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Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. ☐
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Indicate by check mark whether the registrant
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If an emerging growth company, indicate by check
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RISK FACTORS
The following is a summary of certain risks
that should be carefully considered along with the other information contained or incorporated by reference in this prospectus and the
documents incorporated by reference, as updated by our subsequent filings under the Exchange Act. If any of the following events actually
occurs, our business, operating results, prospects, or financial condition could be materially and adversely affected. The risks described
below are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also significantly
impair our business operations and could result in a complete loss of your investment.
Risks
Related to our Business and Industry
Our
business operations are cash intensive, and our business could be adversely affected if we fail to maintain sufficient levels of liquidity
and working capital.
As
of June 30, 2021, we had approximately $10.8 million of cash and cash equivalents. Historically, we have spent a significant amount of
cash on our operational activities, principally to procure raw materials for our products. Our short-term loans are from Chinese banks
and are generally secured by a portion of our fixed assets, land use right and/or guarantees by related parties. Certain of these loans
are secured against a portion of the shares of our PRC subsidiaries. The term of a majority of such loans is one year. Historically,
we rolled over such loans on an annual basis. However, we may not have sufficient funds available to pay all of our borrowings upon maturity
in the future. Failure to roll over our short-term borrowings at maturity or to service our debt could result in a transfer of the ownership
of a portion of the shares of our PRC subsidiaries to secured lenders, the imposition of penalties, including increases in interest rates,
legal actions against us by our creditors, and even insolvency.
Although
we have been able to maintain adequate working capital primarily through cash from operations and short-term and long-term borrowings,
any failure by our customers to settle outstanding accounts receivable, or our inability to borrow sufficient capital from local banks,
in the future could materially and adversely affect our cash flow, financial condition and results of operations.
We
grant relatively long payment terms for accounts receivable which can adversely affect our cash flow.
As
is customary in China, for competitive reasons, we grant relatively long payment terms to most of our customers. The reserves we establish
for our receivables may not be adequate based on the current bad debts. We are subject to the risk that we may be unable to collect accounts
receivable in a timely manner. If the accounts receivable cannot be collected in time, or at all, a significant amount of bad debt expense
will occur, and our business, financial condition and results of operation will likely be materially and adversely affected.
We
face short lead-times for delivery of products to customers. Failure to meet delivery deadlines could result in the loss of customers
and damage to our reputation and goodwill.
Most
of our customers are large manufacturers, who generally place large orders for our products and require prompt delivery. Our product
sale agreements typically contain short lead-times for the delivery of products and tight production and manufacturer supply schedules
that can reduce its profit margins on the products procured from our suppliers. Our suppliers may lack sufficient capacity at any given
time to meet all of our customers’ demands if orders exceed their production capacity. We strive for rapid response to customer
demand, which can lead to reduced purchasing efficiency, increased procurement costs and low profit margins. If we are unable to meet
the customer demands, we may lose customers. Moreover, failure to meet customer demands may damage our reputation and goodwill.
We
face intense competition, and if we are unable to compete effectively, we may not be able to maintain profitability.
We
compete with many other companies located in the PRC and internationally that manufacture similar products. Many of our competitors are
larger companies with greater financial resources. Intense competition in a challenging economic environment in the PRC has, in the past,
put pressure on our margins and may adversely affect our future financial performance. Moreover, intense competition may result in potential
or actual litigation between us and our competitors relating to such activities as competitive sales practices, relationships with key
suppliers and customers or other matters.
While
we believe that our manufacturing efficiency and capabilities provide us with a competitive advantage among our competitors, it is likely
that our competitors will seek to develop similar competing products in the near future. We intend to continue to expand research and
development efforts to advance its technology even further, including improving the design, application and manufacturing of internal
combustion engines. However, there can be no assurance that our initial competitive advantage will be retained and that one or more competitors
will not develop products that are equal or superior in quality and are better priced than our products.
Our
revenues are highly dependent on a limited number of customers and the loss of any one of our major customers could materially and adversely
affect our growth and revenues.
During
the years ended December 31, 2019 and 2020 and the six months ended June 30, 2021, our five largest customers contributed 43.6%, 55.4%
and 48.2% of our revenues, respectively. As a result of our reliance on a limited number of customers, we may face pricing and other
competitive pressures, which may have a material adverse effect on our profits and our revenues. The volume of products sold for specific
customers varies from year to year, especially since we are not the exclusive provider for any customers. In addition, there are a number
of factors that could cause the loss of a customer or a substantial reduction in the products that we provide to any customer that may
not be predictable. For example, our customers may decide to reduce spending on our products or a customer may no longer need our products
following the completion of a project. The loss of any one of our major customers, a decrease in the volume of sales to our customers
or a decrease in the price at which we sell our products to customers could materially adversely affected our profits and revenues.
In
addition, this customer concentration may subject us to perceived or actual leverage that our customers may have in negotiations, given
their relative size and importance to us. If our customers seek to negotiate their agreements on terms less favorable to us and we accept
such terms, such unfavorable terms may have a material adverse effect on our business, financial condition and results of operations.
Accordingly, unless and until we diversify and expand our customer base, our future success will significantly depend upon the timing
and volume of business from our largest customers and the financial and operational success of these customers.
As
we expand our operations, we may need to establish a more diverse supplier network for our raw materials. The failure to secure a more
diverse supplier network could have an adverse effect on our financial condition.
In
the event that we need to diversify our supplier network, we may not be able to procure a sufficient supply of raw materials at a competitive
price, which could have an adverse effect on our results of operations, financial condition and cash flows. Furthermore, despite our
efforts to control our supply of raw materials and maintain good relationships with our existing suppliers, we could lose one or more
of our existing suppliers at any time. The loss of one or more key suppliers could increase our reliance on higher cost or lower quality
supplies, which could negative affect our profitability. Any interruptions to, or decline in, the amount or quality of our raw materials
supply could materially disrupt our production and adversely affect our business, financial condition and financial prospects.
To
remain competitive, we are introducing new lines of business, including the production and sale of electric industrial vehicles. If our
efforts are not successful, our results of operations may be materially and adversely affected.
Prior
to December 2020, through Zhongchai Holding and its PRC subsidiaries, our products mainly include transmission systems and integrated
powertrains for material handling machineries, particularly for electric forklift trucks. In December 2020, we launched a new division
to focus on the electric industrial vehicles market. We have set up an assembly facility on the east coast of the United States for final
assembly of our newly developed electric vehicles. As of the date of this prospectus, we have completed full beta versions of the 1.8
tons electric loader vehicle (GEL1800), our first electric industry vehicle product, and our GEX-8000 electric excavator. We expect to
start deliveries of GEL 1800 and GEX-8000 electric excavator in the fourth quarter of 2021. Other models, such as electric loader vehicles
with loading capacity of one and a half tons or five tons are currently under development. In July 2021, we also launched an innovative
new GEF-series lithium powered electric vehicle forklift truck, one of the industry’s first electric vehicle forklift trucks to
use lithium power.
There
are risks in connection with this new line of business. We may experience difficulties in the development and launch of our electric
industrial vehicles, and our products may not be well-accepted by the market. As we have limited experience in the electric industrial
vehicle business, our efforts in developing such business may not succeed and we may not be able to generate sufficient revenue to cover
our investment and become profitable. During such process, our results of operations and financial conditions may not be improved in
a timely manner, or at all. We cannot assure you that we will successfully transition our business focus and it is possible that we remain
in such status for a certain period of time. During such period, our revenue may be very limited and we may continue to experience material
and adverse effect to our results of operations, financial condition and business prospects.
New
lines of business, including the production and sale of electric industrial vehicles, may subject us to additional risks.
From
time to time, we may implement new lines of business or offer new products within our existing lines of business. Currently, we plan
to offer additional models of electric industrial vehicles. As such, we face significant challenges, uncertainties and risks, including,
among others, with respect to our ability to:
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build
a well-recognized and respected brand;
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establish
and expand our customer base;
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improve
and maintain our operational efficiency for new lines of business;
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maintain
a reliable, secure, high-performance and scalable technology infrastructure for our new lines
of business;
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anticipate
and adapt to changing market conditions, including technological development and changes
in competitive landscape;
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navigate
an evolving and complex regulatory environment, such as licensing and compliance requirements;
and
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manage
the resources and attention of management between our current core business and new lines
of business.
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Moreover,
there can be no assurance that the introduction and development of new lines of business or new products and services would not encounter
significant difficulties or delay or would achieve the profitability as we expect. Failure to successfully manage these risks in the
development and implementation of new lines of business or new products or services could have a material adverse effect on our business,
results of operations and prospects. For example, with respect to our plan to develop and launch additional models of our electric industrial
vehicles, we may experience difficulties in developing our electric industrial vehicles, or may not be able to develop them at reasonable
costs. Due to our limited experience with electric industrial vehicles, we also face challenges and uncertainties relating to the possibility
of success of our new business.
As
we enter into new business sectors, we are also subject to competition from such industry. There can be no assurance that we will be
able to compete effectively with respect to our new businesses. If we fail to establish our strengths or maintain our competitiveness
in those industries, our business prospects, results of operations and financial condition may be materially and adversely affected.
Volatile
steel prices can cause significant fluctuations in our operating results. Our revenues and operating income could decrease if steel prices
increase or if we are unable to pass price increases on to our customers.
Our
principal raw material are processed metal parts and components which are made of carburizing steel. The steel industry as a whole is
cyclical and, at times, pricing and availability of steel can be volatile due to numerous factors beyond our control, including general
domestic and international economic conditions, labor costs, sales levels, competition, levels of inventory, consolidation of steel producers,
higher raw material costs for steel producers, import duties and tariffs and currency exchange rates. This volatility can significantly
affect the availability and cost of raw materials.
Our
suppliers, like many other processed metal parts and components manufacturers, maintain substantial inventories of steel to accommodate
the short lead times and just-in-time delivery requirements of customers. Accordingly, they purchase steel in an effort to maintain their
inventory at levels that they believe to be appropriate to satisfy the anticipated needs of customers based upon historic buying practices,
supply agreements with customers and market conditions. When steel prices increase, competitive conditions will influence how much of
the price increase suppliers would pass on to us and how much we can pass on to our customers. To the extent we are unable to pass on
future price increases in raw materials to our customers, the revenues and profitability of our business could be adversely affected.
We
are subject to various risks and uncertainties that might affect our ability to procure raw materials.
Our
performance depends upon our ability to procure low cost, high quality raw materials on a timely basis from our suppliers. Our suppliers
are subject to certain risks, including the availability of raw materials, labor disputes, inclement weather, natural disasters, and
general economic and political conditions, which might limit the ability of our suppliers to provide low cost, high quality merchandise
on a timely basis. Furthermore, for these or other reasons, one or more of our suppliers might not adhere to our quality control standards,
and we might not identify the deficiency. Our suppliers’ failure to supply quality materials at a reasonable cost on a timely basis
could reduce our net sales or profits, damage our reputation and have an adverse effect on our financial condition.
We
may lose our competitive advantage, and our operations may suffer, if we fail to prevent the loss or misappropriation of, or disputes
over, our intellectual property.
We
rely on a combination of patents, trademarks, trade secrets and confidentiality agreements to protect our intellectual property rights.
While we are not currently aware of any infringement on our intellectual property rights, our ability to compete successfully and to
achieve future revenue growth will depend, in significant part, on our ability to protect our proprietary technology. Despite many laws
and regulations promulgated, as well as other efforts made, by China over the past several years in an attempt to protect intellectual
property rights, intellectual property rights are not as certain in China as they would be in many Western countries, including the United
States. Furthermore, enforcement of such laws and regulations in China has not been fully developed. Neither the administrative agencies
nor the court systems in China are as equipped as their counterparts in developed countries to deal with violations or handle the nuances
and complexities between compliant technological innovation and non-compliant infringement.
Our
transmission technology is protected through a combination of patents, trade secrets, confidentiality agreements and other methods. However,
our competitors may independently develop similar proprietary methodologies or duplicate our products, or develop alternatives, which
could have a material adverse effect on our business, results of operations and financial condition. The misappropriation or duplication
of our intellectual property could disrupt our ongoing business, distract our management and employees, reduce our revenues and increase
our expenses. We may need to litigate to enforce our intellectual property rights. Any such litigation could be time consuming and costly
and the outcome of any such litigation cannot be guaranteed.
We
have limited insurance coverage and may incur losses resulting from product liability claims, business interruption or natural disasters.
We
are exposed to risks associated with product liability claims in the event that the use of our products results in property damage or
personal injury. Since our transmission products are ultimately incorporated into forklifts, it is possible that users of forklifts or
people installing our products could be injured or killed, whether as a result of defects, improper installation or other causes. It
is also possible that people could be injured or killed by our electric industrial vehicles whether as a result of defects or other causes.
We are unable to predict whether product liability claims will be brought against us in the future or to predict the impact of any resulting
adverse publicity on our business. The successful assertion of product liability claims against us could result in potentially significant
monetary damages and require us to make significant payments. We do not carry product liability insurance and may not have adequate resources
to satisfy a judgment in the event of a successful claim against us. Any business interruption or natural disaster could result in substantial
losses and diversion of our resources and materially and adversely affect our business, financial condition and results of operations.
Failure
to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.
We
are required under PRC laws to participate in various government sponsored employee benefit plans, including social security insurance,
housing funds and other welfare-oriented payments, and contribute to the plans in amounts equal to certain percentages of salaries, including
bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time at locations where
we operate our businesses. We have not made adequate employee benefit payments to the social security insurance and the housing fund.
As a result, we may be required to make up the contributions for these plans within a stipulated period of time. In addition, we may
be required to pay late fees equal to 0.05% of the shortage of the contributions to the social security fund for each day we fail to
make up the contributions and may be imposed fines up to three times of such shortage if we fail to make up the difference within the
time frame prescribed by relevant government authorities. The maximum amount of such penalties that we anticipate could be imposed on
us with respect such employee benefits payments is approximately US$200,000. If we are subject to late fees or fines in relation to the
underpaid employee benefits, our financial condition and results of operations may be adversely affected. As of the date of this prospectus,
we have not been ordered to pay outstanding contributions or related penalties.
If
labor costs in the PRC increase substantially, our business and costs of operations may be adversely affected.
In
recent years, the Chinese economy has experienced inflation and labor cost increases. Average wages are projected to continue to increase.
Further, under PRC law we are required to pay various statutory employee benefits, including pensions, housing funds, medical insurance,
work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit
of its employees. The relevant government agencies may examine whether an employer has made adequate payments to the statutory employee
benefits, and those employers who fail to make adequate payments may be subject to late payment fees, fines and/or other penalties. We
expect that our labor costs, including wages and employee benefits, will continue to increase based on the past trends. If we are unable
to control our labor costs or pass such increased labor costs on to our customers, our financial condition and results of operations
may be adversely affected.
The
ongoing COVID-19 pandemic could adversely affect our business, results of operations and financial condition.
The
ongoing COVID-19 pandemic has continued to spread across the world and has created unique global and industry-wide challenges. COVID-19
has resulted in quarantines, travel restrictions, and the temporary closure of offices and facilities in China and many other countries.
New COVID-19 variants have also emerged, potentially extending the period during which COVID-19 will negatively impact the global economy.
Our
revenue growth was negative impacted by the COVID-19 in the first half of 2020. From February 3, 2020 to the end of February 2020, we
closed all of our operating offices in Zhejiang Province, including manufactory, in response to the emergency measures imposed by the
local government. The pandemic also significantly limited suppliers’ ability to provide low-cost, high-quality merchandise to us
on a timely basis. Since late March 2020, our business operations have gradually recovered from the negative impacts due to the lockdown,
and our backlogged orders were mostly processed during the rest of fiscal year 2020 and also the first quarter of fiscal year 2021.
However,
the potential downturn brought by and the duration of the COVID-19 pandemic may be difficult to assess or predict, and any associated
negative impact on us will depend on many factors beyond our control. The extent to which the COVID-19 pandemic impacts our long-term
results remains uncertain, and we are closely monitoring its impact on us. Our business, results of operations, financial conditions
and prospects could be adversely affected directly, as well as indirectly to the extent that the ongoing COVID-19 pandemic harms the
Chinese and global economy in general. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may
also heighten many of the other risks described in this ‘‘Risk Factors’’ section.
Competition
for our employees is intense, and we may not be able to attract and retain the highly skilled employees needed to support our business.
As
we continue to experience growth, we believe our success depends on the efforts and talents of our employees, including engineers, financial
personnel and marketing professionals. Our future success depends on our continued ability to attract, develop, motivate and retain highly
qualified and skilled employees. Competition for highly skilled engineering, sales, technical and financial personnel is extremely intense.
We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure.
Many of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more
attractive terms of employment.
In
addition, we invest significant time and expense in training our employees, which increases their value to competitors who may seek to
recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements, and
the quality of our services and our ability to serve customers could diminish, resulting in a material adverse effect on our business.
Our
business depends on the continued efforts of our senior management. If one or more of our key executives were unable or unwilling to
continue in their present positions, our business may be severely disrupted.
Our
business operations depend on the continuing services of our senior management. While we have provided different incentives to our management,
we cannot assure you that we can continue to retain our services. If one or more of our key executives were unable or unwilling to continue
in their present positions, it may not be able to replace them easily or at all, its future growth may be constrained, its business may
be severely disrupted and its financial condition and results of operations may be materially and adversely affected, and it may incur
additional expenses to recruit, train and retain qualified personnel. In addition, although we have entered into a non-competition agreement
with Mr. Zuguang Wang, our controlling shareholder and chairman of the board of directors, there is no assurance that any member of our
management team will not join our competitors or form a competing business. If any dispute arises between us and our current or former
officers, it may have to incur substantial costs and expenses in order to enforce such agreements in China or it may be unable to enforce
them at all.
We
do not maintain “key man” insurance, and as a result, we may incur losses if any of our directors, executive officers, senior
manager or other key employees chooses to terminate his or her services with us.
We
do not have “key man” insurance for our directors, executive officers, senior management or other key employees. If any of
our key employees terminate his or her services or otherwise becomes unable to provide continuous services to us, our business, financial
condition and results of operations may be materially and adversely affected and we may incur additional expenses to recruit, train and
retain qualified personnel. If any of our executive officers or key employees joins a competitor or forms a competing company, we may
lose customers, operational know-how and key professionals and staff members.
Risks
Related to Doing Business in China
Changes
in China’s economic, political or social conditions or government policies could have a material adverse effect on our business
and operations.
Substantial
majority of our assets and operations are located in China. Accordingly, our business, financial condition, results of operations and
prospects may be influenced to a significant degree by political, economic and social conditions in China generally. The PRC economy
differs from the economies of most developed countries in many respects, including the level of government involvement, level of development,
growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures emphasizing
the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of
improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government.
In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies.
The
PRC government also exercises significant control over China’s economic growth through allocating resources, controlling payment
of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries
or companies.
While
the PRC economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various
sectors of the economy, and the rate of growth has been slowing since 2012. Any adverse changes in economic conditions in China, in the
policies of the PRC government or in the laws and regulations in China could have a material adverse effect on the overall economic growth
of China. Such developments could adversely affect our business and operating results, lead to reduction in demand for our services and
adversely affect our competitive position. 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 have a negative effect on us. For example,
our financial condition and results of operations may be adversely affected by government control over capital investments or changes
in tax regulations. In addition, in the past the PRC government has implemented certain measures, including interest rate adjustment,
to control the pace of economic growth. These measures may cause decreased economic activity in China, which may adversely affect our
business and operating results.
Uncertainties
with respect to the PRC legal system could adversely affect us.
The
PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil
law system may be cited for reference but have limited precedential value. Since these laws and regulations are relatively new and the
PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and the
enforcement of these laws, regulations and rules involves uncertainties.
In
1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The
overall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign
investments in China. However, China has not developed a fully integrated legal system, and recently enacted laws and regulations may
not sufficiently cover all aspects of economic activities in China. In particular, the interpretation and enforcement of these laws and
regulations involve uncertainties. Since PRC administrative and court authorities have significant discretion in interpreting and implementing
statutory provisions and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the
level of legal protection we enjoy. These uncertainties may affect our judgment on the relevance of legal requirements and our ability
to enforce our contractual rights or tort claims. In addition, the regulatory uncertainties may be exploited through unmerited or frivolous
legal actions or threats in attempts to extract payments or benefits from us.
Furthermore,
the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or
at all and may have retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime
after the violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs
and diversion of resources and management attention.
In
addition, we are subject to risks and uncertainties of the interpretations and applications of PRC laws and regulations, including but
not limited to, limitations on foreign ownership in our industry. We are also subject to the risks and uncertainties about any future
actions of the PRC government. If any future actions of the PRC government result in a material change in our operations, and the value
of our ordinary shares may depreciate significantly or become worthless.
The
PRC government exerts substantial influence over the manner in which we must conduct our business activities. If the Chinese government
significantly regulates the business operations of our PRC subsidiaries in the future and our PRC subsidiaries are not able to substantially
comply with such regulations, the business operations of our PRC subsidiaries may be materially and adversely affected and the value
of our ordinary shares may significantly decrease.
The
PRC government has exercised, and continues to exercise, substantial control over virtually every sector of the Chinese economy through
regulation and state ownership, including steel sector where we have been doing our business. Any government decisions or actions to
change the steel production, or any decisions the government might make to cut spending, could adversely impact our business and results
of operations. In addition, the ability of our PRC subsidiaries to operate in China may be harmed by changes in the PRC laws and regulations,
including those relating to taxation, environmental conditions, land use rights, property and other matters. The central or local governments
of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional
expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions
in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy
or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in
China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties.
We
believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central
or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations
with little advance notice that would require additional expenditures and efforts on our part to ensure our compliance with such regulations
or interpretations.
Our
PRC subsidiaries may incur increased costs necessary to comply with existing and newly adopted laws and regulations or penalties for
any failure to comply. In the event that our PRC subsidiaries are not able to substantially comply with any existing or newly adopted
laws and regulations, our business operations may be materially adversely affected and the value of our ordinary shares may significantly
decrease.
Furthermore,
the PRC government authorities may strengthen oversight and control over offerings that are conducted overseas and/or foreign investment
in China-based issuers like us. Such actions taken by the PRC government authorities may intervene or influence the operations of our
PRC operating entities at any time, which may be beyond our control. Therefore, any such action may adversely affect the operations of
our PRC subsidiaries and significantly limit or hinder our ability to offer or continue to offer securities to you and reduce the value
of such securities or cause the value of such securities to be completely worthless.
We
may be liable for improper use or appropriation of personal information provided by their customers and any failure to comply with PRC
laws and regulations over data security could result in materially adverse impact on our business, results of operations, and our continued
listing on Nasdaq.
Our
business involves collecting and retaining certain internal and customer data. We also maintain information about various aspects of
our operations. The integrity and protection of customer and company data is critical to our business. Our customers expect that we will
adequately protect their personal information. We are required by applicable laws to keep strictly confidential the personal information
that we collect, and to take adequate security measures to safeguard such information.
The
PRC Criminal Law, as amended by its Amendment 7 (effective on February 28, 2009) and Amendment 9 (effective on November 1, 2015), prohibits
institutions, companies and their employees from selling or otherwise illegally disclosing a citizen’s personal information obtained
in performing duties or providing services or obtaining such information through theft or other illegal ways. On November 7, 2016, the
Standing Committee of the PRC National People’s Congress issued the Cyber Security Law of the PRC, or Cyber Security Law, which
became effective on June 1, 2017. Pursuant to the Cyber Security Law, network operators must not, without users’ consent, collect
their personal information, and may only collect users’ personal information necessary to provide their services. Providers are
also obliged to provide security maintenance for their products and services and shall comply with provisions regarding the protection
of personal information as stipulated under the relevant laws and regulations.
The
Civil Code of the PRC (issued by the PRC National People’s Congress on May 28, 2020 and effective from January 1, 2021) provides
legal basis for privacy and personal information infringement claims under the Chinese civil laws. PRC regulators, including the Cyberspace
Administration of China, the Ministry of Industry and Information Technology, and the Ministry of Public Security, have been increasingly
focused on regulation in data security and data protection.
The
PRC regulatory requirements regarding cybersecurity are evolving. For instance, various regulatory bodies in China, including the Cyberspace
Administration of China, the Ministry of Public Security and the State Administration for Market Regulation, have enforced data privacy
and protection laws and regulations with varying and evolving standards and interpretations. In April 2020, the Chinese government promulgated
Cybersecurity Review Measures, which came into effect on June 1, 2020. According to the Cybersecurity Review Measures, operators of critical
information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national
security.
In
July 2021, the Cyberspace Administration of China and other related authorities released the draft amendment to the Cybersecurity Review
Measures for public comments through July 25, 2021. The draft amendment proposes the following key changes:
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companies
who are engaged in data processing are also subject to the regulatory scope;
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the
China Securities Regulatory Commission (the “CSRC”) is included as one of the
regulatory authorities for purposes of jointly establishing the state cybersecurity review
working mechanism;
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the
operators (including both operators of critical information infrastructure and relevant parties
who are engaged in data processing) holding more than one million users/users’ (which
to be further specified) individual information and seeking a listing outside China shall
file for cybersecurity review with the Cybersecurity Review Office; and
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the
risks of core data, material data or large amounts of personal information being stolen,
leaked, destroyed, damaged, illegally used or transmitted to overseas parties and the risks
of critical information infrastructure, core data, material data or large amounts of personal
information being influenced, controlled or used maliciously shall be collectively taken
into consideration during the cybersecurity review process.
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Currently,
the draft amendment has been released for public comment only, and its implementation provisions and anticipated adoption or effective
date remains substantially uncertain and may be subject to change. If the draft amendment is adopted into law in the future, we may become
subject to enhanced cybersecurity review. Certain internet platforms in China have been reportedly subject to heightened regulatory scrutiny
in relation to cybersecurity matters. As of the date of this prospectus, we have not been included within the definition of “operator
of critical information infrastructure” by competent authority, nor have we been informed by any PRC governmental authority of
any requirement that we file for a cybersecurity review. However, if we are deemed to be a critical information infrastructure operator
or a company that is engaged in data processing and holds personal information of more than one million users, we could be subject to
PRC cybersecurity review.
As
there remains significant uncertainty in the interpretation and enforcement of relevant PRC cybersecurity laws and regulations, we could
be subject to cybersecurity review, and if so, we may not be able to pass such review in relation to this offering. In addition, we could
become subject to enhanced cybersecurity review or investigations launched by PRC regulators in the future. Any failure or delay in the
completion of the cybersecurity review procedures or any other non-compliance with the related laws and regulations may result in fines
or other penalties, including suspension of business, website closure, removal of our app from the relevant app stores, and revocation
of prerequisite licenses, as well as reputational damage or legal proceedings or actions against us, which may have material adverse
effect on our business, financial condition or results of operations. As of the date of this prospectus, we have not been involved in
any investigations on cybersecurity review initiated by the Cyber Administration of China or related governmental regulatory authorities,
and we have not received any inquiry, notice, warning, or sanction in such respect.
On June 10, 2021, the Standing Committee of
the National People’s Congress of China, or the SCNPC, promulgated the PRC Data Security Law, which took effect in September 2021.
The PRC Data Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities, and
introduces a data classification and hierarchical protection system based on the importance of data in economic and social development,
and the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations
when such data is tampered with, destroyed, leaked, illegally acquired or used. The PRC Data Security Law also provides for a national
security review procedure for data activities that may affect national security and imposes export restrictions on certain data an information.
As
of the date of this prospectus, we do not expect that the current PRC laws on cybersecurity or data security would have a material adverse
impact on our business operations. However, as uncertainties remain regarding the interpretation and implementation of these laws and
regulations, we cannot assure you that we will comply with such regulations in all respects and we may be ordered to rectify or terminate
any actions that are deemed illegal by regulatory authorities. We may also become subject to fines and/or other sanctions which may have
material adverse effect on our business, operations and financial condition.
A
severe or prolonged downturn in the PRC or global economy could materially and adversely affect our business and our financial condition.
The
global macroeconomic environment is facing challenges. There is considerable uncertainty over the long-term effects of the expansionary
monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including
the United States and China. There have been concerns over unrest and terrorist threats in the Middle East, Europe and Africa and over
the conflicts involving Ukraine, Syria and North Korea. There have also been concerns on the relationship among China and other Asian
countries, which may result in, or intensify potential conflicts in relation to, territorial disputes, and the trade disputes between
China and other countries. It is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they
may have on the global political and economic conditions in the long term.
Economic
conditions in China are sensitive to global economic conditions, changes in domestic economic and political policies and the expected
or perceived overall economic growth rate in China. While the economy in China has grown significantly over the past decades, growth
has been uneven, both geographically and among various sectors of the economy, and the rate of growth has been slowing in recent years.
Although growth of China’s economy remained relatively stable, there is a possibility that China’s economic growth may materially
decline in the near future. Any severe or prolonged slowdown in the global or PRC economy may materially and adversely affect our business,
results of operations and financial condition.
You
may have difficulty enforcing judgments against us.
A
significant portion of our assets are located, and a substantial amount of our operations are conducted, in the PRC. In addition, many
of our directors and officers are nationals and residents of the PRC and a substantial portion of their assets are located outside the
United States. As a result, it may be difficult to effect service of process within the United States upon these persons. In addition,
there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of U.S. courts because China does not have
any treaties or other arrangements that provide for the reciprocal recognition and enforcement of foreign judgments with the United States.
In addition, according to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors
and officers if they decide that the judgment violates basic principles of PRC law or national sovereignty, security, or the public interest.
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 shareholders.
Under
the Enterprise Income Tax Law (“the “EIT Law”), an enterprise established outside of China with “de facto management
bodies” within China is considered a “resident enterprise”, meaning that it can be subject to an enterprise income
tax, or EIT, rate of 25.0% on its global income. In April 2009, the State Administration of Taxation (the “SAT”) promulgated
a circular, known as Circular 82, and partially amended by Circular 9 promulgated in January 2014, to clarify the certain criteria for
the determination of the “de facto management bodies” for foreign enterprises controlled by PRC enterprises or PRC enterprise
groups. Under Circular 82, a foreign enterprise is considered a PRC resident enterprise if all of the following apply: (1) the senior
management and core management departments in charge of daily operations are located mainly within China; (2) decisions relating to the
enterprise’s financial and human resource matters are made or subject to approval by organizations or personnel in China; (3) the
enterprise’s primary assets, accounting books and records, company seals, and board and shareholders’ meeting minutes are
located or maintained in China; and (4) 50.0% or more of voting board members or senior executives of the enterprise habitually reside
in China. Further to Circular 82, the SAT issued a bulletin, known as Bulletin 45, effective in September 2011 and amended on June 1,
2015 and October 1, 2016, to provide more guidance on the implementation of Circular 82 and clarify the reporting and filing obligations
of such “Chinese controlled offshore incorporated resident enterprises.” Bulletin 45 provides for, among other matters, procedures
for the determination of resident status and administration of post-determination matters. Although Circular 82 and Bulletin 45 explicitly
provide that the above standards apply to enterprises that are registered outside China and controlled by PRC enterprises or PRC enterprise
groups, Circular 82 may reflect SAT’s criteria for determining the tax residence of foreign enterprises in general.
If
the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of
unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide
taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as non-China
source income would be subject to PRC enterprise income tax at a rate of 25%. Second, under the EIT Law and its implementing rules, dividends
paid to us from our PRC subsidiaries would be deemed as “qualified investment income between resident enterprises” and therefore
qualify as “tax-exempt income” pursuant to the clause 26 of the EIT Law. Finally, it is possible that future guidance issued
with respect to the new “resident enterprise” classification could result in a situation in which the dividends we pay with
respect to our ordinary shares, or the gain our non-PRC shareholders may realize from the transfer of our ordinary shares, may be treated
as PRC-sourced income and may therefore be subject to a 10% PRC withholding tax. The EIT Law and its implementing regulations are, however,
relatively new and ambiguities exist with respect to the interpretation and identification of PRC-sourced income, and the application
and assessment of withholding taxes. If we are required under the EIT Law and its implementing regulations to withhold PRC income tax
on dividends payable to our non-PRC shareholders, should there be a determination in the future to pay dividends, or if non-PRC shareholders
are required to pay PRC income tax on gains on the transfer of their ordinary shares, our business could be negatively impacted and the
value of your investment may be materially reduced. Further, if we were treated as a “resident enterprise” by PRC tax authorities,
we would be subject to taxation in both China and such countries in which we have taxable income, and our PRC tax may not be creditable
against such other taxes.
PRC
regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds
from our future financing activities to make loans or additional capital contributions to our PRC operating subsidiaries.
As
an offshore holding company with PRC subsidiaries, we may transfer funds to our PRC subsidiaries or finance our operating entity by means
of loans or capital contributions. Any capital contributions or loans that we, as an offshore entity, make to our Company’s PRC
subsidiaries, are subject to PRC regulations. Any loans to our PRC subsidiaries, which are foreign-invested enterprises, cannot exceed
statutory limits based on the difference between the amount of our investments and registered capital in such subsidiaries, and shall
be registered with State Administration of Foreign Exchange, or SAFE, or its local counterparts. Furthermore, any capital increase contributions
we make to our PRC subsidiaries, which are foreign-invested enterprises, are subject to the requirement of making necessary filings in
Foreign Investment Comprehensive Management Information System, and registration with other government authorities in China. We may not
be able to obtain these government registrations or approvals on a timely basis, if at all. If we fail to obtain such approvals or make
such registration, our ability to make equity contributions or provide loans to our Company’s PRC subsidiaries or to fund their
operations may be negatively affected, which may adversely affect their liquidity and ability to fund their working capital and expansion
projects and meet their obligations and commitments. As a result, our liquidity and our ability to fund and expand our business may be
negatively affected.
We
may rely on dividends paid by our subsidiaries for our cash needs, and any limitation on the ability of our subsidiaries to make payments
to us could have a material adverse effect on our ability to conduct business.
As
a holding company, we conduct a substantial amount of our business through our subsidiaries in China. We may rely on dividends paid by
these PRC subsidiaries for our cash needs, including the funds necessary to pay any dividends and other cash distributions to our shareholders,
to service any debt we may incur and to pay our operating expenses. The payment of dividends by entities established in China is subject
to limitations. Regulations in China currently permit payment of dividends only out of accumulated profits as determined in accordance
with accounting standards and regulations in China. In accordance with the Article 166, 168 of the Company Law of the PRC (Amended in
2018), each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each
year to its general reserves or statutory capital reserve fund until the aggregate amount of such reserves reaches 50% of its respective
registered capital. A company may discontinue the contribution when the aggregate sum of the statutory surplus reserve is more than 50%
of its registered capital. The statutory common reserve fund of a company shall be used to cover the losses of the company, expand the
business and production of the company or be converted into additional capital. As a result, our PRC subsidiaries are restricted in their
ability to transfer a portion of their net assets to us in the form of dividends. In addition, if any of our PRC subsidiaries incurs
debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions
to us. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ability
to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our
business.
You
may be subject to PRC income tax on dividends from us or on any gain realized on the transfer of our ordinary shares.
Under
the EIT Law and its implementation rules, subject to any applicable tax treaty or similar arrangement between the PRC and your jurisdiction
of residence that provides for a different income tax arrangement, PRC withholding tax at the rate of 10.0% is normally applicable to
dividends from PRC sources payable to investors that are non-PRC resident enterprises, which do not have an establishment or place of
business in China, or which have such establishment or place of business if the relevant income is not effectively connected with the
establishment or place of business. Any gain realized on the transfer of shares by such investors is subject to 10.0% PRC income tax
if such gain is regarded as income derived from sources within China unless a treaty or similar arrangement otherwise provides. Under
the Individual Income Tax Law of the PRC and its implementation rules, dividends from sources within China paid to foreign individual
investors who are not PRC residents are generally subject to a PRC withholding tax at a rate of 20% and gains from PRC sources realized
by such investors on the transfer of shares are generally subject to 20% PRC income tax, in each case, subject to any reduction or exemption
set forth in applicable tax treaties and PRC laws.
There
is a risk that we will be treated by the PRC tax authorities as a PRC tax resident enterprise. In that case, any dividends we pay to
our shareholders may be regarded as income derived from sources within China and we may be required to withhold a 10.0% PRC withholding
tax for the dividends we pay to our investors who are non-PRC corporate shareholders, or a 20.0% withholding tax for the dividends we
pay to our investors who are non-PRC individual shareholders, including the holders of our Shares. In addition, our non-PRC shareholders
may be subject to PRC tax on gains realized on the sale or other disposition of our ordinary shares, if such income is treated as sourced
from within China. It is unclear whether our non-PRC shareholders would be able to claim the benefits of any tax treaties between their
tax residence and China in the event that we are considered as a PRC resident enterprise. If PRC income tax is imposed on gains realized
through the transfer of our ordinary shares or on dividends paid to our non-resident investors, should there be a determination in the
future to pay dividends, the value of your investment in our ordinary shares may be materially and adversely affected. Furthermore, our
shareholders whose jurisdictions of residence have tax treaties or arrangements with China may not qualify for benefits under such tax
treaties or arrangements.
We
may be unable to complete a business combination transaction efficiently or on favorable terms due to complicated merger and acquisition
regulations and certain other PRC regulations.
On
August 8, 2006, six PRC regulatory authorities, including Ministry of Commerce (the “MOFCOM”), the State Assets Supervision
and Administration Commission, the SAT, the Administration for Industry and Commerce (the “SAIC”), the CSRC and SAFE, jointly
issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “M&A Rules”), which
became effective on September 8, 2006 and was amended in June 2009. The M&A Rules, governing the approval process by which a PRC
company may participate in an acquisition of assets or equity interests by foreign investors, requires the PRC parties to make a series
of applications and supplemental applications to the government agencies, depending on the structure of the transaction. In some instances,
the application process may require presentation of economic data concerning a transaction, including appraisals of the target business
and evaluations of the acquirer, which are designed to allow the government to assess the transaction. Accordingly, due to the M&A
Rules, our ability to engage in business combination transactions has become significantly more complicated, time-consuming and expensive,
and we may not be able to negotiate a transaction that is acceptable to our shareholders or sufficiently protective of their interests
in a transaction.
The
M&A Rules allow PRC government agencies to assess the economic terms of a business combination transaction. Parties to a business
combination transaction may have to submit to MOFCOM and other relevant government agencies an appraisal report, an evaluation report
and the acquisition agreement, all of which form part of the application for approval, depending on the structure of the transaction.
The M&A Rules also prohibit a transaction at an acquisition price obviously lower than the appraised value of the business or assets
in China and in certain transaction structures, require that consideration must be paid within defined periods, generally not in excess
of a year. In addition, the M&A Rules also limit our ability to negotiate various terms of the acquisition, including aspects of
the initial consideration, contingent consideration, holdback provisions, indemnification provisions and provisions relating to the assumption
and allocation of assets and liabilities. Transaction structures involving trusts, nominees and similar entities are prohibited. Therefore,
such regulation may impede our ability to negotiate and complete a business combination transaction on legal and/or financial terms that
satisfy our investors and protect our shareholders’ economic interests.
Fluctuations
in exchange rates could have a material adverse impact on our results of operations and the value of your investment.
The
conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. The
Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. The value of the Renminbi against the U.S.
dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions in China
and by China’s foreign exchange policies, among other things. We cannot assure you that Renminbi will not appreciate or depreciate
significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government
policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.
Significant
fluctuation of the Renminbi may have a material adverse effect on your investment. For example, to the extent that we need to convert
U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the
Renminbi amount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose
of making payments for dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the Renminbi
would have a negative effect on the U.S. dollar amount available to us.
Very
limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into
any material hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter
into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to
adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations
that restrict our ability to convert Renminbi into foreign currency.
Governmental
control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.
The
PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of
currency out of China. We receive a significant portion of our revenues in Renminbi. Under our current corporate structure, our Cayman
Islands holding company may rely on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have.
Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments
and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of SAFE, by complying
with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated
from the operations of our PRC subsidiaries in China may be used to pay dividends to our company. However, approval from or registration
with appropriate government authorities is required where Renminbi 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. As a result, we need to obtain SAFE approval
to use cash generated from the operations of our PRC subsidiaries to pay off their respective debt in a currency other than Renminbi
owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi. If such
approval is withheld or the PRC government imposes other restrictions on the convertibility fo Renminbi into foreign currencies, we may
not be able to utilize our revenues effectively, and as a result, our business and results of operations may be materially adversely
affected, and the value of our ordinary shares may decrease.
U.S.
regulatory bodies may be limited in their ability to conduct investigations or inspections of our operations in China.
The
Securities and Exchange Commission (the “SEC”), the U.S. Department of Justice and other U.S. authorities may also have difficulties
in bringing and enforcing actions against us or our directors or executive officers in the PRC. The SEC has stated that there are significant
legal and other obstacles to obtaining information needed for investigations or litigation in China. China has recently adopted a revised
securities law that became effective on March 1, 2020, Article 177 of which provides, among other things, that no overseas securities
regulator is allowed to directly conduct an investigation or evidence collection activities within the territory of the PRC. Accordingly,
without governmental approval in China, no entity or individual in China may provide documents and information relating to securities
business activities to overseas regulators when it is under direct investigation or evidence discovery conducted by overseas regulators,
which could present significant legal and other obstacles to obtaining information needed for investigations and litigation conducted
outside of China.
Recent
joint statement by the SEC and the PCAOB, proposed rule changes submitted by Nasdaq, and the Holding Foreign Companies Accountable Act
all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their
auditors, especially the non-U.S. auditors who are not inspected by the PCAOB.
On
April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a
joint statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets
including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit
work papers in China and higher risks of fraud in emerging markets.
On
May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily
operating in “Restrictive Market”, (ii) adopt a new requirement relating to the qualification of management or board
of directors for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed
company based on the qualifications of the company’s auditors.
On
May 20, 2020, the Senate passed the Holding Foreign Companies Accountable Act, or HFCA, requiring a foreign company to certify it’s
not owned or manipulated by a foreign government if the PCAOB is unable to audit specified reports because the company uses a foreign
auditor not subject to PCAOB inspection. If the PCAOB is unable to inspect the company’s auditors for three consecutive years,
the issuer’s securities are prohibited to trade on a national exchange.
On
March 24, 2021, the SEC announced that it had adopted interim final amendments to implement congressionally mandated submission and disclosure
requirements of the Act. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report
on Forms 10-K, 20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction
and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that
jurisdiction. The SEC will implement a process for identifying such a registrant and any such identified registrant will be required
to submit documentation to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction,
and will also require disclosure in the registrant’s annual report regarding the audit arrangements of, and governmental influence
on, such a registrant.
On
June 22, 2021, the U.S. Senate passed a bill which, if passed by the U.S. House of Representatives and signed into law, would reduce
the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from three years to two.
The PCAOB has been able to inspect our auditor,
WWC P.C., an independent registered public accounting firm with its headquarter in San Mateo, CA and with its last inspection completed
in December 2017. However, because we have substantial operations within the PRC, the audit workpapers prepared by our independent registered
public accounting firm for auditing our Company might not be inspected by the PCAOB without the approval of the Chinese authorities.
The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of
the auditors based in China. As a result, investors may be deprived of the benefits of such PCAOB inspections. Any inability of the PCAOB
to obtain audit work papers from our independent registered public accounting firm in China would make it more difficult to evaluate
the effectiveness of our accounting firm’s audit procedures or quality control procedures in auditing companies with substantial
operations in China, as compared to those of our independent registered public accounting firm in auditing companies outside of PRC and
other auditors outside of China that are subject to the PCAOB inspections, which could cause existing and potential investors in our
stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements. Furthermore,
the Holding Foreign Companies Accountable Act, which requires that the PCAOB be permitted to inspect the issuer’s public accounting
firm within three years, may result in the delisting of our ordinary shares from the Nasdaq Stock Market in the future if the PCAOB is
unable to inspect our accounting firm at such future time.
The
recent developments would add uncertainties to our offering and may result in prohibitions on the trading of our ordinary shares on the
Nasdaq Stock Market, if our auditors fail to meet the PCAOB inspection requirement in time.
We plan to empower our audit committee to
take the PCAOB’s lack of inspection into account in connection with the oversight of our independent registered public accounting
firm’s audit procedures and establish relevant internal quality control procedures. However, we cannot assure you that our audit
committee’s oversight would be effective. In addition, the SEC may initiate proceedings against our independent registered public
accounting firm, whether in connection with an audit of our Company or other China-based companies, which could result in the imposition
of penalties against our independent registered public accounting firm, such as suspension of its ability to practice before the SEC.
All of these could cause our shareholder and investors to lose confidence in our reported financial information and procedures and the
quality of our financial statements.
Risks
Related to Our Ordinary Shares
Future
sales of our ordinary shares, whether by us or our shareholders, could cause the price of our ordinary shares to decline.
If
our existing shareholders sell, or indicate an intent to sell, substantial amounts of our ordinary shares in the public market, the trading
price of our ordinary shares could decline significantly. Similarly, the perception in the public market that our shareholders might
sell our ordinary shares could also depress the market price of our shares. A decline in the price of our ordinary shares might impede
our ability to raise capital through the issuance of additional ordinary shares or other equity securities. In addition, the issuance
and sale by us of additional ordinary shares, or securities convertible into or exercisable for our ordinary shares, or the perception
that we will issue such securities, could reduce the trading price for our ordinary shares as well as make future sales of equity securities
by us less attractive or not feasible. The sale of ordinary shares issued upon the exercise of our outstanding warrants could further
dilute the holdings of our then existing shareholders.
We
do not know whether a market for the ordinary shares will be sustained or what the trading price of the ordinary shares will be and as
a result it may be difficult for you to sell your ordinary shares.
Although
our ordinary shares trade on Nasdaq, an active trading market for the ordinary shares may not be sustained. It may be difficult for you
to sell your ordinary shares without depressing the market price for the ordinary shares. As a result of these and other factors, you
may not be able to sell your ordinary shares. Further, an inactive market may also impair our ability to raise capital by selling ordinary
shares, or may impair our ability to enter into strategic partnerships or acquire companies or products by using our ordinary shares
as consideration.
Securities
analysts may not cover our ordinary shares and this may have a negative impact on the market price of our ordinary shares.
The
trading market for our ordinary shares will depend, in part, on the research and reports that securities or industry analysts publish
about us or our business. We do not have any control over independent analysts (provided that we have engaged various non-independent
analysts). We do not currently have and may never obtain research coverage by independent securities and industry analysts. If no independent
securities or industry analysts commence coverage of us, the trading price for our ordinary shares would be negatively impacted. If we
obtain independent securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our ordinary shares,
changes their opinion of our shares or publishes inaccurate or unfavorable research about our business, the price of our ordinary shares
would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for
our ordinary shares could decrease and we could lose visibility in the financial markets, which could cause the price and trading volume
of our ordinary shares to decline.
Because
we do not expect to pay dividends in the foreseeable future, you must rely on the price appreciation of our ordinary shares for return
on your investment.
We
currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our
business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment
in our ordinary shares as a source for any future dividend income.
Our
board of directors has complete discretion as to whether to distribute dividends, subject to certain requirements of British Virgin Islands
law. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by
our board of directors. Under British Virgin Islands law, a British Virgin Islands company may pay a dividend out of either profit or
share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay
its debts as they fall due in the ordinary course of business. Even if our board of directors decides to declare and pay dividends, the
timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow,
our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition,
contractual restrictions, and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in
our ordinary shares will likely depend entirely upon any future price appreciation of our ordinary shares. There is no guarantee that
our ordinary shares will appreciate in value or even maintain the price at which you purchased the ordinary shares. You may not realize
a return on your investment in our ordinary shares and you may even lose your entire investment in our ordinary shares.
Techniques
employed by short sellers may drive down the market price of our ordinary shares.
Short
selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention
of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value
of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects
to pay less in that purchase than it received in the sale. As it is in the short seller’s interest for the price of the security
to decline, many short sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business
prospects in order to create negative market momentum and generate profits for themselves after selling a security short. These short
attacks have, in the past, led to selling of shares in the market.
Public
companies listed in the United States that have substantial operations in China have been the subject of short selling. Much of the scrutiny
and negative publicity has centered on allegations of a lack of effective internal control over financial reporting resulting in financial
and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto and, in many cases,
allegations of fraud. As a result, many of these companies are now conducting internal and external investigations into the allegations
and, in the interim, are subject to shareholder lawsuits and/or SEC enforcement actions.
We
may in the future be the subject of unfavorable allegations made by short sellers. Any such allegations may be followed by periods of
instability in the market price of our ordinary shares and negative publicity. If and when we become the subject of any unfavorable allegations,
whether such allegations are proven to be true or untrue, we could have to expend a significant amount of resources to investigate such
allegations and/or defend ourselves. While we would strongly defend against any such short seller attacks, we may be constrained in the
manner in which we can proceed against the relevant short seller by principles of freedom of speech, applicable federal or state law
or issues of commercial confidentiality. Such a situation could be costly and time- consuming and could distract our management from
growing our business. Even if such allegations are ultimately proven to be groundless, allegations against us could severely impact our
business operations and shareholder’s equity, and the value of any investment in our ordinary shares could be greatly reduced or
rendered worthless.
As
a company incorporated in the British Virgin Islands with limited liability, we are permitted to adopt certain home country practices
in relation to corporate governance matters that differ significantly from the Nasdaq corporate governance listing standards; these practices
may afford less protection to shareholders than they would enjoy if we complied fully with the Nasdaq corporate governance listing standards.
As
a company incorporated in the British Virgin Islands with limited liability that is listed on the Nasdaq Capital Market, we are subject
to the Nasdaq corporate governance listing standards. However, Nasdaq rules permit a foreign private issuer like us to follow the corporate
governance practices of its home country. Certain corporate governance practices in the British Virgin Islands, which is our home country,
may differ significantly from the Nasdaq corporate governance listing standards. For instance, we are not required to:
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have
a majority of the board to be independent (a although all of the members of the audit committee must be independent under the Exchange
Act);
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have
a compensation committee or nominating or corporate governance committee consisting entirely of independent directors);
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have
regularly scheduled executive sessions for non-management directors; and
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have
annual meetings and director elections.
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Currently,
we do not intend to rely on home country practice with respect to our corporate governance. However, if we choose to follow home country
practice in the future, our shareholders may be afforded less protection than they otherwise would enjoy under the Nasdaq corporate governance
listing standards applicable to U.S. domestic issuers.
DESCRIPTION OF SECURITIES
The following summary of our capital stock,
our amended and restated memorandum and articles of association (our “Memorandum and Articles of Association”), and our bylaws
does not purport to be complete and is qualified in its entirety by reference to the provisions of applicable law and to our charter and
bylaws, which are filed as exhibits to the registration statement of which this prospectus is a part.
General
We are incorporated as a British Virgin Islands
company limited by shares, and our affairs are governed by our Memorandum and Articles of Association and the laws of the British Virgin
Islands.
Our authorized shares consist of an unlimited
number of ordinary shares, no par value per share. In addition, we may by resolution of the Board, without shareholder consent, amend
our Memorandum and Articles of Association to create new classes of preferred shares and fix the rights preferences and restrictions of
such shares, as the directors of the Board in their sole discretion deem fit, which shares may be issued as one or more series.
As of July 20, 2021, we had 11,371,171 ordinary
shares outstanding, held of record by 13 shareholders.
The following description summarizes the most
important terms of our shares. Because it is only a summary, it does not contain all the information that may be important to you. For
a complete description of the matters set forth in this section, you should refer to our Memorandum and Articles of Association.
Ordinary Shares
The holders of ordinary shares are entitled to
one vote for each share held of record on all matters to be voted on by stockholders.
Holders of ordinary shares do not have any conversion,
preemptive or other subscription rights and there will be no sinking fund provisions applicable to the ordinary shares, except that we
will provide our public shareholders with the redemption rights set forth in our Memorandum and Articles of Association.
The rights, preferences and privileges of the
holders of ordinary shares are subject to those of the holders of any shares of preferred stock we may issue in the future.
Key Provisions of Our Memorandum And Articles
of Association And British Virgin Islands Laws Affecting Our Ordinary Shares
The following are summaries of material terms
and provisions of our Memorandum and Articles of Association and the BVI Business Companies Act 2004 (as amended), or the BVI Act, insofar
as they relate to the material terms of our ordinary shares. This summary is not intended to be complete, and you should read the forms
of our Memorandum and Articles of Association.
Voting Rights
Under the BVI Act, the ordinary shares are deemed
to be issued when the name of the shareholder is entered in our register of members. Our register of members is maintained by our transfer
agent, Continental Stock Transfer & Trust Company, which will enter the name of our shareholders in our register of members. If (a)
information that is required to be entered in the register of shareholders is omitted from the register or is inaccurately entered in
the register, or (b) there is unreasonable delay in entering information in the register, a shareholder of ours, or any person who is
aggrieved by the omission, inaccuracy or delay, may apply to the British Virgin Islands courts for an order that the register be rectified,
and the court may either refuse the application or order the rectification of the register, and may direct us to pay all costs of the
application and any damages the applicant may have sustained.
Subject to any rights or restrictions attached
to any shares, at any general meeting on a show of hands every ordinary shareholder who is present in person (or, in the case of a shareholder
being a corporation, by its duly authorized representative) or by proxy will have one vote for each share held on all matters to be voted
on by shareholders. Voting at any meeting of the ordinary shareholders is by show of hands unless a poll is demanded. A poll may be demanded
by shareholders present in person or by proxy if the shareholder disputes the outcome of the vote on a proposed resolution and the chairman
shall cause a poll to be taken.
There is nothing under the laws of the British
Virgin Islands which specifically prohibits or restricts the creation of cumulative voting rights for the election of our directors, but
cumulative voting for the election of directors is permitted only if expressly provided for in the memorandum or articles of association.
We have not made provisions in our Memorandum and Articles of Association for cumulative voting for such elections.
Under British Virgin Islands laws, the voting
rights of shareholders are regulated by our Memorandum and Articles of Association and, in certain circumstances, the BVI Act. Our Memorandum
and Articles of Association govern matters such as quorum for the transaction of business, rights of shares, and majority votes required
to approve any action or resolution at a meeting of the shareholders or board of directors. Unless our Memorandum and Articles of Association
otherwise provide, the requisite majority is usually a simple majority of votes cast.
Preemption Rights
British Virgin Islands laws do not make a distinction
between public and private companies and some of the protections and safeguards (such as statutory preemption rights) that investors may
expect to find in relation to a public company are not provided for under British Virgin Islands laws. There are no preemption rights
applicable to the issuance of new shares under either British Virgin Islands laws or our Memorandum and Articles of Association.
Liquidation Rights
As permitted by British Virgin Islands laws and
our Memorandum and Articles of Association, we may be voluntarily liquidated under Part XII of the BVI Act by resolution of directors
and resolution of shareholders if our assets are greater than our liabilities and we are able to pay our debts as they fall due.
Modification of Rights
As permitted by British Virgin Islands laws and
our Memorandum and Articles of Association, the rights attached to the ordinary shares as specified in our Memorandum and Articles of
Association may only be varied by a resolution passed at a meeting by the holders of more than 50% of the ordinary shares present at a
duly convened and constituted meeting of the shareholders of the Company holding ordinary shares which were present at the meeting and
voted unless otherwise provided by the terms of issue of such class.
Transfer of Shares
Subject to any applicable restrictions set forth
in our Memorandum and Articles of Association, any of our shareholders may transfer all or any of his or her shares by a written instrument
of transfer in the usual or common form or in any other form which our directors may approve.
Share Repurchase
As permitted by the BVI Act and our Memorandum
and Articles of Association, shares may be repurchased, redeemed or otherwise acquired by us.
Dividends
Subject to the BVI Act and our Memorandum and
Articles of Association, directors may declare dividends at a time and amount they think fit if they are satisfied, on reasonable grounds,
that, immediately after distribution of the dividend, the value of our assets will exceed our liabilities and we will be able to pay our
debts as they fall due. No dividend shall carry interest against us.
Board of Directors
We are managed by a Board which currently consists
of five directors. Our Memorandum and Articles of Association provide that the minimum number of directors shall be one and there shall
be no maximum number of directors.
There are no share ownership qualifications for
directors.
Meetings of our Board may be convened at any time
deemed necessary by any of our directors.
A meeting of our Board will be quorate if at least
a majority of the directors are present or represented by an alternate director. At any meeting of our directors, each director, whether
by his or her presence or by his or her alternate, is entitled to one vote.
Questions arising at a meeting of our Board are
required to be decided by simple majority votes of the directors present or represented at the meeting. Our Board may also pass unanimous
written resolutions without a meeting.
Staggered Board of Directors
Our Memorandum and Articles of Association provide
for a staggered Board consisting of two classes of directors. Our directors are appointed by our shareholders and are subject to rotational
retirement every two years. The initial terms of office of the Class I and Class II directors have been staggered over a period of two
years to ensure that all directors of the company do not face reelection in the same year. However, the directors may by resolution appoint
a replacement director to fill a casual vacancy arising on the resignation, disqualification or death of a director. The replacement director
will then hold office until the next annual general meeting at which the director he replaces would have been subject to retirement by
rotation. There is nothing under the laws of the British Virgin Islands, which specifically prohibits or restricts the creation of cumulative
voting rights for the election of our directors. Our Memorandum and Articles of Association do not provide for cumulative voting for such
elections.
Duties of Directors
British Virgin Islands law provides that each
of our directors, in exercising his powers or performing his duties, shall act honestly and in good faith and in what the director believes
to be in the best interests of the company. Additionally, the director shall exercise the care, diligence, and skill that a reasonable
director would exercise in the same circumstances taking into account the nature of the company, the nature of the decision and the position
of the director and his responsibilities. In addition, British Virgin Islands laws provide that a director shall exercise his powers as
a director for a proper purpose and shall not act, or agree to the company acting, in a manner that contravenes British Virgin Islands
laws or the memorandum or articles of association of the company.
Interested Directors
The BVI Act provides that a director shall, after
becoming aware that he is interested in a transaction entered into or to be entered into by the company, disclose that interest to our
Board. The failure of a director to disclose that interest does not affect the validity of a transaction entered into by us or the director,
so long as the director’s interest was disclosed to the Board prior to our entry into the transaction or was not required to be
disclosed (for example where the transaction is between us and the director himself or is otherwise in the ordinary course of business
and on usual terms and conditions). As permitted by British Virgin Islands laws and our Memorandum and Articles of Association, a director
interested in a particular transaction may vote on it, attend meetings at which it is considered, and sign documents on our behalf which
relate to the transaction.
Meetings of Shareholders
If our shareholders want us to hold a shareholder
meeting, they may requisition the directors to hold one upon the written request of shareholders entitled to exercise at least 30% of
the voting rights in respect of the matter for which the meeting is requested. Under British Virgin Island laws, we may not increase the
required percentage to call a meeting above 30%.
Subject to our Memorandum and Articles of Association,
the director convening a meeting of members shall give not less than 10 nor more than 60 days’ written notice of such meeting to:
(a) those members whose names on the date the notice is given appear as members in the share register of the Company and are entitled
to vote at the meeting; and (b) the other directors.
A meeting called by shorter notice than that mentioned
above will be valid if shareholders holding at least 90% of the total voting rights on all the matters to be considered at the meeting
have waived notice of the meeting and, for this purpose, the presence of a shareholder at the meeting shall constitute a waiver in relation
to all the shares which that shareholder holds.
A meeting of shareholders is duly constituted
if, at the commencement of the meeting, there are present in person or by proxy not less than 50% of the votes of the shares entitled
to vote at the meeting. A quorum may be comprised of a single shareholder or proxy and then such person may pass a resolution of shareholders
and a certificate signed by such person accompanied where such person is a proxy by a copy of the proxy instrument shall constitute a
valid resolution of shareholders.
Protection of Minority Shareholders
Under the laws of the British Virgin Islands,
there is little statutory law for the protection of minority shareholders other than the provisions of the BVI Act dealing with shareholder
remedies. One protection under statutory law is that shareholders may bring an action to enforce the BVI Act or our Memorandum and Articles
of Association. Shareholders are entitled to have our affairs conducted in accordance with the BVI Act and our Memorandum and Articles
of Association.
There are common law rights for the protection
of shareholders that may be invoked, largely dependent on English common law, since the common law of the British Virgin Islands is limited.
Under the general rule pursuant to English common law known as the rule in Foss v. Harbottle, a court will generally refuse
to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the
conduct of our affairs by the majority or the Board. However, every shareholder is entitled to have our affairs conducted properly according
to British Virgin Islands laws and our constituent documents. As such, if those who control the company have disregarded the requirements
of applicable law or the provisions of our Memorandum and Articles of Association, then the courts may grant relief. Generally, the areas
in which the courts will intervene are the following: (1) a company is acting or proposing to act illegally or beyond the scope of its
authority; (2) the act complained of, although not beyond the scope of the authority, could only be effected if duly authorized by more
than the number of votes which have actually been obtained; (3) the individual rights of the plaintiff shareholder have been infringed
or are about to be infringed; or; and (4) those who control the company are perpetrating a “fraud on the minority.”
Issuance of Additional Ordinary Shares
Our Memorandum and Articles of Association authorize
our Board to issue additional ordinary shares from time to time as our Board shall determine, to the extent of available authorized but
unissued shares.
Changes in Authorized Shares
We are authorized to issue an unlimited number
of shares, which will have rights, privileges, restrictions and conditions attaching to them as the shares in issue. We may by resolution
of directors or shareholders:
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consolidate and divide all
or any of our unissued authorized shares into shares of larger or smaller amount than our existing shares;
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cancel any ordinary shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person; or
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create new classes of shares with preferences to be determined by resolution of the Board to amend our Memorandum and Articles of Association to create new classes of shares with such preferences at the time of authorization, although any such new classes of shares, with the exception of the preferred shares, may only be created with prior shareholder approval.
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Inspection of Books and Records
Under British Virgin Islands law shareholders
of our ordinary shares are entitled, on giving written notice to us, to inspect and make copies or take extracts of our: (a) Memorandum
and Articles of Association; (b) register of shareholders; (c) register of directors; and (d) minutes of meetings and resolutions of shareholders
and those classes of shareholders of which he is a shareholder.
Subject to our Memorandum and Articles of Association,
our directors may, if they are satisfied that it would be contrary to our interest to allow a shareholder to inspect any document, or
part of a document as referenced in (b), (c) or (d) above, refuse to permit the shareholder to inspect the document or limit the inspection
of the document, including limiting the making of copies or the taking of extracts from the records. Where our directors exercise their
powers in these circumstances, they shall notify the shareholder as soon as reasonably practicable.
Preferred Shares
Our Memorandum and Articles of Association authorizes
the creation and issuance without shareholder approval of an unlimited number of preferred shares divided into five classes, Class A through
Class E, each with such designation, rights and preferences as may be determined by a resolution of the Board to amend our Memorandum
and Articles of Association to create such designations, rights and preferences. We have five classes of preferred shares to give us flexibility
as to the terms on which each class is issued. Unlike Delaware law, all shares of a single class must be issued with the same rights and
obligations. Accordingly, starting with five classes of preferred shares will allow us to issue shares at different times on different
terms. No preferred shares are currently issued or outstanding as of the date of this registration statement. Accordingly, the Board is
empowered, without shareholder approval, to issue preferred shares with dividend, liquidation, redemption, voting or other rights, which
could adversely affect the voting power or other rights of the holders of Greenland’s ordinary shares. In addition, the preferred
shares could be utilized as a method of discouraging, delaying or preventing a change in control of us. Although we do not currently intend
to issue any preferred shares, we may do so in the future.
The rights of preferred shareholders, once the
preferred shares are in issue, may only be amended by a resolution to amend our Memorandum and Articles of Association provided such amendment
is also approved by a separate resolution of a majority of the votes of preferred shareholders who being so entitled attend and vote at
the class meeting of the relevant preferred class. If our preferred shareholders want us to hold a meeting of preferred shareholders (or
of a class of preferred shareholders), they may requisition the directors to hold one upon the written request of preferred shareholders
entitled to exercise at least 30 percent of the voting rights in respect of the matter (or class) for which the meeting is requested.
Under British Virgin Islands law, we may not increase the required percentage to call a meeting above 30 percent.
Under the BVI Act, there are no provisions which
specifically prevent the issuance of preferred shares or any such other “poison pill” measures. Our Memorandum and Articles
of Association also do not contain any express prohibitions on the issuance of any preferred shares. Therefore, the directors, without
the approval of the holders of Greenland’s ordinary shares, may issue preferred shares that have characteristics that may be deemed
anti-takeover. Additionally, such a designation of shares may be used in connection with plans that are poison pill plans. However, as
noted above, under the BVI Act, a director in the exercise of his powers and performance of his duties is required to act honestly and
in good faith in what the director believes to be the best interests of the Company.
You should refer to the prospectus supplement
relating to the series of preferred shares being offered for the specific terms of that series, including:
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title of the series and the
number of shares in the series;
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the price at which the preferred
shares will be offered;
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the dividend rate or rates
or method of calculating the rates, the dates on which the dividends will be payable, whether or not dividends will be cumulative or
noncumulative, and, if cumulative, the dates from which dividends on the preferred shares being offered will cumulate;
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the voting rights, if any,
of the holders of preferred shares being offered;
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the provisions for a sinking
fund, if any, and the provisions for redemption, if applicable, of the preferred shares being offered, including any restrictions on
the foregoing as a result of arrearage in the payment of dividends or sinking fund installments;
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the liquidation preference
per share;
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the terms and conditions, if applicable, upon which the preferred shares being offered will be convertible into our ordinary shares, including the conversion price, or the manner of calculating the conversion price, and the conversion period;
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the terms and conditions, if applicable, upon which the preferred shares being offered will be exchangeable for debt securities, including the exchange price, or the manner of calculating the exchange price, and the exchange period;
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any listing of the preferred shares being offered on any securities exchange;
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a discussion of any material federal income tax considerations applicable to the preferred shares being offered;
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any preemptive rights;
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the relative ranking and preferences of the preferred shares being offered as to dividend rights and rights upon liquidation, dissolution, or the winding up of our affairs;
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any limitations on the issuance of any class or series of preferred shares ranking senior or equal to the series of preferred shares being offered as to dividend rights and rights upon liquidation, dissolution, or the winding up of our affairs; and
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any additional rights, preferences, qualifications, limitations, and restrictions of the series.
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Upon issuance, the preferred shares will be fully
paid and nonassessable, which means that its holders will have paid their purchase price in full and we may not require them to pay additional
funds.
Any preferred share terms selected by the board
of directors could decrease the amount of earnings and assets available for distribution to holders of our ordinary shares or adversely
affect the rights and power, including voting rights, of the holders of our ordinary shares without any further vote or action by the
shareholders. The rights of holders of our ordinary shares will be subject to, and may be adversely affected by, the rights of the holders
of any preferred shares that may be issued by us in the future. The issuance of preferred shares could also have the effect of delaying
or preventing a change in control of our company or make removal of management more difficult.
Differences in Corporate Law
We were incorporated under, and are governed by,
the laws of the British Virgin Islands. The flexibility available under British Virgin Islands laws has enabled us to adopt our Memorandum
and Articles of Association that will provide shareholders with rights that do not vary in any material respect from those they enjoyed
under the Delaware Corporate Law.