or other countries.
The implementation and enforcement of PRC
intellectual property laws historically have not been vigorous or consistent. Accordingly, intellectual property rights and confidentiality
protections in the PRC are not as effective as those in the United States and other countries. We may need to resort to litigation
to enforce or defend our rights or to determine the enforceability, scope and validity of our proprietary rights or those of others.
Such litigation will require significant expenditures of cash and management efforts and could harm our business, financial condition
and results of operations. An adverse determination in any such litigation will impair our intellectual property rights and may
harm our business, competitive position, business prospects and reputation.
The blockchain related products and
services that we are developing have the potential to be used in ways we do not intend, including for criminal or other illegal
activities.
Blockchain-related products and services,
in particular cryptocurrencies, have the potential to be used for financial crimes or other illegal activities. Because the blockchain
platform that we are developing is novel, there are uncertainties regarding any legal and regulatory requirements for preventing
blockchain-related products and services from being put to such uses, and there are uncertainties regarding the liabilities and
risks to the Company if we are unable to prevent such uses. Even if we comply with all laws and regulations regarding financial
and blockchain related products and services, we have no ability to ensure that our customers, partners or others to whom we license
or sell our products and services comply with all laws and regulations applicable to them and their transactions.
The Shared Shopping Mall employs security
measures common to blockchain technologies, such a multiple identity authentication and multi-signature requirements. The security
measures to be employed by our blockchain projects are subject to further improvement and development. There is no guarantee that
the security measures that we currently use or any that we may develop in the future will be effective.
Any negative publicity we receive regarding
any allegations of unlawful uses of our blockchain platform could damage our reputation. More generally, any negative publicity
regarding unlawful uses of blockchain technology in the marketplace could reduce the demand for our products and services. The
occurrence of any of the foregoing could have a material adverse effect on our financial results and business.
The regulatory regime governing blockchain
technologies, cryptocurrencies, digital assets, and offerings of digital assets is uncertain, and new regulations or policies may
materially adversely affect the development and the value of such cryptocurrencies and assets.
Regulation of digital assets, cryptocurrencies,
blockchain technologies, and the blockchain platform we are developing is currently undeveloped and likely to rapidly evolve as
government agencies take greater interest in them. Regulation also varies significantly among international, federal, state and
local jurisdictions and is subject to significant uncertainty. Various legislative and executive bodies in the United States and
in other countries may in the future adopt laws, regulations, or guidance, or take other actions, which may severely impact the
permissibility of tokens generally and the technology behind them or the means of transaction or in transferring them. Failure
by our subsidiaries to comply with any laws, rules and regulations, some of which may not exist yet or are subject to interpretation
and may be subject to change, could result in a variety of adverse consequences, including civil penalties and fines.
Intellectual property infringement
claims may adversely impact our results of operations.
As we develop and introduce new products
and services, we may be increasingly subject to claims of infringement of another party’s intellectual property. If a claim
for infringement is brought against us, such claim may require us to modify our products or services, cease selling certain products
or engage in litigation to determine the validity and scope of such claims. Any of these events may harm our business and results
of operations.
Our business and operations may be
subject to disruption from work stoppages, terrorism or natural disasters.
Our operations may be subject to disruption
for a variety of reasons, including work stoppages, acts of war, terrorism, pandemics, fire, earthquake, flooding or other natural
disasters and events beyond our control. If a major incident were to occur in any of the regions where our facilities or offices
are located, our facilities or offices or those of critical suppliers and customers could be damaged or destroyed. Such a disruption
could result in a reduction in available products, the temporary or permanent loss of critical data, suspension of operations,
delays in shipment of products and disruption of business generally, which would adversely affect our revenue and results of operations.
Our success depends substantially
on the continued retention of certain key personnel and our ability to hire and retain qualified personnel in the future to support
our growth.
If one or more of our senior executives
or other key personnel are unable or unwilling to continue in their present positions, our business may be disrupted and our financial
condition and results of operations may be materially and adversely affected. While we depend on the abilities and participation
of our current management team generally, we rely particularly upon Mr. Yongke Xue, our Chairman of the Company’s Board of
Directors (the “Board”); Mr. Shanchun Huang, our chief executive officer (“CEO”); Mr. Ming Yi, our chief
financial officer (“CFO”) and Mr. Yang Liu, our chief operating officer. The loss of the services of Messrs. Yongke
Xue, Shanchun Huang, Ming Yi or Yang Liu for any reason could significantly adversely impact our business and results of operations.
Competition for senior management and senior technology personnel in the PRC is intense and the pool of qualified candidates is
very limited. Accordingly, we cannot guarantee that the services of our senior executives and other key personnel will continue
to be available to us, or that we will be able to find a suitable replacement for them if they were to leave.
Our e-commerce business depends on
the continued use of the Internet and the adequacy of the Internet infrastructure.
Our e-commerce business depends upon the widespread use of the
Internet and e-commerce. Factors which could reduce the widespread use of the Internet for e-commerce include, without limitation,
actual or perceived lack of security of information or privacy protection, cyberattacks or other disruptions or damage to the Internet
or to users’ computers, whatever the cause, could reduce customer satisfaction with our platforms and services and harm our
business.
Our business depends on our website,
app, network infrastructure and transaction-processing systems.
Our e-commerce business is completely dependent
on our infrastructure. Any system interruption that results in the unavailability of our website, app or reduced performance of
our transaction systems could reduce our ability to conduct our business. We use internally and externally developed systems for
our website, app and our transaction processing systems. We expect to experience system interruptions due to software failure.
We may also experience temporary capacity constraints due to sharply increased traffic during sales or other promotions and during
the holiday shopping season. Capacity constraints can cause system disruptions, slower response times, delayed page presentation,
degradation in levels of customer service and other problems. We may also experience difficulties with our infrastructure upgrades.
Any future difficulties with our transaction processing systems or difficulties upgrading, expanding or integrating aspects of
our systems may cause system disruptions, slower response times, and degradation in levels of customer service, additional expense,
impaired quality and speed of order fulfilment or other problems.
If the location where all of our computer
and communications hardware is located is compromised, our business, prospects, financial condition and results of operations could
be harmed. If we suffer an interruption or degradation of services at the location for any reason, our business could be harmed.
Our success, and in particular, our ability to successfully receive and fulfil orders and provide high-quality customer service,
largely depends on the efficient and uninterrupted operation of our computer and communications systems. These limitations could
have an adverse effect on our sales. Our disaster recovery plan may be inadequate, and we do not carry business interruption insurance
to compensate us for the losses that could occur. Despite our implementation of network security measures, our servers are vulnerable
to computer viruses, physical or electronic break-ins and similar disruptions, the occurrence of any of which could lead to interruptions,
delays, loss of critical data or the inability to accept and fulfil customer orders. The occurrence of any of the foregoing risks
could harm our business.
We may be subject to product liability
claims if our customers are harmed by the products sold on our internet platform.
We sell products manufactured by third
parties, some of which may be defectively designed or manufactured, of inferior quality or counterfeit. Sales and distributions
of products on our internet platform could expose us to product liability claims relating to personal injury and may require product
recalls or other actions. Third parties that have suffered such injury may bring claims or legal proceedings against us as the
retailer of the products or as the marketplace service provider. Although we would have legal recourse against the manufacturers,
suppliers or third-party merchants of such products under PRC law, attempting to enforce our rights against the manufacturers,
suppliers or third-party merchants may be expensive, time-consuming and ultimately futile. Defective, inferior or counterfeit products
or negative publicity as to personal injury caused by products sold on our platform may adversely affect consumer perceptions of
our company or the products we sell, which could harm our reputation and brand image. In addition, we do not currently maintain
any product liability insurance or third-party liability insurance coverage for the products offered through third-party merchants.
As a result, any material product liability claim or litigation could have a material and adverse effect on our business, financial
condition and results of operations. Even unsuccessful claims could result in the expenditure of funds and managerial efforts in
defending them and could have a negative impact on our reputation.
Our platform requires frequent updates
on pricing from our vendors. If these updates are inaccurate or do not occur, there could be a negative influence on our business.
We update the prices of products listed
on our site frequently from our vendors. If we are unable to obtain, or are not provided updated pricing information from our vendors,
or if we fail to act on information from our vendors, then it could require us to remedy the pricing difference to complete the
transaction, or source the product from an alternative vendor at their price, which could materially adversely affect our financial
results.
We are subject to cyber security
risks and may incur increasing costs in an effort to minimize those risks and to respond to cyber incidents.
Our e-commerce business is entirely dependent
on the secure operation of our website and systems as well as the operation of the Internet generally. Our business involves the
storage and transmission of users’ proprietary information, and security breaches could expose us to a risk of loss or misuse
of this information, litigation, and potential liability. A number of large Internet companies have suffered security breaches,
some of which have involved intentional attacks. From time to time, we and many other Internet businesses also may be subject to
a denial of service attacks wherein attackers attempt to block customers’ access to our Website. If we are unable to avert
a denial of service attack for any significant period, we could sustain substantial revenue loss from lost sales and customer dissatisfaction.
We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyberattacks.
Cyberattacks may target us, our customers,
our suppliers, banks, payment processors, e-commerce in general or the communication infrastructure on which we depend. If an actual
or perceived attack or breach of our security occurs, customer and/or supplier perception of the effectiveness of our security
measures could be harmed and we could lose customers, suppliers or both. Actual or anticipated attacks and risks may cause us to
incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees, and engage
third party experts and consultants. A person who is able to circumvent our security measures might be able to misappropriate our
or our users’ proprietary information, cause interruption in our operations, damage our computers or those of our users,
or otherwise damage our reputation and business. Any compromise of our security could result in a violation of applicable privacy
and other laws, significant legal and financial exposure, damage to our reputation, and a loss of confidence in our security measures,
which could harm our business.
Failure to comply with the relatively
new E-Commerce Law may have a material adverse impact on our business, financial conditions and results of operations.
As the e-commerce industry is still evolving
in China, new laws and regulations may be adopted from time to time to address new issues that arise from time to time. For example,
in August 2018, the Standing Committee of the National People’s Congress promulgated the E-Commerce Law, which became effective
on January 1, 2019. The E-Commerce Law generally provides that e-commerce operators must obtain administrative licenses if
business activities conducted by the e-commerce operators are subject to administrative licensing requirements under applicable
laws and regulations. In addition, the E-Commerce Law imposes a number of obligations on e-commerce platform operators, including
the obligations: (i) to verify and register platform merchants, (ii) to ensure platform cybersecurity, including, but
not limited to, data privacy, (iii) to ensure fair dealing and the legitimate rights and interests of consumers on the platform,
(iv) to publicize transaction information preservation and transaction rules, and (v) to protect intellectual properties.
See “Item 1. Overview—Government Regulations—Regulations Relating to E-Commerce” for further details.
As the E-Commerce Law is relatively new, no detailed interpretation and implementation rules have been promulgated, and it remains
uncertain how the E-Commerce Law will be interpreted and implemented. We cannot assure you that our current business operations
satisfy the obligations provided under the E-Commerce Law in all respects. If the PRC governmental authorities determine that we
are not in compliance with all the requirements proposed under the E-Commerce Law, we may be subject to fines and/or other sanctions.
The E-Commerce Law also imposes a requirement
on operators of e-commerce platforms, such as our company, to assist in tax collection with respect to income generated by sellers
from transactions conducted on e-commerce platforms, including, among others, submitting to the tax authority information on the
identities of sellers on e-commerce platforms and other information relating to tax payment. Failure to comply with the requirement
may result in operators of e-commerce platforms being subject to fines and, in severe circumstances, suspension of business operations
of e-commerce platforms. Substantial uncertainties exist regarding the interpretation and implementation of the E-Commerce Law.
We encourage and incentivize merchants to promote the products on our platform. If the merchants were deemed to be selling our
products on consignment basis, the PRC tax authorities may require them to make tax registration and request our assistance in
these efforts, pursuant to the E-Commerce Law, and the merchants on our platform may be subject to more stringent tax compliance
requirements. The PRC government may adopt additional requirements from time to time, and we may be requested by tax authorities
to provide further assistance in the enforcement of tax regulations, such as disclosure of transaction records and bank account
information of the merchants, and withholding taxes for such merchants. If any of these were to occur, we may lose our existing
stores or fail to attract new stores on our platform and the level of activity may be reduced on our platform. We may also incur
increased costs and expenses as a result. The tightened tax enforcement by PRC tax authorities in the e-commerce industry, such
as imposition of reporting or withholding obligations on operators of e-commerce platforms with respect to tax payable of merchants
on e-commerce platforms, may have a material and adverse effect on our business, financial condition and results of operations.
If our business model were found to be in violation of
applicable laws and regulations, our business, financial condition and results of operations would be materially and adversely
affected.
In August 2005, the State Council promulgated
the Regulations on the Prohibition of Pyramid Selling, which prohibits individuals and entities in China from engaging in pyramid
selling. See “Item 1. Overview—Government Regulations—Regulations Relating to Pyramid Selling in the PRC.”
We believe that our current business model that provides rewards to members who introduce new members and customers to us is not
in violation of applicable PRC laws and regulations, including the Regulations on the Prohibition of Pyramid Selling. However,
there is no assurance that the relevant government authorities will find our business model not in violation of any applicable
regulations, given the uncertainties in the interpretation and application of existing PRC laws, regulations and policies relating
to our current business model, including, but not limited to, regulations regulating pyramid selling. Moreover, new laws, regulations
or policies may also be promulgated in the future, and there is no assurance that our current business model will be in full compliance
with the new laws, regulations or policies. If our business model were to be found in violation in the future, we will have to
make adjustment to our business model or cease certain of our business operations, and the relevant governmental authorities may
confiscate any illegal gains and impose a fine, which would have a material and adverse impact on our business, financial condition
and results of operations.
The relative lack of public company
experience of our management team may put us at a competitive disadvantage.
Our management team lacks significant public
company experience, which could impair our ability to comply with legal and regulatory requirements such as, but not limited to,
those imposed by the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). Our senior management does not have significant
experience managing a publicly traded company. Such responsibilities include complying with federal securities laws and making
required disclosures on a timely basis. Our senior management may be unable to implement programs and policies in an effective
and timely manner or that adequately respond to the increased legal, regulatory and reporting requirements associated with being
a publicly traded company. Our failure to comply with all applicable requirements could lead to the imposition of fines and penalties,
distract our management from attending to the management and growth of our business, result in a loss of investor confidence in
our financial reports and have an adverse effect on our business and stock price.
As a public
company, we are obligated to maintain effective internal controls over financial reporting. Our internal controls may be determined
not to be effective, which may adversely affect investor confidence in us and, as a result, decrease the value of our Common Stock.
The PRC has not adopted management and
financial reporting concepts and practices similar to those in the United States. We may have difficulty in hiring and retaining
a sufficient number of qualified financial and accounting employees who are familiar with US GAAP and reporting requirements to
work in the PRC. As a result of these factors, we may experience difficulty in establishing and maintaining accounting and financial
controls, collecting financial data, budgeting, managing our funds and preparing financial statements, books of account and corporate
records and instituting business practices that meet investors’ expectations in the United States.
Rules adopted by the SEC, or the Commission,
pursuant to Sarbanes-Oxley Section 404 require annual assessment of our internal controls over financial reporting. The standards
that must be met for management to assess the internal controls over financial reporting as effective are relatively new and complex,
and they require significant documentation, testing and possible remediation to meet the detailed standards. This assessment will
need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting.
During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial
reporting as we have done previously and this year, we will be unable to assert that our internal controls are effective. If we
continue to be unable to conclude that our internal control over financial reporting is effective, we could lose investor confidence
in the accuracy and completeness of our financial reports, which could harm our business and cause the price of our stock to decline.
We may need additional capital to
fund our future operations and, if it is not available when needed, we may need to reduce our planned development and marketing
efforts, which may reduce our sales revenue.
We believe that our existing working capital
and cash available from operations will enable us to meet our working capital requirements for at least the next twelve months.
However, if cash from future operations is insufficient, or if cash is used for acquisitions or other currently unanticipated uses,
we may need additional capital. The development and marketing of new products and services and the expansion of our business and
associated support personnel require a significant commitment of resources. In addition, if the markets for our products and services
develop more slowly than anticipated, or if we fail to establish significant market share and achieve sufficient net revenues,
we may continue to consume significant amounts of capital. As a result, we could be required to raise additional capital. To the
extent that we raise additional capital through the sale of equity or convertible debt securities or other methods, the issuance
of such securities could result in dilution of the shares held by existing shareholders. If additional funds are raised through
the issuance of debt securities, such securities may provide the holders certain rights, preferences, and privileges senior to
those of common shareholders, and the terms of such debt could impose restrictions on our operations. We cannot guarantee that
additional capital, if required, will be available on acceptable terms, or at all. If we are unable to obtain sufficient amounts
of additional capital, we may be required to reduce the scope of our planned business development and marketing efforts, which
could harm our business, financial condition and operating results.
If our costs and demands upon management
increase disproportionately to the growth of our business and revenue as a result of complying with the laws and regulations affecting
public companies, our operating results could be harmed.
As a public company, we do and will continue
to incur significant legal, accounting, investor relations and other expenses, including costs associated with public company reporting
requirements. We also have incurred and will incur costs associated with current corporate governance requirements, including requirements
under Section 404 and other provisions of Sarbanes-Oxley, as well as rules implemented by the SEC and the stock exchange on
which our common stock is traded. The expenses incurred by public companies for reporting and corporate governance purposes have
increased dramatically over the past several years. These rules and regulations have increased our legal and financial compliance
costs substantially and make some activities more time consuming and costly. If our costs and demands upon management increase
disproportionately to the growth of our business and revenue, our operating results could be harmed.
There are inherent uncertainties
involved in estimates, judgments and assumptions used in the preparation of financial statements in accordance with generally accepted
accounting principles in the United States, or U.S. GAAP. Any changes in estimates, judgments and assumptions could have a material
adverse effect on our business, financial condition and operating results.
The preparation of financial statements
in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) involves making estimates, judgments
and assumptions that affect reported amounts of assets (including intangible assets), liabilities and related reserves, revenue,
expenses and income. Estimates, judgments and assumptions are inherently subject to change in the future, and any such changes
could result in corresponding changes to the amounts of assets, liabilities, revenue, expenses and income. Any such changes could
have a material adverse effect on our business, financial condition and operating results.
We will
no longer have any equity participation in HeDeTang HK or in the fruit juice industry.
After the Sale Transaction closed on February
27, 2020, we have no ongoing equity participation in the fruit juice business in China. We ceased to participate in HeDeTang HK’s
future earnings or growth, if any, and will not participate in any potential future sale of HeDeTang HK even if there is significant
growth of fruit juice business in China in the future. It is possible that New Continent could sell some or all of its equity in
HeDeTang HK following the Sale Transaction at a valuation higher than that being paid in the Sale Transaction and New Continent
could realize significant returns on its equity investment in HeDeTang.
We may be exposed to litigation related
to the Sale Transaction on February 27, 2020 from the holders of our common stock.
Transactions such as the Sale Transaction
are often subject to lawsuits by stockholders. Particularly because the holders of our common stock will not receive any consideration
from the Sale Transaction, it is possible that they may sue the Company or the Board of Directors. Such lawsuits could result in
substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
We may have exposure to greater than
anticipated tax liabilities.
We are subject
to enterprise income tax, value-added tax, and other taxes in each province and city in China where we have operations. Our tax
structure is subject to review by various local tax authorities. The determination of our provision for income tax and other tax
liabilities requires significant judgment. In the ordinary course of our business, there are many transactions and calculations
where the ultimate tax determination is uncertain. Although we believe our estimates are reasonable, the ultimate decisions by
the relevant tax authorities may differ from the amounts recorded in our financial statements and may materially affect our financial
results in the period or periods for which such determination is made.
We are subject to the risk of increased
income taxes, which could harm our business, financial condition and operating results.
We base our tax position upon the anticipated nature and conduct
of our business and upon our understanding of the tax laws of the various countries in which we have assets or conduct activities.
However, our tax position is subject to review and possible challenge by tax authorities and to possible changes in law, which
may have retroactive effect. We currently operate through three direct wholly-owned subsidiaries: DigiPay FinTech Limited, Future
FinTech (Hong Kong) Limited, and GlobalKey Shared Mall Limited, and their subsidiaries and VIE in Hong Kong, BVI, Japan, Cayman
Islands and China, and we maintain our e-commerce operations in China. Any of these jurisdictions could assert tax claims against
us. We cannot determine in advance the extent to which some jurisdictions may require us to pay taxes or make payments in lieu
of taxes. If we become subject to additional taxes in any jurisdiction, such tax treatment could materially and adversely affect
our business, financial condition and operating results.
Increases in income tax rates, changes
in income tax laws or disagreements with tax authorities could adversely affect our business, financial condition or results of
operations.
We are subject
to income taxes in the United States and in certain foreign jurisdictions in which we operate. Increases in income tax rates or
other changes in income tax laws that apply to our business could reduce our after-tax income from such jurisdiction and could
adversely affect our business, financial condition or results of operations. Our operations outside the United States generate
a significant portion of our income. In addition, the United States and many of the other countries in which our products are distributed
or sold, including countries in which we have significant operations, have recently made or are actively considering changes to
existing tax laws. For example, the Tax Cuts and Jobs Act (the “TCJ Act”) was signed into law in the United States.
The changes in the TCJ Act are broad and complex and we are continuing to examine the impact the TCJ Act may have on our business
and financial results. Additional changes in the U.S. tax regime or in how U.S. multinational corporations are taxed on foreign
earnings, including changes in how existing tax laws are interpreted or enforced, could adversely affect our business, financial
condition or results of operations.
We are also subject
to regular reviews, examinations and audits by the IRS and other taxing authorities with respect to income and non-income based
taxes both within and outside the United States. Economic and political pressures to increase tax revenues in jurisdictions in
which we operate, or the adoption of new or reformed tax legislation or regulation, may make resolving tax disputes more difficult
and the final resolution of tax audits and any related litigation could differ from our historical provisions and accruals, resulting
in an adverse impact on our business, financial condition or results of operations. In addition, in connection with the Organization
for Economic Co-operation and Development Base Erosion and Profit Shifting project, companies are required to disclose more information
to tax authorities on operations around the world, which may lead to greater audit scrutiny of profits earned in various countries.
Risks Related to Doing Business in the
PRC
We face the risk that changes in
the policies of the PRC government could have a significant impact upon the business we may be able to conduct in the PRC and the
profitability of such business.
We conduct substantially all of our operations
and generate most of our revenue in the PRC. Accordingly, economic, political and legal developments in the PRC will significantly
affect our business, financial condition, results of operations and prospects. The PRC economy is in transition from a planned
economy to a market oriented economy subject to plans adopted by the government that set national economic development goals. Policies
of the PRC government can have significant effects on economic conditions in the PRC. While we believe that the PRC will continue
to strengthen its economic and trading relationships with foreign countries and that business development in the PRC will continue
to follow market forces, we cannot guarantee that this will be the case. Our interests may be adversely affected by changes in
policies by the PRC government, including:
● changes in laws, regulations or their interpretation;
● confiscatory taxation;
● restrictions on currency conversion, imports or sources of supplies;
● expropriation or nationalization of private enterprises; and
● the allocation of resources.
Although the PRC government has been pursuing
economic reform policies for more than three decades, the PRC government continues to exercise significant control over economic
growth in the PRC through the allocation of resources, controlling payments of foreign currency, setting monetary policy and imposing
policies that impact particular industries in different ways. We cannot guarantee that the PRC government will continue to pursue
policies favoring a market oriented economy or that existing policies will not be significantly altered, especially in the event
of a change in leadership, social or political disruption, or other circumstances affecting political, economic and social life
in the PRC.
If we become subject to additional
scrutiny, criticism and negative publicity involving U.S.-listed China-based companies, we may have to expend significant resources
to investigate and resolve the matter which could harm our business operations, this offering and our reputation and could result
in a loss of your investment in our shares, especially if such matter cannot be addressed and resolved favorably.
Recently, U.S. public companies that have substantially
all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial
commentators and regulatory agencies. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting
irregularities, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of
adherence thereto and, in some cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly
traded stock of many U.S.-listed China-based companies has decreased in value and, in some cases, has become virtually worthless. Many
of these companies have been subject to shareholder lawsuits and SEC enforcement actions and have conducted internal and external investigations
into the allegations. On February 21, 2020, the Company received a subpoena from the SEC’s Division of Enforcement requiring us
to produce documents and detailed information relating to, among other things, the Company’s accounting procedures, management
oversight, and the sale of HeDeTang Holdings (HK) Ltd. to New Continent International Co., Ltd. The Company has provided responsive
documents and information requested in the subpoena. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity
will have on us and our business. If we become the subject of any unfavorable allegations, whether such allegations are proven to be
true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation
may be a major distraction to our management. If such allegations are not proven to be groundless, our business operations will be severely
hindered and your investment in our shares could be rendered worthless.
If the PRC government
deems that the contractual arrangements in relation to our consolidated variable interest entities do not comply with PRC regulatory
restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations
change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.
Foreign ownership of internet-based businesses,
including value-added telecommunications services, is subject to restrictions under current PRC laws and regulations. To comply
with PRC laws and regulations, we conduct our e-commerce operations in China through a series of contractual arrangements entered
into among WFOE, our VIE and the shareholders of our VIE. As a result of these contractual arrangements, we exert control over
our VIE and consolidate its operating results in our financial statements under U.S. GAAP. For a detailed description of these
contractual arrangements, see “Overview -Contractual Arrangements with Our Consolidated Affiliated Entity and
Its Respective Shareholders.”
In the opinion of our PRC counsel, our
current ownership structure, the ownership structure of our PRC subsidiary and our consolidated VIE, and the contractual arrangements
among WFOE, our VIE and the shareholders of our VIE are common practices for the companies listed on stock exchanges in the U.S.
engaging in the businesses restricted in China and these contractual arrangements are valid and binding in accordance with their
terms and applicable PRC laws and regulations currently in effect. However, our Chinese counsel has also advised us that there
are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations and there
can be no assurance that the PRC government will ultimately take a view that is consistent with the opinion of our PRC counsel.
If the PRC government finds that our contractual
arrangements do not comply with its restrictions on foreign investment in the e-commerce business, the relevant PRC regulatory
authorities, including the China Securities Regulatory Commission (CSRC) may require us to discontinue
or place restrictions or onerous conditions on our operations and it may also imposing fines, confiscating the income from
the WFOE or our VIE. The imposition of any of these penalties would result in a material and adverse effect on our ability to conduct
our business. In addition, it is unclear what impact the PRC government actions would have on us and on our ability to consolidate
the financial results of our VIE in our consolidated financial statements, if the PRC government authorities were to find our VIE
structure and contractual arrangements to be in violation of PRC laws and regulations. If the imposition of any of these government
actions causes us to lose our right to direct the activities of our VIE or our right to receive substantially all of the economic
benefits and residual returns from our VIE and we are not able to restructure our ownership structure and operations in a satisfactory
manner, we would no longer be able to consolidate the financial results of our VIE in our consolidated financial statements. Either
of these results, or any other significant penalties that might be imposed on us in this event, would have a material adverse effect
on our financial condition and results of operations.
Any failure by our consolidated VIE
or their shareholders to perform their obligations under our contractual arrangements with them would have a material adverse effect
on our business.
If our consolidated VIE or its shareholders
fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend
additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC laws, including seeking
specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective under PRC laws. For
example, if the shareholders of our VIE were to refuse to transfer their equity interest in the VIE to us or our designee if we
exercise the purchase option pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us,
then we may have to take legal action to compel them to perform their contractual obligations.
All the agreements under our contractual
arrangements are governed by PRC laws. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes
would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as well established as in some other
jurisdictions, such as in the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce
these contractual arrangements. Meanwhile, there are some regulations unfavorable to VIEs. However, despite there are very few
precedents and little formal guidance as to how contractual arrangements in the context of a consolidated variable interest entity
should be interpreted or enforced under PRC laws and there remain significant uncertainties regarding the ultimate outcome of such
legal proceedings should legal action become necessary. Currently, almost all of the Chinese companies listed on overseas stock
exchanges that are in the internet-based business such as e-commerce or online-gaming have adopted a VIE structure. If the losing
parties fail to carry out the court judgement or arbitration awards within a prescribed time limit, the prevailing parties may
only enforce them in PRC courts, which would require additional expenses and delay. In the event that we are unable to enforce
these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual
arrangements, we may not be able to exert effective control over our consolidated variable interest entities, and our ability to
conduct our business may be negatively affected.
The shareholders of our consolidated
VIE may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.
The shareholders of our VIE and their interests
in our VIE may differ from their interests of our Company as a whole. These shareholders may breach, or cause our consolidated
variable interest entities to breach, the existing contractual arrangements we have with them and our consolidated variable interest
entities, which would have a material adverse effect on our ability to effectively control our consolidated variable interest entities
and receive economic benefits from them. For example, the shareholders may be able to cause our agreements with E-Commerce Tianjin
to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements
to us on a timely basis. We cannot assure you that when conflicts of interest arise, any or all of these shareholders will act
in the best interests of our company or such conflicts will be resolved in our favor.
Currently, we do not have any arrangements
to address potential conflicts of interest between these shareholders and our company, except that we could exercise our purchase
option under the exclusive option agreements with these shareholders to request them to transfer all of their equity interests
in E-Commerce Tianjin to a PRC entity or individual designated by us, to the extent permitted by PRC laws. If we cannot resolve
any conflict of interest or dispute between us and the shareholders of our VIE, we would have to rely on legal proceedings, which
could result in the disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.
PRC laws and regulations governing
our current business operations are sometimes vague and uncertain and any changes in such laws and regulations may harm our business.
There are substantial uncertainties regarding
the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing
our business and the enforcement and performance of our arrangements with customers in certain circumstances. We are considered
foreign persons or foreign funded enterprises under PRC laws and, as a result, we are required to comply with PRC laws and regulations
related to foreign persons and foreign funded enterprises. These laws and regulations are sometimes vague and may be subject to
future changes, and their official interpretation and enforcement may involve substantial uncertainty. The effectiveness of newly
enacted laws, regulations or amendments may be delayed, resulting in detrimental reliance. New laws and regulations that affect
existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of
existing or new PRC laws or regulations may have on our business.
We could be restricted from paying
dividends to shareholders due to PRC laws and other contractual requirements.
We are a holding company incorporated in
the State of Florida and do not have any assets or conduct any business operations other than our investments in our subsidiaries
and affiliates. As a result of our holding company structure, we rely entirely on dividend payments from our subsidiaries in China.
PRC accounting standards and regulations currently permit payment of dividends only out of accumulated profits, a portion of which
is required to be set aside for certain reserve funds. Furthermore, if our subsidiaries and VIE in China incur debt on its own
in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments. Although we
do not intend to pay dividends in the future, our inability to receive all of the profit from our China subsidiaries’ operations
may provide an additional obstacle to our ability to pay dividends if we so decide in the future.
Governmental control of currency
conversion may affect the value of shareholder investments.
The PRC government imposes controls on
the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of the PRC. RMB is currently
not a freely convertible currency. Shortages in the availability of foreign currency may restrict our ability to remit sufficient
foreign currency to satisfy foreign currency obligations. Under existing PRC foreign exchange regulations, payments of current
account items, including profit distributions, interest payments and expenditures from the transaction, can be made in foreign
currencies without prior approval by complying with certain procedural requirements. Approval from appropriate governmental authorities,
however, is required where RMB is to be converted into foreign currency and remitted out of the PRC to pay capital expenses such
as the repayment of bank loans denominated in foreign currencies. In addition, the PRC government could restrict access to foreign
currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient
foreign currency to satisfy our currency demands, we may not be able to pay certain of our expenses as they come due.
The fluctuation of the RMB may harm
shareholder investments.
The value of the RMB against the U.S. dollar
and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions.
Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenue and financial condition. For
example, to the extent that we need to convert U.S. dollars we receive from an offering of our securities into RMB for our operations,
appreciation of the RMB against the U.S. dollar would diminish the value of the proceeds of the offering and could harm our business,
financial condition and results of operations. Conversely, if we decide to convert our RMB into U.S. dollars for business purposes
and the U.S. dollar appreciates against the RMB, the U.S. dollar equivalent of the RMB we convert would be reduced. In addition,
the depreciation of significant U.S. dollar denominated assets could result in a charge to our income statement and a reduction
in the value of these assets.
PRC regulations relating to offshore
investment activities by PRC residents may limit our PRC subsidiary’s ability to increase its registered capital or distribute
profits to us or otherwise expose us or our PRC resident beneficial owners to liability and penalties under PRC law.
The State Administration of Foreign Exchange
or SAFE promulgated the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip
Investment through Special Purpose Vehicles, or SAFE Circular 37, in July 2014 that requires PRC residents or entities to register
with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose
of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the
offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such
PRC citizens or residents, name, and operation term), increases or decreases in investment amount, transfers or exchanges of shares,
or mergers or divisions. SAFE Circular 37 is issued to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration
for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular 75. SAFE
promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment
in February 2015, which took effect on June 1, 2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities
to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore
entity established for the purpose of overseas investment or financing.
If our shareholders who are PRC residents
or entities do not complete their registration as required, our PRC subsidiary may be prohibited from distributing its profits
and proceeds from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute
additional capital to our PRC subsidiary.
The failure or inability of the relevant
shareholders to comply with the registration procedures set forth in these regulations may subject us to fines and legal sanctions,
such as restrictions on our cross-border investment activities, on the ability of our wholly foreign-owned subsidiaries in China
to distribute dividends and the proceeds from any reduction in capital, share transfer or liquidation to us. Moreover, failure
to comply with the various foreign exchange registration requirements described above could result in liability under PRC law for
circumventing applicable foreign exchange restrictions. As a result, our business operations and our ability to distribute profits
to you could be materially and adversely affected.
Any failure to comply with PRC regulations