Union Bridge Holdings Limited (the “Company” or “we”) was incorporated under the laws of the State of Nevada on May 6, 2014 under the name Costo, Inc. to engage in the business of distributing automobile parts and components necessary for the maintenance and repair of automobiles and specialty equipment, including construction and road machinery, principally in China, Europe and certain Commonwealth of Independent States countries (Kyrgyzstan, Kazakhstan, Armenia, Azerbaijan, Tajikistan and Uzbekistan). We changed our name to Union Bridge Holdings Limited on May 23, 2016 in connection with our expanded business plan under which we determined to expand operations into the health care industry. We never achieved any revenues from our automobile and specialty equipment business and during the fourth quarter of 2017 we determined to discontinue that area of business.
The Company incorporated a new wholly owned subsidiary in the British Virgin Islands, First Channel Limited (“FC”), on March 18, 2016. This subsidiary was formed for investment holding.
The Company incorporated two new wholly owned subsidiaries in the British Virgin Islands: 1.) Phoenix Creation Global Limited (“PC”) on October 26, 2017 and 2.) Windsor Honour Limited (“WH”) on October 30, 2017, respectively. These subsidiaries were formed with the intent to sell healthcare products and services to seniors and individual with disabilities. The Company procured samples of motorized wheelchairs, as the first product in an expected of a portfolio of products targeted at this market.
On February 2, 2018, the Company’s subsidiary Union Beam Investment Limited (“UB”) established Qianhai Lianqiao Investment Consulting (Shenzhen) Company Limited, renamed as Union Beam Trading (Shenzhen) Limited (“UB Trading”), a wholly foreign owned entity in the People’s Republic of China (“PRC”), to engage in the sale of healthcare products and services. On November 6, 2019, the Company disposed UB Trading to an unrelated party at no consideration.
On February 13, 2018, the Company’s subsidiary PC established Union Care Investment Limited (“UC”) in Hong Kong engaging the senior care services.
On May 25, 2018, our subsidiary, Union Care Investment Limited in Hong Kong (“UC”) established Sino Silver (Qianhai) Holdings Ltd. (“Sino Silver Qianhai”), a wholly owned entity in the PRC, to engage in the provision of elderly home care services, to establish senior care centers and to provide community services. On November 6, 2019, the Company disposed Sino Silver Qianhai to an unrelated party at no consideration.
On September 20, 2018, Sino Silver Qianhai and UB established Sino Sliver (Beijing) Elderly Service Ltd. (“Sino Silver Beijing”) in the PRC to engaging elderly home care services, operate senior care centers and provide community services in the Beijing region. Due to the disposal of Sino Silver Qianhai and UB Trading to an unrelated party in November 6, 2019, Sino Silver Beijing is no longer the Company’s subsidiary.
On December 27, 2018, the Company’s subsidiary UC established Sino Silver (Zhuhai Hengqin) Elderly Service Limited “(Sino Silver Zhuhai”), a wholly owned entity in the PRC engaging the elderly home care services, senior care centers and community services. On December 17, 2019, the Company disposed Sino Silver Zhuhai to an unrelated party.
A loss of approximately $7,662 incurred in connection with the disposal of UB Trading, Sino Silver Qianhai and Sino Silver Zhuhai.
On September 24, 2019, we entered into a Stock Purchase Agreement (the “Purchase Agreement”), with shareholders of Conperin Group Inc., a British Virgin Islands company, who together own shares constituting 100% of the issued and outstanding ordinary shares Shares of Conperin Group Inc. Pursuant to the terms of the Purchase Agreement, the shareholders of Conperin Group Inc. transferred to us all of their shares of Conperin Group Inc. in exchange for the issuance of 187,546,887 shares of our common stock (the “Stock Purchase”). As a result of the Stock Purchase, we are now a holding company, is engaged in providing technology in digital media industry, including developing a branded social network and e-commerce app platform aiming to promote a high quality of life for families and seniors by using artificial intelligence, blockchain and cognitive e-commerce technology in China, Hong Kong and Asia Pacific. As a result of the consummation of the Stock Purchase, we are no longer a shell company as that term is defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended.
We develop and operate CircleYY, a mobile-based social networking and premium e-commerce app and website platform that will also use impactful editorial content to promote a balanced quality of life for families and seniors aged 50 and above by understanding their behavior, tastes and needs. The platform enables users around the world to share family stories, build meaningful interactions between 50+ users and their family members, discover and buy fashion, beauty and other daily accessories products. We connect people and facilitate human interactions based on cities, interests and a variety of activities including pictures and short videos.
Our CircleYY mobile application can be downloaded and used free of charge, and we will generate our revenues from the various services we offer on our platforms, dedicated to a 50+ client base and their families: (i) collaborations with brands and users on the creation of premium content (ii) the sale of advertising on our social media platform (iii) the sale of third-party branded items, mainly fashion, beauty, daily accessories and services on our e-commerce platform.
As a global platform, CircleYY is expected to target a global audience with content designed for universal appeal amongst family members, notably 50+, along with a local focus for marketing campaigns. The initial opening market is intended to be Hong Kong SAR, followed by similar markets in the Asia-Pacific area and subsequently Europe and North America.
On September 27, 2019, our wholly-owned subsidiary Conperin Group Inc. established Circle YY International Inc., a limited company incorporated in the British Virgin Islands (“Circle International”), to engage in new business when any suitable business opportunity arises. As of December 31, 2019, Circle International is ready to be engaged in the business activities of the Company.
On November 11, 2019, our subsidiary Circle YY Technologies Hong Kong Limited, which operates our CircleYY platforms, launched its unique ecosystem technology covering social networking, content and e-commerce.
Chang Mai Project
On March 23, 2018, our subsidiary, Windsor Honour Limited (“WHL”) entered into a Binding Heads of Agreement with the owner of a land parcel for a senior care facility to be established in Chang Mai, Thailand. The parties will negotiate in good faith toward definitive agreements regarding the project. WHL would lease the land and be the developer of the project and would own the buildings on the site. WHL would have full control of the design and supervision of the construction of the project, as well as daily operations and management of the project. The land owner would be responsible for obtaining necessary construction, operation and other permits for the project and would provide necessary liaison with government officials. Total investment in the project for development and construction is estimated to be approximately 200 million Thai Baht (approximately US$6.4 million at current exchange rates), for which WHL would be responsible to obtain financing. WHL would also be responsible for arranging financing of operating costs until they can be funded from operations. The project would lease the land for 90 years with automatic renewals, each for 30 years. The total rent for the first 90 years would be 10 million Thai Baht (approximately US$320,000 at current exchange rates). In addition to the rent, WHL may consider a discretionary bonus to the land owner (with details to be agreed in the definitive agreements).
Upon signing the definitive agreement, WHL will pay 2 million Thai Baht (approximately US$64,300 at current exchange rates) as a deposit to the land owner within 90 days, which will be refundable if the development plan for the land as a senior nursing home facility has not been approved by the competent government authority within one year, or if before that date such authority has definitively denied the application for the development plan upon the request of WHL. Otherwise, the deposit will be applied to the rent for the land.
No assurance can be given, however, that the Chang Mai, Thailand senior facility project will be successfully developed and operated because, (i) WHL may not successfully negotiate definitive agreements for the project, (ii) required permits may not be obtained, and (iii) required financing may not be obtainable.
Industry and Market Overview
The pace of population ageing around the world is growing faster than at any time in the past. According to the World Health Organization, the proportion of the world’s population over 60 years will nearly double from 12% to 22% between 2015 and 2050. A longer life brings with it opportunities, not only for older people and their families, but also for societies as a whole. Additional years provide the chance to pursue new activities such as further education, a new career or pursuing a long- neglected passion. Older people also contribute in many ways to their families and communities. Yet the extent of these opportunities and contributions depends heavily on two factors: their health and their quality of life.
According to the Hong Kong Census and Statistics Department (report no.67, June 2019), between 2016 and 2018, smartphone users aged over 65 increased by 35%. 95% of internet users aged over 65 used the internet for online social activities. Retirees spent an average of 7.1 hours per week for online social activities and this number is increasing. There is still a strong margin of progression for e-commerce use: only 37% of the aged 45-54 population bought online in the last 12 months, so did 18.4% of the aged 55-64 population and 2.8% of the aged over 65 population. This means there are already 325,100 online shoppers in the 50+ group: the total catchment audience in Hong Kong SAR of adult users is around 1.2 million users.
Our current corporate structure is set forth below:
Our Competitive Strengths
We believe that we have the following key competitive strengths:
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First-mover advantages and strong brand recognition. There are plenty of social networks and e-commerce platforms but we believe that CircleYY will be the first to combine these two components along with a consistent theme, that of building a family lifestyle with positive values and empowering the 50+ population. Combined with a brand that boldly showcases the company values, this delivers a clear first mover advantage that we expect to quickly provide strong brand recognition amongst the target audience.
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User-friendly website and app design. We have designed and developed our app and website with a sleek and user-friendly interface, which can support visitors and branded products for sale on our e-commerce platform. Simplicity and accessibility are extremely important factors given our target user audience, which includes people aged above 50+ who will appreciate ease of use.
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A strong technology back office. Our technology team has built a back office that uses the latest advances to create a strong data analytics function.
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Artificial intelligence powered e-commerce and data analytics. This enables to track the popularity of editorial articles, e-commerce products, photos, videos, advertisements and have a deeper understanding of the preferences of our visitors, followers and online shoppers.
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Blockchain technology is used for both payment security, transaction tractability and product authenticity.
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Cognitive computing helps to improve the user experience, a very important factor when catering for 50+ users.
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Organic data collection will help the system keep learning and improving in order to serve the users.
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Advanced technology to provide efficient and scalable service to meet future user growth. The CircleYY vertical social eCommerce platform is built in microservices architecture. The platform is fully modularized, which enables us to easily upgrade each microservice** module without any effect on another part of the system. While we design the API (application programming interface) by using the RESTful*** standard, we have built an implement API gateway with GraphQL, which makes our agile software development even faster.
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Appealing fun and interactive loyalty program. We believe that it is important to ensure that our users join the app but also return afterwards. To that effect, an entertaining loyalty system based on gamification processes and interaction between users has been put into place to reward and incentivize repeat users.
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Experienced management team with a proven track record. We have a professional and experienced senior management team with a proven track record. Shan Ho, CircleYY’s CEO and founder, has vast experience as a start-up entrepreneur. Chris Zhang is our Chief Operating Officer, a senior technology business management executive and specialist software development engineer with over a 10+ successful international track record extending nationally across China, through South East Asia to Europe. By combining our management’s capability in implementing growth strategies and our in-depth knowledge in the digital media industry, our management team is well suited to capture potential market opportunities in social networking and e-commerce segments.
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Our Initial Target End Users and Acquisition
Our user target group is comprised of families and users aged 50 and above, both active and retired. We expect that these user groups will be a major target of our editorial content which will aim to create a new market standard in terms of a healthy, positive quality of life for 50+ users and stimulate them to stay active, whilst staying connected to current trends. Users will also be encouraged to post content on the social media feed and share their expertise in certain fields (business, crafts, cooking, hiking, travel experiences etc) in order to inspire others whilst becoming key opinion leaders (KOLs).
Our objectives are to build and consolidate our position as one of the most innovative social networking and e-commerce platforms and to achieve rapid but sustainable growth. We intend to achieve these objectives by implementing the following strategies, although there is no guarantee that our growth plan will be successful:
Internationally expanding our e-commerce platform
We intend to expand our platform in order to facilitate penetration into different markets and build a global brand. To achieve this goal, we intend to further customize our digital media platform to cater for visitors from different parts of the world with different language preference. After launching with an initial marketing strategy based around Hong Kong SAR, we will expand to other regional cities with sizeable English language speaking demographics, such as Singapore, Kuala Lumpur, and Manilla, and countries before targeting other global destinations, notably Europe and North America.
Increasing CircleYY branded products
We intend to add new CircleYY branded products, notably in the technology and lifestyle fields, in order to create a strong brand image and provide accessible items that will be ideal gifts to 50+ users.
Enhancing the fun and interactive loyalty program
We intend to add new features to our loyalty program in order to attract more users, notably via a gamification process.
Promoting our CircleYY Brand name to attract a wider customer base and increase consumer loyalty
Enhancing our brand name in the industry will allow us to solidify and broaden our customer base by growing market awareness of our products. We intend to seek partnerships with well-known premium fashion and lifestyle brands for the e-commerce component, which we believe will help position CircleYY as the ideal platform when it comes to purchasing gifts for and showing appreciation to 50+ users.
Collaborating with leading Non-Governmental Orgnizations to promote common values and corporate social responsibilities.
CircleYY promotes positive values such as an improved quality of life for 50+ people, bringing together families irrespective of generations and distance and generally positive change in the mindset of society. As such its values are aligned with several global non-governmental organisations and campaigns, such as the Junior Chamber International or the United Nations Sustainable Development Goals. CircleYY intends to seek partnerships with like-minded corporations
Our CircleYY App Platform
The CircleYY platform, aiming at revolutionizing intergenerational relationships by becoming the first family focused vertical social network platform, includes the CircleYY mobile application and a variety of related properties, features, functionalities, tools and services that we intend to provide to users, customers and platform partners. The CircleYY mobile application, which is available on Android and iOS platforms, enables users to share family stories, build meaningful interactions between seniors and their family members, discover and buy fashion, beauty and other daily lifestyle products and services. We connect people and facilitate interactions based on location, interests and a variety of activities including pictures and short videos. CircleYY offers a personal and lively way for users of all ages to get to know their family members better and enables 50+ users to meet like-minded people. It facilitates connecting, communicating, interacting, and content sharing with others. CircleYY features various social networking features, including uploading functions, pictures and short video services, hobby groups, a private family network and other live interactive experiences. CircleYY’s social features are increasingly integrated with video and audio functions to offer more fun and entertaining contents and to enhance and encourage social interactions between users. On December 2019, CircleYY launched its website (www.circleyy.com) and the CircleYY mobile application expects to be launched around mid-2020.
Key features and functionalities offered by the CircleYY mobile platform include the following:
The Follow tab aggregates content that a user chooses to follow and video content our algorithm “thinks” the user might want to follow based on our data analytics. There are two subsections within the tab. The “Follow” section under the Follow tab contains a stream of feeds created by people followed by the user while the “Recommended” section features popular short video content that our recommendation engine, based on our data analytics, believes the user might like or suggests the user to follow. The algorithm of the recommendation engine computes and makes recommendations based on a variety of factors including users’ personal preferences as well as the overall popularity of a specific short video clip.
Family and group functions
Our application allows users to create and/or participate in family groups and social groups created across points of interest. Each group is given a shared CircleYY discussion page on which group members can discuss their common interests, post their photos, exchange messages and organize other online and offline events. Individuals can connect with each other regarding common interests.
If a user is interested in finding out more about another user on our platform, he or she can review the User Profile page, which is a function that we offer to provide a quick snapshot of a user. Information featured on this page includes profile pictures, account status such as activeness, popularity, the user’s historical posts and videos shared as well as the broadcasters.
Our Website - CircleYY.com
Our website CircleYY.com has been launched in December 2019 which provides a platform for the publication of news and articles that update our followers and visitors about the latest lifestyle trends for 50+ users, notably with articles or videos about fashion, footwear, entertainment, music, lifestyle, technology and design. We expect to bring to our followers and visitors the latest trends in fashion, lifestyle, culture and music, that interest our senior users and their family member followers and visitors. Our content is updated on a continuous basis. It will also have similar family network, e-commerce and social network functions to the mobile app.
CircleYY caters to consumers’ ever-growing demand for high-quality products and premium shopping experience. We have positioned CircleYY as a trusted platform for senior consumers and their family members. CircleYY is intended to be the partner of choice for brands. Brands and retailers are expected to operate their own flagship stores on the CircleYY platform with unique brand identities and look and feel, accompanied by full control over their own branding and merchandising. We seek to build our mind-share among consumers to position CircleYY as the premier shopping destination for premium items, highlighting value and convenience for senior people and their families. We plan to strengthen consumer recognition of CircleYY’s value proposition in consumer products through promotional events and strategic partnerships.
As an operator of social networking and e-commerce platforms, we view content management and monitoring as a critical part of our operations. We monitor and screen user information and user generated content against a spam list, which is a list of content and behaviors that we have determined are likely to be indicative of inappropriate or illegal content or illegal activities. Additionally, our users can also easily report fraud if they come across suspicious content, and each user complaint is processed by our content management and monitoring system.
Our editorial teams follow the latest trends in fashion, lifestyle, culture and music and gather information from various sources. Our editors select and present news and events which appeal to families and people of 50+ through our editorial experience and knowledge in the fashion and digital media industries. When appropriate, our editors also seek to verify information gathered by conducting independent research or interviews with third-parties. Through our rigorous curation and review process, our editors seek to report and produce digital content such as articles and videos that are most relevant and interesting to our audience. We utilise data analytics to track the popularity of articles such that our editorial teams are able to choose better content that is suitable for different user groups according to their preferences.
Our Services and Products
We currently generate revenues primarily from value-added service, mobile marketing services, and other services.
Our value-added service primarily consists of subscription services that provide paying users with features and functions for better user-friendly experience on CircleYY. We provide enhanced membership privileges to CircleYY users who subscribe to our membership package by paying membership fees.
Mobile Marketing Services
We seek to provide advertising and marketing solutions to enable our customers to promote their brands and conduct effective marketing activities. We provide our customers with analytical tools to enable them to track and improve the effectiveness of their marketing campaigns on our platform. Our advertising and marketing customers include brand marketers, local merchants, application developers and publishers as well as other small and medium-sized businesses and individuals. Our mobile marketing services currently include the following:
In-feed marketing solutions.
We offer advertising units that appear as feeds on the CircleYY social platform features. We offer advertising units in various formats, including text-based content, pictures, video clips and function that enables direct application downloads. In addition, our advertising system also allows customers to target certain cohorts of users based on their geographic locations, gender, age, type of mobile operating systems and some other parameters. Our customers can use a combination of the various formats and targeting capabilities to create their marketing campaigns more effectively.
We offer a variety of marketing products in display format, including full screen banner ads that appear before the application is loaded, banners on frequently visited pages and other sponsored images displayed elsewhere within our application. Unlike the in-feed ad units, the display ad units are not sold through the bidding system.
We also offer integrated marketing packages that include multiple advertising units such as feeds, banners, video ads and sponsorships in order to serve a broader sets of marketing objectives of our marketing customers.
We believe that it is important to ensure that users join the app but also return afterwards. To that effect, an entertaining loyalty system based on gamification processes and interaction between users has been put into place to reward and incentivize repeat users.
Key Opinion Leaders (KOLs) Services
CircleYY will encourage 50+ users to post videos and other forms of content to the social network in order to boost their lifestyle and share their expertise. To this effect, they will be empowered to become Key Opinion Leaders for the platform and share the values of CircleYY to other users in their age group.
Orange Label Solutions (OLS)
CircleYY offers users new opportunity to grow brand awareness and global expansion to local and international business. We select brands which we believe are aligned with our values. Selected brands will be offered service packages starting from Gold, Platinum to Orange Label Solutions (“OLS”). Our first OLS service package, charged on a fixed monthly fee basis, will include 10 SKUs products and model photo shooting, online sales, fulfillment and professional reports. The CircleYY fulfillment offers users fully customizable experience and enables us to control our inventory and warehouse operations.
For Business to Business, OLS provides a one stop service fulfillment to vendors which features lower operation costs, inventory storage space and cost, centralized returns policies and management. With OLS tags, OLS promotes merchants’ brand value. For Business to Customers, OLS creates prestige and unique brand image value and desirable first impression. While we ensure OLS service quality, we provide special box design for easy use and returns.
Our other services will include subscriptions to gifting programs for other family members, business gift sales for companies who want to add a special touch for their regular customers and online to offline events that are produced with partner brands. Our other services also includes model photo shooting. We are planning to establish Studio O, a state-of-the-art photography studio, which will also provide for space for multipurpose, including warehouse and fulfillment operations.
We have a sales and marketing team responsible for sales and marketing activities for the promotion of our digital media services.
Our brand and our CircleYY platforms act as a marketing tool for our company. We continuously post updates on fashion, lifestyle, culture and music on our platforms. Many of our digital media customers learn about us through our platforms.
Members of our sales and marketing team maintain regular contacts with our existing media customers to understand their marketing needs and keep them updated on our advertising products and services. For potential advertising customers, we inform them of our recent developments and achievements by distributing project portfolios and background materials. Our sales and marketing team also attends events organised by brands to broaden the team’s network and provide coverage of these events on our digital media platforms. We constantly look for and identify synergies among various digital publications, social media platforms and apps and devise impactful cross advertising opportunities.
Our e-commerce segment primarily engages in the operation of CircleYY store that primarily sells third-party branded clothing, shoes and daily accessories to our customers. We believe that a considerable portion of our e-commerce customers are also followers and visitors to our digital media platforms. The rest of our customers are obtained through our other marketing efforts which include search results returned from search engines and advertisements we place on other websites and on our digital media platforms.
Our research and development efforts focus on product development, architecture and technological infrastructures, as well as the security and integrity of our platform to protect our user data.
Our product development endeavors revolve around continuous innovations to help users discover and make new connections as well as building effective interactions. As our user base continues to expand and consumer behaviors constantly evolve, the social demands from the users become increasingly diversified. We make significant investments in technology to optimize our existing products and services and to develop new ones so that we can expand the social use offerings to satisfy the diversifying user demands.
In addition, we are also investing in building and maintaining the technological infrastructures to support the delivery and usage of our products and services in a fast and efficient manner within a safe and secured environment.
We rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We are in the process of registering 37 trademarks in 12 countries. The source codes and the design architecture are wholly owned by CircleYY. We have also registered 13 domain names, including CircleYY.com.
As a mobile social networking and e-commerce platform, we are subject to intense competition from providers of similar services, as well as potential new types of online services.
Our competitors may have substantially more cash, traffic, technical, performer and other resources, as well as broader product or service offerings and can leverage their relationships based on other products or services to gain a larger share of marketing budgets from customers. We believe that our ability to compete effectively depends upon many factors, including composition and engagement of our user base, our ad targeting capabilities, market acceptance of our mobile marketing services, our marketing and selling efforts, and the strength and reputation of our brand. We also experience significant competition for highly skilled personnel, including management, engineers, designers and product managers. Our growth strategy depends in part on our ability to retain our existing personnel and add additional highly skilled employees.
We do not maintain property insurance, business interruption insurance or general third-party liability insurance, nor do we maintain key-man life insurance.
An investment in our common stock involves a high degree of risk. Investors should carefully consider the risks described below, together with all of the other information included in this Annual Report, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our common stock could decline, and investors may lose all or part of their investment. Investors should read the section entitled “Cautionary Note Regarding Forward-Looking Statements” above for a discussion of what types of statements are forward-looking statements as well as the significance of such statements in the context of this Annual Report.
Risks Related To Our Business and Financial Condition
There is substantial doubt as to our ability to continue as a going concern.
Since our inception, we have achieved revenues and have suffered recurring losses from operations. We expect to achieve continuous revenues. We had a working capital deficiency of $1,294,297 as of December 31, 2019. Further losses are anticipated in the development of our business. Therefore, our continuation as a going concern is dependent upon our completion of a future financing. However, there is no assurance that we will be successful in completing such a financing. If we are unable to fund future operations by way of financing, including public or private offerings of equity or debt securities, our business and financial condition will be adversely impacted. As a result, there is substantial doubt as to our ability to continue as a going concern.
The audit opinion and notes that accompany our consolidated financial statements for the year ended December 31, 2019, refer to the substantial doubt regarding our ability to continue as a going concern. The accompanying financial statements have been prepared assuming that we will continue as a going concern. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. We do not have sufficient cash to fund planned operations or meet our obligations for the next 12 months without raising additional funds.
We have a limited operating history in a dynamic market, which makes it difficult to evaluate our future prospects.
The market for social e-commerce platforms is relatively new, highly dynamic and may not develop as expected. Our users, customers and platform partners may not fully understand the value of our services, and potential new users, customers and platform partners may have difficulty distinguishing our services from those of our competitors. Convincing potential users, customers and platform partners of the value of our services is critical to the growth of our user base and the success of our business.
If we fail to educate potential users, customers and platform partners about the value of our services, if the market for our platform does not develop as we expect or if we fail to address the needs of this dynamic market, our business will be harmed. Failure to adequately address these or other risks and challenges could harm our business and cause our operating results to suffer.
If we fail to retain our existing users, further grow our user base, or if user engagement on our platform declines, our business and operating results may be materially and adversely affected.
The size of our user base and the level of our user engagement are critical to our success.
Growing our user base and increasing the overall level of user engagement on our social e-commerce platform are critical to our business. If our user growth rate slows down, our success will become increasingly dependent on our ability to retain existing users and enhance user engagement on our platform. If our CircleYY mobile application is no longer one of the social e-commerce tools that people frequently use, or if people do not perceive our services to be interesting or useful, we may not be able to attract users or increase the frequency or depth of their engagement. A number of factors could negatively affect user retention, growth and engagement, including if:
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we are unable to attract new users to our platform or retain existing ones;
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we fail to introduce new and improved services, or if we introduce services that are not favorably received by users;
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we are unable to combat spam on or inappropriate or abusive use of our platform, which may lead to negative public perception of us and our brand;
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technical or other problems prevent us from delivering our services in a rapid and reliable manner or otherwise adversely affect the user experience;
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we suffer from negative publicity, fail to maintain our brand or if our reputation is damaged;
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we fail to address user concerns related to privacy and communication, safety, security or other factors; and
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there are adverse changes in our services that are mandated by, or that we elect to make to address, legislation, regulations or government policies.
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If we are unable to grow our user base or enhance user engagement, our platform will become less attractive to our users, customers and platform partners, which would have a material and adverse impact on our business and operating results.
Our business is dependent on the strength of our brand and market perception of our brand.
We market our product under the brand “CircleYY.” Our business and financial performance are highly dependent on the strength and the market perception of our brand and services. A well-recognized brand is critical to increasing our user base and, in turn, facilitating our efforts to monetize our services and enhancing our attractiveness to customers. From time to time, we conduct marketing activities across various media to enhance our brand and to guide public perception of our brand and services. In order to create and maintain brand awareness and brand loyalty, to influence public perception and to retain existing and attract new mobile users, customers and platform partners, we may need to substantially increase our marketing expenditures. We cannot assure you, however, that these activities will be successful or that we will be able to achieve the brand promotion effect we expect.
Negative publicity may harm our brand and reputation and have a material adverse effect on our business and operating results.
Negative publicity involving us, our users, our management, our social networking platform or our business model may materially and adversely harm our brand and our business. We cannot assure you that we will be able to defuse negative publicity about us, our management and/or our services to the satisfaction of our investors, users, customers and platform partners. Such negative publicity, especially when it is directly addressed against us, may also require us to engage in defensive media campaigns. This may cause us to increase our marketing expenses and divert our management’s attention and may adversely impact our business and results of operations.
Our brand image, business and operating results may be adversely impacted by user misconduct and misuse of our platform.
Our platform allows mobile users to freely contact and communicate with people nearby. Because we do not have full control over how and what users will use our platform to communicate, our platform may be misused by individuals or groups of individuals to engage in immoral, disrespectful, fraudulent or illegal activities. We have implemented control procedures to detect and block illegal or inappropriate content and illegal or fraudulent activities conducted through the misuse of our platform, but such procedures may not prevent all such content from being posted or activities from being carried out. Our business and the public perception of our brand may be materially and adversely affected by misuse of our platform. In addition, if any of our users suffers or alleges to have suffered physical, financial or emotional harm following contact initiated on our platform, we may face civil lawsuits or other liabilities initiated by the affected user, or governmental or regulatory actions against us. As a result, our business may suffer and our user base, revenues and profitability may be materially and adversely affected.
We may incur liability for counterfeit, unauthorized, illegal, or infringing products sold or misleading information available on our platform.
Our platform provides sale channels for reputable brands and online retailers. However, brands’ and online retailers’ measures of safeguarding against counterfeit, unauthorized, illegal, or infringing products sold through e-commerce platforms may not be adequate. Although we have indemnity clauses in most of our contracts with our brands and online retailers, sales could decline and our reputation may be adversely affected. We may be subject to sanctions under applicable laws and regulations if we are deemed to have participated or assisted in infringement activities associated with counterfeit goods, which may include injunctions to cease infringing activities, rectification, compensation, administrative penalties and even criminal liability, depending on the gravity of such misconduct. Furthermore, counterfeit products may be defective or inferior in quality as compared to authentic products and may pose safety risks to consumers. If consumers are injured by counterfeit, unauthorized, illegal, or infringing products sold on our sales and marketing platform, we may be subject to lawsuits, severe administrative penalties and criminal liability. We believe our reputation is extremely important to our success and our competitive position. The discovery of counterfeit, unauthorized, illegal, or infringing products sold on our sales and marketing platform may severally damage our reputation among brand partners, and they may refrain from using our services in the future, which would materially and adversely affect our operations and financial results.
If we fail to keep up with technological developments and evolving user expectations, we may fail to maintain or attract users and customers or generate revenues, and our business and operating results may be materially and adversely affected.
We operate in a market characterized by rapidly changing technologies, evolving industry standards, new product and service announcements, new generations of product enhancements and changing user expectations. Accordingly, our performance and the ability to further monetize the services on our platform will depend on our ability to adapt to these rapidly changing technologies and industry standards, and our ability to continually innovate in response to both evolving demands of the marketplace and competitive services. There may be occasions when we may not be as responsive as our competitors in adapting our services to changing industry standards and the needs of our users. Historically, new features may be introduced by one player in the industry, and if they are perceived as attractive to users, they are often quickly copied and improved upon by others.
Introducing new technologies into our systems involves numerous technical challenges, substantial amounts of capital and personnel resources and often takes many months to complete. We intend to continue to devote resources to the development of additional technologies and services. We may not be able to effectively integrate new technologies on a timely basis or at all, which may decrease user satisfaction with our services. Such technologies, even if integrated, may not function as expected or may be unable to attract and retain a substantial number of mobile device users to use our CircleYY mobile application. Our failure to keep pace with rapid technological changes may cause us to fail to retain or attract users or generate revenues, and could have a material and adverse effect on our business and operating results.
Privacy concerns relating to our services and the use of user information could negatively impact our user base or user engagement, or subject us to governmental regulation and other legal obligations, which could have a material and adverse effect on our business and operating results.
We collect user profile, user location and other personal data from our users in order to better understand our users and their needs and to support our social interest graph engine and our big data analytical capabilities for more targeted services such as interest- or location- based user groups and mobile marketing services. Concerns about the collection, use, disclosure or security of personal information or chat history or other privacy-related matters, even if unfounded, could damage our reputation, cause us to lose users and customers and subject us to regulatory investigations, all of which may adversely affect our business. While we strive to comply with applicable data protection laws and regulations, as well as our privacy policies pursuant to our terms of use and other obligations we may have with respect to privacy and data protection, any failure or perceived failure to comply with these laws, regulations or policies may result, and in some cases have resulted, in inquiries and other proceedings or actions against us by government agencies or others, as well as negative publicity and damage to our reputation and brand, each of which could cause us to lose users and customers and have an adverse effect on our business and operating results.
Any systems failure or compromise of our security that results in the unauthorized access to or release of the data or chat history of our users, customers or platform partners data or chat history could significantly limit the adoption of our services, as well as harm our reputation and brand. We expect to continue expending significant resources to protect against security breaches. The risk that these types of events could seriously harm our business is likely to increase as we expand the number of services we offer and increase the size of our user base.
Our practices may become inconsistent with new laws or regulations concerning data protection, or the interpretation and application of existing consumer and data protection laws or regulations, which is often uncertain and in flux. If so, in addition to the possibility of fines, this could result in an order requiring that we change our practices, which could have an adverse effect on our business and operating results. Complying with new laws and regulations could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business.
The continuing and collaborative efforts of our senior management and key employees are crucial to our success, and our business may be harmed if we were to lose their services.
We depend on the continued contributions of our senior management, especially the executive officers listed in “Management” section of this report, and other key employees, many of whom are difficult to replace. The loss of the services of any of our executive officers or other key employees could materially harm our business. Competition for qualified talent in the market is intense. Our future success is dependent on our ability to attract a significant number of qualified employees and retain existing key employees. If we are unable to do so, our business and growth may be materially and adversely affected. Our need to significantly increase the number of our qualified employees and retain key employees may cause us to materially increase compensation-related costs, including stock-based compensation.
We may not be able to adequately protect our intellectual property, which could cause us to be less competitive and third-party infringements of our intellectual property rights may adversely affect our business.
We rely on a combination of copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. Despite our efforts to protect our proprietary rights, third parties may attempt to copy or otherwise obtain and use our intellectual property or seek court declarations that they do not infringe upon our intellectual property rights. Monitoring unauthorized use of our intellectual property is difficult and costly, and we cannot be certain that the steps we have taken will prevent misappropriation of our intellectual property. From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources.
We may be subject to intellectual property infringement claims or other allegations by third parties for information or content displayed on, retrieved from or linked to our platform, or distributed to our users, which may materially and adversely affect our business, financial condition and prospects.
We may in the future be subject to intellectual property infringement claims or other allegations by third parties for services we provide or for information or content displayed on, retrieved from or linked to our platform, or distributed to our users, which may materially and adversely affect our business, financial condition and prospects.
Companies in the internet, technology and media industries are frequently involved in litigation based on allegations of infringement of intellectual property rights, unfair competition, invasion of privacy, defamation and other violations of other parties’ rights. The validity, enforceability and scope of protection of intellectual property rights in internet-related industries, are uncertain and still evolving. We face, from time to time, and expect to face in the future, allegations that we have infringed the trademarks, copyrights and other intellectual property rights of third parties, including our competitors, or allegations that we are involved in unfair trade practices. We allow users to upload text, graphics, audio, video and other content to our platform and download, share, link to and otherwise access games and other content on our platform. We have procedures designed to reduce the likelihood that content might be used without proper licenses or third-party consents. However, these procedures may not be effective in preventing the unauthorized posting of copyrighted content. Therefore, we may face liability for copyright or trademark infringement, defamation, unfair competition, libel, negligence, and other claims based on the nature and content of the materials that are delivered, shared or otherwise accessed through our platform.
Defending intellectual property litigation is costly and can impose a significant burden on our management and employees, and there can be no assurances that favorable final outcomes will be obtained in all cases. Such claims, even if they do not result in liability, may harm our reputation. Any resulting liability or expenses, or changes required to our platform to reduce the risk of future liability, may have a material adverse effect on our business, financial condition and prospects.
User growth and engagement depend upon effective interoperation with mobile operating systems, networks, mobile devices and standards that we do not control.
We make our services available across a variety of mobile operating systems and devices. We are dependent on the interoperability of our services with popular mobile devices and mobile operating systems that we do not control, such as Android, iOS and Windows. Any changes in such mobile operating systems or devices that degrade the functionality of our services or give preferential treatment to competitive services could adversely affect usage of our services. Further, if the number of platforms for which we develop our services increases, which is typically seen in a dynamic and fragmented mobile services market, it will result in an increase in our costs and expenses. In order to deliver high quality services, it is important that our services work well across a range of mobile operating systems, networks, mobile devices and standards that we do not control. We may not be successful in developing relationships with key participants in the mobile industry or in developing services that operate effectively with these operating systems, networks, devices and standards. In the event that it is difficult for our users to access and use our services, particularly on their mobile devices, our user growth and user engagement could be harmed, and our business and operating results could be adversely affected.
Our operations depend on the performance of the internet infrastructure and fixed telecommunications networks.
We primarily rely on a limited number of telecommunication service providers to provide us with data communications capacity through local telecommunications lines and internet data centers to host our servers. We have limited access to alternative networks or services in the event of disruptions, failures or other problems with internet infrastructure or the fixed telecommunications networks provided by telecommunication service providers. With the expansion of our business, we may be required to upgrade our technology and infrastructure to keep up with the increasing traffic on our platform. We cannot assure you that the internet infrastructure and the fixed telecommunications networks will be able to support the demands associated with the continued growth in internet usage. If we cannot increase our capacity to deliver our online services, we may not be able to the increases in traffic we anticipate from our expanding user base, and the adoption of our services may be hindered, which could adversely impact our business.
In addition, we have no control over the costs of the services provided by telecommunication service providers. If the prices we pay for telecommunications and internet services rise significantly, our results of operations may be materially and adversely affected. Furthermore, if internet access fees or other charges to internet users increase, some users may be prevented from accessing the mobile internet and thus cause the growth of mobile internet users to decelerate. Such deceleration may adversely affect our ability to continue to expand our user base.
Our business and operating results may be harmed by service disruptions, or by our failure to timely and effectively scale and adapt our existing technology and infrastructure.
People use our platform for socializing and information. We may experience, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, hardware failure, capacity constraints due to an overwhelming number of people accessing our mobile services simultaneously, computer viruses and denial of service, fraud and security attacks. Any disruption or failure in our infrastructure could hinder our ability to handle existing or increased traffic on our platform or cause us to lose content stored on our platform, which could significantly harm our business and our ability to retain existing users and attract new users.
As the number of our users increases and our users generate more content on our platform, we may be required to expand and adapt our technology and infrastructure to continue to reliably store and analyze this content. It may become increasingly difficult to maintain and improve the performance of our services, especially during peak usage times, as our services become more complex and our user traffic increases. If our users are unable to access CircleYY platform in a timely fashion, or at all, our user experience may be compromised and the users may seek other mobile social networking tools to meet their needs, and may not return to CircleYY or use CircleYY as often in the future, or at all. This would negatively impact our ability to attract users and maintain the level of user engagement.
Future strategic alliances may have a material and adverse effect on our business, reputation and results of operations.
We may in the future enter into strategic alliances with various third parties. Strategic alliances with third parties could subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by the counterparty and an increase in expenses incurred in establishing new strategic alliances, any of which may materially and adversely affect our business. We may have little ability to control or monitor their actions and to the extent strategic third parties suffer negative publicity or harm to their reputation from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with such third parties.
We face risks related to health epidemics and natural disasters.
Our business could be adversely affected by the effects of epidemics. In recent years, there have been breakouts of epidemics globally. For example, there has been an outbreak of 2019 novel coronavirus since January 2020 which has resulted in lockdowns implemented in many cities in China. Our business operations could be disrupted if one of our employees is suspected of having H1N1 flu, avian flu or another epidemic, since it could require our employees to be quarantined and/or our offices to be disinfected. In addition, our results of operations could be adversely affected to the extent that the outbreak harms the global economy in general and the mobile internet industry in particular.
We are also vulnerable to natural disasters and other calamities. Although we have servers that are hosted in an offsite location, our backup system does not capture data on a real-time basis and we may be unable to recover certain data in the event of a server failure. We cannot assure you that any backup systems will be adequate to protect us from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events. Any of the foregoing events may give rise to server interruptions, breakdowns, system failures, technology platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to provide services on our platform.
Risks Associated With Doing Business In Hong Kong
Political consideration of Hong Kong
As Hong Kong is a special administrative region of the PRC, the PRC may, by its political and economic policies, exert influence on the foregoing aspects of Hong Kong. The PRC economy features a high degree of government involvement. In recent years, the PRC Government has implemented various measures to guide the allocation of resources so as to narrow the gaps between economic developments in different regions in the country. We cannot foresee or give any assurance that the PRC Government will not in the near future adopt policies that will adversely affect the political, legal and economic conditions of Hong Kong which may in turn materially affect our business.
Costs of conducting business in Hong Kong
The costs of doing business in Hong Kong is high as compared to its surrounding regions. We rent our office space in Hong Kong. The majority of our workforce is also based in Hong Kong. In view of the high rental price and high labour cost in Hong Kong, our company needs to exercise careful control over our expenditures in these areas. Should we fail to control our costs, the financial performance of our Company may be adversely affected.
The global nature of our operations exposes us to numerous risks that could materially adversely affect our consolidated financial condition and results of operations.
We intend to offer and sell our products and services in several countries subjecting us to the risks inherent in foreign operations. Economic uncertainty in some of the geographic regions in which we intend to operate, including developing regions, could result in the disruption of commerce and negatively impact cash flows in those areas.
Risks inherent in our international operations include:
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foreign currency exchange controls and tax rates;
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foreign currency exchange rate fluctuations, including devaluations;
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the potential for changes in regional and local economic conditions, including local inflationary pressures;
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restrictive governmental actions such as those on transfer or repatriation of funds and trade protection matters, including antidumping duties, tariffs, embargoes and prohibitions or restrictions on acquisitions or joint ventures;
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changes in laws and regulations, including laws and policies affecting trade and foreign investment;
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the difficulty of enforcing agreements and collecting receivables through certain foreign legal systems;
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more expansive legal rights of foreign unions or works councils;
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changes in labor conditions and difficulties in staffing and managing international operations;
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the potential for nationalization of enterprises or facilities; and
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unsettled political conditions and possible terrorist attacks
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These and other factors may have material adverse effect on our operations and, consequently, on our consolidated financial condition or results of operations.
Political and economic instability and risk of government actions affecting our business and our customers or suppliers may adversely impact our business, results of operations and cash flows.
We will be exposed to risks inherent in doing business in each of the countries or regions in which we or our customers or suppliers operate including civil unrest, acts of terrorism, sabotage, epidemics, force majeure, war or other armed conflict and related government actions, including sanctions/embargoes, the deprivation of contract rights, the inability to obtain or retain licenses or permits required to operate facilities or import or export goods or raw materials, the expropriation or nationalization of our assets, and restrictions on travel, payments or the movement of funds.
We intend to conduct business in China which subjects us to certain risks.
We intend to conduct certain of our distribution and senior care operations in China. As a result, our business is subject to risks associated with doing business in China, including:
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trade protection measures, such as tariff increases, and import and export licensing and control requirements;
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potentially negative consequences from changes in tax laws;
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difficulties associated with the Chinese legal system, including increased costs and uncertainties associated with enforcing contractual obligations in China;
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historically lower protection of intellectual property rights;
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unexpected or unfavorable changes in regulatory requirements; and
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changes and volatility in currency exchange rates.
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We may enter into strategic collaborations or alliances with third parties that may not result in the development of commercially viable operations or the generation of significant future revenue.
In the ordinary course of our business, we may enter into strategic collaborations or alliances to distribute product candidates, to operate senior care facilities and to pursue new markets. Proposing, negotiating and implementing strategic collaborations or alliances may be a lengthy and complex process. Other companies, including those with substantially greater financial, marketing, sales, technology or other business resources, may compete with us for these opportunities or arrangements. We may not identify, secure, or complete any such transactions or arrangements in a timely manner, on a cost-effective basis, on acceptable terms or at all. In particular, these collaborations may not result in the development of products that achieve commercial success or result in significant revenue.
Additionally, we may not be in a position to exercise sole decision making authority regarding the transaction or arrangement, which could create the potential risk of creating impasses on decisions, and our collaborators may have economic or business interests or goals that are, or that may become, inconsistent with our business interests or goals. We may have limited control over the amount and timing of resources that any future collaborators devote to our joint ventures. Disputes between us and our collaborators may result in litigation or arbitration that would increase our expenses and divert the attention of our management. Further, these transactions and arrangements are contractual in nature and may be terminated or dissolved under the terms of the applicable agreements and, in such event, we may not continue to have rights to the products and services relating to such transaction or arrangement or may need to purchase such rights at a premium.
We may seek to grow our business through acquisitions of complementary businesses, and the failure to manage acquisitions, or the failure to integrate them with our existing business, could impair our ability to execute our business strategies.
From time to time, we may consider opportunities to acquire other businesses that may enhance our then existing business or, expand the breadth of our markets or customer base, or advance our business strategies. Potential acquisitions involve numerous risks, including:
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problems assimilating the new business;
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issues maintaining uniform standards, procedures, controls and policies;
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unanticipated costs associated with acquisitions;
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diversion of management’s attention from then existing businesses;
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risks associated with entering new markets in which we have limited or no experience; and
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increased legal and accounting costs relating to the acquisitions or compliance with regulatory matters.
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We do not know if we will be able to identify acquisitions we deem suitable, whether we will be able to successfully complete any such acquisitions on favorable terms or at all, or whether we will be able to successfully integrate any acquired products or technologies. Our inability to integrate any acquired products or technologies effectively could impair our ability to execute our business strategies.
We will need to raise additional funds in the future, and these funds may not be available on acceptable terms or at all.
We require additional capital to further our business plans and grow our business. The expected growth of our business will significantly increase our expenses. As a result, we will need to raise additional capital, which may not be available on reasonable terms, if at all. Our future capital requirements will depend on many factors, including:
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the revenue generated by our products and services;
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the costs associated with expanding our operations;
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the costs associated with developing and commercializing our senior care operations;
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the costs of obtaining and maintaining regulatory clearance or approval for products and services;
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the costs of ongoing compliance and regulatory requirements;
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expenses we incur in connection with potential litigation or governmental investigations;
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anticipated or unanticipated capital expenditures; and
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unanticipated general and administrative expenses.
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As a result of these and other factors, we do not know the extent to which we may be required to raise additional capital from public or private offerings of our capital stock, borrowings under credit lines or other sources. If we issue equity or debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders.
If we are unable to raise additional capital, we will not be able to expand our infrastructure, enhance our products and services or take advantage of future opportunities, or respond to competitive pressures, changes in supplier relationships, or unanticipated changes in customer demand. Any of these events could adversely affect our ability to achieve our strategic objectives and impact our ability to continue as a going concern.
We will face competition from numerous companies, many of whom will have greater resources than we do.
We will compete with a number of companies engaged in the senior care product business segments in which we intend to operate. Many of these competitors will be large, well-capitalized companies with significantly greater market share and resources than we have. As a result, these companies may be better positioned than we are to spend more aggressively on marketing, sales, and other product and service initiatives.
In addition, competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. If we are unable to offer products and services that compete effectively against the products and services of existing or future competitors, our future revenue could be negatively impacted. Some of our competitors may compete by changing their pricing model or by lowering the price of their products and services. If these competitors’ pricing techniques are effective, it could result in downward pressure on the price of our products and services. If we are unable to maintain or increase our selling prices in the face of competition, we may not improve our gross margins.
We may acquire other businesses, form joint ventures or make investments in other companies or technologies that could negatively affect our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense.
We intend to pursue acquisitions of businesses and capabilities. We also intend to pursue strategic alliances and joint ventures that leverage our industry experience to expand our offerings or distribution capabilities. We have no experience with acquiring other companies and forming strategic partnerships. We may not be able to find suitable partners or acquisition candidates, and we may not be able to complete such transactions on favorable terms, if at all. If we make any acquisitions, we may not be able to integrate these acquisitions successfully into our existing business, and we could assume unknown or contingent liabilities. Any future acquisitions could also result in the incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill, any of which could have a negative impact on our cash flows, financial condition and results of operations. Integration of an acquired company may also disrupt ongoing operations and require management resources that we would otherwise focus on developing our existing business. We may experience losses related to investments in other companies, which could harm our financial condition and results of operations. We may not realize the anticipated benefits of any acquisition, strategic alliance or joint venture.
Foreign acquisitions involve unique risks in addition to those mentioned above, including those related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks associated with specific countries.
To finance any acquisitions or joint ventures, we may choose to issue common stock as consideration, which could dilute the ownership of our stockholders. Additional funds may not be available on terms that are favorable to us, or at all. If the price of our common stock is low or volatile, we may not be able to acquire other companies or fund a joint venture project using our stock as consideration.
Risks Related to Administrative, Organizational and Commercial Operations and Growth
We may be unable to manage our anticipated future growth effectively, which could make it difficult to execute our business strategy.
We anticipate growth in our business operations. This future growth could create a strain on our organizational, administrative and operational infrastructure. We may not be able to maintain the quality of our products or satisfy customer demand as it grows. Our ability to manage our growth properly will require us to continue to improve our operational, financial and management controls, as well as our reporting systems and procedures. We may implement new enterprise software systems in a number of areas affecting a broad range of business processes and functional areas. The time and resources required to implement these new systems is uncertain and failure to complete this in a timely and efficient manner could harm our business.
If we are unable to support demand for our products and services, including ensuring that we have adequate resources to meet increased demand, our business could be harmed.
As our commercial operations and sales volume grow, we will need to continue to increase our workflow capacity for manufacturing, customer service, billing and general process improvements and expand our internal quality assurance program, among other things. We cannot assure you that any of these increases in scale, expansion of personnel, purchase of equipment or process enhancements will be successfully implemented.
The loss of our Chief Executive Officer or Chief Financial Officer or our inability to attract and retain highly skilled personnel could negatively impact our business. Our management has no experience in the segments of the healthcare industry in which we are intend to operate.
Our success depends on the skills, experience and performance of our President and Chief Executive Officer, Joseph Ho or our Chief Financial Officer, Kenny Chow. The individual and collective efforts of these employees will be important as we continue to develop our business and as we expand our commercial activities. The loss or incapacity of existing members of our executive management team could negatively impact our operations if we experience difficulties in hiring qualified successors. Our executive officers do not presently have employment agreements. Our executive officers have no experience in the segments of the healthcare industry in which we intend to operate. We expect to hire qualified employees with industry experience and/or partner with persons or entities with such experience.
Our future operations will depend, in part, on our ability to attract and retain highly skilled employees and project partners. We may not be able to attract or retain qualified employees and project partners in the future due to the competition for qualified personnel among our competitors. Recruiting and retention difficulties can limit our ability to support our current operations and anticipated future growth programs. All of our employees are and will be at-will, which means that either we or the employee may terminate his or her employment at any time.
Risks Related to Ownership of Our Common Stock
There is currently a limited market for our common stock and there can be no assurance that any market will ever develop. You may therefore be unable to re-sell shares of our Common Stock at times and prices that you believe are appropriate.
Our common stock is not listed on a national securities exchange or any other exchange, and is presently quoted on the OTCQB tier of OTC Markets. There is no active trading market for our common stock and our common stock may never be included for trading on any stock exchange. Accordingly, our common stock is highly illiquid and you may experience difficulty in re-selling shares of our common stock at times and prices that you may desire.
The designation of our common stock as a “penny stock” may limit the liquidity of our Common Stock.
Our common stock may be deemed a “penny stock” (as that term is defined under Rule 3a51-1 of the Exchange Act) in any market that may develop in the future. Generally, a “penny stock” is a common stock that is not listed on a securities exchange and trades for less than $5.00 a share. Prices often are not available to buyers and sellers and the market may be very limited. Broker-dealers who sell penny stocks must provide purchasers of these stocks with a standardized risk-disclosure document prepared by the SEC. The document provides information about penny stocks and the nature and level of risks involved in investing in the penny stock market. A broker must also provide purchasers with bid and offer quotations and information regarding broker and salesperson compensation and make a written determination that the penny stock is a suitable investment for the purchaser and obtain the purchaser’s written agreement to the purchase. Many brokers choose not to participate in penny stock transactions. Because of the penny stock rules, there may be less trading activity in penny stocks in any market that develops for our common stock in the future and stockholders may have difficulty selling their shares.
FINRA sales practice requirements may limit a stockholder’s ability to buy and sell our stock.
The Financial Industry Regulatory Authority, or FINRA, has adopted rules requiring that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative or low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA has indicated its belief that there is a high probability that speculative or low-priced securities will not be suitable for at least some customers. If these FINRA requirements are applicable to us or our securities, they may make it more difficult for broker-dealers to recommend that at least some of their customers buy our Common Stock, which may limit the ability of our stockholders to buy and sell our Common Stock and could have an adverse effect on the market for and price of our Common Stock.
The market price of our common stock may be highly volatile, and may be influenced by numerous factors, some of which are beyond our control.
If an active market for our common stock develops, its market price could fluctuate substantially due to a variety of factors, including market perception of our ability to meet our growth projections and expectations, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our business and the business of others in our industry. In addition, the stock market itself is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons related and unrelated to their operating performance and could have the same effect on our common stock. The market price of shares of our common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:
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regulatory actions with respect to our products and services or our competitors’ products and services;
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actual or anticipated fluctuations in our financial condition and operating results;
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publication of research reports by securities analysts about us or our competitors or our industry;
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our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market;
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additions and departures of key personnel;
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strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;
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the passage of legislation or other regulatory developments affecting us or our industry;
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fluctuations in the valuation of companies perceived by investors to be comparable to us;
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speculation in the press or investment community;
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announcement or expectation of additional financing efforts;
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changes in accounting principles;
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terrorist acts, acts of war or periods of widespread civil unrest;
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natural disasters and other calamities; and
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changes in general market and economic conditions.
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Our principal stockholders and management own a significant percentage of our stock and will be able to exercise significant influence over matters subject to stockholder approval.
As of March 10, 2020, our executive officers, directors and principal (5% or greater) stockholders, together with their respective affiliates, owned approximately 89% of our common stock. Accordingly, these stockholders will be able to exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of our board of directors and approval of significant corporate transactions. This concentration of ownership could have the effect of entrenching our management and/or the board of directors, delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material and adverse effect on the fair market value of our common stock.
Because we became a reporting company under the Exchange Act by means other than a traditional underwritten initial public offering, we may not be able to attract the attention of research analysts at major brokerage firms.
Because we did not become a reporting company by conducting an underwritten initial public offering of our common stock, and because our common stock is not listed on a national securities exchange, security analysts of brokerage firms may not provide coverage of our company. In addition, investment banks may be less likely to agree to underwrite secondary offerings on our behalf than they might if we became a public reporting company by means of an underwritten initial public offering, because they may be less familiar with our company as a result of more limited coverage by analysts and the media. The failure to receive research coverage or support in the market for our shares will have an adverse effect on our ability to develop a liquid market for our common stock.
If we fail to implement and maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us.
We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), subject to certain exceptions. Section 404 of the Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls and to obtain attestations of the effectiveness of internal controls by independent auditors. However, as discussed in detail below, as an emerging growth company and a smaller reporting company, we are not required to obtain an auditor attestation. As a private company, Sincerity Australia Pty Ltd. was not subject to requirements to establish, and did not establish, internal control over financial reporting and disclosure controls and procedures consistent with those of a public company. Our management team and board of directors will need to devote significant efforts to implementing and maintaining adequate and effective disclosure controls and procedures and internal control over financial reporting in order to comply with applicable regulations, which may include hiring additional legal, financial reporting and other finance and accounting staff. Any of our efforts to improve our internal controls and design, implement and maintain an adequate system of disclosure controls may not be successful and will require that we expend significant cash and other resources.
Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of the Sarbanes-Oxley Act could have a material adverse effect on the tradability of our common stock, which in turn would negatively impact our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our common stock. In addition, if our efforts to comply with new or changed laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
We currently have a small team with primary responsibility for performing most of our accounting and financial reporting duties. As a result, certain aspects of internal accounting control which require adequate segregation of duties are missing. We believe we do not currently have sufficient accounting and supervisory personnel with the appropriate level of technical accounting experience and training necessary or adequate accounting policies, processes and procedures, particularly in the areas of revenue recognition, equity related transactions and other complex, judgmental areas for U.S. generally accepted accounting principles, or GAAP, financial reporting and SEC reporting purposes and consequently, we must rely on third party consultants. These deficiencies represent a material weakness (as defined under the Exchange Act) in our internal control over financial reporting in both design and operation. We may identify additional material weaknesses in the future. Under the Exchange Act, a material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls. We are currently developing a plan to design, review, implement and refine internal control over financial reporting. However, we may identify deficiencies and weaknesses or fail to remediate previously identified deficiencies in our internal controls. If material weaknesses or deficiencies in our internal controls exist and go undetected or unremediated, our financial statements could contain material misstatements that, when discovered in the future, could cause us to fail to meet our future reporting obligations and cause the price of our common stock to decline.
We are not subject to compliance with rules requiring the adoption of certain corporate governance measures and as a result, our stockholders have limited protections against interested director transactions, conflicts of interest and similar matters.
The Sarbanes-Oxley Act, as well as resulting rule changes enacted by the SEC, the New York Stock Exchange and the NASDAQ Stock Market, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities which are listed on those exchanges. Because we are not listed on the NASDAQ Stock Market or the New York Stock Exchange, we are not presently required to comply with many of the corporate governance provisions and we have not yet adopted most of these measures. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest and similar matters.
We are a smaller reporting company, and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors.
We are currently a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. “Smaller reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports and in a registration statement under the Exchange Act on Form 10. Decreased disclosures in our SEC filings due to our status as a “smaller reporting company” may make it harder for investors to analyze our results of operations and financial prospects.
If we are deemed to have been a former shell company, Rule 144 of the General Rules and Regulations under the Securities Act of 1933, as amended, will be available to our shareholders only during such times that we remain current with our SEC reporting requirements and satisfy other Rule 144 requirements applicable to former shell companies.
We do not believe that we are or have ever been a “shell company” as such term is defined in Rule 405 and Rule 12b-2 of the Securities Exchange Act of 1934. Rule 144 of the General Rules and Regulations under the Securities Act of 1933, as amended (the “Securities Act”) provides conditions under which restricted and control securities of issuers can be sold without registration under the Securities Act. Rule 144(i) limits the availability of Rule 144 to shareholders of former shell companies to circumstances where former shell companies have ceased to be shell companies, have filed Form 10 type information, one year has elapsed since the filing of such Form 10 type information and the former shell company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and has filed all reports and other materials required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 month period or such shorter period that the former shell company was subject to such reporting requirements. Should it be determined that we were a shell company, absent registration or other exemption therefrom, holders of our restricted and control shares will not be able to sell their shares in the public market.
Investors may experience dilution of their ownership interests because of the future issuance of additional shares of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock.
In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our existing stockholders. We are authorized to issue an aggregate of one billion shares of common stock and 20 million shares of “blank check” preferred stock. We may issue additional shares of common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our common stock may create downward pressure on the trading price of the common stock. We may need to raise additional capital in the near future to meet our working capital needs, and there can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with these capital raising efforts.
Issuance of stock to fund our operations may dilute your investment and reduce your equity interest.
We will need to raise capital in the future to fund the development of our products and services or for other purposes. Any equity financing may have a significant dilutive effect to stockholders and a material decrease in our stockholders’ equity interest in us. Equity financing, if obtained, could result in substantial dilution to our existing stockholders. At its sole discretion, our board of directors may issue additional securities without seeking stockholder approval, and we do not know when we will need additional capital or, if we do, whether it will be available to us.
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.
You should not rely on an investment in our Common Stock to provide dividend income. We do not anticipate that we will pay any cash dividends to holders of our Common Stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our operations. In addition, any future debt financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our Common Stock. Accordingly, investors must rely on sales of their Common Stock after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our Common Stock.