This prospectus relates
to the registration of the resale by selling shareholders set forth herein of up to an aggregate of 8,800,000 ordinary shares,
par value $0.00166667 per share (“Ordinary Shares”), of Powerbridge Technologies Co., Ltd., a Cayman Islands company
(the “Company,” “we,” “us” or “our”). Each selling shareholder is referred to
herein as a “Selling Shareholder” and collectively as the “Selling Shareholders.”
The securities may
be sold by the Selling Shareholders to or through underwriters or dealers, directly to purchasers or through agents designated
from time to time. The Selling Shareholders identified in this prospectus, or their respective transferees, pledgees, donees or
other successors-in-interest, may offer the Shares through public or private transactions at prevailing market prices, at prices
related to prevailing market prices or at privately negotiated prices. For additional information on the methods of sale, see
the section entitled “Plan of Distribution” on page 15. For a list of the Selling Shareholders, see the section
entitled “Selling Shareholders” on page 13.
The Selling Shareholders
may sell any, all or none of the securities offered by this prospectus, and we do not know when or in what amount the Selling
Shareholders may sell their Shares hereunder following the effective date of this registration statement.
Our Ordinary Share
is currently listed on the Nasdaq Capital Market under the symbol “PBTS.” On February 22, 2021, the last reported
sale price of our Ordinary Share on the Nasdaq Capital Market was $4.37 per share. The applicable prospectus supplement will contain
information, where applicable, as to other listings, if any, on the Nasdaq Capital Market or other securities exchange of the
securities covered by the prospectus supplement.
If any underwriters
are involved in the sale of the securities with respect to which this prospectus is being delivered, the names of such underwriters
and any applicable discounts or commissions and over-allotment options will be set forth in the applicable prospectus supplement.
This prospectus also describes the general manner in which the Shares may be offered and sold. If necessary, the specific manner
in which the Shares may be offered and sold will be described in a supplement to this prospectus.
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus, the
applicable prospectus supplement or amendment and the information incorporated by reference in this prospectus contain various
forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities and Exchange
Act of 1934, as amended (the “Exchange Act”), which represent our expectations or beliefs concerning future events.
Forward-looking statements include statements that are predictive in nature, which depend upon or refer to future events or conditions,
and/or which include words such as “believes,” “plans,” “intends,” “anticipates,”
“estimates,” “expects,” “may,” “will” or similar expressions. In addition, any
statements concerning future financial performance, ongoing strategies or prospects, and possible future actions, which may be
provided by our management, are also forward-looking statements. Forward-looking statements are based on current expectations
and projections about future events and are subject to risks, uncertainties, and assumptions about our company, economic and market
factors, and the industry in which we do business, among other things. These statements are not guarantees of future performance,
and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future
events, or otherwise, except as required by law. Actual events and results may differ materially from those expressed or forecasted
in forward-looking statements due to a number of factors. Factors that could cause our actual performance, future results and
actions to differ materially from any forward-looking statements include, but are not limited to, those discussed under the heading
“Risk Factors” in any of our filings with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act.
The forward-looking statements in this prospectus, the applicable prospectus supplement or any amendments thereto and the information
incorporated by reference in this prospectus represent our views as of the date such statements are made. These forward-looking
statements should not be relied upon as representing our views as of any date subsequent to the date such statements are made.
OUR COMPANY
This summary highlights
information contained in the documents incorporated herein by reference. Before making an investment decision, you should read
the entire prospectus, and our other filings with the SEC, including those filings incorporated herein by reference, carefully,
including the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”
Unless otherwise indicated or the context otherwise requires, references in this prospectus to “we,” “our,”
“us,” and other similar terms refer to Powerbridge Technologies Co., Ltd. and its consolidated subsidiaries.
Overview
We are a provider
of software application and technology solutions and services to corporate and government customers primarily located in China.
We introduced global trade software applications when we launched our operations in 1997 with a vision to make global trade operations
easier for our customers. Since our inception, we have continued to innovate by developing technologies that enable us to successfully
deliver a series of solutions and services that address the evolving and changing needs of our corporate and government customers.
Our mission is to make global trade easier by empowering all players in the ecosystem.
With the rapid growth
of advertisement and media industrial in recent years, we believe that there is a substantial market opportunity to operate an
out-of-home digital display advertising and media technology platform in the Greater Bay Area of China. We also see the potential
to further expand our business into such industry, which could be supported by the success of our own Big Data platforms/products.
As a result, we started to implement our plan to build a network of digital display and operate an advertisement platform since
October 2020 by using our Big Data platform and services.
Our customers
are corporate and government organizations engaged in global trade. Our corporate customers are import and export companies, manufacturers
engaged in international trade, as well as logistics and other service providers. Our government customers include customs and
other government agencies that oversee the flow of goods and services across borders, as well as government authorities and organizations
that manage and operate free trade and bonded trade zones, ports and terminals, and other international trade facilities.
Global trade involves
complicated and cumbersome processing, manual handling of voluminous documents, extended and complex cross-organization workflows
as well as a great number of business and government players in the global trade ecosystem. Our customers are facing increasing
challenges as the world’s trade ecosystems continue to grow in size and complexity. Costs associated with global trade,
such as logistics performance, border control and international connectivity remain high. Potential savings from more collaborative
and efficient trade processes could reduce the costs of global trade significantly. The need for greater efficiency and cost savings
are driving the transformative shift for participants in global trade to become more connected and collaborative.
Our comprehensive
and robust solutions and services include Powerbridge System Solutions and Powerbridge SaaS Services with
more than 50 solutions and services deployable on premise and in the cloud. Leveraging our deep domain knowledge and strong industry
experience, we provide a series of differentiated and robust solutions and services that address the mission critical needs of
our corporate and government customers, enabling them to handle and simplify the complexities of global trade operations, logistics
and compliance.
We provide Powerbridge
System Solutions to our corporate and government customers engaged in global trade, including businesses and manufacturers
across a broad range of industries, government agencies and regulatory authorities, as well as global trade logistics and other
service providers. Powerbridge System Solutions enable our customers to streamline their trade operations, trade logistics
and regulatory compliance, consisting of Trade Enterprise Solutions and Trade Compliance Solutions which have been
in service since our first introduction twenty years ago and Import & Export Loan and Insurance Processing which have
recently been introduced to a selected group of customers.
We began offering
our Powerbridge SaaS Services (software-as-a-service) in 2016 and are continually developing and expanding our SaaS services
that provide our corporate and government customers with significant benefits, including better use of resources, a lower cost
of operations, easier document handling, faster processing time as well as higher logistics and compliance connectivity and efficiency.
Powerbridge SaaS Services include Logistics Service Cloud and Trade Zone Operations Cloud which are in service,
and Inward Processed Manufacturing Cloud, Cross-Border eCommerce Cloud and Import & Export Loan and Insurance Processing
Service Cloud which are in development.
We have begun offering
our cloud-based Powerbridge BaaS Services (blockchain-as-a-service) with designated use case for limited government
customers since June 2019 and we have not generated any revenue from it. We continue developing our BaaS Services
for market commercialization. Blockchain technology is emerging as a major disruptive force across many industries including those
involved in global trade. We believe that blockchain technology could allow our customers to conduct business in more synchronized
and collaborative ways to substantially increase operational efficiency and reduce trade costs across the global trade supply
chain. Powerbridge BaaS Service includes Compliance Blockchain Services and Supply Chain Blockchain
Services.
Our solutions and
services are built from our multiple proprietary technology platforms which are developed based on industry leading open source
infrastructure technologies. Our technology platforms include Powerbridge System Platform and Powerbridge
SaaS Platform, which are designed for high-performance reliability, flexibility and scalability, allowing us to expand our
solutions and services rapidly and efficiently to consistently address the needs of our corporate and government customers. Our Powerbridge
BaaS Platform is in development and our BaaS services will be built on top of our Powerbridge Blockchain Platform that
is designed to provide high scalability and performance characteristics, consisting of multiple technology engines that support
the various business component models specific for trade transaction, trade logistics and regulatory compliance in global trade.
We intend to continue
leveraging our industry expertise and product knowledge with the best use of emerging and disruptive technologies such as big
data, artificial intelligence and Internet of Things to enhance our core technology capabilities and continually increase the
scope of our solutions and services to our customers.
Expansion Into Out-Of-Home Advertising
and Media
Since October 2020,
we started to implement our plan to build a network of digital display such as LCD screens and operate an advertisement platform
in Shenzhen initially, and then expand to the Greater Bay Area of China. We believe that there is a substantial market opportunity
to operate an out-of-home digital display advertising and media technology platform in the Greater Bay Area of China. We will
focus on display advertising in various high traffic advertising locations such as residential and office buildings, commercial
parking garages, and elevators in residential and office buildings.
We closed on a $50
million Note financing on October 27, 2020, which is in addition to the $17.5 million raised on August 24, 2020 in a private placement
of ordinary shares, par value $0.00166667. The funds raised are being used as prepayment for acquiring the right to operate and
publish advertisements at certain advertising space, as an efficient way of accelerating the Company’s entrance into the
out-of-home digital display advertising and media business.
On September 25, 2020,
Shenzhen Honghao Internet Technology Co. Ltd. (“Honghao”), a wholly-owned subsidiary of the Company, entered into
a leasing agreement (the “Original Leasing Agreement”) with Shenzhen Kezhi Technology Co., Ltd., a company incorporated
under the PRC laws (“Kezhi”), pursuant to which, Kezhi agreed to transfer the right to operate and publish advertisements
at certain advertising space it leases or controls in certain shopping centers in Shenzhen, Guangdong, to Honghao. No less than
75% of the advertising space as provided in the Original Leasing Agreement shall be delivered within 6 months and the remainder
shall be delivered within 12 months following the date of the Original Leasing Agreement. The Original Leasing Agreement became
effective on October 1, 2020 and shall expire on September 30, 2032.
Honghao agreed to
pay an aggregate rent of RMB150 million (approximately $22 million) within 3 months of the date of the Original Leasing Agreement.
Additionally, Honghao agreed to pay RMB10 million (approximately $1.67 million) as security deposit within 3 business days after
the date of the Original Leasing Agreement. Kezhi agreed to pledge certain Hainan Huanghua pear furniture it owns and currently
valued for RMB150 million (the “Collateral”) as guarantee for the rent payment made by Honghao pursuant to a separate
guarantee agreement to be agreed upon by and between Honghao and Kezhi. The parties agreed the Collateral shall be pledged for
the entire term of the lease and in the event the value of the Collateral is determined less than RMB150 million anytime during
the term of the guaranty, Kezhi shall provide additional collateral within three months of such determination to make sure that
aggregate value of the Collateral maintains at RMB150 million.
On November 20, 2020,
Honghao and Kezhi entered into a supplemental agreement to the Leasing Agreement (the “Supplemental Agreement”, together
with the Original Leasing Agreement, the “Leasing Agreement”), pursuant to which, Kezhi agreed to transfer the right
to operate and publish advertisements at certain additional advertising space it leased or controls in several urban villages
in Shenzhen, Guangdong, to Honghao.
Given that there was
no transfer of the right to operate and publish advertisements between October 1, 2020, the effective date of the Original Leasing
Agreement, and the date of the Supplemental Agreement, both parties agreed to change the effective date of the Original Leasing
Agreement from October 1, 2020 to January 1, 2021, which shall expire on December 31, 2040.
Honghao and Kezhi
also agreed to increase the rent from RMB150 million (approximately $22 million) to RMB 470 million (approximately $71 million)
as consideration for all the advertising space, the payment of which shall be made within 3 months of the date of the Supplemental
Agreement. Accordingly, Kezhi agreed to increase the value of the original collateral as provided in the Original Leasing Agreement
from RMB150 million to RMB 470 million. Additionally, both parties agreed to change the original payment schedule of the security
deposit in an amount of RMB10 million (approximately $1.67 million) as set forth in the Original Leasing Agreement from 3 business
days after the date of the Original Leasing Agreement to 3 business days after the date of the Supplemental Agreement.
Additionally, the
Supplemental Agreement provided the advertising space delivery schedule with at least 50% of the total advertising space to be
delivered by December 31, 2021 and the remainder to be delivered by December 31, 2022 (the “Delivery Schedule”). In
the event Kezhi fails to deliver the advertising space according to the Delivery Schedule, Honghao shall have the right to terminate
the Leasing Agreement and have the rent returned in full as well as demand damages due to Kezhi’s default. Furthermore,
both parties agreed that Honghao shall not be liable for any disputes, conflicts or lawsuits arising between Kezhi and any third
party concerning the advertising space provided thereof (the “Third Party Disputes”). In the event Kezhi is unable
to continue to perform all or part of its obligations under the Leasing Agreement due to third party disputes, Kezhi shall manage
to locate similar replacement of advertising space for Honghao within one month. The parties also agreed on the parties’
obligations to seek regulatory approval to publish the advertisements, safe operation of the advertisement space, force
majeure and other matters customary to lease agreement of such nature.
As of the date of
this prospectus, we have not started the management of digital displays and have not generated any revenue under the outdoor advertising
business. We plan to initiate our outdoor advertising business in the second quarter of 2021, and expect to manage a network of
30,000 digital displays such as LCD screens as well as operate an advertisement platform in Guangdong province, China. We are
partnered with Kezhi, an advertising company in Shenzhen, to install and provide maintenance service for the digital displays
while we will operate the advertisement system by using our big data platform. We expect to generate our revenue from the monthly
advertisement fees charged to the advertisers. Supported by our big data platform, we are able to identify the most popular advertisements
at a given time and location. With such analysis result, we can help our customers to identify the place and time which attract
the most attention to their advertisements.
The following diagram
illustrates our current corporate structure:
As of the date of
this prospectus, Ningbo Powerbridge Pet Products Cross-border E-commerce Service Co., Ltd is dormant and has no operation.
Corporate Information
Our principal executive
office is located at 1st Floor, Building D2, Southern Software Park, Tangjia Bay, Zhuhai, Guangdong 519080, China. Our telephone
number is +86-756-339-5666. We maintain a website at www.powerbridge.com that contains information about our Company, though no
information contained on our website is part of this prospectus.
RISK FACTORS
An investment in our
Ordinary Share involves significant risks. You should carefully consider the risk factors contained in any prospectus supplement
and in our filings with the SEC, as well as all of the information contained in this prospectus and the related exhibits, any
prospectus supplement or amendments thereto, and the documents incorporated by reference herein or therein, before you decide
to invest in our Ordinary Share. Our business, prospects, financial condition and results of operations may be materially and
adversely affected as a result of any of such risks. The value of our Ordinary Share could decline as a result of any of these
risks. You could lose all or part of your investment in our Ordinary Share. Some of our statements in sections entitled “Risk
Factors” are forward-looking statements. The risks and uncertainties that we have described are not the only ones that
we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our
business, prospects, financial condition and results of operations.
In addition to the
risk factors referenced above, as described in our most recent annual report on Form 20-F, we want to disclose the additional
risk factors below.
Risks Relating
to Our Advertising and Media Business
We have
a limited operating history in our advertising and media business, which may make it difficult for you to evaluate our business
and prospects.
Since October 2020,
we started to implement our plan to build a network of digital display such as LCD screens and operate an advertisement platform
in Shenzhen initially, and then expand to the Greater Bay Area of China. On September 25, 2020, Shenzhen Honghao Internet Technology
Co. Ltd. (“Honghao”), the wholly-owned subsidiary of the Company, entered into a leasing agreement (the “Original
Leasing Agreement”) with Shenzhen Kezhi Technology Co., Ltd., a company incorporated under the PRC laws (“Kezhi”),
pursuant to which, Kezhi agreed to transfer the right to operate and publish advertisements at certain advertising space it leases
or controls in certain shopping centers in Shenzhen, Guangdong, to Honghao. On November 20, 2020, Honghao and Kezhi entered into
a supplemental agreement to the Leasing Agreement (the “Supplemental Agreement”), pursuant to which, Kezhi agreed
to transfer the right to operate and publish advertisements at certain additional advertising space it leased or controls in several
urban villages in Shenzhen, Guangdong, to Honghao.
Accordingly,
we have a very limited operating history for our current operations of our advertising and media business upon which you can evaluate
the viability and sustainability of our business and its acceptance by advertisers and consumers. It is also difficult to evaluate
the viability of our use of advertising displays and our use of advertising poster frames in residential complexes because we
do not have sufficient experience to address the risks frequently encountered by early stage companies using new forms of advertising
media and entering new and rapidly evolving markets. These circumstances may make it difficult for you to evaluate our business
and future operation.
Advertising
is particularly sensitive to changes in economic conditions and advertising trends.
Demand
for advertising time slots and advertising frame space on our networks, and the resulting advertising spending by our clients,
is particularly sensitive to changes in general economic conditions and advertising spending typically decreases during periods
of economic downturn. Advertisers may reduce the money they spend to advertise on our networks for a number of reasons, including:
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a
general decline in economic conditions;
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a
decline in economic conditions in the particular cities where we conduct business;
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a
decision to shift advertising expenditures to other available advertising media; or
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a
decline in advertising spending in general.
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A
decrease in demand for advertising media in general and for our advertising services in particular would materially and adversely
affect our ability to generate revenue from our advertising services, and our financial condition and results of operations.
Our operating
results of our advertising and media business are difficult to predict and may fluctuate significantly from period to period in
the future.
Our
operating results of our advertising and media business are difficult to predict and may fluctuate significantly from period to
period based on the seasonality of consumer spending and corresponding advertising trends in China. As a result, you may not be
able to rely on period to period comparisons of our operating results as an indication of our future performance. Factors that
are likely to cause our operating results to fluctuate include the seasonality of advertising spending in China, a deterioration
of economic conditions in China and potential changes to the regulation of the advertising industries in China. If our revenues
generated from our advertising and media business for a particular quarter are lower than we expect, we may be unable to reduce
our operating expenses for that quarter by a corresponding amount, which would harm our overall operating results for that quarter
relative to our operating results from other quarters.
The out-of-home
advertising market is intensely competitive. In addition, we might face competitive pressure from well-established internet companies,
marketing agencies and traditional media.
With
the introduction of new technologies and the influx of new entrants, we expect competition to continue and intensify, which could
harm our ability to increase revenue and attain or sustain profitability. We believe the principal competitive factors in this
industry include:
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ability
to deliver return on marketing expenditure at scale;
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breadth
and depth of cooperation with publishers, ad exchanges, ad networks and other participants
in the online marketing ecosystem;
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comprehensiveness
of solutions and service offerings;
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pricing
structure and competitiveness;
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cross-channel
capabilities;
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accessibility
and user-friendliness of solutions; and
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addition, independent online marketing technology platforms face competitive pressure from large and well-established internet
companies which have established stronger and broader presence across the online marketing ecosystem and have significantly more
financial, technical, marketing and other resources, more extensive client base, and longer operating histories and greater brand
recognition than we do. These companies may also leverage their positions to make changes to their systems, platforms, exchanges,
networks or other products or services that could be harmful to our business and results of operations. In addition, these large
and well-established companies control content distribution channels and would directly compete with us should we vertically expand
our business to own or operate content distribution channels in the future. Further, some of these companies are, or may also
become, our content distribution channels and may enter into other types of strategic arrangements with us. We also face competition
from marketing agencies, who may have their own relationships with content distribution channels and can directly connect marketers
with such channels. Furthermore, we continue to compete with traditional media including direct marketing, television, radio,
cable and print advertising companies.
New
technologies and methods of online marketing present an evolving competitive challenge, as market participants upgrade or expand
their service offerings to capture more marketing spend from marketers. In addition to existing competitors and their existing
service offerings, we expect to face competition from new entrants to the online marketing technology industry and new service
offerings from existing competitors. If existing or new companies develop, market or resell competitive high-value marketing technology
solutions, acquire one of our competitors or strategic partners, form a strategic alliance or enter into exclusivity arrangement
with one of our competitors or strategic partners, our ability to compete effectively could be significantly compromised and our
business, results of operations and prospects could be materially and adversely affected.
If our
advertising business do not achieve widespread market acceptance, our business, growth prospects and results of operations
would be materially and adversely affected.
The
market for out-of-home advertising is evolving in China and may not achieve or sustain high levels of demand and market acceptance
as we expect because we may face competition from mobile and social media. While marketing via search engines or display channels
has been established for several years, marketing via new digital channels such as mobile and social media is not as well established
and under quick development. The future growth of our out-of-home advertising business could be constrained by our competitors
in out-of-home digital display business and competitors from emerging online marketing channels and social media.
Expansion
of our outdoor advertising business depends on a number of factors, including the growth of new digital advertising channels such
as mobile and social media and the cost, as well as the performance and perceived value associated with online marketing technology
solutions. If we do not achieve widespread acceptance, or there is a reduction in demand for out-of-home advertising caused by
weakening economic conditions, decreases in corporate spending, technological challenges, data security or privacy concerns, governmental
regulation, competing technologies and solutions or otherwise, our business, growth prospects and results of operations will be
materially and adversely affected.
If our
operating platforms are flawed or ineffective, or if our platform fails to otherwise function properly, our reputation and market
share would be materially and adversely affected.
Our
ability to attract marketers to, and build trust in, our platform is significantly dependent on our ability to interact with relevant
marketing content. The data we collect may not be relevant to all industries, and for certain industries, we may not have sufficient
user data to ensure that our platforms would work effectively. Furthermore, we generally do not verify the data we gather, which
may be subject to fraud or are otherwise inaccurate. Even if such data are accurate, they may become irrelevant or outdated and
thus may not reflect a user’s genuine interest or accurately predict his or her interaction with a given marketing message.
For example, following the date we obtain the relevant data, a user’s interest and behavior pattern may change or he or
she may have already completed a transaction and is no longer interested in the marketing message.
In
addition, we expect to experience significant growth in the amount of data we process as we continue to develop new solutions
and features to meet evolving and growing marketer demands. As the amount of data and variables we process increases, the calculations
that our algorithms and data engines must process become increasingly complex and the likelihood of any defect or error increases.
To the extent our operating platforms fail to accurately assess or predict a user’s interest in and interaction with, the
relevant marketing content, or experience significant errors or defects, marketers may not achieve their marketing goals in a
cost-effective manner or at all, which could make our platform less attractive to them, result in damages to our reputation and
a decline of our market share and adversely affect our business and results of operations.
We plan
to use big data platform to run and manage our out-of-home advertising digital displays. However, our ability to collect and use
data from various sources could be restricted, and therefore, it may affect our management and operation of our out-of-home advertising
digital displays.
We
plan to use big data platform to run and manage our out-of-home advertising digital displays. With data collected by and analysis
ran by big data platform, we may better identify the target audience of our out-of-home advertising digital displays. The optimal
performance and analysis of our big data platform depends on the data that we collect from multiple sources, which we use to build
user profiles, develop and refine preferences of our target audience. Our ability to collect and use these types of data is limited
by a number of factors including:
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decisions
by marketers, content distribution channels, or selected third party that we may have
data collaboration arrangement with, to restrict our ability to collect data from them,
to refuse to implement mechanisms that we may request to ensure compliance with our legal
obligations;
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new
developments in law, regulations and industry standards on privacy and data protection
regimes, including increased visibility of consent mechanisms as a result of these legal,
regulatory or industry developments;
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the
failure of our network or software systems, or the network or software systems of marketers;
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our
inability to grow client base in new industries and geographic markets in order to obtain
the critical mass of data necessary for our algorithms and data engines to perform optimally
in these new industries and geographies;
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our
relationship with our data partners or certain key data sources, including major internet
companies in China, which may stop providing or be unable to provide us data on terms
acceptable to us; and
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interruptions,
failures or defects in our data collection, mining, analysis and storage systems.
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Any
of the above described limitations on our ability to successfully collect and use data could materially impair the optimal performance
of our big data platform as well as the efficiency of our solutions for our clients, which could make our platform less attractive
to marketers and result in damages to our reputation, a decline of our market share and adversely affect our business and results
of operations.
Our failure
to maintain existing relationships or obtain new relationships with businesses that allow us to access to desirable locations
and platforms on which we operate our network could harm or reverse our growth potential and our ability to increase our revenues.
Our
ability to generate revenues from advertising sales depends largely upon our ability to provide large networks of flat-panel displays
placed in desirable building, commercial and store locations, of advertising poster frames placed in residential complexes, to
secure desirable locations of large outdoor LED digital billboards, throughout major urban areas in China. We also depend on the
ability of our third-party location provider to secure desirable LED digital billboard locations for our outdoor LED network.
This, in turn, requires that we develop and maintain business relationships with real estate developers, landlords, property managers,
hypermarkets, retailers and other businesses and locations in which we rent space for our displays and digital billboards. Although
our advertising space leasing agreements have terms of 19 years, we may not be able to maintain our relationships with them on
satisfactory terms, or at all. If we fail to maintain our relationships with landlords and property managers, or if our leasing
agreement is terminated or not renewed or if we fail to maintain our relationship with our location provider of LED billboard
space, advertisers may find advertising on our networks unattractive and may not wish to purchase advertising time slots or advertising
frame space on our networks, which would cause our revenues to decline and our business and prospects to deteriorate.
In
accordance with PRC real estate laws and regulations, prior consent of landlords and property managers is required for any commercial
use of the public areas or facilities of residential properties. With regard to our network of advertising poster frames and some
of our LED screen placed in the elevators and public areas of residential complexes, we have entered/plan to enter into frame
or display placement agreements with property managers and landlords. For those frame or display placement agreements entered
into with property managers, we intend to obtain or urge property managers to obtain consents from landlords. However, if the
landlords of a residential complex object to our placing advertising displays in the elevators and public areas of the complex,
we may be required to remove our advertising displays from the complex and may be subject to fines. We may not be able to successfully
expand our out-of-home advertising network into new regions or diversify our network into new advertising networks or media platforms,
which could harm or reverse our growth potential and our ability to increase our revenues.
If we are
unable to obtain or retain desirable placement locations for our outdoor digital displays on commercially advantageous terms or
if the supply of desirable locations diminishes or ceases to expand, we could have difficulty in maintaining or expanding our
network, our operating margins and earnings could decrease and our results of operations could be materially and adversely affected.
Our
location costs, which include lease payments to landlords and property managers under our advertising space leasing agreement,
maintenance and monitoring fees and other associated costs, could comprise a significant portion of our cost of revenues. We may
also need to increase our expenditures on our advertising space leasing agreements to obtain new and desirable locations, to renew
existing locations, and to secure favorable exclusivity and renewal terms. In addition, lessors of space for our outdoor digital
displays may charge increasingly higher display location lease fees, or demand other compensation arrangements, such as profit
sharing. If we are unable to pass increased location costs on to our advertising clients through rate increases, our operating
margins and earnings could decrease and our results of operations could be materially and adversely affected.
In
addition, in some developed cities of the Greater Bay Area of China, it may be difficult to increase the number of desirable locations
in our network because most such locations have already been occupied either by us or by our competitors, or in the case of outdoor
LED billboards, the placement of outdoor installments may be limited by municipal zoning and planning policies. In recently developing
cities, the supply of desirable locations may be small and the pace of economic development and construction levels may not provide
a steadily increasing supply of desirable commercial and residential locations. If, as a result of these possibilities, we are
unable to increase the placement of our out-of-home digital displays into commercial and residential locations that advertisers
find desirable, we may be unable to expand our client base, sell advertising time slots and poster frame space on our network
or increase the rates we charge for time slots and poster frame space, which could decrease the value of our network to advertisers.
If we are
unable to attract advertisers to advertise on our networks, we will be unable to maintain or increase our advertising fees and
the demand for time on our networks, which could negatively affect our ability to grow revenues.
The
amounts of fees we can charge advertisers for time slots on our out-of-home digital display advertising and media technology networks
depend on the size and quality of our out-of-home digital display advertising and media technology networks and the demand by
advertisers for advertising time on our out-of-home digital display advertising and media technology networks. Advertisers choose
to advertise on our out-of-home digital display advertising and media technology networks in part based on the size of the networks
and the desirability of the locations where we have placed our flat-panel displays and where we lease LED digital billboards as
well as the quality of the services we offer. If we fail to maintain or increase the number of locations, displays and billboards
in our networks, diversify advertising channels in our networks, or solidify our brand name and reputation as a quality provider
of advertising services, advertisers may be unwilling to purchase time on our networks or to pay the levels of advertising fees
we require to remain profitable.
In
addition, the fees we can charge advertisers for frame space on our poster frame network depends on the quality of the locations
in which we place advertising poster frames, demand by advertisers for frame space and the quality of our service. If we are unable
to continue to secure the most desirable residential locations for deployment of our advertising poster frames, we may be unable
to attract advertisers to purchase frame space on our poster frame network.
Our
failure to attract advertisers to purchase time slots and frame space on our networks will reduce demand for time slots and frame
space on our networks and the number of time slots and amount of frame space we are able to sell, which could necessitate lowering
the fees we charge for advertising time on our network and could negatively affect our ability to increase revenues in the future.
Failure
to manage our growth could strain our management, operational and other resources and we may not be able to achieve anticipated
levels of growth in the new networks and media platforms we are beginning to operate, either of which could materially and adversely
affect our business and growth potential.
We
have been rapidly expanding, and plan to continue to rapidly expand, our advertising and media operations in China. We must continue
to expand our advertising and media operations to meet the potential demands of advertisers for larger and more diverse network
coverage and the demands of current and future landlords and property managers for installing and configuring outdoor digital
displays in our existing and future commercial, store, residential and urban locations. This expansion has resulted, and will
continue to result, in substantial demands on our management resources. To manage our growth, we must develop and improve our
existing administrative and operational systems and, our financial and management controls and further expand, train and manage
our work force. As we continue this effort, we may incur substantial costs and expend substantial resources in connection with
any such expansion due to, among other things, different technology standards, and legal considerations. We may not be able to
manage our operations effectively and efficiently or compete effectively in such markets. We cannot assure you that we will be
able to efficiently or effectively manage the growth of our operations, recruit top talent and train our personnel. Any failure
to efficiently manage our expansion may materially and adversely affect our business and future growth.
We
may expand into new networks and new media platforms, however, the new advertising networks and media platforms we pursue in the
future may not present the same opportunities for growth of outdoor digital displays as expected. Accordingly, we cannot assure
you that the level of growth of our networks will not decline over time. Moreover, we expect the level of growth of our commercial
location network to decrease as many of the more desirable locations have already been leased by us or our competitors.
If advertisers
or the viewing public do not accept, or lose interest in, our out-of-home advertising network, our revenues may be negatively
affected and our business may not expand or be successful.
We
compete for advertising spending with many forms of more established advertising media. Our success depends on the acceptance
of our out-of-home advertising network by advertisers and their continuing interest in these mediums as components of their advertising
strategies. Our success also depends on the viewing public continuing to be receptive towards our advertising network. Advertisers
may elect not to use our services if they believe that consumers are not receptive to our networks or that our networks do not
provide sufficient value as effective advertising mediums. Likewise, if consumers find some element of our networks, such as the
strong light from the billboard, to be disruptive or intrusive, advertisers may decide not to place advertisements on our advertising
network and may deem our outdoor billboards as a less attractive advertising medium compared to other alternatives. In that event,
advertisers may determine to reduce their spending on our advertising network. If a substantial number of advertisers lose interest
in advertising on our advertising network for these or other reasons, we will be unable to generate sufficient revenues and cash
flow to operate our business, and our advertising service revenue, liquidity and results of operations could be negatively affected.
We may
need additional capital and we may not be able to obtain it, which could adversely affect our liquidity and financial position.
We
believe that our current cash and cash equivalents and cash flow from operations will be sufficient to meet our anticipated cash
needs including for working capital and capital expenditures, for the foreseeable future. We may, however, require additional
cash resources due to changed business conditions or other future developments. If these sources are insufficient to satisfy our
cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of convertible
debt securities or additional equity securities, could result in additional dilution to our shareholders. The incurrence of indebtedness
would result in increased debt service obligations and could result in operating and financing covenants that would restrict our
operations and liquidity.
Our
ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:
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investors’
perception of, and demand for, securities of alternative advertising media companies;
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conditions
of the U.S. and other capital markets in which we may seek to raise funds;
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our
future results of operations, financial condition and cash flows;
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PRC
governmental regulation of foreign investment in advertising services companies in China;
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economic,
political and other conditions in China; and
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PRC
governmental policies relating to foreign currency borrowings.
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We
cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise
additional funds on terms favorable to us could have a material adverse effect on our liquidity and financial condition.
If we are
unable to adapt to changing advertising trends and the technology needs of advertisers and consumers, we will not be able to compete
effectively and we will be unable to increase or maintain our revenues which may materially and adversely affect our business
prospects and revenues.
The
market for out-of-home advertising requires us to continuously identify new advertising trends and the technology needs of advertisers
and consumers, which may require us to develop new features and enhancements for our advertising network. In the future, subject
to relevant PRC laws and regulations, we may use other technology, such as cable or broadband networking, advanced audio technologies
and high-definition panel technology. We may be required to incur development and acquisition costs in order to keep pace with
new technology needs but we may not have the financial resources necessary to fund and implement future technological innovations
or to replace obsolete technology. Furthermore, we may fail to respond to these changing technology needs. For example, if the
use of wireless or broadband networking capabilities on our advertising network becomes a commercially viable alternative and
meets all applicable PRC legal and regulatory requirements, and we fail to implement such changes on our commercial location network
and in-store network or fail to do so in a timely manner, our competitors or future entrants into the market who do take advantage
of such initiatives could gain a competitive advantage over us. If we cannot succeed in developing and introducing new features
on a timely and cost-effective basis, advertiser demand for our advertising networks may decrease and we may not be able to compete
effectively or attract advertising clients, which would have a material and adverse effect on our business prospects and revenues.
We may
be subject to intellectual property infringement claims, which may force us to incur substantial legal expenses and, if determined
adversely against us, may materially disrupt our business.
We
cannot be certain that our advertising displays or other aspects of our business do not or will not infringe upon patents, copyrights
or other intellectual property rights held by third parties. Although we are not aware of any such claims, we may become subject
to legal proceedings and claims from time to time relating to the intellectual property of others in the ordinary course of our
business. If we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual
property, and we may incur licensing fees or be forced to develop alternatives. In addition, we may incur substantial expenses
in defending against these third party infringement claims, regardless of their merit. Successful infringement or licensing claims
against us may result in substantial monetary liabilities, which may materially and adversely disrupt our business.
We face
significant competition, and if we do not compete successfully against new and existing competitors, we may lose our market share,
and our profitability may be adversely affected.
We
compete with other advertising companies in China. We compete for advertising clients primarily on the basis of network size and
coverage, location, price, the range of services that we offer and our brand name. We also face competition from other out-of-home
television advertising network operators for access to the most desirable locations in cities in China. Individual buildings,
hotels, restaurants and other commercial locations and hypermarket, supermarket and convenience store chains may also decide to
independently, or through third-party technology providers, install and operate their own flat-panel television advertising screens.
Our
out-of-home advertising network faces competition with similar networks operated by domestic out-of-home advertising companies,
including but not limited to Shanghai Xicheng Cultural Dissemination Co., Ltd., Focus Media Information Technology, and iClick
Interactive Asia Group Limited. We also compete for overall advertising spending with other alternative advertising media companies,
such as Internet, wireless communications, street furniture, billboard, frame and public transport advertising companies, and
with traditional advertising media, such as newspapers, television, magazines and radio.
In
the future, we may also face competition from new entrants into the out-of-home television advertising sector. Our sector is characterized
by relatively low fixed costs and, as is customary in the advertising industry. In addition, since December 10, 2005, wholly foreign-owned
advertising companies are allowed to operate in China, which may expose us to increased competition from international advertising
media companies attracted to opportunities in China.
Increased
competition could reduce our operating margins and profitability and result in a loss of market share. Some of our existing and
potential competitors may have competitive advantages, such as significantly greater financial, marketing or other resources,
or exclusive arrangements with desirable locations, and others may successfully mimic and adopt our business model. Moreover,
increased competition will provide advertisers with a wider range of media and advertising service alternatives, which could lead
to lower prices and decreased revenues, gross margins and profits. We cannot assure you that we will be able to successfully compete
against new or existing competitors.
We do not
maintain any business liability disruption or litigation insurance coverage for our operations, and any business liability, disruption
or litigation we experience might result in our incurring substantial costs and the diversion of resources.
While
business disruption insurance is available to a limited extent in China, we have determined that the risks of disruption, cost
of such insurance and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical
for us to have such insurance. As a result, we do not have any business liability, disruption or litigation insurance coverage
for our operations of advertising and media business in China. Any business disruption or litigation may result in our incurring
substantial costs and the diversion of resources.
Any negative
publicity with respect to us in general or our partners may materially and adversely affect our reputation, business and results
of operations.
Complaints,
litigation, regulatory actions or other negative publicity that arise about the advertising industry in general or our company
in particular, including on the quality, effectiveness and reliability of privacy and security practices, and advertising content,
even if inaccurate, could adversely affect our reputation and client confidence in, and the use of, our solutions. Harm to our
reputation and client confidence can also arise for many other reasons, including employee misconduct, misconduct of our data
and content distribution channel partners, data center providers or other counterparties, failure by these persons or entities
to meet minimum quality standards or otherwise fulfill their contractual obligations or to comply with applicable laws and regulations.
Additionally, negative publicity with respect to our data or content distribution channel partners could also affect our business
and results of operation to the extent that we rely on these partners or if marketers or marketing agencies associate our company
with such partners.
If we fail
to promote or maintain our brand in a cost-efficient manner, our business and results of operations may be harmed.
We
believe that developing and maintaining awareness of our brand in a cost-effective manner is critical to achieving widespread
acceptance of our platforms, and is an important element in attracting new clients and partners. Furthermore, we believe that
the importance of brand recognition will increase as competition in our market increases. Successful promotion of our brand will
depend largely on our ability to deliver value propositions to marketers and on the effectiveness of our marketing efforts If
we fail to successfully promote and maintain our brand, or incur substantial expenses in an unsuccessful attempt to promote and
maintain our brand, we may fail to attract enough new clients or retain our existing clients and our business and results of operations
can be materially and adversely affected.
Risks Relating
to Regulations of Our Adverting and Media Business
Our business
operations may be affected by legislative or regulatory changes.
There
are no existing PRC laws, rules or regulations that specifically define or regulate advertising on billboards. Moreover, we cannot
assure you that any new laws, rules or regulations governing advertising on billboards, or out-of-home advertising generally,
would not be burdensome to us or otherwise increase compliance and other costs or have a material adverse effect on our business
and operations. We also cannot predict the timing and effects of any such new laws, rules or regulations. Changes in laws, rules
and regulations governing advertising services, our business licenses or any other aspects of our business and operations may
result in substantial additional costs as well as diversion of resources, and could have a material adverse effect on our financial
condition, results of operations and prospects.
Adverse
changes in the political and economic policies of the PRC government could significantly decrease the overall economic growth
of the PRC, which could lead to a reduction in demand for our services and materially and adversely affect our business, financial
conditions, results of operations and prospects.
Substantially
all of our assets are located in the PRC and substantially all of our revenues are derived from our operations in the PRC. Accordingly,
our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal
developments in China. The PRC economy differs from the economies of most developed countries in many respects, including:
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the
level of government involvement;
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the
level of development;
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the
control of foreign exchange; and
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the
allocation of resources.
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While
the PRC economy has experienced significant growth, growth has been uneven both geographically and among various sectors of the
economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources.
Some of these measures may benefit the overall PRC economy, but may also have a negative effect on us. For example, our financial
condition and results of operations may be materially and adversely effected by government control over capital investments or
changes in tax regulations that are applicable to us. We cannot predict the future direction of political or economic reforms
or the effects such measures may have on our business, financial position or results of operations. Any adverse change in the
political or economic conditions in the PRC, including changes in the policies of the PRC government or in laws and regulations
in the PRC, could have a material adverse effect on the overall economic growth of the PRC and in out-of-home advertising as
well as the overall advertising industry. Such developments could lead to a reduction in demand for our services and materially
and adversely affect our business, financial condition, results of operations and prospects.
We are
subject to, and may expend significant resources in defending against, government actions and civil claims in connection with
false, fraudulent, misleading or otherwise illegal marketing content for which we provide design, production or agency services.
Under
PRC Advertising Law, where an advertising operator provides advertising design, production or agency services with respect to
an advertisement when it knows or should have known that the advertisement is false, fraudulent, misleading or otherwise illegal,
the competent PRC authority may confiscate the advertising operator’s advertising revenue from such services, impose penalties,
order it to cease dissemination of such false, fraudulent, misleading or otherwise illegal advertisement or correct such advertisement,
or suspend or revoke its business licenses under certain serious circumstances.
Under
the PRC Advertising Law, “advertising operators” include any natural person, legal person or other organization that
provides advertising design, production or agency services to advertisers for their advertising activities. Since our solutions
involve provision of agency services to marketers, including helping them identify, engage and convert audience, and create content
catering to their potential clients across different content distribution channels, we are deemed as an “advertising operator”
under the PRC Advertising Law. Therefore, we are required to examine advertising content for which we provide agency services
for compliance with applicable laws, notwithstanding the fact that the advertising content may have been previously published,
and that the advertisers also bear liabilities for the content in their advertisements. In addition, for advertising content related
to certain types of products and services, such as alcohol, cosmetics, pharmaceuticals and medical procedures, we are expected
to confirm that the advertisers have obtained requisite government approvals, including operating qualifications, proof of quality
inspection for the advertised products, government pre-approval of the content of the advertisements and filings with
the local authorities. Although we have established internal policies to review and vet advertising content before it is placed
on a content distribution channel to ensure compliance with applicable laws, we cannot ensure that each advertisement for which
we provide agency services complies with all PRC laws and regulations relevant to advertising activities, that supporting documentation
provided by our clients is authentic or complete, or that we are able to identify and rectify all non-compliances in
a timely manner.
Moreover,
civil claims may be filed against us for fraud, defamation, subversion, negligence, copyright or trademark infringement or other
violations due to the nature and content of the information for which we provide design, production or agency services. For example,
we generally represent and warrant in our contracts with content distribution channels as to the truthfulness of the advertising
content that we place on these channels, and agree to indemnify the content distribution channels for any losses resulting from
false, fraudulent, misleading or otherwise illegal advertising content that we place on these content distribution channels. On
the other hand, not all our marketing campaign contracts contain a back-to-back representation and warranty as to the
truthfulness of the advertising content or an indemnity provision where the clients undertake to hold us harmless in case we incur
losses arising out of any false, fraudulent, misleading or otherwise illegal advertising content. In the event we are subject
to government actions or civil claims in connection with false, fraudulent, misleading or otherwise illegal marketing content
for which we provide agency services, our reputation, business and results of operations may be materially and adversely affected.