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pursuant to dividend or interest reinvestment plans, please check the following box:
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under the Securities Act, check the following box.
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Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated
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RISK FACTORS
Except for the historical information contained in this prospectus
or incorporated by reference, this prospectus (and the information incorporated by reference in this prospectus) contains forward-looking
statements that involve risks and uncertainties. Our actual results could differ materially from those discussed here or incorporated
by reference. Factors that could cause or contribute to such differences include, but are not limited to, those discussed here,
as well as any amendment or update thereto reflected in subsequent filings with the Securities and Exchange Commission.
Investing in our securities involves a high degree of risk. You
should carefully review the risks and uncertainties described under the heading “Risk Factors” contained in the applicable
prospectus supplement and any related free writing prospectus, and under similar headings in the other documents that are incorporated
by reference into this prospectus, before deciding whether to purchase any of the securities being registered pursuant to the registration
statement of which this prospectus is a part. Each of the risk factors could adversely affect our business, operating results and
financial condition, as well as adversely affect the value of an investment in our securities, and the occurrence of any of these
risks might cause you to lose all or part of your investment. Moreover, the risks described are not the only ones that we face.
Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business
operations.
Risks Related to our Business
Jewelry purchases are discretionary, may be particularly affected
by adverse trends in the general economy, and an economic decline will make it more difficult to generate revenue.
The success of our operations depends, to a significant extent,
upon a number of factors relating to discretionary consumer spending in China. These factors include economic conditions and perceptions
of such conditions by consumers, employment rates, the level of consumers’ disposable income, business conditions, interest
rates, consumer debt levels, availability of credit and levels of taxation in regional and local markets in China where we manufacture
and sell our products. There can be no assurance that consumer spending on jewelry will not be adversely affected by changes in
general economic conditions in China and globally.
While the Chinese economy has experienced rapid growth in the past
decade, such growth has been uneven among various sectors of the economy and in different geographical areas of the country. Rapid
economic growth can lead to growth in the money supply and rising inflation. During the past two decades, the rate of inflation
in China has been as high as approximately 20%. If prices for our products rise at a rate that is insufficient to compensate for
the rise in the costs of supplies such as raw materials, it may have an adverse effect on our profitability. In recent years, Chinese
economy has been slowing down, and in 2015, GDP growth was 6.9%. The slowing economy might have impact on consumer demand, which
could adversely impact our business.
Most of our sales are of products that include gold, precious
metals and other commodities, and fluctuations in the availability and pricing of commodities would adversely impact our ability
to obtain and make products at favorable prices.
The jewelry industry generally is affected by fluctuations in the
price and supply of diamonds, gold, and, to a lesser extent, other precious and semi-precious metals and stones. In the past, we
have not hedged our requirement for gold or other raw materials through the use of options, forward contracts or outright commodity
purchasing. A significant increase in the price of gold could increase our production costs beyond the amount that we are able
to pass on to our customers, which would adversely affect our sales and profitability. A significant disruption in our supply of
gold or other commodities could decrease our production and shipping levels, materially increase our operating costs and materially
and adversely affect our profit margins. Shortages of gold or other commodities, or interruptions in transportation systems, labor
strikes, work stoppages, war, acts of terrorism, or other interruptions to or difficulties in the employment of labor or transportation
in the markets in which we purchase our raw materials, may adversely affect our ability to maintain production of our products
and sustain profitability. Although we generally attempt to pass increased commodity prices to our customers, there may be circumstances
in which we are not able to do so. In addition, if we were to experience a significant or prolonged shortage of gold, we would
be unable to meet our production schedules and to ship products to our customers in a timely manner, which would adversely affect
our sales, margins and customer relations.
Furthermore, the value of our inventory may be affected by commodity
prices. We record the value of our inventory using the weighted average method. As a result, decreases in the market value of precious
metals such as gold would result in a lower stated value of our inventory, which may require us to take a charge for the decrease
in the value of our inventory.
Competition in the jewelry industry could cause us to lose
market share, thereby materially and adversely affecting our business, results of operations and financial condition.
The jewelry industry in China is highly fragmented and very competitive.
We believe that the market may become even more competitive as the industry grows and/or consolidates. We compete with local jewelry
manufacturers and large foreign multinational companies that offer products that are similar to ours. Some of these competitors
have larger local or regional customer bases, more locations, more brand equity, and substantially greater financial, marketing
and other resources than we have. As a result of this increasing competition, we could lose market share, thereby materially and
adversely affecting our business, results of operations and financial condition.
We may need to raise additional funds in the future. These
funds may not be available on acceptable terms or at all, and, without additional funds, we may not be able to maintain or expand
our business. The sale of additional shares or equity or debt securities could result in additional dilution to our shareholders.
Our operations require substantial funds to finance our operating
expenses, to maintain and expand our manufacturing, marketing and sales capabilities and to cover public company costs. Without
these funds, we may not be able to meet our goals. We believe that our current cash and cash equivalents and anticipated cash flow
from operations will be sufficient to meet our anticipated cash needs for the foreseeable future. We may, however, require additional
cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may
decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or
debt securities or obtain one or more additional credit facilities. If we cannot raise additional funds when needed, or on acceptable
terms, we may not be able to effectively execute our growth strategy take advantage of future opportunities, or respond to competitive
pressures or unanticipated requirements. In addition, we may be required to scale back or discontinue expansion plans, or obtain
funds through strategic alliances that may require us to relinquish certain rights.
We may seek additional funding through public or private financing
or through collaborative arrangements with strategic partners. However, you should also be aware that in the future:
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we cannot be certain
that additional capital will be available on favorable terms, if at all;
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any available additional
financing may not be adequate to meet our goals; and
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any equity financing
would result in dilution to stockholders.
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In addition, the incurrence of indebtedness would result in increased
debt service obligations and could result in operating and financing covenants that would restrict our operations.
Our ability to maintain or increase our revenue could be harmed
if we are unable to strengthen and maintain our brand image.
We believe that the primary factors in facilitating customer buying
decisions in China’s jewelry sector include price, confidence in the merchandise sold, and the level and quality of customer
service. The ability to differentiate our products from competitors’ by our brand-based marketing strategies is a key factor
in attracting consumers, and if our strategies and efforts to promote our brand, such as television and magazine advertising and
beauty contest sponsorships fail to garner brand recognition, our ability to generate revenue may suffer. If we are unable to differentiate
our products, our ability to sell our products wholesale and our planned sale of products retail will be adversely affected. If
we fail to identify or react appropriately or timely to customer buying decisions, we could experience a reduction in consumer
recognition of our products, a diminished brand image, higher markdowns, and costs to recast overstocked jewelry. These factors
could result in lowering selling prices and sales volumes for our products, which could adversely affect our financial condition
and results of operations
There is only one source in China for us to obtain the precious
metals used in our jewelry products; accordingly, any interruptions of our arrangement with this source would disrupt our ability
to fulfill customer orders and substantially affect our ability to continue our business operations.
Under PRC law, the supply of precious metals such as platinum, gold,
and silver is highly regulated by PRC government agencies. The Shanghai Gold Exchange (“the Exchange”) is the only
supplier in China for gold used for our jewelry products (including the gold we lease from leading PRC banks). We are required
to obtain and maintain several membership and approval certificates from government agencies in order to do business involving
precious metals. The loss of our relationship or failure to renew our membership with the Exchange, or its inability to furnish
precious metals to us (or the banks we lease from) as anticipated in terms of cost, quality, and timeliness, would adversely affect
our ability to fulfill customer orders in accordance with our required delivery, quality, and performance requirements. If this
situation were to occur, we would not have any alternative suppliers in China to obtain our raw materials from, which would result
in a decline in revenue and revenue potential, and ultimately risk the overall continuation of our business operations.
If we are not able to adapt to changing jewelry trends in
China, our inventory may be overstocked and we may be forced to reduce the price of our overstocked jewelry or incur the cost to
recast it into new jewelry.
Our jewelry sales depend on consumer fashions, preferences for jewelry
and the demand for particular products in China. Jewelry design trends in China can and do change rapidly. The ability to accurately
predict future changes in taste, respond to changes in consumer preferences, carry the inventory demanded by customers, deliver
the appropriate quality, price products correctly, and implement effective purchasing procedures all have an important influence
on determining sales performance and maximizing gross margin. If we fail to anticipate, identify or react appropriately to changes
in styles and trends, we could experience excess inventories, higher than normal markdowns or an inability to sell our products.
If such a situation were to exist, we would need to incur additional costs to recast our products to fit the demand, and the labor
and manufacturing costs previously invested in the recast products would be lost.
Our failure to manage growth effectively could have an adverse
effect on our employee efficiency, product quality, working capital levels, and results of operations.
We intend to develop the retail distribution of our products, which
we believe will result in rapid growth, but will also place significant demands on our managerial, operational and financial resources.
Any significant growth in the market for our current wholesale business and our planned retail distribution would require us to
expand our managerial, operational, financial, and other resources. During any period of growth, we may face problems related to
our operational and financial systems and controls, including quality control and delivery and service capabilities. We also will
need to continue to expand, train and manage our employee base. If we are unable to successfully build these skills and expand
our number of skilled management and staff, we may be unsuccessful in achieving our intended level of growth.
Aside from increased difficulties in the management of human resources,
we may also encounter working capital issues, as we will need increased liquidity to finance the purchases of raw materials and
supplies, development of new products and the hiring of additional employees. Our failure to manage growth effectively may lead
to operational and financial inefficiencies that will have a negative effect on our profitability. We cannot assure you that we
will be able to timely and effectively meet that demand and maintain the quality standards required by our existing and potential
customers.
We maintain a relatively large inventory of our raw materials
and jewelry products to support customer delivery requirements, and if this inventory is lost due to theft, our results of operations
would be negatively impacted.
We purchase large volumes of precious metals and store significant
quantities of raw materials and jewelry products at our warehouse and show room in Wuhan, China. Although we have an inventory
security system in place, we may be subject to future significant inventory losses due to third-party or employee theft from our
warehouses or other forms of theft. The implementation of enhanced security measures beyond those that we already utilize, which
include onsite police station with direct deployment of officers and instant access to Wuhan city police department, security cameras,
and alarm systems in our warehouse, would increase our operating costs. Also, any such losses of inventory could exceed the limits
of, or be subject to an exclusion from, coverage under our insurance policies. Claims filed by us under our insurance policies
could lead to increases in the insurance premiums payable by us or the termination of coverage under the relevant policy. In addition,
loss of gold inventory may cause violation of our pledge agreements of loans.
We have outstanding borrowings, and we may not be able to
obtain extensions when they become mature.
Our short term loans as of June 30, 2016 were approximately $166
million. Interest expense for all of the short term amounted approximately to $6.7 million for the six months ended June 30, 2016.
Our long term loans as of June 31, 2015 were approximately $511 million. Interest expense for all of the long term loans amounted
to $11.9 million for the six months ended June 30, 2016. These loans are secured by restricted cash on deposit at the various lender
banks, as well as the personal credit of our Chairman and Chief Executive Officer. Our loans have been, and may be, collateralized
by gold inventory, our buildings, plant and machinery, as well as pledges of Au9995 gold (by both us and an affiliate) or such
other collateral as we may agree from time to time with the lender.
Although we have renewed our borrowings in the past, we cannot assure
you that we will be able to renew these loans in the future as they mature or that we will choose to renew these loans as they
mature. If we are unable to obtain renewals of these loans or sufficient alternative funding on reasonable terms from banks or
other parties, or if we choose not to obtain renewals of these loans, we will have to repay these borrowings with the cash on our
balance sheet or cash generated by our future operations, if any. We cannot assure you that our business will generate sufficient
cash flow from operations to repay these borrowings.
Our business could be materially adversely affected if we
cannot protect our intellectual property rights.
We have developed trademarks, patents, know-how, trade-names and
other intellectual property rights that are of significant value to us. In particular, we have applied for patents on a limited
number of designs of our jewelry products and trademarks as well. However, the legal regime governing intellectual property in
the PRC is still evolving and the level of protection of intellectual property rights in the PRC may differ from those in other
jurisdictions. Thus, it may be difficult to enforce our rights relating to these designs as well as our trademarks. Any unauthorized
use of, or other infringement upon our designs or trademarks, could result in potential sales being diverted to such unauthorized
sellers, and dilute the value of our brand.
We are dependent on certain key personnel, and the loss of
these key personnel could have a material adverse effect on our business, financial conditions and results of operations.
Our success, to a great extent, has been attributable to the management,
sales and marketing, and operational and technical expertise of certain key personnel. Moreover, our daily operation and performance
rely heavily upon our senior management. There can be no assurance that we will be able to retain these officers or that such personnel
may not receive and/or accept competing offers of employment. The loss of a significant number of these employees could have a
material adverse effect upon our business, financial condition, and results of operations. We do not maintain key-man life insurance
for any of our senior management.
We rely on our distribution network for virtually all of our
sales revenues. Failure to maintain good distributor relations, or our inability to successfully execute our planned expansion
of our customer base, may affect our revenues and earnings.
Our business depends directly on the performance of roughly 300
of our major distributors, which we also refer to as our customers. No customer accounted for more than 10% of annual sales for
the years ended December 31, 2015 or 2014. Our largest customer accounted for approximately 4.3% of our net sales during the year
ended December 31, 2015. As all purchases of our products by customers are made through purchase orders and we do not have long-term
contracts with any of our customers, it is critical that we maintain good relationships with them. However, maintaining good relationships
with existing distributors and replacing any distributor is difficult and time consuming. Our failure to maintain good relationships
with our distributors could materially disrupt our distribution business and harm our net sales.
We may not maintain sufficient insurance coverage for the
risks associated with our business operations. As a result, we may incur uninsured losses.
Except for property, accident and automobile insurance, we do not
have other insurance of such as business liability or disruption insurance coverage for our operations in the PRC. As a result,
we may incur uninsured liabilities and losses as a result of the conduct of our business. There can be no guarantee that we will
be able to obtain additional insurance coverage in the future, and even if we are able to obtain additional coverage, we may not
carry sufficient insurance coverage to satisfy potential claims. Should uninsured losses occur, it could adversely affect our business,
results of operations and financial condition.
Global financial crises and economic downturns may have an
adverse effect on our businesses, results of operation and financial condition.
Global economic conditions can have an effect on our business. If
there is an additional global financial crisis or economic downturn, such as that which occurred in 2008, it may adversely affect
economies and businesses around the world, including in China, which in turn will have an adverse impact on our business and operations.
Potential environmental liability could have a material adverse
effect on our operations and financial condition.
As a manufacturer, we are subject to various Chinese environmental
laws and regulations on air emission, waste water discharge, solid wastes and noise. Although we believe that our operations are
in substantial compliance with current environmental laws and regulations, we may not be able to comply with these regulations
at all times as the Chinese environmental legal regime is evolving and becoming more stringent. Therefore, if the Chinese government
imposes more stringent regulations in the future, we may have to incur additional and potentially substantial costs and expenses
in order to comply with new regulations, which may negatively affect our results of operations. Further, no assurance can be given
that all potential environmental liabilities have been identified or properly quantified or that any prior owner, operator, or
tenant has not created an environmental condition unknown to us. If we fail to comply with any of the present or future environmental
regulations in any material aspects, we may suffer from negative publicity and be subject to claims for damages that may require
us to pay substantial fines or force us to suspend or cease operations.
Compliance with changing regulation of corporate governance
and public disclosure will result in additional expenses.
Changing laws, regulations and standards relating to corporate governance
and public disclosure, including the Sarbanes-Oxley Act of 2002 and related Commission regulations, have created uncertainty for
public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting.
Our management team will need to invest significant management time and financial resources to more fully comply with both existing
and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of
management time and attention from revenue generating activities to compliance activities.
Risks Related to Doing Business in the PRC
Substantially all of our assets are located in China and substantially
all of our revenues are currently derived from our operations in China, and changes in the political and economic policies of the
PRC government could have a significant impact upon what business 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 Chinese government exerts substantial influence and control over the manner in
which we must conduct our business activities. Our ability to operate in China may be adversely affected by changes in Chinese
laws and regulations, including those relating to taxation, import and export tariffs, raw materials, environmental regulations,
land use rights, property and other matters. Under the current government leadership, the government of the PRC has been pursuing
economic reform policies that encourage private economic activity and greater economic decentralization. There is no assurance,
however, that the government of the PRC will continue to pursue these policies, or that it will not significantly alter these policies
from time to time without notice.
Our operations are subject to PRC laws and regulations that
are sometimes vague and uncertain. Any changes in such PRC laws and regulations, or the interpretations thereof, may have a material
and adverse effect on our business.
The PRC’s legal system is a civil law system based on written
statutes. Unlike the common law system prevalent in the United States, decided legal cases have little value as precedent in China.
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 arrangements with customers
in the event of the imposition of statutory liens, death, bankruptcy or criminal proceedings. The Chinese government has been developing
a comprehensive system of commercial laws, and considerable progress has been made in introducing laws and regulations dealing
with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. However,
because these laws and regulations are relatively new, and because of the limited volume of published cases and judicial interpretation
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.
One of our principal operating subsidiaries, Vogue-Show, is considered
a foreign invested enterprise under PRC laws, and as a result is required to comply with PRC laws and regulations, including laws
and regulations specifically governing the activities and conduct of foreign invested enterprises. We cannot predict what effect
the interpretation of existing or new PRC laws or regulations may have on our businesses. If the relevant authorities find us in
violation of PRC laws or regulations, they would have broad discretion in dealing with such a violation, including, without limitation:
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revoking our business
license, other licenses or authorities;
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requiring that we restructure our ownership or operations; and
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requiring that we discontinue some or all of our business.
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The scope of our business license in China is limited, and
we may not expand or continue our business without government approval and renewal, respectively.
Our operating affiliate, Wuhan Kingold, can only conduct business
within its business scope, as detailed on its business license. Our license permits us to design, manufacture, sell and market
jewelry products to department stores throughout the PRC and to engage in the retail distribution of our products. Any amendment
to the scope of our business requires further application and government approval. In order for us to expand our business beyond
the scope of our license, we will be required to enter into a negotiation with the authorities for the approval to expand the scope
of our business. We cannot assure you that Wuhan Kingold will be able to obtain the necessary government approval for any change
or expansion of our business scope.
Our PRC stockholders are required to register with the State
Administration of Foreign Exchange and their failure to do so could cause us to lose our ability to remit profits out of the PRC
as dividends.
The SAFE promulgated the Circular on Relevant Issues Relating to
Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular
37, in July 2014 that requires PRC residents or entities to register with SAFE or its local branch in connection with their establishment
or control of an offshore entity established for the purpose of overseas investment or financing. In addition, such PRC residents
or entities must update their SAFE registrations when the offshore special purpose vehicle undergoes material events relating to
any change of basic information (including change of such PRC citizens or residents, name and operation term), increases or decreases
in investment amount, transfers or exchanges of shares, or mergers or divisions.
SAFE Circular 37 was issued to replace the Notice on Relevant Issues
Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special
Purpose Vehicles, or SAFE Circular 75.
If our shareholders who are PRC residents or entities do not complete
their registration with the local SAFE branches, our PRC subsidiary may be prohibited from distributing their profits and proceeds
from any reduction in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional
capital to our PRC subsidiary. Moreover, failure to comply with the SAFE registration described above could result in liability
under PRC laws for evasion of applicable foreign exchange restrictions.
These regulations apply to our stockholders who are PRC residents.
As of the date of this registration statement, our Chairman and Chief Executive Officer, Zhihong Jia, has obtained his registration
under Circular 75, and the other PRC residents are in the process of obtaining registrations under Circular 37. However, there
is no assurance that such persons can successfully complete such registrations, and there is no assurance that all of the PRC resident
stockholders and beneficiary stockholders have complied with and will comply with the SAFE registration requirements currently
or in the future. In the event that these or other of our PRC-resident stockholders do not follow the procedures required by SAFE,
we could (i) be exposed to fines and legal sanctions, (ii) lose the ability to contribute additional capital into our PRC subsidiaries
or distribute dividends to our company, (iii) face liability for evasion of foreign-exchange regulations, and/or (iv) lose the
ability to consolidate the financial statements of our PRC subsidiaries under applicable accounting principles.
PRC regulations relating to acquisitions of PRC companies
by foreign entities may create regulatory uncertainties that could restrict or limit our ability to operate. Our failure to obtain
the prior approval of the China Securities Regulatory Commission, or CSRC for the listing and trading of our common stock could
have a material adverse effect on our business, operating results, reputation and trading price of our common stock.
On August 8, 2006, the PRC Ministry of Commerce, or MOFCOM, joined
by the State-owned Assets Supervision and Administration Commission of the State Council, the State Administration of Taxation,
the State Administration for Industry and Commerce, the China Securities Regulatory Commission, or CSRC, and SAFE, released a substantially
amended version of the Provisions for Foreign Investors to Merge with or Acquire Domestic Enterprises, or the Revised M&A Regulations,
which took effect September 8, 2006. These rules significantly revised China’s regulatory framework governing onshore-to-offshore
restructurings and foreign acquisitions of domestic enterprises. These rules signify greater PRC government attention to cross-border
merger, acquisition and other investment activities, by confirming MOFCOM as a key regulator for issues related to mergers and
acquisitions in China and requiring MOFCOM approval of a broad range of merger, acquisition and investment transactions. Further,
these rules establish reporting requirements for acquisition of control by foreigners of companies in key industries, and reinforce
the ability of the Chinese government to monitor and prohibit foreign control transactions in key industries.
In addition, the Revised M&A Regulations include new provisions
that purport to require that an offshore special purpose vehicle, or SPV, formed for listing purposes and controlled directly or
indirectly by PRC companies or individuals must obtain the approval of the CSRC prior to the listing and trading of such SPV’s
securities on any non-PRC stock exchange. On September 21, 2006, the CSRC published on its official website procedures specifying
documents and materials required to be submitted to it by SPVs seeking CSRC approval of their overseas listings. However, the application
of this PRC regulation remains unclear with no consensus currently existing among the leading PRC law firms regarding the scope
and applicability of the CSRC approval requirement.
Our wholly-owned BVI subsidiary, Dragon Lead, was formerly owned
by eight BVI companies whose shareholders are non-PRC individuals. We understand that some of these non-PRC individuals are nominee
shareholders holding shares on behalf of and for the interest of some PRC individuals and PRC companies who are also Wuhan Kingold
minority shareholders. These minority Wuhan Kingold shareholders do not have experience in conducting or managing businesses outside
the PRC, and therefore believe that to engage nominee shareholders to hold shares on their behalf are in their best commercial
interest, and could provide them with guidance when they evaluate whether to purchase, sell or dispose of our shares after the
closing.
Also, on December 23, 2009, immediately before the reverse acquisition
of Vogue Show, Fok Wing Lam Winnie (whose Mandarin name is Huo Yong Lin), the sole shareholder of Famous Grow and the majority
shareholder of Dragon Lead prior to the closing of the reverse acquisition, entered into the call option with Zhihong Jia and Bin
Zhao (our former general manager and former director) to comply with PRC regulations that restrict PRC residents from owning offshore
entities like us in direct exchange for their shares in the PRC operating company and as an inducement to encourage them to provide
services to Wuhan Kingold and our company. The call option does not include a vesting schedule and continued employment is not
a condition to the call option. Under the call option, as amended and restated, Fok Wing Lam Winnie granted to Zhihong Jia certain
call options to acquire up to 100% of the shares of Famous Grow at an exercise price of $1.00, which is par value per share, or
$0.001 per Famous Grow share, subject to any exercise notice, or Call Option which was determined in an arm's length negotiation
with the parties.
The PRC regulatory authorities may take the view that entry into
the VIE Agreements by Vogue-Show and Wuhan Kingold and entry into the call option agreement by Zhihong Jia and Fok Wing Lam Winnie
may collectively constitute an onshore to offshore restructuring and a related party acquisition under the M&A Regulations,
because upon the consummation of these transactions and after the Call Option is fully exercised, PRC individuals would become
majority owners and effective controlling parties of a foreign entity that acquired ownership of Wuhan Kingold. The PRC regulatory
authorities may also take the view that the relevant parties should fully disclose to the Wuhan SAFE or MOFCOM the overall restructuring
arrangements, the existence of the reverse acquisition and its connection with the VIE Agreement. Our PRC counsel has opined among
other things that: (i) each of our VIE agreements with Wuhan Kingold are valid and enforceable under relevant PRC laws, (ii) all
government authorizations for the execution, delivery, performance and enforcement of our VIE agreements have been obtained as
required by PRC laws, (iii) the ownership structure of Vogue Show and Wuhan Kingold created by our VIE agreements and the call
options in favor of Zhihong Jia do not violate any provisions of applicable PRC laws, and (iv) no PRC governmental approvals were
required under the Revised M&A Regulations in connection with our acquisition of our current ownership interests in any of
our PRC subsidiaries or in connection with the VIE agreements. Our PRC counsel has reviewed and approved of these statements.
We, however, cannot assure you that the PRC regulatory authorities,
MOFCOM and CSRC will take the same view as our PRC counsel. If the PRC regulatory authorities take the view that the reverse acquisition
and VIE arrangement constitute a related party acquisition under the revised M&A Regulations, we cannot assure you we will
be able to obtain any approval required from the national offices of MOFCOM or otherwise.
If the PRC regulatory authorities take the view that the call options
or the VIE arrangement constitutes a related party acquisition without the approval of the national offices of MOFCOM, they could
invalidate the call options and VIE arrangement. We may also face regulatory actions or other sanctions from the MOFCOM or other
PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating
privileges in the PRC, or take other actions that could have a material adverse effect on our business, financial condition, results
of operations, reputation and prospects, as well as the trading price of our shares.
If we make equity compensation grants to persons who are PRC
citizens, they may be required to register with the State Administration of Foreign Exchange of the PRC, or SAFE. We may also face
regulatory uncertainties that could restrict our ability to adopt additional equity compensation plans for our directors and employees
and other parties under PRC law.
On April 6, 2007, SAFE issued the “Operating Procedures for
Administration of Domestic Individuals Participating in the Employee Stock Ownership Plan or Stock Option Plan of An Overseas Listed
Company,” also known as “Circular 78.” It is not clear whether Circular 78 covers all forms of equity compensation
plans or only those that provide for the granting of stock options. For any plans that are so covered and are adopted by a non-PRC
listed company, such as our company, after April 6, 2007, Circular 78 requires all participants who are PRC citizens to register
with and obtain approvals from SAFE prior to their participation in the plan. In addition, Circular 78 also requires PRC citizens
to register with SAFE and make the necessary applications and filings if they participated in an overseas listed company’s
covered equity compensation plan prior to April 6, 2007. We believe that the registration and approval requirements contemplated
in Circular 78 will be burdensome and time consuming.
Failure to comply with the United States Foreign Corrupt Practices
Act could subject us to penalties and other adverse consequences.
As we are a Delaware corporation and a U.S. publicly listed company,
we are subject to the United States Foreign Corrupt Practices Act, which generally prohibits U.S. companies from engaging in bribery
or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Some foreign companies, including
some that may compete with our company, may not be subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft
and other fraudulent practices may occur from time-to-time in the PRC. We can make no assurance, however, that our employees or
other agents will not engage in conduct for which we might be held responsible. If our employees or other agents are found to have
engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our
business, financial condition and results of operations.
Under the Enterprise Income Tax Law, we may be classified
as a “resident enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and
our non-PRC stockholders.
Under the Enterprise Income Tax Law, or EIT Law, an enterprise established
outside the PRC with its “de facto management body” within the PRC is considered a resident enterprise and will be
subject to the enterprise income tax at the rate of 25% on its worldwide income. The “de facto management body” is
defined as the organizational body that effectively exercises overall management and control over production and business operations,
personnel, finance and accounting, and properties of the enterprise. It remains unclear how the PRC tax authorities will interpret
such a broad definition. If the PRC tax authorities determine that we should be classified as a resident enterprise, then our worldwide
income will be subject to income tax at a uniform rate of 25%, which may have a material adverse effect on our financial condition
and results of operations. However, it remains unclear how the PRC tax authorities will interpret the PRC tax resident treatment
of an offshore company, like us, having indirect ownership interests in PRC enterprises through intermediary holding vehicles.
Moreover, under the EIT Law, foreign shareholders of an entity that
is classified as a PRC resident enterprise may be subject to a 10% withholding tax upon dividends payable by such entity, unless
the jurisdiction of incorporation of the foreign shareholder of such entity has a tax treaty with the PRC that provides for a reduced
rate of withholding tax, and gains realized on the sale or other disposition of shares, if such income is sourced from within the
PRC. It remains unclear whether the dividends payable by our PRC subsidiary or the gains our foreign shareholders may realize will
be regarded as income from sources within the PRC if we are classified as a PRC resident enterprise. Any such tax will reduce the
returns on your investment in our Shares.
Because our business is located in the PRC, we may have difficulty
establishing adequate management, legal and financial controls, which we are required to do in order to comply with U.S. securities
laws.
PRC companies have historically not adopted a Western style of management
and financial reporting concepts and practices, which includes strong corporate governance, internal controls and, computer, financial
and other control systems. Most of our middle and top management staff are not educated and trained in the Western system, and
we may have difficulty hiring new employees in the PRC with such training. In addition, we may need to rely on a new and developing
communication infrastructure to efficiently transfer our information from retail outlets to our headquarters. As a result of these
factors, we may experience difficulty in establishing management, legal and financial controls, collecting financial data and preparing
financial statements, books of account and corporate records and instituting business practices that meet Western standards. Therefore,
we may, in turn, experience difficulties in implementing and maintaining adequate internal controls as required under Section 404
of the Sarbanes-Oxley Act of 2002. This may result in significant deficiencies or material weaknesses in our internal controls,
which could impact the reliability of our financial statements and prevent us from complying with Commission rules and regulations
and the requirements of the Sarbanes-Oxley Act of 2002. Any such deficiencies, weaknesses or lack of compliance could have a materially
adverse effect on our business.
If we continue to fail to maintain effective internal control
over financial reporting or effective disclosure controls and procedures, the price of our common stock may be adversely affected.
We are required to establish and maintain appropriate internal control
over financial reporting and put in place appropriate disclosure controls and procedures to allow our management to make timely
decisions regarding required disclosures. Failure to establish those controls, or any failure of those controls once established,
could adversely impact our public disclosures regarding our business, financial condition or results of operations. Any failure
of our internal control over financial reporting could also prevent us from maintaining accurate accounting records and discovering
accounting errors and financial fraud.
For 2015 and 2014, our management determined that we had a material
weakness in our internal control over financial reporting due to some problems with cash management, as well as continued ineffective
disclosure controls and procedures, and other significant deficiencies due to inadequate controls over the appropriate approval
procedures for certain material transactions, inadequate controls over certain material cash transactions, and lack of technical
competency in review and recording of non-routine or complex transactions. Although we put in place a remedial plan to rectify
such material weakness in 2014, and have already adopted resolutions limiting the power of management to engage in certain transactions
above a certain financial threshold absent board approval, such material weaknesses persisted during 2015. Moreover, our management
concluded that our disclosure controls and procedures continued to be ineffective this year because we continued to fail to disclose
the entry into certain material agreements within the time periods required by the Commission.
Although we are evaluating how to improve the effectiveness of our
disclosure controls and procedures and are evaluating additional remedial measures, such efforts may not be successful. In addition,
management’s assessment of internal control over financial reporting may identify additional material weaknesses or significant
deficiencies that need to be addressed or other potential matters that may raise concerns for investors. Any actual or perceived
material weaknesses or significant deficiencies that need to be addressed in our internal control over financial reporting, or
the actual or perceived ineffectiveness of our disclosure controls and procedures could have an adverse impact on the price of
our common stock.
You may experience difficulties in effecting service of legal
process, enforcing foreign judgments or bringing original actions in China based upon U.S. laws, including the federal securities
laws, or other foreign laws against us or our management.
All of our current operations, including the manufacturing and distribution
of jewelry, are conducted in China. Most of our directors and officers are nationals and residents of China. All or substantially
all of the assets of these persons are located outside the United States. As a result, it may not be possible to effect service
of process within the United States or elsewhere outside China upon these persons. In addition, uncertainty exists as to whether
the courts of China would recognize or enforce judgments of U.S. courts obtained against us or such officers and/or directors predicated
upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original
actions brought in China against us or such persons predicated upon the securities laws of the United States or any state thereof.
Inflation in China may inhibit our ability to conduct business
in China.
In recent years, the Chinese economy has experienced periods of
rapid expansion and high rates of inflation. Rapid economic growth can lead to growth in the money supply and rising inflation.
If prices for our products rise at a rate that is insufficient to compensate for the rise in the costs of supplies, it may have
an adverse effect on profitability. These factors have led to the adoption by Chinese government, from time to time, of various
corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation may,
in the future, cause Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit
economic activity in China, and thereby harm the market for our products.
Governmental control of currency conversions could prevent
us from paying dividends.
Shortages in the availability of foreign currency may restrict the
ability of our PRC subsidiaries to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy
their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items,
including profit distributions, interest payments and expenditures from trade-related transactions can be made in foreign currencies
without prior approval from SAFE by complying with certain procedural requirements. However, approval from appropriate government
authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such
as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the
future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining
sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our security-holders.
Currency fluctuations and restrictions on currency exchange
may adversely affect our business, including limiting our ability to convert Chinese Renminbi into foreign currencies and, if Chinese
Renminbi were to decline in value, reducing our revenue in U.S. dollar terms.
Our reporting currency is the U.S. dollar and our operations in
China use their local currency, the Renminbi, as their functional currency. Substantially all of our revenue and expenses are in
Chinese Renminbi. We are subject to the effects of exchange rate fluctuations with respect to any of these currencies. For example,
the value of the Renminbi depends to a large extent on Chinese government policies and China’s domestic and international
economic and political developments, as well as supply and demand in the local market. Since July 2005, the RMB is no longer pegged
to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant
short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar
in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in
the RMB exchange rate and lessen intervention in the foreign exchange market. We can offer no assurance that Chinese Renminbi will
be stable against the U.S. dollar or any other foreign currency.
The income statements of our operations are translated into U.S.
dollars at the average exchange rates in each applicable period. To the extent the U.S. dollar strengthens against foreign currencies,
the translation of these foreign currencies denominated transactions results in reduced revenue, operating expenses and net income
for our international operations. Similarly, to the extent the U.S. dollar weakens against foreign currencies, the translation
of these foreign currency denominated transactions results in increased revenue, operating expenses and net income for our international
operations. We are also exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries
into U.S. dollars in consolidation. If there is a change in foreign currency exchange rates, the conversion of the foreign subsidiaries’
financial statements into U.S. dollars will lead to a translation gain or loss that is recorded as a component of other comprehensive
income. In addition, we have certain assets and liabilities that are denominated in currencies other than the relevant entity’s
functional currency. Changes in the functional currency value of these assets and liabilities create fluctuations that will lead
to a transaction gain or loss. We have not entered into agreements or purchased instruments to hedge our exchange rate risks, although
we may do so in the future. The availability and effectiveness of any hedging transaction may be limited and we may not be able
to successfully hedge our exchange rate risks.
Risks Related to the VIE Agreements
If the PRC government determines that the contractual arrangements
through which we control Wuhan Kingold do not comply with applicable regulations, our business could be adversely affected.
Although we believe our contractual relationships through which
we control Wuhan Kingold comply with current licensing, registration and regulatory requirements of the PRC, we cannot assure you
that the PRC government would agree, or that new and burdensome regulations will not be adopted in the future. If the PRC government
determines that our structure or operating arrangements do not comply with applicable law, it could revoke our business and operating
licenses, require us to discontinue or restrict our operations, restrict our right to collect revenues, require us to restructure
our operations, impose additional conditions or requirements with which we may not be able to comply, impose restrictions on our
business operations or on our customers, or take other regulatory or enforcement actions against us that could be harmful to our
business.
The PRC government may determine that the VIE Agreements are
not in compliance with applicable PRC laws, rules and regulations.
Vogue-Show manages and operates our gold jewelry business through
Wuhan Kingold pursuant to the rights it holds under the VIE Agreements. Almost all economic benefits and risks arising from Wuhan
Kingold’s operations are transferred to Vogue-Show under these agreements.
There are risks involved with the operation of our business in reliance
on the VIE Agreements, including the risk that the VIE Agreements may be determined by PRC regulators or courts to be unenforceable.
Our PRC counsel has provided a legal opinion that the VIE Agreements are binding and enforceable under PRC law, but has further
advised that if the VIE Agreements were for any reason determined to be in breach of any existing or future PRC laws or regulations,
the relevant regulatory authorities would have broad discretion in dealing with such breach, including:
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imposing economic penalties;
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discontinuing or restricting the operations of Vogue-Show
or Wuhan Kingold;
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imposing conditions or requirements in respect of the VIE
Agreements with which Vogue-Show may not be able to comply;
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requiring our company to restructure the relevant ownership
structure or operations;
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taking other regulatory or enforcement actions that could
adversely affect our company’s business; and
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revoking the business licenses and/or the licenses or certificates
of Vogue-Show, and/or voiding the VIE Agreements.
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Any of these actions could adversely affect our ability to manage,
operate and gain the financial benefits of Wuhan Kingold, which would have a material adverse impact on our business, financial
condition and results of operations.
Our ability to manage and operate Wuhan Kingold under the
VIE Agreements may not be as effective as direct ownership.
We conduct our jewelry processing and sales businesses in the PRC
and generate virtually all of our revenues through the VIE Agreements. Our plans for future growth are based substantially on growing
the operations of Wuhan Kingold. However, the VIE Agreements may not be as effective in providing us with control over Wuhan Kingold
as direct ownership
.
Under the current VIE arrangements, as a legal matter, if Wuhan Kingold fails to perform its obligations
under these contractual arrangements, we may have to (i) incur substantial costs and resources to enforce such arrangements, and
(ii) reply on legal remedies under PRC law, which we cannot be sure would be effective. Therefore, if we are unable to effectively
control Wuhan Kingold, it may have an adverse effect on our ability to achieve our business objectives and grow our revenues.
As the VIE agreements are governed by PRC law, we would be
required to rely on PRC law to enforce our rights and remedies under them; PRC law may not provide us with the same rights and
remedies as are available in contractual disputes governed by the law of other jurisdictions.
The VIE Agreements are governed by the PRC law and provide for the
resolution of disputes through court proceedings pursuant to PRC law. If Wuhan Kingold or its shareholders fail to perform the
obligations under the VIE Agreements, we would be required to resort to legal remedies available under PRC law, including seeking
specific performance or injunctive relief, or claiming damages. We cannot be sure that such remedies would provide us with effective
means of causing Wuhan Kingold to meet its obligations, or recovering any losses or damages as a result of non-performance. Further,
the legal environment in China is not as developed as in other jurisdictions. Uncertainties in the application of various laws,
rules, regulations or policies in PRC legal system could limit our liability to enforce the VIE Agreements and protect our interests.
The VIE Agreements may be subject to audit or challenge by
PRC tax authorities. A finding that we owe additional taxes could substantially reduce our net earnings and the value of your investment
Under PRC laws and regulations, arrangements and transactions among
affiliated parties may be subject to audit or challenge by the PRC tax authorities. We could face material and adverse tax and
financial consequences if the PRC tax authorities determine that the VIE Agreements do not represent arm’s-length prices.
As a result of such a determination, the PRC tax authorities could adjust any of the income in the form of a transfer pricing adjustment.
A transfer pricing adjustment could, among other things, result in a reduction of expense deductions for PRC tax purposes recorded
by us or Wuhan Kingold or an increase in taxable income, all of which could increase our tax liabilities. In addition, the PRC
tax authorities may impose late payment fees and other penalties on us or Wuhan Kingold for under-paid taxes.
Our shareholders have potential conflicts of interest with
us which may adversely affect our business.
Zhihong Jia is our Chief Executive Officer and our Chairman, and
is also the largest shareholder of Wuhan Kingold. There could be conflicts that arise from time to time between our interests and
the interests of Mr. Jia. There could also be conflicts that arise between us and Wuhan Kingold that would require our shareholders
and Wuhan Kingold’s shareholders to vote on corporate actions necessary to resolve the conflict. There can be no assurance
in any such circumstances that Mr. Jia will vote his shares in our best interest or otherwise act in the best interests of our
company. If Mr. Jia fails to act in our best interests, our operating performance and future growth could be adversely affected.
In addition, some or all of our shareholders could violate the non-competition agreements they have signed with our company by
diverting business opportunities from our company to others. In such event, our business, financial condition and results of operation
could be adversely affected.
We rely on the approval certificates and business license
held by Vogue-Show and any deterioration of the relationship between Vogue-Show and Wuhan Kingold could materially and adversely
affect our business operations.
We operate our jewelry processing and sales businesses in China
on the basis of the approval certificates, business license and other requisite licenses held by Vogue-Show. There is no assurance
that Vogue-Show will be able to renew its license or certificates when their terms expire with substantially similar terms as the
ones they currently hold.
Further, our relationship with Wuhan Kingold is governed by the
VIE Agreements that are intended to provide us with effective control over the business operations of Wuhan Kingold. However, the
VIE Agreements may not be effective in providing control over the application for and maintenance of the licenses required for
our business operations. Wuhan Kingold could violate the VIE Agreements, go bankrupt, suffer from difficulties in its business
or otherwise become unable to perform its obligations under the VIE Agreements and, as a result, our operations, reputations and
business could be severely harmed.
If Vogue-Show exercises the purchase options it holds over
Wuhan Kingold’s share capital and assets pursuant to the VIE Agreements, the payment of the purchase price could materially
and adversely affect our financial position.
Under the VIE Agreements, Wuhan Kingold’s shareholders have
granted Vogue-Show a ten-year option to purchase 100% of the share capital in Wuhan Kingold at a price determined by appraisal
by an asset evaluation institution to be jointly appointed by Vogue-Show and Wuhan Kingold’s shareholders. Concurrently,
Wuhan Kingold granted Vogue-Show a ten-year option to purchase Wuhan Kingold’s assets at a price determined by appraisal
by such asset evaluation institution. As Wuhan Kingold is already our contractually controlled affiliate, Vogue-Show’s exercising
of the above two options would not bring immediate benefits to our company, and payment of the purchase prices could adversely
affect our financial position.
Risks Related to Our Common Stock
Following the exercise of his Call Option, our Chairman and
Chief Executive Officer would exercise significant influence over us.
Our Chairman and Chief Executive Officer, Zhihong Jia, will beneficially
own or control approximately 25.6% of our outstanding shares if he chooses to fully exercise his Call Option to purchase shares
of Famous Grow. Mr. Jia thereafter could possibly have a controlling influence in determining the outcome of any corporate transaction
or other matters submitted to our stockholders for approval, including mergers, consolidations and the sale of all or substantially
all of our assets, election of directors, and other significant corporate actions. Mr. Jia may also have the power to prevent or
cause a change in control. In addition, without the consent of Mr. Jia, we could be prevented from entering into transactions that
could be beneficial to us. The interests of Mr. Jia may differ from the interests of our other stockholders.
We do not foresee paying cash dividends in the foreseeable
future and, as a result, our investors’ sole source of gain, if any, will depend on capital appreciation, if any.
We do not plan to declare or pay any cash dividends on our shares
of common stock in the foreseeable future and currently intend to retain any future earnings for funding growth. As a result, investors
should not rely on an investment in our securities if they require the investment to produce dividend income. Capital appreciation,
if any, of our shares may be investors’ sole source of gain for the foreseeable future. Moreover, investors may not be able
to resell their shares of our company at or above the price they paid for them.
Because we do not intend to pay dividends on our shares, stockholders
will benefit from an investment in our shares only if those shares appreciate in value.
We currently intend to retain all future earnings, if any, for use
in the operations and expansion of the business. As a result, we do not anticipate paying cash dividends in the foreseeable future.
Any future determination as to the declaration and payment of cash dividends will be at the discretion of our board of directors
and will depend on factors our board of directors deems relevant, including among others, our results of operations, financial
condition and cash requirements, business prospects, and the terms of our credit facilities, if any, and any other financing arrangements.
Accordingly, realization of a gain on stockholders’ investments.
The market price for our shares may be volatile.
The market price for our shares is likely to be highly volatile
and subject to wide fluctuations in response to factors including the following:
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actual or anticipated fluctuations in our quarterly operating results and changes or revisions of our expected results;
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changes in financial estimates by securities research analysts;
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conditions in the markets for our products;
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changes in the economic performance or market valuations of companies specializing in gold jewelry;
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announcements by us, or our competitors of new products, acquisitions, strategic relationships, joint ventures or capital commitments;
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addition or departure of senior management and key personnel; and
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fluctuations of exchange rates between the RMB and the U.S. dollar.
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The following table sets
forth, for the periods indicated, the range of quarterly high and low closing sales prices for our common stock in U.S. dollars.
Prior to our listing on the NASDAQ Capital Market, these quotations reflect inter- dealer prices, without retail mark-up, mark-down
or commission, involving our common stock during each calendar quarter, and may not represent actual transactions.
2015
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High
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Low
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First Quarter
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$
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1.21
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$
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0.95
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Second Quarter
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$
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1.43
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$
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0.90
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Third Quarter
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$
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0.90
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$
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0.53
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Fourth Quarter
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$
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0.79
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$
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0.50
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Volatility in the price of our shares may result in shareholder
litigation that could in turn result in substantial costs and a diversion of our management’s attention and resources.
The financial markets in the United States and other countries have
experienced significant price and volume fluctuations, and market prices have been and continue to be extremely volatile. Volatility
in the price of our shares may be caused by factors outside of our control and may be unrelated or disproportionate to our results
of operations. In the past, following periods of volatility in the market price of a public company’s securities, shareholders
have frequently instituted securities class action litigation against that company. Litigation of this kind could result in substantial
costs and a diversion of our management’s attention and resources.
SEC regulations concerning conflict minerals could negatively
impact our business.
In response to provisions in the Dodd-Frank Wall Street Reform and
Consumer Protection Act, in August 2013, the Securities and Exchange Commission adopted annual disclosure and reporting requirements
regarding the use of certain minerals, known as “conflict minerals,” mined from the Democratic Republic of Congo and
adjoining countries. Conflict minerals include gold.
These requirements and the changes we may adopt as a result of compliance
with them may prove both costly and time-consuming. The disclosure requirements, which began in 2014, necessitated due diligence
efforts to identify the sources of conflict minerals contained in our products. Because we currently acquire our gold directly
from the Exchange or leading Chinese banks, or lease it from leading Chinese banks, there is uncertainty as to the amount of diligence
we may be able to do on our supply chain.
Implementation of these regulations will require us to divert management
attention and resources away from our business operations. In addition, as conflict-free minerals may only be available from a
limited pool of suppliers, it may or may not include the Exchange, our primary source of gold. In addition, if we are unable to
sufficiently verify the origin of all conflict minerals used in our products, we may face reputational challenges with customers,
stockholders, or other stakeholders.
Our quarterly results may fluctuate because of many factors
and, as a result, investors should not rely on quarterly operating results as indicative of future results.
Fluctuations in operating results or the failure of operating results
to meet the expectations of public market analysts and investors may negatively impact the value of our securities. Quarterly operating
results may fluctuate in the future due to a variety of factors that could affect revenues or expenses in any particular quarter.
Fluctuations in quarterly operating results could cause the value of our securities to decline. Investors should not rely on quarter-to-quarter
comparisons of results of operations as an indication of future performance. As a result of the factors listed below, it is possible
that in future periods the results of operations may be below the expectations of public market analysts and investors. This could
cause the market price of our securities to decline. Factors that may affect our quarterly results include:
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vulnerability of our business to a general economic downturn in China;
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fluctuation and unpredictability of costs related to the gold, platinum and precious metals and other commodities used to manufacture our products;
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seasonality of our business;
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changes in the laws of the PRC that affect our operations;
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competition from our competitors; and
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our ability to obtain all necessary government certifications and/or licenses to conduct our business.
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