ITEM 1. DESCRIPTION OF BUSINESS.
We are a Nevada holding company
that through its subsidiaries are engaged in the media distribution business. Specifically, we provide authentication, valuation and certification
(“AVC”) service, sale and purchase, hire purchase, financing, custody, security and exhibition (“CSE”) services
to buyers of movie and music media through traditional channels as well as through leveraging blockchain technology through the creation
of digital ownership tokens (“DOTs”). We operate in two business segments through our subsidiaries: (i) a strategic business
and management advisory services operated through Typerwise Limited, a Hong Kong limited liability company; and (ii) a DOT solution service
business operated through Marvion Private Limited, a Singapore limited liability company. Typerwise is a cross-cultural strategic and
management consulting firm founded by an investment banking professional with experience in financial markets, legal, compliance and business
operations. Typerwise offers financing and business development solutions as well as related professional services such as assisting clients
in meeting regulatory and best practices requirements. With the development of the Digital Ownership Tokens (“DOT”) based
on blockchain technologies, Typerwise has been assisting technology companies in meeting regulatory and legal requirements while setting
up and offering DOT products and services in Hong Kong. Leveraging the blockchain technologies obtained by Marvion, the group developed
a media distribution business by minting a DOT for the media as a unique identification to track and identify the ownership and access
rights to the media products. The media products can be movie, music or graphics files. Marvion will acquire the media and sell all DOT
minted media products through online marketplaces. Typerwise was incorporated on May 29, 2018, in Hong Kong. During the years ended December
31, 2021 and 2020, our strategic business and management advisory services segment generated revenue of $201,137 and $0, respectively,
and our sale and distribution of the licensed media content embedded with DOT solution business segment generated revenue of $95,955 and
$0, respectively. The Company accepts payment for services in the form of select and liquid digital assets, but does not hold digital
assets as an investment. Such digital assets should be converted into fiat currency or stable digital currency after receipt, subject
to the factors include but not limited to currency fluctuations, government policies, exchange control regulations, and general economic
market condition.
In providing our service solutions,
we rely on third party blockchain platforms to complete our services. Because we are dependent on third party providers to support certain
aspects of our business activities, any interruptions in services by these third parties may impair our ability to service our clients.
Please see “Risk Factors- We rely on third-party service providers and partners for certain aspects of our operations, and
any interruptions in services provided by these third parties may impair our ability to support our users.” set forth in
the Form 10. Our solutions, however, are blockchain independent in that we do not rely specific on a single blockchain provider to complete
our service solutions but may switch our media to different blockchain services on an as needed basis. We currently have no plans to develop
or maintain our own blockchain and intend to focus on providing business solutions.
On October 18, 2021, we acquired
Marvion Holdings Limited, a British Virgin Islands limited liability company, that is engaged in the business of management advisory services
and DOT solution services. Our DOT solution services include: (i) creating DOTs for third party movie and music producers, including media
authentication and access information; and (ii) providing a website platform to host, access and consume (view or listen) their media.
We will charge a fee to create DOTs for their movie and music works. We will also be charging a platform fee for each success selling
of their DOT on our platform. While their media is hosted on our media marketplace platform, user access to the media with the proper
DOT will not incur extra charges.
Marvion Private Limited, the
operating company of Marvion Holdings Limited, was incorporated on August 19, 2021, in Singapore. With the acquisition of Marvion, we
plan to build a more profitable entertainment ecosystem that provides more cost effective and autonomous solutions, with less middlemen
and more direct access to the media distribution. We aim to integrate the two businesses to help prospective songwriters, producers, independent
labels and performers navigate the potential issues in engaging their works with a wider audience through DOT.
Our corporate organization chart is below.
We are not a Hong Kong operating
company but a Nevada holding company with operations conducted through our wholly owned subsidiaries based in Hong Kong and Singapore.
This structure presents unique risks as our investors may never directly hold equity interests in our Hong Kong subsidiaries and will
be dependent upon contributions from our subsidiaries to finance our cash flow needs. Bonanza Goldfields Corp. and its Hong Kong subsidiaries
are not required to obtain permission from the Chinese authorities including the China Securities Regulatory Commission, or CSRC, or Cybersecurity
Administration Committee, or CAC, to operate or to issue securities to foreign investors. However, in light of the recent statements and
regulatory actions by the PRC government, such as those related to Hong Kong’s national security, the promulgation of regulations
prohibiting foreign ownership of Chinese companies operating in certain industries, which are constantly evolving, and anti-monopoly concerns,
we (the parent company and our subsidiaries) may be subject to the risks of uncertainty of any future actions of the PRC government in
this regard including the risk that we inadvertently conclude that such approvals are not required, that applicable laws, regulations
or interpretations change such that we are required to obtain approvals in the future, or that the PRC government could disallow our holding
company structure, which would likely result in a material change in our operations, including our ability to continue our existing holding
company structure, carry on our current business, accept foreign investments, and offer or continue to offer securities to our investors.
These adverse actions would likely cause the value of our common stock to significantly decline or become worthless. We may also be subject
to penalties and sanctions imposed by the PRC regulatory agencies, including the Chinese Securities Regulatory Commission, if we fail
to comply with such rules and regulations, which would likely adversely affect the ability of the Company’s securities to continue
to trade on the Over-the-Counter Bulletin Board, which would likely cause the value of our securities to significantly decline or become
worthless. For a detailed description of the risks facing the Company associated with our operations in Hong Kong, please refer to “Risk
Factors – Risk Relating to Doing Business in Hong Kong.” set forth in the Form 10.
We are authorized to issue
up to 1,970,000,000 shares of our common stock, par value $0.0001. Our Board has also designated the following classes of preferred stock:
(i) the Series A Preferred Stock,” par value $0.0001, with 10,000,000 authorized shares, all of which are issued and outstanding;
(ii) “Series B Preferred Stock,” par value $0.0001, with 1,000,000 authorized shares, 366,346 of which are issued and outstanding;
and (iii) the “Series C Convertible Preferred Stock,” par value $0.001, with 1 authorized share, all of which are issued and
outstanding. The voting and conversion rights of each series of preferred stock and the beneficial ownership of such securities by insiders
are summarized below:
Stock |
Voting Rights |
Ownership |
Common Stock |
One vote per share |
60.48% held by Lee Ying Chiu Herbert. |
Series A Preferred Stock |
Holders of Series A Preferred Stock are entitled to vote on matters submitted to a vote of the shareholders with each one share having 200 votes. Series A Preferred Stock do not convert into Common Stock. |
100% held by Lee Ying Chiu Herbert. |
Series B Preferred Stock |
Holders of Series B Preferred Stock have no voting rights, and Series B Preferred Stock do not convert into Common Stock. |
Approximately 92% held by Lee Ying Chiu Herbert. |
Series C Convertible Preferred Stock |
Holders of Series C Convertible Preferred Stock
are generally not allowed to vote on an “as converted” basis on matters submitted to holders of the common stock, or any class
thereof.
Each one share of Series C Convertible Preferred
Stock converts into 9.99% of the outstanding shares of common stock less the number of shares of common stock held by the holder; provided
that any such optional conversion must involve the conversion of all of the holder’s shares of Series C Convertible Preferred Stock. |
100% held by Lee Ying Chiu Herbert. |
Lee Ying Chiu Herbert will
be entitled to control approximately 81% of our voting power on matters submitted to a vote of the shareholders. We do not intend to utilize
controlled company exemptions.
We reported a net loss of
$10,047,662 and $2,121,074 for the years ended December 31, 2022 and 2021, respectively. We had current assets of $4,554,319 and current
liabilities of $6,823,919 as of December 31, 2022. As of December 31, 2021, our current assets and current liabilities were $143,732 and
$2,407,792, respectively. The financial statements for the years ended December 31, 2021 and 2020 have been prepared assuming that we
will continue as a going concern. Our continuation as a going concern is dependent upon improving our profitability and the continuing
financial support from our stockholders. Our sources of capital in the past have included the sale of equity securities, which include
common stock sold in private transactions and short-term and long-term debts.
We are organized under the
laws of the State of Nevada as a holding company that conducts its business through a number of subsidiaries organized under the laws
of foreign jurisdictions such as Singapore, Hong Kong and the British Virgin Islands. This may have an adverse impact on the ability of
U.S. investors to enforce a judgment obtained in U.S. Courts against these entities, or to effect service of process on the officers and
directors managing the foreign subsidiaries.
History
We were incorporated under
the laws of the State of Nevada on March 6, 2008, under the name Bonanza Goldfields Corp. Since inception, we acquired mineral rights
to mining properties in the United States and explored for minerals.
The Company filed a registration
statement on Form S-1 on July 11, 2008, which became effective on September 12, 2008. Thereafter, the Company filed periodic reports with
the Securities and Exchange Commission until it filed a Form 15 terminating its registration and otherwise suspending its duty to file
reports on February 9, 2017. On March 15, 2017, the Company began posting periodic reports on the OTC Markets website under the alternative
reporting standard.
On August 27, 2021, Ms. Bauman
and her affiliated entities sold to Lee Ying Chiu Herbert 11,823,000 shares of the Company’s common stock, 10,000,000 shares of
the Company’s Series A Preferred Stock, 337,000 shares of the Company’s Series B Preferred Stock and 1 share of the Company’s
Series C Preferred Stock for aggregate consideration of Three Hundred Eighty Thousand Dollars ($380,000). In connection with the sale
of Ms. Bauman and her affiliated entities’ securities, Ms. Bauman resigned from all of her positions with the Company and appointed
Chan Man Chung to serve as Chief Executive Officer, Chief Financial Officer, Secretary and Director and Lee Ying Chiu Herbert and Tan
Tee Soo as directors of the Company. It is our understanding that the purchaser is not a U.S. Person within the meaning of Regulations
S. Accordingly, the shares are being sold pursuant to the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended,
Regulation D and Regulation S promulgated thereunder.
Acquisition of Marvion
Holdings Limited, Our Management Advisory Services and DOT Solution Services Business
On October 18, 2021, we acquired
all of the issued and outstanding shares of Marvion Holdings Limited (hereafter referred to as, Marvion), a British Virgin Islands limited
liability company, from Lee Ying Chiu Herbert, our director and controlling shareholder, and So Han Meng Julian, a shareholder of Marvion,
in exchange for 139,686,481,453 shares of our issued and outstanding common stock, all in accordance with the terms of that certain Share
Exchange Agreement and Confirmation. The Company has issued 1,217,764,822 shares of common stock and will increase the authorized share
to issue the remaining 138,468,716,631 shares of its common stock. In connection with the acquisition, So Han Meng Julian was appointed
to serve as the Chief Executive Officer of Marvion Private Limited and Typerwise Limited, and a director of the Company. The Company relied
on the exemption from registration pursuant to Section 4(2) of, and Regulation D and/or Regulation S promulgated under the Act in selling
the Company’s securities to the shareholders of Marvion. The foregoing descriptions of the Share Exchange Agreement and the Confirmation
are not complete and are qualified in their entirety by reference to the complete text of the Share Exchange Agreement and Confirmation,
which are incorporated herein by reference and attached hereto as Exhibits 10.1 and 10.2.
Prior to the acquisition,
the Company was considered as a shell company due to its nominal assets and limited operation. Upon the acquisition, Marvion will comprise
the ongoing operations of the combined entity and its senior management will serve as the senior management of the combined entity, Marvion
is deemed to be the accounting acquirer for accounting purposes. The transaction will be treated as a recapitalization of the Company.
Accordingly, the consolidated assets, liabilities and results of operations of the Company will become the historical financial statements
of Marvion after the acquisition date. Marvion was the legal acquiree but is deemed to be the accounting acquirer. The Company, on the
other hand, was the legal acquirer but is deemed to be the accounting acquiree in the reverse merger. The historical financial statements
prior to the acquisition are those of the accounting acquirer. Historical stockholders’ equity of the accounting acquirer prior
to the merger are retroactively restated (a recapitalization) for the equivalent number of shares received in the merger. Operations prior
to the merger are those of the acquirer. After completion of the share exchange transaction, the Company’s consolidated financial
statements include the assets and liabilities, the operations and cash flow of the accounting acquirer.
Our sources of capital in
the past have included the sale of equity securities, which include common stock sold in private transactions to our executive officers
or existing shareholders, capital leases and short-term and long-term debts. We expect to finance future acquisitions through a combination
of these. While we believe that existing shareholders and our officers and directors will continue to provide the additional cash to make
acquisitions and to meet our obligations as they become due or that we will obtain external financing, there can be no assurance that
we will be able to raise such additional capital resources on satisfactory terms. We believe that our current cash and other sources of
liquidity discussed below are adequate to support operations for at least the next 12 months.
Market Overview
Our Business.
We are a Nevada
holding company that through its subsidiaries are engaged in the media and entertainment creation and distribution business. Through the
use of Web3 technologies (including blockchain and metaverse technologies), we seek to provide end-to-end one-stop solution for filmmakers,
content creators, production houses, distributors, and consumers. Our mission is to lead the revolution and set the standards for responsible
application of Web3 technologies, including our proprietary Digital Ownership Token (“DOT”).
The traditional process of
purchasing media content is a tedious process typically involving 4-5 months of manual effort through middlemen. We believe that our technology,
including our DOT, will enable us to simplify the process of digital asset management, digital rights management, and metadata management,
and to allow prospective buyers such as distributors and sales agents to discover media content they want in a faster manner, thus reducing
the time on sourcing process and the number of middlemen needed.
Each DOT represents legally
binding ownership over (1) assets, tangible or intangible, (2) intellectual property, copyright or other licenses, or (3) the specific
legal rights described therein. Each DOT will have legally binding ownership documentation embedded in the metadata of the token
and such metadata will be secured on a reliable blockchain. Separately, each DOT will mint on the blockchain with smart contracts that
will facilitate trust-less settlement of sale and purchase transactions, including payments of fees and commissions (if any). As our DOTs
are powered by smart contracts, buyers of the DOTs will be able to confirm the ownership and/or licensing rights of the digital assets
from the legal documents minted into the DOT. These are the gold standards we observe in an attempt to take the lead on the narrative
regarding how blockchain technology should be responsibly adopted and implemented in the real world to improve our daily lives.
On the consumption level,
we allow fans and consumers to have an end-to-end immersive experiences when they purchase the DOTs of our media and entertainment
content. They are able to get real-world experiential perks such as red carpet access, exclusive premier, chance to meet the stars and
even have a say over the different production elements (e.g. choosing the ending of a film). This brings fans closer to the celebrities
and production that they support, bridging the digital experiences with real-life experiences.
We
are also building our Metaverse to allow fans and consumers to enjoy the content on the Metaverse. Currently, most streaming contents
are too one-way oriented and viewers are unable to interact with one another in an immersive fashion. Our Metaverse will allow fans and
consumers to enjoy media and entertainment content with an immersive, social, interactive, personalized experience by bringing in characteristics
of the real world.
Apart from media and entertainment
purposes, we also intend to transform our Metaverse to eventually become a second home and even a second work place with an economy that
can encourage the establishment of businesses and provide jobs to its residents. Our vision is to see a healthy population of residents
work and play in our Metaverse.
At present, we see three core
pillars of revenue generating operations in our business:
Current Revenue Generating Operation
We currently derive revenue
from the sale of DOTs on our MetaStudio [https://www.marvion.media/], which is operated through our subsidiary, Marvion Group Limited.
The revenue generated from sales of DOTs has superseded the revenue generated by Typerwise Limited, and accordingly, we no longer consider
Typerwise’s business a significant part of business. Our DOTs is a part of our IP Remake Licence initiative, whereby consumers are
able to purchase DOTs on our MetaStudio [https://www.marvion.media/] with the licence to remake movies sequels, series, digital games
etc. For the year ended December 31, 2022, we generated $11,457,863 of revenues from this business segment. We intend to continue to focus
on growing this business segment over the next 12 months. In this respect, we hope to become the largest global marketplace for such licenses
thereby providing easy access for professionals and amateurs to exploit existing intellectual property.
Revenue Generating Operation in the Near
Future (Next 12 Months)
Over the next 12 months, we
intend to encourage quality content creation all over the world by providing a diverse and innovative platform for creators to generate
revenue through the use of DOTs, our Metaverse and other Web3 technologies. We believe that our platform will provide revenue generating
opportunities, including through the sale of DOT embedded with memberships in comics club, movie club, and other similar societies. In
addition, DOTs represent a new unique way in live experiences and access to limited edition collectibles.
We will also be providing
Web5 as a Service (“5aaS”) to all existing participants in the media and entertainment industry to facilitate their transition
to Web5.
Revenue Generating Operation in the Farther
Future (Beyond the Next 12 Months)
In the future, we hope to
explore opportunities in the Metaverse. We believe that the demand for commercial and residential properties in our Metaverse in the form
of purchase and lease will be high.
We strongly believe that environmental,
social and governance (“ESG”) issues form an important part of our business. For example, with respect to the environment
and sustainability, we intend to choose the most carbon friendly blockchain that is suitable for our business needs. As our business matures,
we intend to adopt internal policies and criteria that will enable us to provide better disclosure about our performance with respect
to ESG issues.
In achieving our business
objectives, we rely on third party blockchain platforms to complete our services. Because we are dependent on third party providers to
support certain aspects of our business activities, any interruptions in services by these third parties may impair our ability to service
our clients. Please see “Risk Factors- We rely on third-party service providers and partners for certain aspects of our operations,
and any interruptions in services provided by these third parties may impair our ability to support our users.” set forth
in the Form 10. Our solutions, however, are blockchain independent in that we do not rely specific on a single blockchain provider to
complete our service solutions but may switch our media to different blockchain services on an as needed basis. We currently have no plans
to develop or maintain our own blockchain and intend to focus on providing business solutions.
Other Events
The Company entered into a
Share Swap Agreement with China Information Technology Development Limited (Stock Code: 8178.HK), a company listed in the Stock Exchange
of Hong Kong Limited (“CITD”), pursuant to which BONZ agreed to acquire 26,520,386 Ordinary Shares of CITD, constituting approximately
5.15% of the issued share capital of CITD and approximately 4.9% of the enlarged issued share capital of CITD, in consideration of 218,574,609
shares of BONZ’s common stock, constituting approximately 11.25% of the issued and outstanding common stock of BONZ and approximately
0.153% of BONZ’s issued and outstanding common stock and common stock committed to be issued, in accordance with the terms and conditions
of that certain Share Swap Agreement, dated October 25, 2022, by and between BONZ and CITD (the “Share Swap Agreement”). The
share swap transaction contemplated in the Share Swap Agreement is anticipated to close 90 days from October 25, 2022, or such other later
date as is necessary to comply with all applicable rules and regulations of the United States of America and Hong Kong in respect of the
share swap transaction.
The Company will not issue
any shares of common stock to CITD until its corporate action to increase its authorized share capital pending with FINRA has been approved.
The foregoing description
of the Share Swap Agreement is qualified in its entirety by reference to the Share Swap Agreement, which is filed as Exhibit 10.3 to this
Annual Report and incorporated herein by reference.
Marvion Group Limited, a British
Virgin Islands private limited company and subsidiary of the Company, entered into an Technical Knowhow License and Servicing Agreement
with DataCube Research Centre Limited, a Hong Kong limited company (“DataCube”), pursuant to which DataCube agreed to provide
certain technical knowhow including visual intelligence engine, speech recognition engine, text analytics engine, emotion recognition
engine, motion recognition engine, and AI agent creation engine, during a three-year term in consideration of an aggregate of Forty-Two
Million Dollars ($42,000,000) in accordance with the terms and conditions of that certain Technical Knowhow License and Servicing Agreement,
dated as of November 8, 2022, by and between Marvion Group Limited, a British Islands private limited company, and DataCube (the “DataCube
Agreement”). The consideration is payable in cash or cryptocurrencies. The DataCube Agreement contains normal and customary provisions
relating to indemnification and ownership of intellectual property. DataCube is a subsidiary of CITD.
The foregoing description
of the DataCube Agreement is qualified in its entirety by reference to the DataCube Agreement, which is filed as Exhibit 10.4 to this
Annual Report and incorporated herein by reference.
Sales and Marketing.
Our business marketing advisory
services have relied primarily on brand awareness and referrals for its growth strategy to date.
We intend to expand distribution
of movie and music from traditional methods such as through sales of discs, movie downloads or other online channels to distributing movies
and music through Digital Ownership Tokens, or DOTs, that we expect to mint and sell. We work with media producers and owners to mint
the Digital Ownership Tokens based on their media productions in order to facilitate for the selling of the media licensed access rights
only. That is, holders of our Digital Ownership Tokens will only have the right to view the underlying movie, music or other file through
our online media portal. The DOT owners do not have actual ownership of the media production, which always own by the original creator
or intellectual property owner.
Our Digital Ownership Token
is a hybrid of the movie/music asset as well as other intangible assets – the intangible asset in the real world (intellectual property,
licenses and contractual rights) plus the intangible token in the virtual world. Specifically, our Digital Ownership Tokens will (depending
on the circumstances) contain several files and documents including the following:
|
· |
A copy of the agreement for the purchase of the master license; |
|
· |
Evidence or warranty of ownership of the relevant intellectual property contained in the agreement above; |
|
· |
The sub-license agreement detailing the rights of the Digital Ownership Token holder; and |
|
· |
The media file of the movie or music and the access to such movie or music. |
All of the above files and
documents will be uploaded onto the blockchain to enable both the buyer and seller to authenticate the genuineness of the movie or music
purchased.
We intend to sell these Digital
Ownership Token through two channels:
|
· |
NFT marketplaces such as OpenSea, SuperRare and Rarible that have been educating the public about digital collectibles. Building on top of the blockchain NFT technologies, we are able to put our DOTs up on shelf of NFT marketplace which supports the same blockchain that we are minting on. We believe we can collaborate with these platforms to educate their users on digital rights and IP collectibles with the proper application usage of blockchain technologies. |
|
· |
Crypto exchanges such as Coinbase, OKEx, Huobi and FTX as they have a ready pool of users that we can immediately engage to educate and share about intangibles license rights to media products in a DOT. |
In addition to allowing DOT
holders the ability to access their movie, music or other media file, our DOT holders will also be able to resell their DOTs on a consignment
basis on our online marketplace. Users that hold our DOTs will be able to create a unique user account on our marketplace platform, where
they can browse, search and purchase the media (movie or music) works that they want to watch, listen, purchase or sell. Users make purchases
online with a credit card or crypto currency such as BNB, Bitcoin or Ethereum. The DOT purchased will be kept in our custodian wallet
on our marketplace platform, or be stored in the e-wallet that the user has linked with our marketplace platform. When user tries to access
the media, we will check the user wallet to look for the relevant DOT before granting access to the user. Users may choose to sell their
owned DOT to other people by posting the DOT back onto our marketplace, with pricing set by the user at the user’s discretion. Sellers
and buyers transact between themselves. We collect a fee from the seller for using our platform to sell his product, collectible upon
the successful sale of the product. Similar to the sale of a Blu-ray disc or compact disc, DOT holders will only be allowed to sell their
DOTs “as is” and will have no further rights, including the right to mint and issue digital assets relating to our DOT. We
are not operating an exchange for the sale of the DOTs.
Marvion Private Limited has
issued five limited edition experience Digital Ownership Token for the film Lockdown as an initial market assessment. Each DOT contained
a VIP ticket to attend the Hong Kong and or UK premieres of the film as well as files authenticating the ownership of such VIP ticket.
In this case, the DOT represented the unique one time right to attend a live event. We have not yet launched a full DOT project where
the Digital Ownership Token will contain the license for private viewing of a movie or music file.
In the future, we intend to
issue DOTs that are similar to Blu-ray discs or compact discs, in which case the owner of the DOT will have a license to view the movie,
listen to the music and otherwise access the file associated with the DOT.
We intend to develop and eventually
launch on our website a media portal that allows media purchasers to consume these media rights and IP ownership in the DOT, so they can
view the movies and listen to the music that they have purchased. During the same quarter, we hope to launch our first series of Digital
Ownership Tokens, containing the license for private viewing of a movie or music (similar to a blue ray disc). We expect promotions on
this series to be done prior to placing the DOTs for auction. We expect to use a wide range of social media channels such as Facebook,
Instagram, Twitter and Telegram to reach out to the general community to announce the launch of our Digital Ownership Tokens. We expect
our DOTs to be sold worldwide.
In addition to minting our
own DOTs, we intend to provide DOT solutions to third parties. Our DOT solution services include: (i) creating DOTs for third party movie
and music producers, including media authentication and access information; and (ii) providing a website platform to host, access and
consume (view or listen) their media. We charge a fee to create DOTs for their movie and music works. We also expect to charge an administrative
fee for processing the sale of each DOT and updating the registration of the chain of title of each DOT sold on our platform. While their
media is hosted on our media marketplace platform, user access to the media with the proper DOT will not incur extra charges.
For Marvion Universe, we will
start with advertising incomes within the platform initially. E-Commerce transaction charge will be implemented at a later stage.
Major Customers.
We are not a party to any
long-term agreements with our customers. As opportunities arise, we may enter long term contracts with customers.
During the year ended December
31, 2022, there was no single customer who accounted for 10% or more of the Company’s revenues.
During the year ended December
31, 2021, the following customers accounted for 10% or more of our total net revenues.
| |
Year ended December 31, 2021 | | |
December 31, 2021 | |
Customer | |
Revenues | | |
Percentage of revenues | | |
Accounts receivable | |
Axiom Global HK Limited | |
$ | 100,950 | | |
| 34% | | |
$ | – | |
Video Commerce Group Limited | |
| 100,187 | | |
| 34% | | |
| – | |
Total: | |
$ | 201,137 | | |
| 68% | | Total: |
$ | – | |
Customers are located around the world.
Major Suppliers/Vendors
As we are operating in sales
and distribution of the licensed media content embedded with DOT solution and the business in consulting services, there is no major supplier
or vendor required in order to support our services.
Insurance
We maintain certain insurance
in accordance with customary industry practices in Hong Kong. Under Hong Kong law it is a requirement that all employers in the city must
purchase Employee's Compensation Insurance to cover their liability in the event that their staff suffers an injury or illness during
the normal course of their work. We maintain Employee’s Compensation Insurance, vehicle insurance and third party risks insurance
for the business purposes.
CORPORATE INFORMATION
Our principal executive and
registered offices are located at 37/F, Singapore Land Tower, 50 Raffles Place, Singapore 039190, telephone number +65 6829 7029.
INTELLECTUAL PROPERTY AND PATENTS
We expect to rely on, trade
secrets, copyrights, know-how, trademarks, license agreements and contractual provisions to establish our intellectual property rights
and protect our brand and services. These legal means, however, afford only limited protection and may not adequately protect our rights.
Litigation may be necessary in the future to enforce our intellectual property rights, protect our trade secrets or determine the validity
and scope of the proprietary rights of others. Litigation could result in substantial costs and diversion of resources and management
attention.
In addition, the laws of Hong
Kong and the PRC may not protect our brand and services and intellectual property to the same extent as U.S. laws, if at all. We may be
unable to fully protect our intellectual property rights in these countries.
We intend to seek the widest
possible protection for significant product and process developments in our major markets through a combination of trade secrets, trademarks,
copyrights and patents, if applicable. We anticipate that the form of protection will vary depending on the level of protection afforded
by the particular jurisdiction. We expect that our revenue will be derived principally from our operations in Hong Kong and China where
intellectual property protection may be limited and difficult to enforce. In such instances, we may seek protection of our intellectual
property through measures taken to increase the confidentiality of our findings.
We intend to register trademarks
as a means of protecting the brand names of our companies and products. We intend to protect our trademarks against infringement and also
seek to register design protection where appropriate.
We rely on trade secrets and
unpatentable know-how that we seek to protect, in part, by confidentiality agreements. We expect that, where applicable, we will require
our employees to execute confidentiality agreements upon the commencement of employment with us. We expect these agreements to provide
that all confidential information developed or made known to the individual during the course of the individual's relationship with us
is to be kept confidential and not disclosed to third parties except in specific limited circumstances. The agreements will also provide
that all inventions conceived by the individual while rendering services to us shall be assigned to us as the exclusive property of our
company. There can be no assurance, however, that all persons who we desire to sign such agreements will sign, or if they do, that these
agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets or unpatentable know-how
will not otherwise become known or be independently developed by competitors.
COMPETITION
We operate in a highly competitive
market that is evolving very quickly with rapid developments. The business advisory industry is highly fragmented while the direct competitors
in the blockchain technology market in which we operate is in the early phase of development. No market champion has yet emerged. However,
we also foresee that other prominent competitors with leading entertainment platforms will be entering the market such as Netflix and
Spotify, which may offer substantially the same or similar service offerings as us. These entertainment platforms have their well-established
customer base and brand name, but they currently lack the required technology to adapt their business into the DOT area. We believe the
principal competitive factors in our market include the following:
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breadth of artist and collection base; |
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sophistication of proprietary technologies; |
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excellence in legal expertise; and |
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strength and recognition of our brand. |
Although we believe we compete
favorably on the factors described above, we anticipate that larger, more established companies may directly compete with us as we continue
to demonstrate the viability of a local one-stop solution provider. Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other resources, larger product and services offerings, larger customer
base and greater brand recognition. These factors may allow our competitors to benefit from their existing customer or subscriber base
with lower acquisition costs or to respond more quickly than we can to new or emerging technologies and changes in customer requirements.
These competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt
more aggressive pricing policies, which may allow them to build a larger subscriber base or to monetize that subscriber base more effectively
than us. Our competitors may develop products or services that are similar to our products and services or that achieve greater market
acceptance than our products and services. In addition, although we do not believe that merchant payment terms are a principal competitive
factor in our market, they may become such a factor and we may be unable to compete fairly on such terms.
EMPLOYEES AND CONSULTANTS
We are currently operating
with 4 executive directors, 1 of them is executive officer and 10 consultants.
We have the following full
time employees located in Hong Kong as set forth below:
Executive officers |
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1 |
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Operational Management |
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0 |
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Business Development |
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0 |
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Total |
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1 |
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We are required to contribute
to the Mandatory Provident Fund (“MPF”) for all eligible employees in Hong Kong between the ages of eighteen and sixty five.
We are required to contribute a specified percentage of the participant’s income based on their ages and wage level. For the years
ended December 31, 2022 and 2021, the MPF contributions by us were $0 and $1,351, respectively. We have not experienced any significant
labor disputes or any difficulties in recruiting staff for our operations.
GOVERNMENT AND INDUSTRY REGULATIONS
Bonanza Goldfields Corp. is
a Nevada corporation with operating businesses located in Singapore and Hong Kong. As such, the parent holding company, Bonanza Goldfields
Corp. is subject to the laws and regulations of the United States of America while our operating businesses are subject to the laws and
regulations of Singapore and Hong Kong, as applicable, including labor, occupational safety and health, contracts, tort and intellectual
property laws. Furthermore, we need to comply with the rules and regulations of Hong Kong and Singapore governing the data usage and regular
terms of service applicable to our potential customers or clients. As the information of our potential customers or clients are preserved
in both Hong Kong and Singapore, we need to comply with the Singapore Personal Data Protection Act 2012 and the Hong Kong Personal Data
(Privacy) Ordinance.
If PRC authorities reinterpret
PRC laws to apply to Hong Kong companies, we may become subject to the laws and regulations of China governing businesses in general,
including labor, occupational safety and health, contracts, tort and intellectual property. We may also become subject to foreign exchange
regulations that might limit our ability to convert foreign currency into Renminbi, acquire any other PRC companies, establish VIEs in
the PRC, or make dividend payments from any future WFOEs to us.
United States of America
Regulation of Cryptocurrency
and Government Oversight
As digital assets have grown
in both popularity and market size, the U.S. Congress and a number of U.S. federal and state agencies (including FinCEN, SEC, CFTC, FINRA,
the Consumer Financial Protection Bureau ("CFPB"), the Department of Justice, the Department of Homeland Security, the Federal
Bureau of Investigation, the IRS and state financial institution regulators) have been examining the operations of digital assets networks,
digital assets users and the digital assets exchange markets, with particular focus on the extent to which digital assets can be used
to launder the proceeds of illegal activities or fund criminal or terrorist enterprises and the safety and soundness of exchanges or other
service-providers that hold digital assets for users. Many of these state and federal agencies have issued consumer advisories regarding
the risks posed by digital assets to investors. In addition, federal and state agencies, and other countries have issued rules or guidance
about the treatment of digital assets transactions or requirements for businesses engaged in digital assets activity.
Various foreign jurisdictions
have, and may continue to, in the near future, adopt laws, regulations or directives that affect the Bitcoin network, the digital assets
markets, and their users, particularly digital assets exchanges and service providers that fall within such jurisdictions' regulatory
scope. For example, on May 21, 2021, minutes of the meeting of the Financial Stability and Development Committee of the State Council
of the People's Republic of China were published, at which, as part of an effort to prevent and control financial risks, restrictions
on digital assets mining and trading activity were discussed. On May 18, 2021, certain influential trade bodies, including the China Banking
Association, the Payment and Clearing Association of China, and the National internet Finance Association of China, issued a statement
instructing their members not to provide virtual currency-related trading or payments services, or the exchange of virtual currencies
for China's renminbi, among others, to their customers. In 2017, the People's Bank of China and other Chinese financial regulators issued
an announcement prohibiting token issuances such as initial coin offerings, and imposing restrictions on virtual currency exchange platforms
and financial institutions and non-bank payment institutions in connection with token-related activity. There have been reports over the
years that Chinese regulators have taken action to shut down a number of China-based virtual currency exchanges. On March 5, 2020, South
Korea voted to amend its Financial Information Act to require virtual asset service providers to register and comply with its AML and
counter-terrorism funding framework. These measures also provide the South Korean government with the authority to close virtual currency
exchanges that do not comply with specified processes. The South Korean government previously banned initial coin offerings. Similarly,
in April 2018, the Reserve Bank of India banned the entities it regulates from providing services to any individuals or business entities
dealing with or settling digital assets. On March 5, 2020, this ban was overturned in the Indian Supreme Court, although the Reserve Bank
of India has challenged this ruling. The laws, regulations or directives of authorities in jurisdictions worldwide may conflict with those
of the United States and may negatively impact the acceptance of or demand for digital assets by users, merchants and service providers,
may impede the growth or continued operation of the global digital assets economy or digital assets mining, or may otherwise negatively
affect the value of digital assets.
While we believe that our
DOT is currently not a security or commodity subject to many of the U.S. laws and regulations governing securities and commodities, the
legal environment is constantly changing as new laws and regulations are introduced and adopted, and existing laws and regulations are
repealed, amended, modified and reinterpreted. The effect of any future regulatory change on Bonanza Goldfields Corp., our operating subsidiaries
or our digital assets such as our DOT is impossible to predict, but such change could be substantial and adversely impact current product
offerings or alter the economic performance of our existing products and services resulting in a decline in the value of our securities.
Privacy and Protection
of User Data
We and subsidiaries are subject
to a number of laws, rules, directives, and regulations relating to the collection, use, retention, security, processing, and transfer
of personally identifiable information about our customers and employees in the countries where we operate. Our business will involve
the processing of personal data in many jurisdictions and the movement of data across national borders. As a result, much of the personal
data that we process, which may include certain financial information associated with individuals, is regulated by multiple privacy and
data protection laws and, in some cases, the privacy and data protection laws of multiple jurisdictions. In many cases, these laws apply
not only to third-party transactions, but also to transfers of information between or among us, our subsidiaries, and other parties with
which we have commercial relationships.
Singapore
Regulations on Cryptocurrency
We intend to conduct our DOT
operations from Singapore. In Singapore, cryptocurrencies and the custodianship of such cryptocurrencies are not specifically regulated.
Cryptocurrency exchanges and trading of cryptocurrencies are legal, but not considered legal tender. To the extent that cryptocurrencies
or tokens are considered “capital market products” such as securities, spot foreign exchange contracts, derivatives and the
likes, they will be subject to the jurisdiction of the Monetary Authority of Singapore (MAS), Securities and Futures Act, anti-money laundering
and combating the financing of terrorism laws and requirements. To the extent that tokens are deemed “digital payment tokens,”
they will be subject to the Payment Services Act of 2019 which, among other things, require compliance with anti-money laundering and
combating the financing of terrorism laws and requirements. According to the Payment Services Act of 2019, “digital payment token”
means any digital representation of value (other than an excluded digital representation of value) that:
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(a) |
is expressed as a unit; |
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(b) |
is not denominated in any currency, and is not pegged by its issuer to any currency; |
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(c) |
is, or is intended to be, a medium of exchange accepted by the public, or a section of the public, as payment for goods or services or for the discharge of a debt; |
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(d) |
can be transferred, stored or traded electronically; and |
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(e) |
satisfies such other characteristics as the Authority may prescribe; |
We believe our DOTs are not securities or digital
payment tokens subject to these acts.
Employment Ordinance
Hong Kong
The Employment Ordinance is
the main piece of legislation governing conditions of employment in Hong Kong since 1968. It covers a comprehensive range of employment
protection and benefits for employees, including Wage Protection, Rest Days, Holidays with Pay, Paid Annual Leave, Sickness Allowance,
Maternity Protection, Statutory Paternity Leave, Severance Payment, Long Service Payment, Employment Protection, Termination of Employment
Contract, Protection Against Anti-Union Discrimination. In addition, every employer must take out employees’ compensation insurance
to protect the claims made by employees in respect of accidents occurred during the course of their employment.
An employer must also comply
with all legal obligations under the Mandatory Provident Fund Schemes Ordinance, (CAP485). These include enrolling all qualifying employees
in MPF schemes and making MPF contributions for them. Except for exempt persons, employer should enroll both full-time and part-time employees
who are at least 18 but under 65 years of age in an MPF scheme within the first 60 days of employment. The 60-day employment rule does
not apply to casual employees in the construction and catering industries. Pursuant to the said Ordinance, we are required to make MPF
contributions for our Hong Kong employees once every contribution period (generally the wage period within 1 month). Employers and employees
are each required to make regular mandatory contributions of 5% of the employee’s relevant income to an MPF scheme, subject to the
minimum and maximum relevant income levels. For a monthly-paid employee, the minimum and maximum relevant income levels are HKD7,100 and
HKD30,000 respectively.
China
Depending upon the political
climate, we may also become subject to the laws and regulations of China governing businesses in general, including labor, occupational
safety and health, contracts, tort and intellectual property. We may also become subject to foreign exchange regulations might limit our
ability to convert foreign currency into Renminbi, acquire PRC companies, or make dividend payments to BONZ.
PRC Regulations on Tax
Enterprise Income Tax
The EIT Law was promulgated by the Standing Committee
of the National People’s Congress on March 16, 2007 and became effective on January 1, 2008, and was later amended on
February 24, 2017. The Implementation Rules of the EIT Law (the “Implementation Rules”) were promulgated by the
State Council on December 6, 2007 and became effective on January 1, 2008. According to the EIT Law and the Implementation Rules,
enterprises are divided into resident enterprises and non-resident enterprises. Resident enterprises shall pay enterprise income tax on
their incomes obtained in and outside the PRC at the rate of 25%. Non-resident enterprises setting up institutions in the PRC shall pay
enterprise income tax on the incomes obtained by such institutions in and outside the PRC at the rate of 25%. Non-resident enterprises
with no institutions in the PRC, and non-resident enterprises whose incomes having no substantial connection with their institutions in
the PRC, shall pay enterprise income tax on their incomes obtained in the PRC at a reduced rate of 10%.
The Arrangement between the PRC and Hong Kong
Special Administrative Region for the Avoidance of Double Taxation the Prevention of Fiscal Evasion with respect to Taxes on Income (the
“Arrangement”) was promulgated by the State Administration of Taxation (“SAT”) on August 21, 2006 and came
into effect on December 8, 2006. According to the Arrangement, a company incorporated in Hong Kong will be subject to withholding
tax at the lower rate of 5% on dividends it receives from a company incorporated in the PRC if it holds a 25% interest or more in the
PRC company. The Notice on the Understanding and Identification of the Beneficial Owners in the Tax Treaty (the “Notice”)
was promulgated by SAT and became effective on October 27, 2009. According to the Notice, a beneficial ownership analysis will be
used based on a substance-over-form principle to determine whether or not to grant tax treaty benefits.
In April 2009, the Ministry of Finance, or
MOF, and SAT jointly issued the Notice on Issues Concerning Process of Enterprise Income Tax in Enterprise Restructuring Business, or
Circular 59. In December 2009, SAT issued the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers
by Non-PRC Resident Enterprises, or Circular 698. Both Circular 59 and Circular 698 became effective retroactively as of
January 2008. In February 2011, SAT issued the Notice on Several Issues Regarding the Income Tax of Non-PRC Resident Enterprises,
or SAT Circular 24, effective April 2011. By promulgating and implementing these circulars, the PRC tax authorities have enhanced
their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-resident enterprise.
Under Circular 698, where a non-resident enterprise
conducts an “indirect transfer” by transferring the equity interests of a PRC “resident enterprise” indirectly
by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, may be subject
to PRC enterprise income tax, if the indirect transfer is considered to be an abusive use of company structure without reasonable commercial
purposes. As a result, gains derived from such indirect transfer may be subject to PRC tax at a rate of up to 10%. Circular 698 also provides
that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price
lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the
transaction.
In February 2015, the SAT issued Circular 7 to
replace the rules relating to indirect transfers in Circular 698. Circular 7 has introduced a new tax regime that is significantly different
from that under Circular 698. Circular 7 extends its tax jurisdiction to not only indirect transfers set forth under Circular 698 but
also transactions involving transfer of other taxable assets, through the offshore transfer of a foreign intermediate holding company.
In addition, Circular 7 provides clearer criteria than Circular 698 on how to assess reasonable commercial purposes and has introduced
safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. Circular 7 also
brings challenges to both the foreign transferor and transferee (or other person who is obligated to pay for the transfer) of the taxable
assets. Where a non-resident enterprise conducts an “indirect transfer” by transferring the taxable assets indirectly by disposing
of the equity interests of an overseas holding company, the non-resident enterprise being the transferor, or the transferee, or the PRC
entity which directly owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance
over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable
commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such
indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer
is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise.
On October 17, 2017, the SAT issued a Notice
Concerning Withholding Income Tax of Non-Resident Enterprise, or SAT Notice No. 37, which abolishes Circular 698 and certain
provisions of Circular 7. SAT Notice No. 37 reduces the burden of the withholding obligator, such as revocation of contract filing
requirements and tax liquidation procedures, strengthens the cooperation of tax authorities in different places, and clarifies the calculation
of tax payable and mechanism of foreign exchange.
Value-added Tax
Pursuant to the Provisional Regulations on Value-added
Tax of the PRC, or the VAT Regulations, which were promulgated by the State Council on December 13, 1993, took effect on January 1, 1994,
and were amended on November 10, 2008, February 6, 2016, and November 19, 2017, respectively, and the Rules for the Implementation of
the Provisional Regulations on Value-added Tax of the PRC, which were promulgated by the MOF on December 25, 1993, and were amended on
December 15, 2008, and October 28, 2011, respectively, entities and individuals that sell goods or labor services of processing, repair
or replacement, sell services, intangible assets, or immovables, or import goods within the territory of the People’s Republic of
China are taxpayers of value-added tax. The VAT rate is 17% for taxpayers selling goods, labor services, or tangible movable property
leasing services or importing goods, except otherwise specified; 11% for taxpayers selling services of transportation, postal, basic telecommunications,
construction and lease of immovable, selling immovable, transferring land use rights, selling and importing other specified goods including
fertilizers; 6% for taxpayers selling services or intangible assets.
According to the Notice on the Adjustment to the
Value-added Tax Rates issued by the SAT and the MOF on April 4, 2018, where taxpayers make VAT taxable sales or import goods, the applicable
tax rates shall be adjusted from 17% to 16% and from 11% to 10%, respectively. Subsequently, the Notice on Policies for Deepening Reform
of Value-added Tax was issued by the SAT, the MOF and the General Administration of Customs on March 30, 2019 and took effective on April
1, 2019, which further adjusted the applicable tax rate for taxpayers making VAT taxable sales or importing goods. The applicable tax
rates shall be adjusted from 16% to 13% and from 10% to 9%, respectively.
Dividend Withholding Tax
The EIT Law provides that since January 1,
2008, an income tax rate of 10% will normally be applicable to dividends declared to non-PRC resident investors that do not have an establishment
or place of business in the PRC, or that have such establishment or place of business but the relevant income is not effectively connected
with the establishment or place of business, to the extent such dividends are derived from sources within the PRC.
PRC Laws and Regulations on Employment and
Social Welfare
Labor Law of the PRC
Pursuant to the Labor Law of the PRC, which was
promulgated by the Standing Committee of the NPC on July 5, 1994 with an effective date of January 1, 1995 and was last amended
on August 27, 2009 and the Labor Contract Law of the PRC, which was promulgated on June 29, 2007, became effective on January 1,
2008 and was last amended on December 28, 2012, with the amendments coming into effect on July 1, 2013, enterprises and institutions
shall ensure the safety and hygiene of a workplace, strictly comply with applicable rules and standards on workplace safety and hygiene
in China, and educate employees on such rules and standards. Furthermore, employers and employees shall enter into written employment
contracts to establish their employment relationships. Employers are required to inform their employees about their job responsibilities,
working conditions, occupational hazards, remuneration and other matters with which the employees may be concerned. Employers shall pay
remuneration to employees on time and in full accordance with the commitments set forth in their employment contracts and with the relevant
PRC laws and regulations. Our Hong Kong subsidiary currently does not comply with PRC laws and regulations, but complies with Hong Kong
laws and regulations.
Social Insurance and Housing Fund
Pursuant to the Social Insurance Law of the
PRC, which was promulgated by the Standing Committee of the NPC on October 28, 2010 and became effective on July 1, 2011, employers
in the PRC shall provide their employees with welfare schemes covering basic pension insurance, basic medical insurance, unemployment
insurance, maternity insurance, and occupational injury insurance. Our Hong Kong subsidiary has not deposited the social insurance fees
in full for all the employees in compliance with the relevant regulations. We may be ordered by the social security premium collection
agency to make or supplement contributions within a stipulated period, and shall be subject to a late payment fine computed from the due
date at the rate of 0.05% per day; where payment is not made within the stipulated period, the relevant administrative authorities shall
impose a fine ranging from one to three times the amount of the amount in arrears. Our Hong Kong subsidiary has not deposited the social
insurance fees as required by relevant regulations.
In accordance with the Regulations on Management
of Housing Provident Fund, which were promulgated by the State Council on April 3, 1999 and last amended on March 24, 2002,
employers must register at the designated administrative centers and open bank accounts for depositing employees’ housing funds.
Employers and employees are also required to pay and deposit housing funds, with an amount no less than 5% of the monthly average salary
of the employee in the preceding year in full and on time. Our subsidiaries have not registered at the designated administrative centers
nor opened bank accounts for depositing employees’ housing funds. They also have not deposited employees’ housing funds. Our
subsidiaries may be ordered by the housing provident fund management center to complete the registration formalities, open bank accounts,
make the payment and deposit within a prescribed time limit if they become subject to PRC laws. Failing to register or open bank accounts
at the expiration of the time limit could result in fines of not less than RMB 10,000 nor more than RMB 50,000. And an application may
be made to a people’s court for compulsory enforcement if payment and deposit has not been made after the expiration of the time
limit.
PRC Regulations Relating to Foreign Exchange
General Administration of Foreign Exchange
The principal regulation governing foreign currency
exchange in the PRC is the Administrative Regulations of the PRC on Foreign Exchange (the “Foreign Exchange Regulations”),
which were promulgated on January 29, 1996, became effective on April 1, 1996 and were last amended on August 5, 2008.
Under these rules, Renminbi is generally freely convertible for payments of current account items, such as trade- and service-related
foreign exchange transactions and dividend payments, but not freely convertible for capital account items, such as capital transfer, direct
investment, investment in securities, derivative products or loans unless prior approval by competent authorities for the administration
of foreign exchange is obtained. Under the Foreign Exchange Regulations, foreign-invested enterprises in the PRC may purchase foreign
exchange without the approval of SAFE to pay dividends by providing certain evidentiary documents, including board resolutions, tax certificates,
or for trade- and services-related foreign exchange transactions, by providing commercial documents evidencing such transactions.
Circular No. 37 and Circular No. 13
Circular 37 was released by SAFE on July 4,
2014 and abolished Circular 75 which had been in effect since November 1, 2005. Pursuant to Circular 37, a PRC resident should apply
to SAFE for foreign exchange registration of overseas investments before it makes any capital contribution to a special purpose vehicle,
or SPV, using his or her legitimate domestic or offshore assets or interests. SPVs are offshore enterprises directly established or indirectly
controlled by domestic residents for the purpose of investment and financing by utilizing domestic or offshore assets or interests they
legally hold. Following any significant change in a registered offshore SPV, such as capital increase, reduction, equity transfer or swap,
consolidation or division involving domestic resident individuals, the domestic individuals shall amend the registration with SAFE. Where
an SPV intends to repatriate funds raised after completion of offshore financing to the PRC, it shall comply with relevant PRC regulations
on foreign investment and foreign debt management. A foreign-invested enterprise established through return investment shall complete
relevant foreign exchange registration formalities in accordance with the prevailing foreign exchange administration regulations on foreign
direct investment and truthfully disclose information on the actual controller of its shareholders.
If any shareholder who is a PRC resident (as determined
by the Circular No. 37) holds any interest in an offshore SPV and fails to fulfil the required foreign exchange registration with the
local SAFE branches, the PRC subsidiaries of that offshore SPV may be prohibited from distributing their profits and dividends to their
offshore parent company or from carrying out other subsequent cross-border foreign exchange activities. The offshore SPV may also be restricted
in its ability to contribute additional capital to its PRC subsidiaries. Where a domestic resident fails to complete relevant foreign
exchange registration as required, fails to truthfully disclose information on the actual controller of the enterprise involved in the
return investment or otherwise makes false statements, the foreign exchange control authority may order them to take remedial actions,
issue a warning, and impose a fine of less than RMB 300,000 on an institution or less than RMB 50,000 on an individual.
Circular 13 was issued by SAFE on February 13,
2015, and became effective on June 1, 2015. Pursuant to Circular 13, a domestic resident who makes a capital contribution to an SPV
using his or her legitimate domestic or offshore assets or interests is no longer required to apply to SAFE for foreign exchange registration
of his or her overseas investments. Instead, he or she shall register with a bank in the place where the assets or interests of the domestic
enterprise in which he or she has interests are located if the domestic resident individually seeks to make a capital contribution to
the SPV using his or her legitimate domestic assets or interests; or he or she shall register with a local bank at his or her permanent
residence if the domestic resident individually seeks to make a capital contribution to the SPV using his or her legitimate offshore assets
or interests.
We cannot assure that our PRC beneficial shareholders
have completed registrations in accordance with Circular 37.
Circular 19 and Circular 16
Circular 19 was promulgated by SAFE on March 30,
2015, and became effective on June 1, 2015. According to Circular 19, the foreign exchange capital in the capital account of foreign-invested
enterprises, meaning the monetary contribution confirmed by the foreign exchange authorities or the monetary contribution registered for
account entry through banks, shall be granted the benefits of Discretional Foreign Exchange Settlement (“Discretional Foreign Exchange
Settlement”). With Discretional Foreign Exchange Settlement, foreign capital in the capital account of a foreign-invested enterprise
for which the rights and interests of monetary contribution have been confirmed by the local foreign exchange bureau, or for which book-entry
registration of monetary contribution has been completed by the bank, can be settled at the bank based on the actual operational needs
of the foreign-invested enterprise. The allowed Discretional Foreign Exchange Settlement percentage of the foreign capital of a foreign-invested
enterprise has been temporarily set to be 100%. The Renminbi converted from the foreign capital will be kept in a designated account and
if a foreign-invested enterprise needs to make any further payment from such account, it will still need to provide supporting documents
and to complete the review process with its bank.
Furthermore, Circular 19 stipulates that foreign-invested
enterprises shall make bona fide use of their capital for their own needs within their business scopes. The capital of a foreign-invested
enterprise and the Renminbi it obtained from foreign exchange settlement shall not be used for the following purposes:
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directly or indirectly used for expenses beyond its business scope or prohibited by relevant laws or regulations; |
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directly or indirectly used for investment in securities unless otherwise provided by relevant laws or regulations; |
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directly or indirectly used for entrusted loan in Renminbi (unless within its permitted scope of business), repayment of inter-company loans (including advances by a third party) or repayment of bank loans in Renminbi that have been sub-lent to a third party; or |
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directly or indirectly used for expenses related to the purchase of real estate that is not for self-use (except for foreign-invested real estate enterprises). |
Circular 16 was issued by SAFE on June 9,
2016. Pursuant to Circular 16, enterprises registered in the PRC may also convert their foreign debts from foreign currency to Renminbi
on a self-discretionary basis. Circular 16 provides an integrated standard for conversion of foreign exchange capital items (including
but not limited to foreign currency capital and foreign debts) on a self-discretionary basis applicable to all enterprises registered
in the PRC. Circular 16 reiterates the principle that an enterprise’s Renminbi capital converted from foreign currency-denominated
capital may not be directly or indirectly used for purposes beyond its business scope or purposes prohibited by PRC laws or regulations,
and such converted Renminbi capital shall not be provided as loans to non-affiliated entities.
Our PRC subsidiaries' distributions to their offshore
parents are required to comply with the requirements as described above.
PRC Share Option Rules
Under the Administration Measures
on Individual Foreign Exchange Control issued by the PBOC on December 25, 2006, all foreign exchange matters involved in employee share
ownership plans and share option plans in which PRC citizens participate require approval from SAFE or its authorized branch. Pursuant
to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit applications
to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. In addition, under
the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Share Incentive Plans of
Overseas Publicly-Listed Companies, or the Share Option Rules, issued by SAFE on February 15, 2012, PRC residents who are granted shares
or share options by companies listed on overseas stock exchanges under share incentive plans are required to (i) register with SAFE or
its local branches, (ii) retain a qualified PRC agent, which may be a PRC subsidiary of the overseas listed company or another qualified
institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the share incentive
plans on behalf of the participants, and (iii) retain an overseas institution to handle matters in connection with their exercise of share
options, purchase and sale of shares or interests and funds transfers.
PRC Regulation of Dividend Distributions
The principal laws, rules
and regulations governing dividend distributions by foreign-invested enterprises in the PRC are the Company Law of the PRC, as amended,
the Wholly Foreign-owned Enterprise Law and its implementation regulations, the Chinese-foreign Cooperative Joint Venture Law and its
implementation regulations, and the Chinese-foreign Equity Joint Venture Law and its implementation regulations. Under these laws, rules
and regulations, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any, as determined in accordance
with PRC accounting standards and regulations. Both PRC domestic companies and wholly-foreign owned PRC enterprises are required to set
aside a general reserve of at least 10% of their after-tax profit, until the cumulative amount of such reserve reaches 50% of their registered
capital. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained
from prior fiscal years may be distributed together with distributable profits from the current fiscal year.
REPORTS TO SECURITY HOLDERS
Upon the effective date of
this Registration Statement, we will become subject to the informational requirements of the Securities Exchange Act of 1934, as amended,
and accordingly, will file current and periodic reports, proxy statements and other information with the Securities and Exchange Commission,
or the Commission. Information that the Company previously publicly disclosed was made through the OTC Disclosure and News Service and
are available on the OTC Markets Group’s website at www.otcmarkets.com. With respect to disclosures filed or furnished to the Commission,
you may obtain copies of our prior and future reports from the Commission’s Public Reference Room at 100 F Street, N.E., Washington,
D.C. 20549, or on the SEC's website, at www.sec.gov. You may obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. We currently do not have an internet website, but will also make available free of charge electronic copies
of our filings upon request.
Near-Term Requirements For
Additional Capital
We believe that we will require
approximately $30 million over the next 18-24 months to implement our business plan. For the immediate future, we intend to finance our
business expansion efforts through loans from existing shareholders or financial institutions.
Available
Information
Access to all of our Securities
and Exchange Commission (“SEC”) filings, including our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), is provided, free of charge, on our website (www.luduson.com) as soon as reasonably
practicable after such reports are electronically filed with, or furnished to, the SEC.
Transfer Online Inc. located
at 512 SE Salmon Street, Portland Oregon 97214, telephone number (503) 227-2950, facsimile (503) 227-6874, serves as our stock transfer
agent.
ITEM 1A. Risk Factors.
We are a smaller reporting
company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
The following information
sets forth risk factors that could cause our actual results to differ materially from those contained in forward-looking statements we
have made in this registration statement and those we may make from time to time. You should carefully consider the risks described below,
in addition to the other information contained in this registration statement, before making an investment decision. Our business, financial
condition or results of operations could be harmed by any of these risks. The risks and uncertainties described below are not the only
ones we face. Additional risks not presently known to us or other factors not perceived by us to present significant risks to our business
at this time also may impair our business operations.
Risks Related to Our Business and Industry
We are a development
stage company that is dependent upon the financial support of our stockholders to finance our operations.
We have not yet begun generating
significant revenues and are dependent upon the continued support of our majority shareholder to continue operations. Our financial statements
have been prepared assuming that we will continue as a going concern. Our continuation as a going concern is dependent upon improving
our profitability and the continuing financial support from our stockholders. If our assumption regarding improvement of profitability
or the continued support of our stockholders are not valid, we may not be able to pursue our business plan or continue operations as planned,
which may materially and adversely affect our financial condition and results of operations. Further, the value of your securities may
be significantly be affected or become worthless.
We intend to mint our
own DOTs under the assumption that our DOTs are not investment contracts and therefore not a security as described by the Supreme Court
in SEC v. W.J. Howey Co., 328 U.S. 293 (1946). A particular digital asset’s status as a “security” in any relevant jurisdiction
is subject to a high degree of uncertainty and if we are unable to properly characterize our DOTs, we may be subject to regulatory scrutiny,
investigations, fines, and other penalties, which may adversely affect our business, operating results, and financial condition.
The legal test for determining
whether any given digital asset is a security is a highly complex, fact-driven analysis that evolves over time, and the outcome is difficult
to predict. The SEC generally does not provide advance guidance or confirmation on the status of any particular digital asset as a security.
Furthermore, the SEC’s views in this area have evolved over time and it is difficult to predict the direction or timing of any continuing
evolution. It is also possible that a change in the governing administration or the appointment of new SEC commissioners could substantially
impact the views of the SEC and its staff. Though the SEC’s Strategic Hub for Innovation and Financial Technology published a framework
for analyzing whether any given digital asset is a security in April 2019, this framework is also not a rule, regulation or statement
of the SEC and is not binding on the SEC.
Foreign jurisdictions have
adopted different approaches in classifying digital assets as “securities.” As a result, certain digital assets may be deemed
to be a “security” under the laws of some jurisdictions but not others. Various foreign jurisdictions may, in the future,
adopt additional laws, regulations, or directives that affect the characterization of digital assets as “securities.”
The classification of a digital
asset as a security under applicable law has wide-ranging implications for the regulatory obligations that flow from the offer, sale,
trading, and clearing of such assets. For example, a digital asset that is a security in the United States may generally only be offered
or sold in the United States pursuant to a registration statement filed with the SEC or in an offering that qualifies for an exemption
from registration in accordance with Section 5 of the Securities Act. Persons that effect transactions in digital assets that are securities
in the United States may be subject to registration with the SEC as a “broker” or “dealer.” Platforms that bring
together purchasers and sellers to trade digital assets that are securities in the United States are generally subject to registration
as national securities exchanges, or must qualify for an exemption, such as by being operated by a registered broker-dealer as an alternative
trading system, or ATS, in compliance with rules for ATSs. Persons facilitating clearing and settlement of securities may be subject to
registration with the SEC as a clearing agency. Foreign jurisdictions may have similar licensing, registration, and qualification requirements.
We have internally conducted
our own analysis and have concluded that our DOTs are not a “security” under applicable laws. Regardless of our conclusions,
we could be subject to legal or regulatory action in the event the SEC, a foreign regulatory authority, or a court were to determine that
our DOTs is a “security” under applicable laws. However, if the interpretation or enforcement of the laws and regulations
regarding digital assets’ change, if we erroneously conclude that our DOTs are not securities, our operations would likely be materially
and adversely affected such that we may be unable to continue to mint DOTs or the SEC, a foreign regulatory authority, or a court determines
that our DOTs constitutes a security, we could become subject to judicial or administrative sanctions for failing to offer or sell the
digital asset in compliance with the registration requirements of Section 5 of the Securities Act, or for acting as a broker, dealer,
or national securities exchange without appropriate registration in the future. Such an action could result in injunctions, cease and
desist orders, as well as civil monetary penalties, fines, and disgorgement, criminal liability, and reputational harm. Users of our DOTs
could also seek to rescind our sales transactions as the basis that it was conducted in violation of applicable law, which could subject
us to significant liability. We may also be required to cease minting and selling our DOTs, which could negatively impact our business,
operating results, and financial condition. If we are unable to mint our own DOTs, our results of operations and financial condition may
be harmed and the value of your investment in us materially and adversely affected.
We face substantial
litigation and regulatory risks.
As an enterprise whose business
lines include innovative technology as well as payments made in cryptocurrency, we depend to a significant extent on its relationships
with its clients and its reputation for integrity and high-caliber professional services. As a result, if a client is not satisfied with
our services or if there are allegations of improper conduct, including improper conduct by any of our partners, by private litigants
or regulators, whether the ultimate outcome is favorable or unfavorable to us, or if there is negative publicity and press speculation
about us, whether or not valid, it may harm our reputation and may be more damaging to us than to businesses in other industries unrelated
to this sector.
With regulators still establishing
frameworks for the innovative technology utilized by us, as well as the payment mechanisms used, we may become subject to regulation and
oversight, including periodic examination by regulatory authorities. We could be the subject of inquiries, investigations, sanctions,
cease and desist orders, terminations of licenses or qualifications, lawsuits and proceedings by counterparties, clients, other third
parties and regulatory and other governmental agencies, which could lead to increased expenses or reputational damage. Responding to inquiries,
investigations, audits, lawsuits and proceedings, regardless of the ultimate outcome of the matter, is time-consuming and expensive and
can divert the attention of senior management. The outcome of such proceedings may be difficult to predict or estimate until late in the
proceedings, which may last a number of years.
The risks described above
may be greater for companies in the distributed ledger and non-fungible token industries as it is relatively new and clients, counterparties
and regulators are expected to need significant education to understand the mechanics of products and services that rely on such technologies.
Furthermore, while we maintain
insurance for certain potential liabilities, such insurance does not cover all types and amounts of potential liabilities and is subject
to various exclusions as well as caps on amounts refundable. Even if we believe a claim is covered by insurance, insurers may dispute
our entitlement for a variety of different reasons, which may affect the timing and, if the insurers prevail, the amount of our recovery.
Any claims or litigation, even if fully indemnified or insured, could damage our reputation and make it more difficult to compete effectively
or to obtain adequate insurance in the future.
If we and/or any governmental
agency believe that it has accepted capital contributions by, or is otherwise holdings assets of, any person or entity that is acting
directly or indirectly in violation of any money laundering or corruption laws, rules, regulations, treaties, sanctions or other restrictions,
or on behalf of any suspected terrorist or terrorist organization, suspected drug trafficker or senior foreign political figure(s) suspected
in engaging in foreign corruption, we and/or such governmental agency may “freeze the assets” of such person or entity. We
may also be required to report and remit or transfer those assets to a governmental agency. Any such action may harm our reputation and
materially and adversely affect its business, financial condition and results of operations.
We rely on third-party
service providers and partners for certain aspects of our operations, and any interruptions in services provided by these third parties
may impair our ability to support our users.
We rely on third parties in connection with many
aspects of our business, including payment processors, cloud computing services and data centers that provide facilities, infrastructure,
website functionality and access, components, and services, including databases and data center facilities and cloud computing, which
are critical to our intended operations. Because we intend to rely on third parties to provide these services and to facilitate certain
of our business activities, we face increased operational risks. We do not control the operation of any of these third parties, including
the third-party regulated trust and custodian entities we will use. These third parties may be subject to financial, legal, regulatory,
and labor issues, cybersecurity incidents, break-ins, computer viruses, denial-of-service attacks, sabotage, acts of vandalism, privacy
breaches, service terminations, disruptions, interruptions, and other misconduct. They are also vulnerable to damage or interruption from
human error, power loss, telecommunications failures, fires, floods, earthquakes, hurricanes, tornadoes, pandemics (including the COVID-19
pandemic) and similar events. In addition, these third parties may breach their agreements with us, disagree with our interpretation of
contract terms or applicable laws and regulations, refuse to continue or renew these agreements on commercially reasonable terms or at
all, fail or refuse to process transactions or provide other services adequately, take actions that degrade the functionality of our services,
impose additional costs or requirements on us or our customers, or give preferential treatment to competitors. There can be no assurance
that third parties that will provide services to us or to our users will do so on acceptable terms, or at all. If any third parties do
not adequately or appropriately provide their services or perform their responsibilities to us or our users, such as if third-party service
providers close their data center facilities without adequate notice, are unable to restore operations and data, fail to perform as expected,
or experience other unanticipated problems, we may be unable to procure alternatives in a timely and efficient manner and on acceptable
terms, or at all, and we may be subject to business disruptions, losses or costs to remediate any of the deficiencies, user dissatisfaction,
reputational damage, legal or regulatory proceedings, or other adverse consequences which could harm our business.
We are indebted to certain
of our executive officers and directors in the approximate amount of US$282,747.
As of December 31, 2021, we
are indebted to a company beneficially owned by Lee Ying Chiu Herbert, our director and shareholder, in an approximate amount of $272,413,
and Chan Man Chung, our CEO, CFO, Secretary and director, in an approximate amount of $10,334. We may not be able to generate sufficient
cash flow to repay these loans. If we issue additional securities as repayment, our shareholders may experience significant dilution.
The advances are not expected to be repayable within the next twelve months. Additionally, loan repayment before achievement of profitability
may cause us to delay implementing our business plans to expand.
We are also subject
to other risks and uncertainties that affect many other businesses, including:
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increasing costs, the volatility of costs and funding requirements and other legal mandates for employee benefits, especially pension and healthcare benefits; |
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the increasing costs of compliance with federal, state and foreign governmental agency mandates (including the Foreign Corrupt Practices Act) and defending against inappropriate or unjustified enforcement or other actions by such agencies; |
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the impact of any international conflicts on the U.S. and global economies in general, the transportation industry or us in particular, and what effects these events will have on our costs or the demand for our services; |
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any impacts on our business resulting from new domestic or international government laws and regulation; |
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market acceptance of our new service and growth initiatives; |
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the impact of technology developments on our operations and on demand for our services; |
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governmental under-investment in transportation infrastructure, which could increase our costs and adversely impact our service levels due to traffic congestion or sub-optimal routing of our vehicles; |
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widespread outbreak of an illness or any other communicable disease, or any other public health crisis; |
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availability of financing on terms acceptable to our ability to maintain our current credit ratings, especially given the capital intensity of our operations. |
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the impact of cyberattacks and security breaches on our platform, our crypto wallets or our third-party partners; |
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any impacts on our crypto assets or customer assets due to the improper treatment of the crypto wallets, or the failure of the crypto storage system on our platform or our third-party partners; |
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changes in market sentiments towards digital assets and crypto; |
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the impact on our business due to the system failure of our platform or our third-party partners; |
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any impacts on the value of our crypto assets resulting from the volatile changes in crypto prices; |
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our ability to attract, maintain, and grow our customer base and engage our customers; |
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pricing for our products and services; |
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our ability to diversify and grow our services revenue; |
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changes in macroeconomic conditions, political and legal environments; |
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adverse legal proceedings or regulatory enforcement actions, judgments, settlements, or other legal proceeding and enforcement-related costs; |
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our ability to attract and retain talent; and |
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our ability to compete with our competitors. |
If we are unable to
protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
We may rely on trade secrets,
including unpatented know-how, technology and other proprietary information, to maintain our competitive position. However, trade secrets
are difficult to protect. We limit disclosure of such trade secrets where possible but we also seek to protect these trade secrets, in
part, by entering into non-disclosure and confidentiality agreements with parties who do have access to them, such as our employees, contract
manufacturers, consultants, advisors and other third parties. Despite these efforts, any of these parties may breach the agreements and
may unintentionally or willfully disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate
remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive
and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or
unwilling to protect trade secrets. Moreover, if any of our trade secrets were to be lawfully obtained or independently developed by a
competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to
compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position
would be harmed.
Risks Related to Our Finances and Capital Requirements
We will need additional
funding and may be unable to raise capital when needed, which would force us to delay any business expansions or acquisitions.
Our business plan contemplates
the expansion of our logistics and delivery operations through organic means and through acquisitions or investments in additional complementary
businesses, products and technologies. While we currently have no commitments or agreements relating to any of these types of transactions,
we do not generate sufficient revenue from operations to finance expansion or acquisition needs. We expect to finance such future cash
needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements, as well as through
interest income earned on cash and investment balances. We cannot be certain that additional funding will be available on acceptable terms,
or at all. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate one or more of our development
programs or our commercialization efforts.
Raising additional capital
may cause dilution to our existing stockholders, restrict our operations or require us to relinquish proprietary rights.
Until such time, if ever,
as we can generate substantial revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings,
grants and license and development agreements in connection with any collaborations. To the extent that we raise additional capital through
the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include
liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing and preferred equity financing, if
available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends.
If we raise additional funds
through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish
valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may
not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to
delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product
candidates that we would otherwise prefer to develop and market ourselves.
Risks Relating to Doing Business in Hong Kong.
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 Hong Kong
and the profitability of such business.
We conduct our operations
and generate our revenue in Hong Kong. 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 assure
you that this will be the case. Our interests may be adversely affected by changes in policies by the PRC government, including:
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changes in laws, regulations or their interpretation; |
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confiscatory taxation; |
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restrictions on currency conversion, imports or sources of supplies, or ability to continue as a for-profit enterprise; |
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expropriation or nationalization of private enterprises; and |
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the allocation of resources. |
Substantial uncertainties
and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant
impact upon the business that we may be able to conduct in the PRC and accordingly on the results of our operations and financial condition.
Our business operations may
be adversely affected by the current and future political environment in the PRC. The PRC government has exercised and continues to exercise
substantial control over virtually every sector of the Chinese economy through regulation and state ownership. We expect the Hong Kong
legal system to rapidly evolve in the near future and may become closer aligned with legal system in China with the PRC government exerting
more oversight and control over companies operating in Hong Kong, offerings conducted overseas and or foreign investment in Hong Kong
based issuers. The interpretations of many laws, regulations and rules may not always be uniform and the enforcement of these laws, regulations
and rules may involve uncertainties for you and us. Our ability to operate in Hong Kong, conduct overseas offerings and continue to investment
in Hong Kong based issuers may be harmed by these changes in its laws and regulations, including those relating to taxation, import and
export tariffs, healthcare regulations, environmental regulations, land use and property ownership rights, and other matters. Accordingly,
government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally
planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic
conditions in Hong Kong or particular regions thereof, and could limit or completely hinder our ability to offer or continue to offer
securities to investors or require us to divest ourselves of any interest we then hold in Hong Kong properties or joint ventures. Any
such actions (including divesture or similar actions) could result in a material adverse effect on us and on your investment in us and
could render our securities and your investment in our securities worthless.
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, or the enforcement and performance of our contractual arrangements with borrowers in the event of the imposition of statutory
liens, death, bankruptcy or criminal proceedings. Only after 1979 did the Chinese government begin to promulgate a comprehensive system
of laws that regulate economic affairs in general, deal with economic matters such as foreign investment, corporate organization and governance,
commerce, taxation and trade, as well as encourage foreign investment in China. Although the influence of the law has been increasing,
China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects
of economic activities in China. Also, because these laws and regulations are relatively new, and because of the limited volume of published
cases and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties.
New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. In addition, there have
been constant changes and amendments of laws and regulations over the past 30 years in order to keep up with the rapidly changing society
and economy in China. Because government agencies and courts that provide interpretations of laws and regulations and decide contractual
disputes and issues may change their interpretation or enforcement very rapidly with little advance notice at any time, we cannot predict
the future direction of Chinese legislative activities with respect to either businesses with foreign investment or the effectiveness
on enforcement of laws and regulations in China. The uncertainties, including new laws and regulations and changes of existing laws, as
well as, may cause possible problems to foreign investors.
Although the PRC government
has been pursuing economic reform policies for more than two 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 assure you 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.
The Chinese government
exerts substantial influence over the manner in which we must conduct our business activities. We are currently not required to
obtain approval from Chinese authorities to list on U.S. exchanges. However, to the extent that the Chinese government exerts more control
over offerings conducted overseas and/or foreign investment in China-based issuers over time and if our PRC subsidiaries or the holding
company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges,
we will not be able to continue listing on U.S. exchange and the value of our common stock may significantly decline or become worthless,
which would materially affect the interest of the investors.
The Chinese government has
exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state
ownership. Our ability to operate in Hong Kong may be harmed by changes in its laws and regulations, including those relating to taxation,
environmental regulations, land use rights, property and other matters. The central or local governments of these jurisdictions may impose
new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part
to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision
not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in
the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof,
and could require us to divest ourselves of any interest we then hold in Chinese properties.
For example, the Chinese cybersecurity
regulator announced on July 2 that it had begun an investigation of Didi Global Inc. (NYSE: DIDI) and two days later ordered that the
company’s app be removed from smartphone app stores.
As such, the Company’s
business segments may be subject to various government and regulatory interference in the provinces in which they operate. The Company
could be subject to regulation by various political and regulatory entities, including various local and municipal agencies and government
sub-divisions. The Company may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties
for any failure to comply. The Company’s operations could be adversely affected, directly or indirectly, by existing or future laws
and regulations relating to its business or industry. Given that the Chinese government may intervene or influence our operations at any
time, it could result in a material change in our operation and the value of our common stock. Given recent statements by the Chinese
government indicating an intent to exert more oversight and control over offerings that are conducted overseas, any such action could
significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such
securities to significantly decline or be worthless.
Furthermore, it is uncertain
when and whether the Company will be required to obtain permission from the PRC government to list on U.S. exchanges in the future, and
even when such permission is obtained, whether it will be denied or rescinded. Although the Company is currently not required to obtain
permission from any of the PRC federal or local government to obtain such permission and has not received any denial to list on the U.S.
exchange, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to its
business or industry. As a result, our common stock may decline in value dramatically or even become worthless should we become subject
to new requirement to obtain permission from the PRC government to list on U.S. exchange in the future.
Recently, the General Office
of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Severe
and Lawful Crackdown on Illegal Securities Activities, which were available to the public on July 6, 2021. These opinions emphasized
the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies.
These opinions proposed to take effective measures, such as promoting the construction of relevant regulatory systems, to deal with the
risks and incidents facing China-based overseas-listed companies and the demand for cybersecurity and data privacy protection.
In April 2020, the Cyberspace
Administration of China and certain other PRC regulatory authorities promulgated the Cybersecurity Review Measures, which became effective
in June 2020. Pursuant to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity
review when purchasing network products and services which do or may affect national security. On July 10, 2021, the Cyberspace Administration
of China issued a revised draft of the Measures for Cybersecurity Review for public comments (“Draft Measures”), which required
that, in addition to “operator of critical information infrastructure,” any “data processor” carrying out data
processing activities that affect or may affect national security should also be subject to cybersecurity review, and further elaborated
the factors to be considered when assessing the national security risks of the relevant activities, including, among others, (i) the risk
of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited the
country; and (ii) the risk of critical information infrastructure, core data, important data or a large amount of personal information
being affected, controlled, or maliciously used by foreign governments after listing abroad. The Cyberspace Administration of China has
said that under the proposed rules companies holding data on more than 1,000,000 users must now apply for cybersecurity approval when
seeking listings in other nations because of the risk that such data and personal information could be “affected, controlled, and
maliciously exploited by foreign governments,” The cybersecurity review will also investigate the potential national security risks
from overseas IPOs. On January 4, 2022, the CAC, in conjunction with 12 other government departments, issued the New Measures for Cybersecurity
Review (the "New Measures") on January 4, 2022. The New Measures amends the Draft Measures released on July 10, 2021
and became effective on February 15, 2022.
The aforementioned policies
and any related implementation rules to be enacted may subject us to additional compliance requirement in the future. While we believe
that our operations are not affected by this, as these opinions were recently issued, official guidance and interpretation of the opinions
remain unclear in several respects at this time. Therefore, we cannot assure you that we will remain fully compliant with all new regulatory
requirements of these opinions or any future implementation rules on a timely basis, or at all.
The Holding Foreign
Companies Accountable Act requires the Public Company Accounting Oversight Board (PCAOB) to be permitted to inspect the issuer's public
accounting firm within three years. This three-year period will be shortened to two years if the Accelerating Holding Foreign Companies
Accountable Act is enacted. There are uncertainties under the PRC Securities Law relating to the procedures and requisite timing for the
U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC. If the U.S. securities
regulatory agencies are unable to conduct such investigations, they may suspend or de-register our registration with the SEC and delist
our securities from applicable trading market within the US.
The Holding Foreign Companies
Accountable Act was signed into law on December 18, 2020, and requires Auditors of publicly traded companies to submit to regular inspections
every three years to assess such auditors’ compliance with applicable professional standards. On June 22, 2021, the U.S. Senate
passed the Accelerating Holding Foreign Companies Accountable Act which, if passed by the U.S. House of Representatives and signed into
law, would reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from three
years to two. On September 22, 2021, the PCAOB adopted rules to create a framework for the PCAOB to use when determining, as contemplated
under the HFCA Act, whether it is unable to inspect or investigate completely registered public accounting firms located in a foreign
jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 2, 2021, the SEC adopted amendments
to finalize rules implementing the submission and disclosure requirements in the HFCA Act. The rules apply to registrants that the SEC
identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign
jurisdiction and that the PCAOB is unable to inspect or investigate completely because of a position taken by an authority in a foreign
jurisdiction. On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely
PCAOB-registered public accounting firms headquartered in China and in Hong Kong because of positions taken by PRC and Hong Kong authorities
in those jurisdictions. The PCAOB has made such designations as mandated under the HFCA Act. Pursuant to each annual determination by
the PCAOB, the SEC will, on an annual basis, identify issuers that have used non-inspected audit firms and thus are at risk of such suspensions
in the future.
Our Auditor is based in Kuala
Lumpur, Malaysia and is subject to PCAOB inspection. It is not subject to the determinations announced by the PCAOB on December 16, 2021.
However, in the event the Malaysian authorities subsequently take a position disallowing the PCAOB to inspect our auditor, then we would
need to change our auditor. Furthermore, due to the recent developments in connection with the implementation of the Holding Foreign Companies
Accountable Act, we cannot assure you whether the SEC or other regulatory authorities would apply additional and more stringent criteria
to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel
and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. The
requirement in the HFCA Act that the PCAOB be permitted to inspect the issuer’s public accounting firm within two or three years,
may result in the delisting of our securities from applicable trading markets in the U.S, in the future if the PCAOB is unable to inspect
our accounting firm at such future time.
According to Article 177 of
the Securities Law of the PRC (“Article 177”), overseas securities regulatory authorities are prohibited from engaging in
activities pertaining to investigations or evidence collection directly conducted within the territories of the PRC, and Chinese entities
or individuals are further prohibited from providing documents and information in connection with securities business activities to any
organizations and/or persons abroad without the prior consent of the securities regulatory authority of the State Council and the competent
departments of the State Council. As of the date of this prospectus, we are not aware of any implementing rules or regulations which have
been published regarding application of Article 177.
We believe Article 177 is
only applicable where the activities of overseas authorities constitute a direct investigation or evidence collection by such authorities
within the territory of the PRC. In the event that the U.S. securities regulatory agencies carry out an investigation on us such as an
enforcement action by the Department of Justice, the SEC or other authorities, such agencies’ activities will constitute conducting
an investigation or collecting evidence directly within the territory of the PRC and accordingly fall within the scope of Article 177.
In that case, the U.S. securities regulatory agencies may have to consider establishing cross-border cooperation with the securities regulatory
authority of the PRC by way of judicial assistance, diplomatic channels or establishing a regulatory cooperation mechanism with the securities
regulatory authority of the PRC. However, there is no assurance that the U.S. securities regulatory agencies will succeed in establishing
such cross-border cooperation in this particular case and/or establish such cooperation in a timely manner.
Furthermore, as Article 177
is a recently promulgated provision, it remains unclear as to how it will be interpreted, implemented or applied by the Chinese Securities
Regulatory Commission or other relevant government authorities. As such, there are uncertainties as to the procedures and requisite timing
for the U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC. The Holding
Foreign Companies Accountable Act requires the Public Company Accounting Oversight Board (PCAOB) be permitted to inspect the issuer's
public accounting firm within three years. This three year period will be shortened to two years if the Accelerating Holding Foreign
Companies Accountable Act is enacted. If the U.S. securities regulatory agencies are unable to conduct such investigations, there
exists a risk that they may determine to suspend or de-register our registration with the SEC and may also delist our securities from
applicable trading market within the US.
Adverse regulatory developments
in China may subject us to additional regulatory review, and additional disclosure requirements and regulatory scrutiny to be adopted
by the SEC in response to risks related to recent regulatory developments in China may impose additional compliance requirements for companies
like us with significant China-based operations, all of which could increase our compliance costs, subject us to additional disclosure
requirements.
The recent regulatory developments
in China, in particular with respect to restrictions on China-based companies raising capital offshore, may lead to additional regulatory
review in China over our financing and capital raising activities in the United States. In addition, we may be subject to industry-wide
regulations that may be adopted by the relevant PRC authorities, which may have the effect of limiting our service offerings, restricting
the scope of our operations in China, or causing the suspension or termination of our business operations in China entirely, all of which
will materially and adversely affect our business, financial condition and results of operations. We may have to adjust, modify, or completely
change our business operations in response to adverse regulatory changes or policy developments, and we cannot assure you that any remedial
action adopted by us can be completed in a timely, cost-efficient, or liability-free manner or at all.
On July 30, 2021, in
response to the recent regulatory developments in China and actions adopted by the PRC government, the Chairman of the SEC issued a statement
asking the SEC staff to seek additional disclosures from offshore issuers associated with China-based operating companies before their
registration statements will be declared effective, including detailed disclosure related to whether the issuer received or were denied
permission from Chinese authorities to list on U.S. exchanges and the risks that such approval could be denied or rescinded. On August
1, 2021, the China Securities Regulatory Commission stated in a statement that it had taken note of the new disclosure requirements announced
by the SEC regarding the listings of Chinese companies and the recent regulatory development in China, and that both countries should
strengthen communications on regulating China-related issuers. We cannot guarantee that we will not be subject to tightened regulatory
review and we could be exposed to government interference in China.
We may be exposed to
liabilities under the Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt Practices Act could have
a material adverse effect on our business.
We are subject to the Foreign
Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials
and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We will
have operations, agreements with third parties and make sales in Hong Kong, which may experience corruption. Our proposed activities may
create the risk of unauthorized payments or offers of payments by one of the employees, consultants, or sales agents of our Company, because
these parties are not always subject to our control. It will be our policy to implement safeguards to discourage these practices by our
employees. Also, our existing practices and any future improvements may prove to be less than effective, and the employees, consultants,
or sales agents of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA may result in severe
criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results
and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed
by companies in which we invest or that we acquire.
PRC regulation of loans
to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent
us from using the proceeds we receive from offshore financing activities to make loans to or make additional capital contributions to
our Hong Kong subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand business.
Any transfer of funds by us
to our Hong Kong subsidiaries, either as a shareholder loan or as an increase in registered capital, may become subject to approval by
or registration or filing with relevant governmental authorities in China. According to the relevant PRC regulations on foreign-invested
enterprises in China, capital contributions to PRC subsidiaries are subject to the approval of or filing with the Ministry of Commerce
in its local branches and registration with a local bank authorized by SAFE. It is unclear if Hong Kong subsidiaries will be deemed a
PRC subsidiary. If Hong Kong subsidiaries are deemed to be PRC subsidiaries, (i) any foreign loan procured by our Hong Kong subsidiaries
will be required to be registered with SAFE or its local branches or filed with SAFE in its information system; and (ii) our Hong
Kong subsidiaries will not be able to procure loans which exceed the difference between their total investment amount and registered capital
or, as an alternative, only procure loans subject to the calculation approach and limitation as provided in the People’s Bank of
China Notice No. 9 (“PBOC Notice No. 9”). We may not be able to obtain these government approvals or complete such registrations
on a timely basis, if at all, with respect to future capital contributions or foreign loans by us to our Hong Kong subsidiaries, if required.
If we fail to receive such approvals or complete such registration or filing, our ability to use the proceeds we receive from our offshore
financing activities and to capitalize our Hong Kong operations may be negatively affected, which could adversely affect our liquidity
and ability to fund and expand our business. There is, in effect, no statutory limit on the amount of capital contribution that we can
make to our Hong Kong subsidiaries. This is because there is no statutory limit on the amount of registered capital for our Hong Kong
subsidiaries, and we are allowed to make capital contributions to our Hong Kong subsidiaries by subscribing for their initial registered
capital and increased registered capital, provided that the Hong Kong subsidiaries complete the relevant filing and registration procedures.
The Circular on Reforming
the Administration of Foreign Exchange Settlement of Capital of Foreign-Invested Enterprises, or SAFE Circular 19, effective as of June
1, 2015, as amended by Circular of the State Administration of Foreign Exchange on Reforming and Regulating Policies on the Control over
Foreign Exchange Settlement under the Capital Account, or SAFE Circular 16, effective on June 9, 2016, allows FIEs to settle their
foreign exchange capital at their discretion, but continues to prohibit FIEs from using the Renminbi fund converted from their foreign
exchange capitals for expenditure beyond their business scopes, and also prohibit FIEs from using such Renminbi fund to provide loans
to persons other than affiliates unless otherwise permitted under its business scope. If Safe Circulars 16 and 19 are interpreted to apply
to the Hong Kong Dollar, our ability to use Hong Kong Dollars converted from the net proceeds from our offshore financing activities to
fund the establishment of new entities in Hong Kong, to invest in or acquire any other Hong Kong or PRC companies may be limited, which
may adversely affect our business, financial condition and results of operations.
Because our holding
company structure creates restrictions on the payment of dividends or other cash payments, our ability to pay dividends or make other
payments is limited.
We are a holding company whose
primary assets are our ownership of the equity interests in our subsidiaries. We conduct no other business and, as a result, we depend
entirely upon our subsidiaries’ earnings and cash flow to meet cash and financing requirements. If we decide in the future to pay
dividends or make other payments, as a holding company, our ability to pay dividends and meet other obligations depends upon the receipt
of dividends or other payments from our operating subsidiaries. Our subsidiaries and projects may be restricted in their ability to pay
dividends, make distributions or otherwise transfer funds to us prior to the satisfaction of other obligations, including the payment
of operating expenses or debt service, appropriation to reserves prescribed by laws and regulations, covering losses in previous years,
restrictions on the conversion of local currency into U.S. dollars or other hard currency, completion of relevant procedures with governmental
authorities or banks and other regulatory restrictions. Under the applicable PRC laws and regulations, foreign-invested enterprises in
China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations.
In addition, a foreign-invested enterprise in China is required to set aside a portion of its after-tax profit to fund specific reserve
funds prior to payment of dividends. In particular, at least 10% of its after-tax profits based on PRC accounting standards each year
is required to be set aside towards its general reserves until the accumulative amount of such reserves reach 50% of its registered capital.
These reserves are not distributable as cash dividends. If future dividends are paid in RMB, fluctuations in the exchange rate for the
conversion of any of these currencies into U.S. dollars may adversely affect the amount received by U.S. stockholders upon conversion
of the dividend payment into U.S. dollars. For a detailed description of the potential government regulations facing the Company associated
with our operations in Hong Kong and on restrictions on payments from our subsidiaries, please refer to “Government and Industry
Regulations –China and “Transfers of Cash to and From our Subsidiaries.” We do not presently have any intention to declare
or pay dividends in the future. You should not purchase shares of our common stock in anticipation of receiving dividends in future periods.
Our Hong Kong subsidiary
may be subject to restrictions on paying dividends or making other payments to us, which may restrict its ability to satisfy liquidity
requirements, conduct business and pay dividends to holders of our common stock.
Most of our cash is maintained
in Hong Kong Dollars. We rely on dividends from our Hong Kong subsidiaries for our cash and financing requirements, such as the funds
necessary to service any debt we may incur. There is a possibility that the PRC could prevent our cash maintained in Hong Kong from leaving
or the PRC could restrict the deployment of the cash into our business or for the payment of dividends. Any such controls or restrictions
may adversely affect our ability to finance our cash requirements, service debt or make dividend or other distributions to our shareholders.
Current PRC regulations permit PRC subsidiaries to pay dividends to foreign parent companies only out of their accumulated after-tax profits
upon satisfaction of relevant statutory condition and procedures, if any, determined in accordance with Chinese accounting standards and
regulations. In addition, PRC subsidiaries are required to set aside at least 10% of their accumulated profits each year, if any, to fund
certain reserve funds until the total amount set aside reaches 50% of its registered capital. Furthermore, if PRC subsidiaries and their
subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends
or make other payments to the foreign parent company, which may restrict the ability of the foreign parent company to satisfy its liquidity
requirements. If such restrictions on dividend and other payments are interpreted to apply to Hong Kong entities, our ability to rely
on payments from our Hong Kong subsidiary will be adversely affected.
In addition, the Enterprise
Income Tax Law of the PRC, or the PRC EIT Law, and its implementation rules provide that withholding tax rate of 10% will be applicable
to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or
arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises are
incorporated. For a detailed description of the potential government regulations facing the Company and the offering associated with our
operations in Hong Kong, please refer to “Government and Industry Regulations – Regulations Relating to Foreign Exchange
and Dividend Distribution.”
If any dividend is declared
in the future and paid in a foreign currency, you may be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you
will actually ultimately receive.
If you are a U.S. holder of
our shares of common stock, you will be taxed on the U.S. dollar value of your dividends, if any, at the time you receive them, even if
you actually receive a smaller amount of U.S. dollars when the payment is in fact converted into U.S. dollars. Specifically, if a dividend
is declared and paid in a foreign currency such as the RMB, the amount of the dividend distribution that you must include in your income
as a U.S. holder will be the U.S. dollar value of the payments made in the foreign currency, determined at the spot rate of the foreign
currency to the U.S. dollar on the date the dividend distribution is includible in your income, regardless of whether the payment is in
fact converted into U.S. dollars. Thus, if the value of the foreign currency decreases before you actually convert the currency into U.S.
dollars, you will be taxed on a larger amount in U.S. dollars than the U.S. dollar amount that you will actually ultimately receive.
Dividends payable to
our foreign investors and gains on the sale of our shares of common stock by our foreign investors may become subject to tax by the PRC.
Under the Enterprise Income
Tax Law and its implementation regulations issued by the State Council of the PRC, unless otherwise provided under relevant tax treaties,
a 10% PRC withholding tax is applicable to dividends payable to investors that are non-resident enterprises, which do not have an establishment
or place of business in the PRC or which have such establishment or place of business but the dividends are not effectively connected
with such establishment or place of business, to the extent such dividends are derived from sources within the PRC. Similarly, any gain
realized on the transfer of shares by such investors is also subject to PRC tax at a current rate of 10%, subject to any reduction or
exemption set forth in relevant tax treaties, if such gain is regarded as income derived from sources within the PRC. If we are deemed
a PRC resident enterprise, dividends paid on our shares, and any gain realized from the transfer of our shares, would be treated as income
derived from sources within the PRC and would as a result be subject to PRC taxation. Furthermore, if we are deemed a PRC resident enterprise,
dividends payable to individual investors who are non-PRC residents and any gain realized on the transfer shares by such investors may
be subject to PRC tax at a current rate of 20%, subject to any reduction or exemption set forth in applicable tax treaties. It is unclear
whether we or any of our subsidiaries established outside of China are considered a PRC resident enterprise or whether holders of shares
would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. If dividends
payable to our non-PRC investors, or gains from the transfer of our shares by such investors are subject to PRC tax, the value of your
investment in our shares may decline significantly. For a detailed description of the potential government regulations facing the Company
associated with our operations in Hong Kong, please refer to “Government and Industry Regulations –China.”
Our global income may
be subject to PRC taxes under the PRC Enterprise Income Tax Law, which could have a material adverse effect on our results of operations.
Under the PRC Enterprise Income
Tax Law, or the New EIT Law, and its amendment and implementation rules, which became effective in January 2008, an enterprise established
outside of the PRC with a “de facto management body” located within the PRC is considered a PRC resident enterprise and will
be subject to the enterprise income tax at the rate of 25% on its global income. The implementation rules define the term “de facto
management bodies” as “establishments that carry out substantial and overall management and control over the manufacturing
and business operations, personnel and human resources, finance and treasury, and business combination and disposition of properties and
other assets of an enterprise.” On April 22, 2009, the State Administration of Taxation (the “SAT”), issued a circular,
or SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled
enterprise that is incorporated offshore is located in China. Although the SAT Circular 82 only applies to offshore enterprises controlled
by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the determining criteria set forth
in the SAT Circular 82 may reflect the SAT’s general position on how the “de facto management body” text should be applied
in determining the resident status of all offshore enterprises for the purpose of PRC tax, regardless of whether they are controlled by
PRC enterprises or individuals. Although we do not believe that our legal entities organized outside of the PRC constitute PRC resident
enterprises, it is possible that the PRC tax authorities could reach a different conclusion. In such case, we may be considered a PRC
resident enterprise and may therefore be subject to the 25% enterprise income tax on our global income, which could significantly increase
our tax burden and materially and adversely affect our cash flow and profitability. In addition to the uncertainty regarding how the new
PRC resident enterprise classification for tax purposes may apply, it is also possible that the rules may change in the future, possibly
with retroactive effect. For a detailed description of the potential government regulations facing the Company associated with our operations
in Hong Kong, please refer to “Government and Industry Regulations –China.”
We and our shareholders
face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
On February 3, 2015, the State
Administration of Taxation issued an Announcement on Several Issues Concerning Enterprise Income Tax on Income Arising from Indirect Transfers
of Property by Non-PRC Resident Enterprises, or Announcement 7, with the same effective date. Under Announcement 7, an “indirect
transfer” refers to a transaction where a non-resident enterprise transfers its equity interest and other similar interest in an
offshore holding company, which directly or indirectly holds Chinese taxable assets (the assets of an “establishment or place”
situated in China; real property situated in China and equity interest in Chinese resident enterprises) and any indirect transfer without
reasonable commercial purposes are subject to the PRC taxation. In addition, Announcement 7 specifies the conditions under which an indirect
transfer is deemed to lack a reasonable commercial purpose which include: (1) 75% or more of the value of the offshore holding company’s
equity is derived from Chinese taxable assets, (2) anytime in the year prior to the occurrence of the indirect transfer of Chinese taxable
assets, 90% or more of the total assets (excluding cash) of the offshore holding company are direct or indirect investments in China,
or 90% or more of the revenue of the offshore holding company was sourced from China; (3) the functions performed and risks assumed by
the offshore holding company(ies), although incorporated in an offshore jurisdiction to conform to the corporate law requirements there,
are insufficient to substantiate their corporate existence and (4) the foreign income tax payable in respect of the indirect transfer
is lower than the Chinese tax which would otherwise be payable in respect of the direct transfer if such transfer were treated as a direct
transfer. As a result, gains derived from such indirect transfer will be subject to PRC enterprise income tax, currently at a tax rate
of 10%.
Announcement 7 grants a safe
harbor under certain qualifying circumstances, including transfers in the public securities market and certain intragroup restricting
transactions, however, there is uncertainty as to the implementation of Announcement 7. For example, Announcement 7 requires the buyer
to withhold the applicable taxes without specifying how to obtain the information necessary to calculate taxes and when the applicable
tax shall be submitted. Announcement 7 may be determined by the tax authorities to be applicable to our offshore restructuring transactions
or sale of the shares of our offshore subsidiaries where non-resident enterprises, being the transferors, were involved. Though Announcement
7 does not impose a mandatory obligation of filing the report of taxable events, the transferring party shall be subject to PRC withholding
tax if the certain tax filing conditions are met. Non-filing may result in an administrative penalty varying from 50% to 300% of unpaid
taxes. As a result, we and our non-resident enterprises in such transactions may become at risk of being subject to taxation under Announcement
7, and may be required to expend valuable resources to comply with Announcement 7 or to establish that we and our non-resident enterprises
should not be taxed under Announcement 7, for any restructuring or disposal of shares of our offshore subsidiaries, which may have a material
adverse effect on our financial condition and results of operations.
PRC laws and regulations
have established more complex procedures for certain acquisitions of Chinese companies by foreign investors, which could make it more
difficult for us to pursue growth through acquisitions in China.
Further to the Regulations
on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rules, the Anti-monopoly Law of the PRC,
the Rules of Ministry of Commerce on Implementation of Security Review System of Mergers and Acquisitions of Domestic Enterprises by Foreign
Investors promulgated by MOFCOM or the MOFCOM Security Review Rules, was issued in August 2011, which established additional procedures
and requirements that are expected to make merger and acquisition activities in China by foreign investors more time-consuming and complex,
including requirements in some instances that MOFCOM be notified in advance of any change of control transaction in which a foreign investor
takes control of a PRC enterprise, or that the approval from MOFCOM be obtained in circumstances where overseas companies established
or controlled by PRC enterprises or residents acquire affiliated domestic companies. PRC laws and regulations also require certain merger
and acquisition transactions to be subject to merger control review and or security review.
The MOFCOM Security Review
Rules, effective from September 1, 2011, which implement the Notice of the General Office of the State Council on Establishing the Security
Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated on February 3, 2011, further provide
that, when deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to the security
review by MOFCOM, the principle of substance over form should be applied and foreign investors are prohibited from bypassing the security
review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control through agreements
control or offshore transactions.
Further, if the business of
any target company that the combined company seeks to acquire falls into the scope of security review, the combined company may not be
able to successfully acquire such company either by equity or asset acquisition, capital contribution or through any contractual agreements.
The combined company may grow its business in part by acquiring other companies operating in its industry. Complying with the requirements
of the relevant regulations to complete such transactions could be time consuming, and any required approval processes, including approval
from MOFCOM, may delay or inhibit its ability to complete such transactions, which could affect our ability to maintain or expand our
market share.
In addition, SAFE promulgated
the Circular on the Settlement of Foreign Currency Capital of Foreign-invested Enterprises, or Circular 19, on June 1, 2015. Under Circular
19, registered capital of a foreign-invested company settled in RMB converted from foreign currencies may only be used within the business
scope approved by the applicable governmental authority and the equity investments in the PRC made by the foreign-invested company shall
be subject to the relevant laws and regulations about the foreign-invested company’s reinvestment in the PRC. In addition, foreign-invested
companies cannot use such capital to make the investments in securities, and cannot use such capital to issue the entrusted RMB loans
(except approved in its business scope), repay the RMB loans between the enterprises and the ones which have been transferred to the third
party. Circular 19 may significantly limit our ability to effectively use the proceeds from future financing activities as the Chinese
subsidiaries may not convert the funds received from us in foreign currencies into RMB, which may adversely affect their liquidity and
our ability to fund and expand our business in the PRC.
SAFE issued the Circular on
Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts (“Circular 16”), on
June 9, 2016, which became effective simultaneously. Pursuant to Circular 16, enterprises registered in the PRC may also convert their
foreign debts from foreign currency to RMB on a self-discretionary basis. Circular 16 provides an integrated standard for conversion of
foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) on a self-discretionary
basis which applies to all enterprises registered in the PRC. Circular 16 reiterates the principle that RMB converted from foreign currency-denominated
capital of a company may not be directly or indirectly used for purpose beyond its business scope or prohibited by PRC Laws or regulations,
while such converted RMB shall not be utilized as loans to its non-affiliated entities. As Circular 16 is newly issued and SAFE has not
provided detailed guidelines with respect to its interpretation or implementation, it is uncertain how these rules will be interpreted
and implemented.
Failure to comply with
PRC regulations regarding the registration requirements for employee stock ownership plans or share option plans may subject the PRC plan
participants or us to fines and other legal or administrative sanctions.
Pursuant to SAFE Circular
37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit applications to SAFE or
its local branches for the foreign exchange registration with respect to offshore special purpose companies. In the meantime, our directors,
executive officers and other employees who are PRC citizens or who are non-PRC residents residing in the PRC for a continuous period of
not less than one year, subject to limited exceptions, and who have been granted incentive share awards by us, may follow the Notices
on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed
Company, or 2012 SAFE notices, promulgated by the SAFE in 2012. Pursuant to the 2012 SAFE notices, PRC citizens and non-PRC citizens who
reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly
listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the
PRC subsidiaries of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution
must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests.
Our executive officers and other employees who are PRC citizens or who reside in the PRC for a continuous period of not less than one
year and who have been granted options will be subject to these regulations. It is unclear if these regulations will be expanded to include
Hong Kong residents or citizens. Failure to complete the SAFE registrations may subject them to fines, and legal sanctions and may also
limit our ability to contribute additional capital into our Hong Kong subsidiaries and limit our Hong Kong subsidiaries’ ability
to distribute dividends to us if Hong Kong residents or citizens are covered under these PRC regulations. We also face regulatory uncertainties
that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law.
The SAT has issued certain
circulars concerning employee share options and restricted shares. Under these circulars, employees working in China who exercise share
options or are granted restricted shares will be subject to PRC individual income tax. It is unclear whether these regulations will be
expanded in the future to cover our employees in Hong Kong. Our Hong Kong subsidiaries may become obligated to file documents related
to employee share options or restricted shares with relevant tax authorities and to withhold individual income taxes of those employees
who exercise their share options. If our employees fail to pay or we fail to withhold their income taxes according to relevant laws and
regulations, we may face sanctions imposed by the tax authorities or other PRC governmental authorities.
If we become directly
subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant
resources to investigate and resolve the matter which could harm our business operations 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.
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, such as the SEC. Much of the scrutiny, criticism and negative publicity has centered around
financial and accounting irregularities, a lack of effective internal controls over financial accounting and reporting, inadequate corporate
governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and
negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases,
has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting
internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative
publicity will have on our company and our business. If we become the subject of any unfavorable allegations, whether such allegations
are proven to be true or untrue, we may have to expend significant resources to investigate such allegations and/or defend the Company.
This situation may be a major distraction to our management. If such allegations are not proven to be groundless, our Company and business
operations will be severely hampered and your investment in our stock could be rendered worthless.
In addition, major issues
with other U.S. listed Chinese companies in the future, could have a negative effect on the value of your investment, even though the
Company is not involved.
Substantially all of
our assets and a majority of our officers and directors are located in Hong Kong. The balance of our directors and officers are located
in Singapore. As a result, it may be difficult for stockholders to enforce any judgment obtained in the United States against us, our
officers or directors, which may limit the remedies otherwise available to our stockholders.
Substantially all of our assets
are located in Hong Kong. Moreover, a majority of our current directors and officers are Hong Kong nationals or are otherwise located
in Hong Kong with the balance located in Singapore. All or a substantial portion of their assets are located outside the United States.
As a result, it may be difficult for our stockholders to effect service of process within the United States upon our subsidiaries or any
individuals. In addition, there is uncertainty as to whether the courts of Hong Kong or the PRC would recognize or enforce judgments of
U.S. courts obtained against us or our officers and/or directors predicated upon the civil liability provisions of Hong Kong against us
or such persons predicated upon the securities laws of the United States or any state thereof. It is unclear if extradition
treaties now in effect between the United States and the PRC would permit effective enforcement against us or our officers and directors
of criminal penalties under the United States Federal securities laws or otherwise.
Risks Relating to Securities Markets and Investment
in Our Stock
There is not now and
there may not ever be an active market for our Common Stock. There are restrictions on the transferability of these securities.
There currently is no market
for our Common Stock and, except as otherwise described herein, we have no plans to file any registration statement or otherwise attempt
to create a market for the shares. Even if an active market develops for the shares, Rule 144, which provides for an exemption from the
registration requirements under the Securities Act under certain conditions, requires, among other conditions, a holding period prior
to the resale (in limited amounts) of securities acquired in a non-public offering without having to satisfy the registration requirements
under the Securities Act. There can be no assurance that we will fulfill any reporting requirements in the future under the Exchange Act
or disseminate to the public any current financial or other information concerning us, as is required by Rule 144 as part of the conditions
of its availability.
Our common stock is
subject to the “penny stock” rules of the sec and the trading market in our securities is limited, which makes transactions
in our stock cumbersome and may reduce the value of an investment in our stock.
Under U.S. federal securities
legislation, our common stock will constitute "penny stock". Penny stock is any equity security that has a market price of less
than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that
a broker or dealer approve a potential investor's account for transactions in penny stocks, and the broker or dealer receive from the
investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order
to approve an investor's account for transactions in penny stocks, the broker or dealer must obtain financial information and investment
experience objectives of the person, and make a reasonable determination that the transactions in penny stocks are suitable for that person
and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny
stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission
relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination.
Brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more
difficult for investors to dispose of our common stock and cause a decline in the market value of our stock. Disclosure also has to be
made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable
to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available
to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information
for the penny stock held in the account and information on the limited market in penny stocks.
You may experience substantial
dilution of your investment in our securities as a result of the potential conversion of certain outstanding preferred stock into shares
of our common stock.
We have issued and outstanding
10,000,000 shares of Series A Preferred Stock and 1 share of Series C Convertible Preferred Stock which have potentially dilutive impacts
on voting or beneficial ownership. While holders of the Series A Preferred Stock cannot convert their securities into common stock, each
one share of Series A Preferred Stock is entitled to vote 200 shares on matters submitted to a vote of our shareholders. Holders of the
Series C Preferred Stock cannot vote on matters submitted to a vote of the shareholders but are entitled to convert the sole outstanding
share of Series C Preferred Stock into 9.99% our of issued and outstanding common stock less the number of shares of common stock then
held by the holder. Lee Ying Chiu Herbert, our director owns all 10 million issued and outstanding shares of our Series A Preferred Stock
and the sole outstanding share of Series C Preferred Stock. As a result, Dr. Lee, our director controls the voting power of approximately
81% of our common stock, as calculated on a fully diluted basis, as of the date of this registration statement. Upon issuance of the balance
of 129,860,254,628 shares of common stock due to him, Dr. Lee will control in excess of 99.45% of the voting power of our common stock,
as calculated on a fully diluted basis.
We are a controlled
company subject to the control of Lee Ying Chiu Herbert, our director. Lee Ying Chiu Herbert, together with our other insiders beneficially
own a significant portion of our stock, and accordingly, have control over stockholder matters, our business and management.
Under NASDAQ stock exchange
rule 5615(c)(1), a “controlled company” is defined as a “company of which more than 50% of the voting power for the
election of directors is held by an individual, a group or another company.” As of the date of this prospectus, Lee Ying Chiu Herbert
beneficially owns 1,129,587,822 shares of our common stock, or approximately 60.48% of our issued and outstanding shares of common stock
and 10,000,000 share of our Series A Preferred Stock, or approximately 100% of our issued and outstanding shares of Series A Preferred
Stock, and 337,000 shares of our Series B Preferred Stock, or approximately 91.99% of our issued and outstanding shares of Series B Preferred
Stock and 1 share of our Series C Preferred Stock, or approximately 100% of our issued and outstanding shares of Series C Preferred Stock.
So Han Meng Julian, our director, beneficially owns 100,000,000 shares of our common stock, or approximately 5.35% of our issued and outstanding
shares of common stock. Each of Messrs. Lee and So are entitled to an additional 129,860,254,628 and 8,608,462,003, respectively, shares
of our common stock in connection with our acquisition of Marvion Holdings Limited. After the issuance of the second tranche of shares
of common stock, our directors will beneficially own in excess of 99.55% of our issued and outstanding shares of our common stock. As
a result, Dr. Lee will have significant influence to:
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Elect or defeat the election of our directors; |
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Amend or prevent amendment of our articles of incorporation or bylaws; |
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Effect or prevent a merger, sale of assets or other corporate transaction; and |
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Effect the outcome of any other matter submitted to the stockholders for vote. |
Moreover, because of the significant
ownership position held by our management team, new investors may not be able to effect a change in our business or management, and therefore,
shareholders would have no recourse as a result of decisions made by management. In addition, sales of significant amounts of shares held
by our management team, or the prospect of these sales, could adversely affect the market price of our common stock. Our management team’s
stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which
in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.
State securities laws
may limit secondary trading, which may restrict the states in which and conditions under which you can sell the shares offered by this
registration statement.
Secondary trading in common
stock sold in this offering will not be possible in any state until the common stock is qualified for sale under the applicable securities
laws of the state or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for
secondary trading in the state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of, the
common stock in any particular state, the common stock could not be offered or sold to, or purchased by, a resident of that state. In
the event that a significant number of states refuse to permit secondary trading in our common stock, the liquidity for the common stock
could be significantly impacted thus causing you to realize a loss on your investment.
The Company does not intend
to seek registration or qualification of its shares of common stock the subject of this offering in any State or territory of the United
States. Aside from a "secondary trading" exemption, other exemptions under state law and the laws of US territories may be available
to purchasers of the shares of common stock sold in this offering,
Anti-takeover effects
of certain provisions of Nevada state law hinder a potential takeover of our company.
Though not now, in the future
we may become subject to Nevada's control share law. A corporation is subject to Nevada's control share law if it has more than 200 stockholders,
at least 100 of whom are stockholders of record and residents of Nevada, and it does business in Nevada or through an affiliated corporation.
The law focuses on the acquisition of a "controlling interest" which means the ownership of outstanding voting shares sufficient,
but for the control share law, to enable the acquiring person to exercise the following proportions of the voting power of the corporation
in the election of directors:
(i) one-fifth or more but
less than one-third, (ii) one-third or more but less than a majority, or (iii) a majority or more. The ability to exercise such voting
power may be direct or indirect, as well as individual or in association with others.
The effect of the control
share law is that the acquiring person, and those acting in association with it, obtains only such voting rights in the control shares
as are conferred by a resolution of the stockholders of the corporation, approved at a special or annual meeting of stockholders. The
control share law contemplates that voting rights will be considered only once by the other stockholders. Thus, there is no authority
to strip voting rights from the control shares of an acquiring person once those rights have been approved. If the stockholders do not
grant voting rights to the control shares acquired by an acquiring person, those shares do not become permanent non-voting shares. The
acquiring person is free to sell its shares to others. If the buyers of those shares themselves do not acquire a controlling interest,
their shares do not become governed by the control share law.
If control shares are accorded
full voting rights and the acquiring person has acquired control shares with a majority or more of the voting power, any stockholder of
record, other than an acquiring person, who has not voted in favor of approval of voting rights is entitled to demand fair value for such
stockholder's shares.
In addition to the control
share law, Nevada has a business combination law which prohibits certain business combinations between Nevada corporations and "interested
stockholders" for three years after the "interested stockholder" first becomes an "interested stockholder," unless
the corporation's board of directors approves the combination in advance. For purposes of Nevada law, an "interested stockholder"
is any person who is (i) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting
shares of the corporation, or (ii) an affiliate or associate of the corporation and at any time within the three previous years was the
beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation.
The definition of the term "business combination" is sufficiently broad to cover virtually any kind of transaction that would
allow a potential acquirer to use the corporation's assets to finance the acquisition or otherwise to benefit its own interests rather
than the interests of the corporation and its other stockholders.
The effect of Nevada's business
combination law is to potentially discourage parties interested in taking control of our company from doing so if it cannot obtain the
approval of our board of directors.
Because we do not intend
to pay any cash dividends on our common stock, our stockholders will not be able to receive a return on their shares unless they sell
them.
We intend to retain any future
earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock
in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they
sell them. Stockholders may never be able to sell shares when desired. Before you invest in our securities, you should be aware that there
are various risks. You should consider carefully these risk factors, together with all of the other information included in this annual
report before you decide to purchase our securities. If any of the following risks and uncertainties develop into actual events, our business,
financial condition or results of operations could be materially adversely affected.
Our stock may be subject
to substantial price and volume fluctuations due to a number of factors, many of which are beyond our control and may prevent our stockholders
from reselling our Common Stock at a profit.
The market prices for our
securities may be volatile and may fluctuate substantially due to many factors, including:
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market conditions in the business marketing services and digital assets services sectors or the economy as a whole; |
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price and volume fluctuations in the overall stock market; |
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announcements of the introduction of new products and services by us or our competitors; |
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actual fluctuations in our quarterly operating results, and concerns by investors that such fluctuations may occur in the future; |
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deviations in our operating results from the estimates of securities analysts or other analyst comments; |
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additions or departures of key personnel; |
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legislation, including measures affecting e-commerce or infrastructure development; and |
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developments concerning current or future strategic collaborations. |