424B4 1 ea177153-424b4_topking.htm PROSPECTUS

 

PROSPECTUS

Filed Pursuant to Rule 424(b)(4)

Registration No.: 333-269290

 

  TOP KINGWIN LTD

 

2,750,000 Class A Ordinary Shares

 

This is the initial public offering on a firm commitment basis of 2,750,000 Class A ordinary shares, par value $0.0001 per share (each, a “Class A Ordinary Share”, collectively, “Class A Ordinary Shares”), of Top KingWin Ltd (the “Company” or “KingWin”), a Cayman Islands exempted company with limited liability whose principal place of business is in the People’s Republic of China (the “PRC”).

 

The initial public offering price is $4.00 per Class A Ordinary Share. As of the date hereof, our authorized share capital is $50,000, divided into 500,000,000 ordinary shares consisting of 300,000,000 Class A Ordinary Shares and 200,000,000 Class B ordinary shares, par value $0.0001 per share (each, a “Class B Ordinary Share”, collectively, “Class B Ordinary Shares”). As of the date hereof, we have 8,213,040 Class A Ordinary Shares and 3,786,960 Class B Ordinary Shares, issued and outstanding, respectively. Holders of Class A Ordinary Shares and Class B Ordinary Shares vote together as one class on all matters submitted to a vote by the shareholders at any general meeting of the Company and have the same rights except each Class A Ordinary Share is entitled to one (1) vote and each Class B Ordinary Share is entitled to twenty (20) votes. The Class A Ordinary Shares are not convertible into shares of any other class. Upon any direct or indirect sale, transfer, assignment or disposition, the Class B Ordinary Shares will be automatically and immediately convertible into Class A Ordinary Shares on a one-to-one basis.

 

Our dual-class share structure will have the effect of concentrating voting control with our controlling shareholders with respect to matters requiring shareholder approval, including the election of directors, amendment of organizational documents, and approval of major corporate transactions, such as a change in control, merger, consolidation, or sale of assets. Upon the completion of this offering, we will have 10,963,040 Class A Ordinary Shares issued and outstanding, assuming the underwriters do not exercise their over-allotment option, or 11,375,540 Class A Ordinary Shares issued and outstanding, assuming the underwriters exercise their over-allotment option. Mr. Ruilin Xu, our chairman of the board of directors and our chief executive officer, will beneficially own 4.38% of our total issued and outstanding Class A Ordinary Shares and 100% of our total issued and outstanding Class B Ordinary Shares, representing 87.91% of our total voting power, assuming the underwriters do not exercise their over-allotment option, or 87.49% of our total voting power if the underwriters exercise their over-allotment option in full. As such, Mr. Xu will control matters subject to a vote by our shareholders, and we will be a “controlled company” as defined under the Nasdaq Stock Market Rules. As a “controlled company,” we are permitted to elect not to comply with certain corporate governance requirements. Although we currently do not intend to rely on the “controlled company” exemption, we could elect to rely on this exemption in the future. If we rely on these exemptions, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements. See “Prospectus Summary — Implications of Being a Controlled Company” on page 16 for additional information.

 

We are an “emerging growth company” under applicable U.S. federal securities laws and are eligible for reduced public company reporting requirements.

 

 

 

 

We have received the approval letter from Nasdaq Stock Market LLC (“Nasdaq”) to have our Class A Ordinary Shares listed on Nasdaq Capital Market under the symbol “TCJH”.

 

Top KingWin Ltd, which we refer to as “KingWin”, the “Company”, or “Cayman Islands holding company”, is a holding company with no material operations of its own, and conducts substantially all of its operations through Guangdong Tiancheng Jinhui Enterprise Development Co., Ltd., which we will refer to as “Tiancheng Jinhui”, “PRC subsidiary”, “PRC operating entity”, or “PRC operating subsidiary”. The Class A Ordinary Shares offered in this offering are shares of KingWin, our Cayman Islands holding company, instead of shares of Tiancheng Jinhui in China. Investors in our Class A Ordinary Shares should be aware that they may never hold equity interests in Tiancheng Jinhui.

 

We indirectly hold 100% equity interests in our PRC subsidiary, Tiancheng Jinhui, through our BVI subsidiary, Sky KingWin Ltd, which we will refer to as “KingWin BVI”, and our Hong Kong subsidiary, SKY KINGWIN (HK) LIMITED, which we will refer to as “KingWin HK”. Tiancheng Jinhui was organized in the PRC and our corporate structure is governed by the PRC laws. As advised by our PRC legal counsel, Jingtian & Gongcheng, based on their understanding of current PRC laws and regulations, our corporate structure is not in violation of the applicable PRC laws. However, this structure involves unique risks to investors. Our corporate structure may not be enforceable in the PRC, if PRC government authorities or courts take a view that such corporate structure contravenes PRC laws and regulations or is otherwise not enforceable for public policy reasons. Furthermore, the legal environment in the PRC is not as developed as in the United States, and uncertainties in the PRC legal system could further limit our ability to enforce our corporate structure. In addition, the Chinese governmental authorities may take a different view than us about our corporate structure because of the promulgation of new laws or regulations, or the new interpretation of existing laws and regulations. In the event PRC government authorities disallow our current corporate structure, we will be unable to exert effective control over Tiancheng Jinhui and there will be a material change in our operations and/or a material change in the value of Class A Ordinary Shares we are registering for sale. It could significantly limit or completely hinder our ability to offer or continue to offer securities to investors, and as a result, our Class A Ordinary Shares may decline significantly in value or become worthless. See more details under “Risk Factors — Risks Related to Doing Business in China — Because all of our operations are in China, our business is subject to the complex and rapidly evolving laws and regulations there. The PRC government may exercise significant oversight and discretion over the conduct of our business and may intervene in or influence our operations at any time, which could result in a material change in our operations and/or the value of our Class A Ordinary Shares.” on page 40 of this prospectus and detailed discussion of legal uncertainties and jurisdictional limits in China under “Risk Factors — Risks Related to Doing Business in China — PRC laws and regulations governing our current business operations are sometimes vague and uncertain. Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could have a material adverse effect on us and limit the legal protections available to you and us.” on page 43 of this prospectus.

 

 

 

 

Recent statements by the PRC government have indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investments in China-based issuers. The PRC government recently initiated a series of regulatory actions and made a number of public statements on the regulation of business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using a variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding efforts in anti-monopoly enforcement. On February 17, 2023, the China Securities Regulatory Commission (the “CSRC”) issued the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Administrative Measures”) and relevant supporting guidelines (collectively, the “New Administrative Rules Regarding Overseas Listings”), which came into effect since March 31, 2023. According to the New Administrative Rules Regarding Overseas Listings, among other things, a domestic company in the PRC that seeks to offer and list securities in overseas markets shall fulfill the filing procedure with the CSRC as per requirement of the Trial Administrative Measures. Where a domestic company seeks to directly offer and list securities in overseas markets, the issuer shall file with the CSRC. Where a domestic company seeks to indirectly offer and list securities in overseas markets, the issuer shall designate a major domestic operating entity, which shall, as the domestic responsible entity, file with the CSRC. Initial public offerings or listings in overseas markets shall be filed with the CSRC within 3 working days after the relevant application is submitted overseas. If an issuer offers securities in the same overseas market where it has previously offered and listed securities subsequently, filings shall be made with the CSRC within 3 working days after the offering is completed. Upon occurrence of any material event, such as change of control, investigations or sanctions imposed by overseas securities regulatory agencies or other relevant competent authorities, change of listing status or transfer of listing segment, or voluntary or mandatory delisting, after an issuer has offered and listed securities in an overseas market, the issuer shall submit a report thereof to CSRC within 3 working days after the occurrence and public disclosure of such event. Further, an overseas securities company that serves as a sponsor or lead underwriter for overseas securities offering and listing by domestic companies shall file with the CSRC within 10 working days after signing its first engagement agreement for such business, and submit to the CSRC, no later than January 31 each year, an annual report on its business activities in the previous year associated with overseas securities offering and listing by domestic companies. If an overseas securities company has entered into engagement agreements before the effectuation of the Trial Administrative Measures and is serving in practice as a sponsor or lead underwriter for overseas securities offering and listing by domestic companies, it shall file with the CSRC within 30 working days after the Trial Administrative Measures take effect. However, pursuant to the New Administrative Rules Regarding Overseas Listings and the Notice on the Arrangement for Filing-based Administration of Overseas Offering and Listing by Domestic Companies issued by the CSRC on February 17, 2023, if the indirect overseas securities offering and listing by a domestic company had been approved by the overseas regulator or stock exchange, such as the registration statement had been declared effective in the case of the U.S. market, prior to the effectuation of the Trial Administrative Measures, and the indirect overseas securities offering and listing will be completed before September 30, 2023 without the need to go through the regulatory procedure of the overseas regulator or stock exchange for offering and listing once again, then such company is not required to file with the CSRC in accordance with the Trial Administrative Measures immediately but shall be required to do so if it involves in re-financing and other filing matters in the future. Since the registration statement with respect to the Class A Ordinary Shares to be sold in this offering was declared effective by the SEC prior to the effectuation of the Trial Administrative Measures, and this offering is expected to be completed before September 30, 2023 without the need to go through regulatory procedure of offering and listing once again, we do not plan to file with the CSRC in accordance with the Trial Administrative Measures immediately but shall follow the filing procedures set out in the Trial Administrative Measures when carrying out re-financing and other filing matters in the future. Since the New Administrative Rules Regarding Overseas Listings are newly promulgated, and the interpretation and implementation thereof involves uncertainties, we cannot assure that we will be able to complete the relevant filings in a timely manner or fulfil all the regulatory requirements thereunder. On February 24, 2023, the CSRC promulgated the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality and Archives Administration Provisions”), which also became effective on March 31, 2023. The Confidentiality and Archives Administration Provisions set out rules, requirements and procedures relating to provision of documents, materials and accounting archives for securities companies, securities service providers, overseas regulators and other entities and individuals in connection with overseas offering and listing, including without limitation to, domestic companies that carry out overseas offering and listing (either in direct or indirect means) and the securities companies and securities service providers (either incorporated domestically or overseas) that undertake relevant businesses shall not leak any state secret and working secret of government agencies, or harm national security and public interest, and a domestic company shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level, if it plans to, either directly or through its overseas listed entity, publicly disclose or provide any documents and materials that contain state secrets or working secrets of government agencies. Working papers produced in the Chinese mainland by securities companies and securities service providers in the process of undertaking businesses related to overseas offering and listing by domestic companies shall be retained in the Chinese mainland. Where such documents need to be transferred or transmitted to outside the Chinese mainland, relevant approval procedures stipulated by regulations shall be followed. While we believe we do not involve leaking any state secret and working secret of government agencies, or harming national security and public interest in connection with provision of documents, materials and accounting archives, there is uncertainty how the new provisions will be interpreted and implemented in the future, and we may be required to perform additional procedures in connection with the provision of accounting archives. Any failure of us to fully comply with new regulatory requirements may significantly limit or completely hinder our ability to offer or continue to offer our Class A Ordinary Shares, cause significant disruption to our business operations, severely damage our reputation, materially and adversely affect our financial condition and results of operations and cause our Class A Ordinary Shares to significantly decline in value or become worthless. See “Risk Factor — Risks Related to Doing Business in China — With the promulgation of the new filing-based administrative rules for overseas offering and listing by domestic companies in China, or if the PRC government were to impose new requirements for approval from the PRC authorities to issue our Class A Ordinary Shares to foreign investors or list on a foreign exchange, failure to comply with the relevant requirements could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.” from page 44 to 46 of this prospectus.

 

 

 

 

Our Class A Ordinary Shares may be prohibited to trade on a national exchange or “over-the-counter” markets under the Holding Foreign Companies Accountable Act (the “HFCA Act”) if the Public Company Accounting Oversight Board (the “PCAOB”) is unable to inspect our auditors for three consecutive years beginning in 2021. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (the “AHFCAA”), which, if signed into law, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three consecutive years. Pursuant to the HFCA Act, the PCAOB issued a Determination Report on December 16, 2021 (the “Determination Report”) which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China, and (2) Hong Kong. In addition, the PCAOB’s report identified the specific registered public accounting firms which are subject to these determinations. On August 26, 2022, a Statement of Protocol was signed by the PCAOB, the CSRC and the Ministry of Finance of the PRC governing inspections and investigations of audit firms based in mainland China and Hong Kong (the “Statement of Protocol”). Pursuant to the Statement of Protocol, the PCAOB conducted inspections on select registered public accounting firms subject to the Determination Report in Hong Kong between September and November 2022. On December 15, 2022, the PCAOB board announced that it has completed the inspections, determined that it had complete access to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, and voted to vacate the Determination Report. On December 29, 2022, the Consolidated Appropriations Act, 2023 (the “CAA”) was signed into law by President Biden. The CAA contained, among other things, an identical provision to the AHFCAA, which reduces the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from three years to two. Both our former and current registered public accounting firms, Friedman LLP and Marcum Asia CPAs LLP, each headquartered in Manhattan, New York, are currently subject to the PCAOB inspections on a regular basis. Neither Friedman LLP nor Marcum Asia CPAs LLP is headquartered in mainland China or Hong Kong and was not identified in the Determination Report as a firm subject to the PCAOB’s determination. Notwithstanding the foregoing, in the future, if there is any regulatory change or step taken by PRC regulators that does not permit Friedman LLP or Marcum Asia CPAs LLP to provide audit workpapers to the PCAOB for inspection or investigation, or the PCAOB re-evaluates its determination as a result of any obstruction with the implementation of the Statement of Protocol in the future, you may be deprived of the benefits of such inspection which could result in limitation or restriction to our access to the U.S. capital markets and trading of our securities on a national exchange or “over-the-counter” markets may be prohibited under the HFCA Act. See “Risk Factors — Risks Related to Doing Business in China — Recent joint statement by the SEC and the PCAOB, proposed rule changes submitted by Nasdaq, and an act passed by the US Senate all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering.” on pages 58 and 59 of this prospectus.

 

Neither KingWin nor its subsidiaries have maintained cash management policies which dictate the purpose, amount and procedure of cash transfers between the entities. Each entity needs to comply with applicable laws or regulations with respect to transfer of funds, dividends and distributions with other entities. As a holding company, we may rely on transfer of funds, dividends and other distributions on equity paid by our subsidiaries for our cash and financing requirements. If any of our subsidiaries incur debt on its own behalf in the future, the instruments governing such debt may restrict their ability to pay dividends and our cash and financing requirement may not be fully satisfied.

 

As of the date of this prospectus, there has been no cash flows, including dividends, transfers and distributions, between KingWin and its subsidiaries. In the future, cash proceeds from overseas financing activities, including this offering, will be transferred by KingWin to its subsidiaries via capital contribution or shareholder loans, as the case may be.

 

As of the date of this prospectus, none of our subsidiaries have made any dividends or distributions to KingWin, and no dividends or distributions have been made to any investors by KingWin or any of its subsidiaries. We intend to keep any future earnings to re-invest in and finance the expansion of the business of our PRC subsidiary, and we do not anticipate that any cash dividends will be paid in the foreseeable future to the U.S. investors immediately following the consummation of this offering. Under Cayman Islands law, a Cayman Islands company may pay a dividend on its shares out of profits of the company or its share premium amount or a combination of both, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. In order for us to pay dividends to our shareholders, we may rely on the distribution of profits of the PRC operating entity to the Hong Kong subsidiary. PRC regulations currently permit the payment of dividends only out of accumulated profits, as determined in accordance with accounting standards and PRC regulations. To the extent any funds or assets in the business is in mainland China or Hong Kong or a mainland China or Hong Kong entity, the funds or assets may not be available to fund operations or for other use outside of mainland China or Hong Kong, due to the interventions in or the imposition of restrictions and limitations by PRC governments which may limit our ability to transfer funds, pay dividends or make distribution. The PRC government imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of mainland China. Furthermore, if our subsidiary in mainland China incurs debt on its own in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments. In addition, the PRC Enterprise Income Tax Law and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by companies in mainland China to enterprises outside of mainland China unless reduced under treaties or arrangements between the PRC central government and the governments of other countries or regions where the enterprises outside of mainland China are tax resident. Based on our understanding of the Hong Kong laws and regulations, as of the date of this prospectus, there is no restriction imposed by the Hong Kong government on the transfer of capital within, into and out of Hong Kong (including funds from Hong Kong to mainland China), except transfer of funds involving money laundering and criminal activities. Notwithstanding the foregoing, we cannot assure that there will not be any changes in the future in the economic, political and legal environment in Hong Kong and that the PRC government will not in the future exert influence over changes to laws and regulations of Hong Kong to impose restrictions on the transfer of capital within, into and out of Hong Kong. Based on our understanding of the BVI laws and regulations, as of the date of this prospectus, there is no restriction on the transfer of capital within, into and out of BVI. See “Risk Factors — Risks Related to Doing Business in China — The transfer of funds, dividends and other distributions between us and our subsidiaries is subject to restriction.” on pages 47 and 48 of this prospectus.

 

 

 

 

See “Prospectus Summary — Dividend Distributions or Assets Transfer among the Holding Company and Subsidiaries” on page 7 of this prospectus, and “Risk Factors — Risks Related to Doing Business in China — The transfer of funds, dividends and other distributions between us and our subsidiaries is subject to restriction.” on pages 47 and 48 of this prospectus and “Risk Factors — Risks Related to Doing Business in China — To the extent any funds or assets in the business is in mainland China or Hong Kong or a mainland China or Hong Kong entity, the funds or assets may not be available to fund operations or for other use outside of mainland China or Hong Kong.” on pages 48 and 49 of this prospectus. For a summary of the condensed consolidated schedule and the consolidated financial statements, see pages from 18 to 22 of this prospectus for “Summary Consolidated Financial and Operating Information — Selected Statements of Operations Information”; “— Selected Balance Sheet Information”; and “— Selected Cash Flow Information”; “Risk Factors — Risks Related to Doing Business in China — Changes in China’s economic, political or social conditions or government policies, which could occur quickly with little advance notice, could have a material adverse effect on our business and operations.” on page 47 of this prospectus; and “Risk Factors – Risks Related to Doing Business in China — We must remit the offering proceeds to our PRC operating subsidiary before they may be used to benefit our business in China, the process of which may be time-consuming, and we cannot assure that we can finish all necessary governmental registration processes in a timely manner.” on pages 48 and 49 of this prospectus; “Risk Factors — Risks Related to Doing Business in China — PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business.” on pages 49 and 50 of this prospectus; “Risk Factors — Risks Related to Doing Business in China — We may rely on dividends and other distributions on equity paid by our PRC subsidiary to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiary to make payments to us could have a material and adverse effect on our ability to conduct our business.” on page 52 of this prospectus; and “Risk Factors — Risks Related to Doing Business in China — Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.” on page 52 of this prospectus.

 

We are a Cayman Islands company and conduct substantially all of our operations in China and substantially all of our assets are located in China. In addition, other than our independent director Kenneth K. Cheng, all of our directors and officers are nationals or residents of countries other than the United States. A substantial portion of the assets of these persons is located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce the U.S. courts judgments obtained in U.S. courts including judgments based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors. See “Risk Factors — Risks Related to Doing Business in China — You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the prospectus.” on page 51 of this prospectus.

  

This prospectus does not constitute, and there will not be, an offering of securities to the public in the Cayman Islands.

 

   Per Share   Total 
Initial public offering price (1)  $4.00   $11,000,000 
Underwriting discounts and commissions (7%) (2)   0.28    770,000 
Proceeds, before expenses, to us (3)  $3.72   $10,230,000 

 

(1)Initial public offering price per share is $4.00 per share. The table above assumes that the underwriters do not exercise their over-allotment option.

 

(2)An underwriting discount equal to 7% of the offering price will be provided to underwriters. See “Underwriting” beginning on page 151 of this prospectus for additional disclosure regarding underwriting compensation payable by us.

 

(3)The total estimated expenses related to this offering are set forth in the section entitled “Underwriting — Discounts, Commissions and Expenses” on page 152 of this prospectus.

 

We have granted the underwriters an option, exercisable for 45 days following the effective date of this prospectus, to purchase up to an additional 15% of the Class A Ordinary Shares offered in this offering on the same terms to cover over-allotments, if any.

 

Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

The underwriters expect to deliver the Class A Ordinary Shares against payment in USD to purchasers on or about April 20, 2023.

 

     

 

Prospectus dated April 17, 2023

 

 

 

 

TABLE OF CONTENTS 

 

PROSPECTUS SUMMARY 1
THE OFFERING 18
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA 20
RISK FACTORS 24
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 66
USE OF PROCEEDS 67
DIVIDEND POLICY 68
EXCHANGE RATE INFORMATION 69
CAPITALIZATION 70
DILUTION 71
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 73
CORPORATE HISTORY AND STRUCTURE 91
BUSINESS 92
INDUSTRY 103
PRC REGULATION 116
MANAGEMENT 124
PRINCIPAL SHAREHOLDERS 130
RELATED PARTY TRANSACTIONS 131
DESCRIPTION OF SHARE CAPITAL 133
SHARES ELIGIBLE FOR FUTURE SALE 141
TAXATION 142
SERVICE OF PROCESS AND ENFORCEABILITY OF CIVIL LIABILITIES 149
UNDERWRITING 151
EXPENSES RELATING TO THIS OFFERING 160
LEGAL MATTERS 160
EXPERTS 160
WHERE YOU CAN FIND ADDITIONAL INFORMATION 161
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1

 

You should rely only on the information contained in this prospectus or in any related free-writing prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus or in any related free-writing prospectus. We are offering to sell, and seeking offers to buy, the Class A Ordinary Shares only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the Class A Ordinary Shares.

 

We have not taken any action to permit a public offering of the Class A Ordinary Shares outside the United States or to permit the possession or distribution of this prospectus or any filed free writing prospectus outside the United States. Persons outside the United States who come into possession of this prospectus or any filed free writing prospectus must inform themselves about and observe any restrictions relating to the offering of the Class A Ordinary Shares and the distribution of this prospectus or any filed free writing prospectus outside the United States.

 

This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys and studies are reliable, you are cautioned not to give undue weight to this information.

 

Until May 12, 2023 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade Class A Ordinary Shares, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

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COMMONLY USED DEFINED TERMS

 

  “AHFCAA” refers to the Accelerating Holding Foreign Companies Accountable Act;

 

  “China” or the “PRC” refers to the People’s Republic of China. When used in the case of laws, regulations and rules, “China” or “the PRC” refers to only such laws, regulations and rules of mainland China. When used in the case of government, governmental authorities, regulatory agencies, courts, jurisdictions, tax, entities, enterprises, individuals and residents of “China” or “the PRC” or “Chinese”, it refers to only such government, governmental authorities, regulatory agencies, courts, jurisdictions, tax, entities, enterprises, individuals and residents of mainland China;

 

  Depending on the context, “we”, “us”, “our company”, “our”, the “Company” and “KingWin” refer to Top KingWin Ltd, a Cayman Islands company, and its subsidiaries, Sky KingWin Ltd, Sky Kingwin (HK) Limited, and Guangdong Tiancheng Jinhui Enterprise Development Co., Ltd., unless the context otherwise indicates;
     
  “CAC” refers to the Cyberspace Administration of China;
     
  “CSRC” refers to the China Securities Regulatory Commission;
     
  “HFCA Act” refers to the Holding Foreign Companies Accountable Act;
     
  “M&A Rules” refers to the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors of China;
     
  “MOFCOM” refers to the Ministry of Commerce of China;
     
  “Negative List” refers to the Special Administrative Measures for the Access of Foreign Investment (Negative List);

 

  “NDRC” refers to the National Development and Reform Commission of China;
     
  “NPC” refers to the National People’s Congress of China;
     
  “RMB” or “yuan” refers to the legal currency of China;

 

  “SAFE” refers to the State Administration of Foreign Exchange in China;
     
  “SAIC” refers to the State Administration for Industry and Commerce in China and is currently known as State Administration for Market Regulation;
     
 

“SAT” refers to the PRC State Administration of Taxation;

 

  “SAMR” refers to the former State of Administration of Industry and Commerce of China, which has been merged into the State Administration for Market Regulation;
     
  “SCNPC” refers to the Standing Committee of the National People’s Congress of China;
     
  “KingWin BVI” refers to Sky KingWin Ltd, a company organized under the laws of British Virgin Islands, which is wholly-owned by KingWin;
     
  “KingWin HK” refers to SKY KINGWIN (HK) LIMITED, a company organized under the laws of Hong Kong, which is wholly-owned by KingWin BVI;
     
  “Tiancheng Jinhui” refers to Guangdong Tiancheng Jinhui Enterprise Development Co., Ltd., a limited liability company organized under the laws of China, which is wholly-owned by KingWin HK;
     
  “U.S. GAAP” refers to generally accepted accounting principles in the United States; and

 

 

“USD” or “$” refers to the legal currency of the United States.

 

KingWin’s reporting currency is USD. However, substantially all of our consolidated revenues, costs, expenses and assets are denominated in RMB. This prospectus contains translations of certain foreign currency amounts into USD for the convenience of the reader. All translations of RMB are calculated at the rate of $1.00=RMB6.3726 as of the year ended December 31, 2021 and $1.00=RMB6.4508 for the year ended December 31, 2021, representing the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on December 31, 2021. All translations of RMB are calculated at the rate of $1.00=RMB7.1135 as of September 30, 2022 and $1.00=RMB6.6054 for the nine months ended September 30, 2022 representing the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on September 30, 2022. All translations of RMB are calculated at the rate of $1.00=RMB6.8972 as of December 31, 2022 and $1.00=RMB6.7290 for the year ended December 31, 2022. No representation is made that the RMB amounts could have been, or could be, converted, realized or settled into USD at such rate, or at any other rate. We are exposed to foreign exchange risk. See “Risk Factors — Risks Related to Doing Business in China — Fluctuations in exchange rates could have a material adverse effect on our results of operations and the price of our Class A Ordinary Shares.” on page 50 of this prospectus.

 

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PROSPECTUS SUMMARY

 

The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our Class A Ordinary Shares discussed under “Risk Factors,” before deciding whether to buy our Class A Ordinary Shares.

 

Overview of Our Business Services

 

We provide a number of important business services in China to young and emerging companies including (i) corporate business training services, which mainly focus on advanced knowledge and new perspectives on the capital markets, (ii) corporate consulting services, which mainly focus on various aspects of fundraising, and (iii) advisory and transaction services. Our main clients are entrepreneurs and executives in small and medium enterprises (“SMEs”) in China.

 

Corporate business training, corporate consulting, and advisory and transaction services constituted approximately 7%, 23% and 70% of our business, respectively, during the nine months ended September 30, 2022.

 

Supported by the rapid economic growth and friendly business policies in China, the number of SMEs in China has significantly increased from 2016 to 2021. According to Frost & Sullivan, an independent market research firm, from 2016 to 2021, the number of SMEs in China increased from 13.9 million to 26.8 million with a compound annual growth rate (“CAGR”) of 14.0%. Frost & Sullivan expects the number of SMEs in China will steadily increase at 9.8% CAGR from 2021 to 2026. We believe that the increasing number of SMEs provide a solid foundation for the future development of our business.

 

With the increase in number of companies entering the China market, most industries in China are becoming more competitive. Therefore founders, senior management teams and key employees of companies have an increasing awareness for professional business education in order to enhance their professional knowledge, boost their company’s strategic growth and allow the company to stay competitive in today’s economy.

 

China’s economy is shifting from traditional real estate investment and manufacturing to new economy industries such as internet-driven or technology-driven industries. Currently, the new economy industry has been a vital driving force in the growth of the economy in China. According to Frost & Sullivan, from 2016 to 2021, the market size of new economy industries by revenue in China experienced significant growth with 28.2% CAGR, which was much higher than the synchronized growth rate of 8.9% in China’s nominal GDP, attaining $4.0 trillion (RMB25.2 trillion) by the end of 2021. We believe that the rapid growth of new economy industries benefits the development of our business. Our mission is to provide comprehensive services to address client’s needs throughout all phases of their development and growth.

 

Certain Risks and Limitations Related to Doing Business in China

 

Because all of our operations are in mainland China, our business is subject to the complex and rapidly evolving laws and regulations. The PRC government may exercise significant oversight and discretion over the conduct of our business and may intervene in or influence our operations at anytime, which could result in a material change in our operations and/or the value of our Class A Ordinary Shares. PRC laws and regulations governing our current business operations are sometimes vague and uncertain. Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could have a material adverse effect on us and limit the legal protections available to us and our investors. See “Risk Factors — Risks Related to Doing Business in China — Because all of our operations are in China, our business is subject to the complex and rapidly evolving laws and regulations there. The PRC government may exercise significant oversight and discretion over the conduct of our business and may intervene in or influence our operations at any time, which could result in a material change in our operations and/or the value of our Class A Ordinary Shares.” on page 40, “PRC laws and regulations governing our current business operations are sometimes vague and uncertain. Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could have a material adverse effect on us and limit the legal protections available to you and us.” on page 43, “With the promulgation of the new filing-based administrative rules for overseas offering and listing by domestic companies in China, or if the PRC government were to impose new requirements for approval from the PRC authorities to issue our Class A Ordinary Shares to foreign investors or list on a foreign exchange, failure to comply with the relevant requirements could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.” from page 44 to 46, and “Changes in China’s economic, political or social conditions or government policies, which could occur quickly with little advance notice, could have a material adverse effect on our business and operations.” on page 47 of this prospectus.

 

There are significant enforcement risks related to our Class A Ordinary Shares. It may be difficult for you to effect service of process or the U.S. courts judgments obtained in U.S. courts upon us or our directors and officers, many of whom are not residents in the United States, and whose significant part of assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC, respectively, would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. In addition, it is uncertain whether such Cayman Islands or PRC courts would entertain original actions brought in the courts of the Cayman Islands or the PRC against us or such persons predicated upon the securities laws of the United States or any state. See “Prospectus Summary — Summary of Significant Risk Factors — Risks Related to Doing Business in China — You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the prospectus.” on page 13, and “Risk Factors — Risks Related to Doing Business in China — You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the prospectus.” on page 51 of this prospectus.

 

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There are significant liquidity risks related to our Class A Ordinary Shares and certain limitations on our ability to transfer cash between us or our subsidiaries. In order for us to pay dividends to our shareholders, we may rely on the distribution of profits of the PRC operating entity to the Hong Kong subsidiary. PRC regulations currently permit the payment of dividends only out of accumulated profits, as determined in accordance with accounting standards and PRC regulations. To the extent any funds or assets in the business is in mainland China or Hong Kong or a mainland China or Hong Kong entity, the funds or assets may not be available to fund operations or for other use outside of mainland China or Hong Kong, due to the interventions in or the imposition of restrictions and limitations by PRC governments which may limit our ability to transfer funds, pay dividends or make distribution. See “Prospectus Summary — Summary of Significant Risk Factors — Risks Related to Doing Business in China — To the extent any funds or assets in the business is in mainland China or Hong Kong or a mainland China or Hong Kong entity, the funds or assets may not be available to fund operations or for other use outside of mainland China or Hong Kong.” on page 13 of this prospectus, and “Risk Factors — Risks Related to Doing Business in China —To the extent any funds or assets in the business is in mainland China or Hong Kong or a mainland China or Hong Kong entity, the funds or assets may not be available to fund operations or for other use outside of mainland China or Hong Kong.” on pages 48 and 49 of this prospectus. Furthermore, if our subsidiary in mainland China incurs debt on its own in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments. In addition, the PRC Enterprise Income Tax Law and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by companies in mainland China to enterprises outside of mainland China unless reduced under treaties or arrangements between the PRC central government and the governments of other countries or regions where the enterprises outside of mainland China are tax resident. See “Prospectus Summary — Dividend Distributions or Assets Transfer among the Holding Company and Subsidiaries.” on page 7 of this prospectus, “Prospectus Summary — Summary of Significant Risk Factors — Risks Related to Doing Business in China — The transfer of funds, dividends and other distributions between us and our subsidiaries is subject to restriction.” on page 13, “Prospectus Summary — Summary of Significant Risk Factors – Risks Related to Doing Business in China — We must remit the offering proceeds to our PRC operating subsidiary before they may be used to benefit our business in China, the process of which may be time-consuming, and we cannot assure that we can finish all necessary governmental registration processes in a timely manner.” on page 13 of this prospectus, “Risk Factors – Risks Related to Doing Business in China — The transfer of funds, dividends and other distributions between us and our subsidiaries is subject to restriction.” on pages 47 and 48 of this prospectus, and “Risk Factors — Risks Related to Doing Business in China — We must remit the offering proceeds to our PRC operating subsidiary before they may be used to benefit our business in China, the process of which may be time-consuming, and we cannot assure that we can finish all necessary governmental registration processes in a timely manner.” on pages 48 and 49 of this prospectus. In addition, any transfer of funds by us to our PRC subsidiary, either as a shareholder loan or as an increase in registered capital, are subject to approval by or registration or filing with relevant governmental authorities in China. Any foreign loans procured by our PRC subsidiary is required to be registered with China’s State Administration of Foreign Exchange (“SAFE”) in its local branches and satisfy relevant requirements, and our PRC subsidiary may not procure loans which exceed the difference between its respective total project investment amount and registered capital or two times (which may be varied year by year due to the change of PRC’s national macro-control policy) of the net worth of our PRC subsidiary. According to the relevant PRC regulations on foreign-invested enterprises in China, capital contributions to our PRC subsidiary are subject to the registration with State Administration for Market Regulation in its local branches, report submission to the Ministry of Commerce in its local branches and registration with a local bank authorized by SAFE. Based on our understanding of the Hong Kong laws and regulations, as of the date of this prospectus, there is no restriction imposed by the Hong Kong government on the transfer of capital within, into and out of Hong Kong (including funds from Hong Kong to mainland China, except transfer of funds involving money laundering and criminal activities. Notwithstanding the foregoing, we cannot assure that there will not be any changes in the future in the economic, political and legal environment in Hong Kong and that the PRC government will not in the future exert influence over changes to laws and regulations of Hong Kong to impose restrictions on the transfer of capital within, into and out of Hong Kong.

 

Our Competitive Advantages

 

We believe that the following competitive strengths have contributed to our success and differentiated us from our competitors:

 

 

Highly qualified professional service team with extensive experience in services of going public, corporate training and consulting, consisting of three internal corporate trainers, experts, and a team of outsourced professional consultants;

 

  Our management team possesses a wide personal and business network, which provides us a valuable source of potential clients;

 

  Corporate culture which reflects our employees’ energy, passion and focus on client success;

 

  We develop a comprehensive range of services designed to meet the evolving demands of our clients and to capture different market opportunities, such as regularly conducting research and studies on trending topics and commonly raised client enquiries in the capital finance sectors;

 

  We are able to offer services to clients from a diversified range of industry sectors;
     
  We have a strong network effect; and
     
  Established long-term cooperative relationships with local chambers of commerce that serve as a reliable lead source to introduce our services to potential clients.

 

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Our Growth Strategies

 

We intend to pursue the following strategies to strengthen our market position and further grow our business:

 

  Enhance and expand our service offerings. We intend to attract and recruit new highly qualified professionals to join our team, increase the scope of our service offerings and expand our geographical coverage in China;

 

  Promote our brand and enhance our marketing capabilities through large-scale offline activities such as participating forums and customized events in order to build and maintain long-term relationships with existing clients; and

 

  Invest in new complementary/synergistic business ventures to facilitate the growth of our business based on the degree of potential synergies, market position, experience of management team, valuation, historical operating metrics, financial performance and suitability with our strategic planning.

 

Our Industry

 

Overview of China’s Financing Advisory Industry

 

Financing advisors in China provide a series of services that assist high-growth enterprises to raise capital (such as, in the way of providing financing-related training, or directly matching investors with enterprises). In the initial stage of the financing advisory in China, a financing advisor was considered as a transaction advisor who charges fees through simply matching investors and enterprises. After nearly 20 years of development, the business model of the financing advisory has become increasingly diversified, and the financing advisory services are illustrated in the following table.

 

 

Source: Frost & Sullivan

 

Apart from being diversified, according to Frost & Sullivan, the financing advisory industry in China has experienced a rapid growth in the past few years (reflected in the following sections). According to Frost & Sullivan, the nominal GDP of China increased from $11.7 trillion (RMB74.6 trillion) in 2016 to $18.0 trillion (RMB114.4 trillion) in 2021, at an 8.9% CAGR. Looking forward, the overall economy in China is projected to grow with a CAGR of 7.3% from 2021 to 2026. As China’s economy continues to experience robust growth, there are an increasing number of enterprises that seek growth through financing advisory services namely equity financing (e.g., private placement, initial public offering), or improvement of business knowledge or skills.

 

Capital Equity Market behind Financing Advisory

 

Capital markets refer to the arena where companies raise capital by selling equity through private placements or initial public offerings (“IPOs”), and its direct impact in the financing advisory industry.

 

In the private sector, according to Frost & Sullivan, the annual volume and the annual value of private equity investments in China was 12,327 and $223.3 billion (RMB1422.9 billion) by 2021, respectively, with CAGRs of 6.2% and 13.8% from 2016 to 2021. These trends indicate an active and positive development in China’s private equity market. In the first half year of 2022, however, affected by the complicated international situation and strict quarantine measures amid frequently repeated outbreaks of COVID-19, private placement activities in China have slowed down, with the value and volume of private equity investment dropping slightly.

 

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According to Frost & Sullivan, from 2016 to 2021, the number of newly listed companies in China, and the amount of capital raised through IPO rapidly increased at CAGRs of 18.2% and 29.4%, respectively, reaching 524 and $85.2 billion (RMB542.7 billion) by the end of 2021. In the first half of 2022, the international situation and domestic pandemic have become more complicated and severe, which adversely impacts IPO activities to a certain extent. In the first half of 2022, the number of newly listed companies presents a significant downturn, but the capital raised remains close to the first half of last year.

 

Corporate Business Training in China

 

According to Frost & Sullivan, corporate business training refers to training services provided to clients with the aim of helping clients develop business strategies and solutions. It typically entails the programs of leadership training, corporate governance training, corporate legal or financial compliance training, investor relationship training and so on. From 2016 to 2021, the market size of corporate business training by revenue in China experienced rapid growth from $23.0 billion (RMB146.4 billion) to $45.5 billion (RMB289.7 billion), representing a CAGR of 14.6%. Driven by the increasing number of companies and growing awareness of companies attending business training, the market size of corporate business training by revenue in China is projected to be at a CAGR of 10.4% from 2021 to 2026, attaining $74.6 billion (RMB475.3 billion) by the end of 2026.

 

Corporate Consulting in China

 

Corporate consulting provides company clients with one-to-one customized solutions for certain critical issues, such as strategy, marketing, digital transformation, corporate governance, ownership structure design, and financial activities. It is normally categorized into strategy consulting, management consulting, financial consulting, IT consulting and so on. Driven by robust economic growth in China in recent years, the corporate consulting industry has experienced a rapid growth. According to Frost & Sullivan, the market size of corporate consulting industry by revenue in China has increased from $180.0 billion (RMB1,147 billion) in 2016 to $259.8 billion (RMB1,655.7 billion) in 2021, representing a CAGR of 7.6%; and looking forward, it is forecasted that the revenue of corporate consulting services in China continues to grow with a CAGR of 7.1% from 2021 to 2026.

 

Advisory and Transaction Services in China

 

According to Frost & Sullivan, from 2016 to 2021, the market size of advisory and transaction industry in China rapidly increased from $289.9 billion (RMB1,847.3 billion) to $414.9 billion (RMB2,643.7 billion). Looking forward, the market size of advisory and transaction industry in China is forecasted to steadily grow at a CAGR of 4.7% from 2021 to 2026, reaching $522.8 billion (RMB3,331.9 billion) by the end of 2026.

 

Corporate History and Holding Company Structure

 

We are an exempted company incorporated with limited liability under the laws of the Cayman Islands on February 16, 2022 with operations conducted through Tiancheng Jinhui, our PRC operating subsidiary, which was incorporated in the PRC on October 25, 2018.

 

The following diagram illustrates our current corporate legal structure.

 

 

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Approvals from PRC Authorities to Conduct Our Operations and Issue Class A Ordinary Shares to Foreign Investors

 

Our operations in China are governed by PRC laws and regulations. Our PRC legal counsel, Jingtian & Gongcheng, has advised us that, as of the date of this prospectus, based on its understanding of the current PRC laws, regulations and rules, we have received all requisite permissions and approvals from the PRC government authorities for our business operations currently conducted in China. Neither have we received any denial of permissions for our business operations currently conducted in China. In addition, our PRC legal counsel, Jingtian & Gongcheng, has advised us that, as of the date of this prospectus, based on its understanding of the current PRC laws, regulations and rules, we are currently not required to obtain permission from any of the PRC authorities to issue our Class A Ordinary Shares to foreign investors, or list and trade of our Class A Ordinary Shares on Nasdaq in connection with this offering.

 

However, on February 17, 2023, the CSRC issued the Trial Administrative Measures and relevant supporting guidelines (collectively, the “New Administrative Rules Regarding Overseas Listings”), which came into force since March 31, 2023, and the Notice on the Arrangement for Filing-based Administration of Overseas Offering and Listing by Domestic Companies, pursuant to which, a domestic company shall file with the CSRC within 3 working days after the relevant application with initial public offerings or listings in overseas markets is submitted overseas. If the indirect overseas securities offering and listing by a domestic company had been approved by the overseas regulator or stock exchange, such as the registration statement had been declared effective in the case of the U.S. market, prior to the effectuation of the Trial Administrative Measures, and the indirect overseas securities offering and listing will be completed before September 30, 2023 without the need to go through the regulatory procedure of the overseas regulator or stock exchange for offering and listing once again, then such company is not required to file with the CSRC in accordance with the Trial Administrative Measures immediately but shall be required to do so if it involves in re-financing and other filing matters in the future. Since the registration statement with respect to the Class A Ordinary Shares to be sold in this offering was declared effective by the SEC prior to the effectuation of the Trial Administrative Measures, and this offering is expected to be completed before September 30, 2023 without the need to go through regulatory procedure of offering and listing once again, we do not plan to file with the CSRC in accordance with the Trial Administrative Measures immediately but shall follow the filing procedures set out in the Trial Administrative Measures when carrying out re-financing and other filing matters in the future. On February 24, 2023, the CSRC promulgated the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality and Archives Administration Provisions”), which also became effective on March 31, 2023. The Confidentiality and Archives Administration Provisions set out rules, requirements and procedures relating to provision of documents, materials and accounting archives for securities companies, securities service providers, overseas regulators and other entities and individuals in connection with overseas offering and listing, including without limitation to, domestic companies that carry out overseas offering and listing (either in direct or indirect means) and the securities companies and securities service providers (either incorporated domestically or overseas) that undertake relevant businesses shall not leak any state secret and working secret of government agencies, or harm national security and public interest, and a domestic company shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level, if it plans to, either directly or through its overseas listed entity, publicly disclose or provide any documents and materials that contain state secrets or working secrets of government agencies. Working papers produced in the Chinese mainland by securities companies and securities service providers in the process of undertaking businesses related to overseas offering and listing by domestic companies shall be retained in the Chinese mainland. Where such documents need to be transferred or transmitted to outside the Chinese mainland, relevant approval procedures stipulated by regulations shall be followed. While we believe we do not involve leaking any state secret and working secret of government agencies, or harming national security and public interest in connection with provision of documents, materials and accounting archives, there is uncertainty how the new provisions will be interpreted and implemented in the future, and we may be required to perform additional procedures in connection with the provision of accounting archives. Further, we are subject to the risks of uncertainty of any future actions of the PRC government in this regard including the risk that we inadvertently conclude that the permissions or approvals discussed here are not required, that applicable laws, regulations or interpretations change such that we are required to obtain approvals in the future, or that the PRC government could disallow our holding company structure, which would likely result in a material change in our operations, including our ability to continue our existing holding company structure, carry on our current business, accept foreign investments, and offer or continue to offer securities to our investors. These adverse actions could cause the value of our Class A Ordinary Shares to significantly decline or become worthless. We may also be subject to penalties and sanctions imposed by the PRC regulatory agencies, including the CSRC, if we fail to comply with such rules and regulations, which would likely adversely affect the ability of our securities to be listed on a U.S. exchange and would likely cause the value of our securities to significantly decline or become worthless.

 

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Recently, the PRC government initiated a series of regulatory actions and made a number of public statements on the regulation of business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. For example, on July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued a document to crack down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securities laws.

 

On December 28, 2021, the CAC, jointly with the relevant authorities, formally published Measures for Cybersecurity Review (2021) which took effect on February 15, 2022. Measures for Cybersecurity Review (2021) stipulates that operators of critical information infrastructure purchasing network products and services and online platform operator carrying out data processing activities that affect or may affect national security, shall conduct a cybersecurity review. Any online platform operator who controls more than one million users’ personal information must go through a cybersecurity review by the cybersecurity review office if it seeks to be listed in a foreign country. Our business does not rely on the collection of user data or implicate cybersecurity and we do not possess more than one million users’ individual information, our PRC counsel, Jingtian & Gongcheng, is therefore of the opinion that we are not subject to a cybersecurity review to issue our Class A Ordinary Shares or list and trade of our Class A Ordinary Shares on Nasdaq in connection with this offering under the Measures for Cybersecurity Review (2021). There remains uncertainty, however, as to how the Cybersecurity Review Measures will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures. For further details, see “Risk Factors — Risks Related to Doing Business in China — Recent greater oversight by the CAC over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our proposed offering.” on page 43 of this prospectus.

 

On August 8, 2006, six Chinese regulatory agencies, including the Ministry of Commerce of China (the “MOFCOM”), jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the “M&A Rules”), which became effective on September 8, 2006 and amended on June 22, 2009. The M&A Rules contain provisions that require that an offshore special purpose vehicle (“SPV”) formed for listing purposes and controlled directly or indirectly by Chinese companies or individuals shall obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published procedures specifying documents and materials required to be submitted to it by an SPV seeking CSRC approval of overseas listings. As advised by our PRC counsel, Jingtian & Gongcheng, based on its understanding of the current PRC law, rules and regulations, and given that we are not an SPV which has acquired PRC domestic companies’ equities with its shares prior to the listing of its Class A Ordinary Shares on the Nasdaq Stock Market, as of the date of this prospectus, the CSRC’s approval under the M&A Rules is not required for the listing and trading of our Class A Ordinary Shares on Nasdaq in the context of this offering. However, there remains uncertainty as to how the M&A Rules will be interpreted or implemented by the relevant PRC authorities, and the opinions summarized above will be subject to any new PRC laws, rules and regulations or detailed implementations and interpretations in any form relating to overseas listing of SPVs like the Company. We cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as we do.

 

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Since the New Administrative Rules Regarding Overseas Listings are newly promulgated, and the interpretation and implementation thereof involves uncertainties, we cannot assure that we will be able to complete the relevant filings in a timely manner or fulfil all the regulatory requirements thereunder. Any failure of us to fully comply with new regulatory requirements may significantly limit or completely hinder our ability to offer or continue to offer our Class A Ordinary Shares, causing significant disruption to our business operations, severely damage our reputation, materially and adversely affect our financial condition and results of operations, and cause our Class A Ordinary Shares to significantly decline in value or become worthless. See “Risk Factors — Risks Related to Doing Business in China — PRC laws and regulations governing our current business operations are sometimes vague and uncertain. Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could have a material adverse effect on us and limit the legal protections available to you and us.” on page 43; and “Risk Factors — Risks Related to Doing Business in China — With the promulgation of the new filing-based administrative rules for overseas offering and listing by domestic companies in China , or if the PRC government were to impose new requirements for approval from the PRC authorities to issue our Class A Ordinary Shares to foreign investors or list on a foreign exchange, failure to comply with the relevant requirements could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.” from page 44 to 46 of this prospectus.

 

Dividend Distributions or Assets Transfer among the Holding Company and Subsidiaries

 

We are a holding company with no material operations of our own and do not generate any revenue. We currently conduct all of our operations through our PRC operating entity, Tiancheng Jinhui. We are permitted under PRC laws and regulations to provide funding to our PRC subsidiary only through loans or capital contributions, and only if we satisfy the applicable government registration and approval requirements. See “Risk Factors — Risks Related to Doing Business in China — PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business,” on pages 49 and 50 of this prospectus.

 

Neither we nor our subsidiaries have cash management policies dictating how funds are transferred, and each entity needs to comply with applicable laws or regulations with respect to transfer of funds, dividends and distributions with other entities.

 

As of the date of this prospectus, there has been no cash flows, including dividends, transfers and distributions, between our company and our subsidiaries. As of the date of this prospectus, there has been no dividend or distributions made between U.S. investors, other investors and the company’s entities. For a summary of the condensed consolidated schedule and the consolidated financial statements, see pages from 18 to 22 of this prospectus for “Summary Consolidated Financial and Operating Data — Selected Statements of Operations Information”; “— Selected Balance Sheet Information”; and “— Selected Cash Flow Information.”

 

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Cash proceeds raised from overseas financing activities, including the cash proceeds from this offering, will be transferred by us to KingWin BVI, and then transferred to KingWin HK, and then transferred to Tiancheng Jinhui as capital contribution and/or shareholder loans as the case may be. Any transfer of funds by us to our PRC subsidiary, either as a shareholder loan or as an increase in registered capital, are subject to approval by or registration or filing with relevant governmental authorities in China. Any foreign loans procured by our PRC subsidiary is required to be registered with China’s State Administration of Foreign Exchange (“SAFE”) in its local branches and satisfy relevant requirements, and our PRC subsidiary may not procure loans which exceed the difference between its respective total project investment amount and registered capital or two times (which may be varied year by year due to the change of PRC’s national macro-control policy) of the net worth of our PRC subsidiary. According to the relevant PRC regulations on foreign-invested enterprises in China, capital contributions to our PRC subsidiary are subject to the registration with State Administration for Market Regulation in its local branches, report submission to the Ministry of Commerce in its local branches and registration with a local bank authorized by SAFE. Please see “Risk Factors — Risks Related to Doing Business in China — We must remit the offering proceeds to our PRC operating subsidiary before they may be used to benefit our business in China, the process of which may be time-consuming, and we cannot assure that we can finish all necessary governmental registration processes in a timely manner.” on pages 48 and 49 of this prospectus. We intend to keep any future earnings to re-invest in and finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future.

 

Under Cayman Islands law, a Cayman Islands company may pay a dividend on its shares out of profits of the company or its share premium amount or a combination of both, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. If we determine to pay dividends on any of our Class A Ordinary Shares in the future, as a holding company, unless we receive proceeds from future offerings, we will be dependent on receipt of funds from our BVI subsidiary, which will be dependent on receipt of dividends from our Hong Kong subsidiary, which will be dependent on receipt of payments from Tiancheng Jinhui in accordance with the laws and regulations of the PRC and Hong Kong.

 

Tiancheng Jinhui’s ability to distribute dividends is based upon its distributable earnings. Current PRC regulations permit Tiancheng Jinhui to pay dividends to KingWin HK only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, Tiancheng Jinhui is required to set aside at least 10% of their after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of their registered capital. Each of such similar entity in China may also set aside a portion of its after-tax profits to fund an optional reserve, although the amount to be set aside, if any, is determined at the discretion of such entity’s shareholder. The reserves can be used to increase the registered capital, cover losses made in past years and enhance the company’s productivity and expand its business, however a company’s capital reserve shall not be used to cover the company’s losses.

 

The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of mainland China. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Further, if our subsidiary in the PRC incurs debt on its own in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments.

 

Our subsidiary in the PRC generates and retains cash generated from operating activities and re-invests it in our business. As of the date of this prospectus, our PRC subsidiary has not paid any dividends to the offshore companies.

 

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Based on our understanding of the Hong Kong laws and regulations, as of the date of this prospectus, there is no restriction imposed by the Hong Kong government on the transfer of capital within, into and out of Hong Kong (including funds from Hong Kong to mainland China, except transfer of funds involving money laundering and criminal activities. Notwithstanding the foregoing, we cannot assure that there will not be any changes in the future in the economic, political and legal environment in Hong Kong and that the PRC government will not in the future exert influence over changes to laws and regulations of Hong Kong to impose restrictions on the transfer of capital within, into and out of Hong Kong. Based on the BVI laws and regulations, as of the date of this prospectus, there is no restriction on the transfer of capital within, into and out of BVI. Please see “Risk Factors — Risks Related to Doing Business in China — Changes in China’s economic, political or social conditions or government policies, which could occur quickly with little advance notice, could have a material adverse effect on our business and operations.” on page 47 of this prospectus; “Risk Factors – Risks Related to Doing Business in China — To the extent any funds or assets in the business is in mainland China or Hong Kong or a mainland China or Hong Kong entity, the funds or assets may not be available to fund operations or for other use outside of mainland China or Hong Kong.” on pages 48 and 49 of this prospectus; “Risk Factors — Risks Related to Doing Business in China — PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business.” on pages 49 and 50 of this prospectus; “Risk Factors — Risks Related to Doing Business in China — We may rely on dividends and other distributions on equity paid by our PRC subsidiary to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiary to make payments to us could have a material and adverse effect on our ability to conduct our business,” on page 52 of this prospectus; and “Risk Factors — Risks Related to Doing Business in China — Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.” on page 52 of this prospectus.

 

Cash dividends, if any, on our Class A Ordinary Shares will be paid in USD. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and, as a result, may be subject to PRC withholding tax at a rate of up to 10%.

 

In order for us to pay dividends to our shareholders, we may rely on payments made from Tiancheng Jinhui and the distribution of such payments to KingWin HK as dividends from Tiancheng Jinhui. Certain payments as dividends from Tiancheng Jinhui to KingWin HK are subject to PRC taxes, including withholding taxes.

 

Pursuant to the Arrangement between mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC company. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including without limitation that (a) the Hong Kong company must be the beneficial owner of the relevant dividends; and (b) the Hong Kong company must directly hold no less than 25% of share ownership in the PRC company during the twelve (12) consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong company must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Tax Avoidance Arrangement with respect to dividends to be paid by our PRC subsidiary to its immediate holding company, KingWin HK. As of the date of this prospectus, we have not applied for the tax resident certificate from the relevant Hong Kong tax authority. KingWin HK intends to apply for the tax resident certificate when Tiancheng Jinhui plans to declare and pay dividends to KingWin HK. See “Risk Factors Risks Related to Doing Business in China — If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.” on page 55 of this prospectus.

 

Implications of the HFCA Act

 

On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the HFCA Act. An identified issuer will be required to comply with these rules if the SEC identifies it as having a “non-inspection” year under a process to be subsequently established by the SEC. In June 2021, the Senate passed the AHFCAA, which, if signed into law, would reduce the time period for the delisting of foreign companies under the HFCA Act to two consecutive years instead of three years. If our auditor cannot be inspected by the PCAOB for two consecutive years, the trading of our securities on any U.S. national securities exchanges, as well as any over-the-counter trading in the U.S., will be prohibited. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCA Act, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 2, 2021, the SEC issued amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions. On December 16, 2021, the PCAOB issued a report on its determinations that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions. On August 26, 2022, a Statement of Protocol was signed by the PCAOB, the CSRC and the Ministry of Finance of the PRC governing inspections and investigations of audit firms based in mainland China and Hong Kong (the “Statement of Protocol”). Pursuant to the Statement of Protocol, the PCAOB conducted inspections on select registered public accounting firms subject to the Determination Report in Hong Kong between September and November 2022. On December 15, 2022, the PCAOB board announced that it has completed the inspections, determined that it had complete access to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, and voted to vacate the Determination Report. On December 29, 2022, the CAA was signed into law by President Biden. The CAA contained, among other things, an identical provision to the AHFCAA, which reduces the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from three years to two.

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Our former auditor, Friedman LLP, the independent registered public accounting firm of our company, that issued the audit report for the years ended December 31, 2021 and 2020 included elsewhere in this prospectus, is headquartered in Manhattan, New York, with no branches or offices outside of the United States. Friedman LLP is currently subject to PCAOB inspections on a regular basis.

 

Our current auditor, Marcum Asia CPAs LLP, an independent registered public accounting firm that reviewed the unaudited interim condensed consolidated financial statements for the nine months ended September 30, 2022 and 2021, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Marcum Asia CPAs LLP is headquartered in Manhattan, New York, and is subject to inspection by the PCAOB on a regular basis.

 

Neither our former nor current auditors is identified in the report issued by the PCAOB on December 16, 2021 as a firm subject to the PCAOB’s determination. Notwithstanding the foregoing, in the future, if there is any regulatory change or step taken by PRC regulators that does not permit Friedman LLP or Marcum Asia CPAs LLP to provide audit work papers located in mainland China or Hong Kong to the PCAOB for inspection or investigation, or the PCAOB re-evaluates its determination as a result of any obstruction with the implementation of the Statement of Protocol in the future, you may be deprived of the benefits of such inspection which could result in limitation or restriction to our access to the U.S. capital markets and trading of our securities on a national exchange or “over-the-counter” markets may be prohibited under the HFCA Act. In addition, under the HFCA Act, our securities may be prohibited from trading on the Nasdaq or other U.S. stock exchanges if our auditor is not inspected by the PCAOB for three consecutive years, which could be reduced to two consecutive years if the AHFCAA, passed by the U.S. Senate on June 22, 2021, is signed into law, and this ultimately could result in our Class A Ordinary Shares being delisted by the exchange. Further, we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. See “Risk Factors — Risks Related to Doing Business in China — Recent joint statement by the SEC and the PCAOB, proposed rule changes submitted by Nasdaq, and an act passed by the US Senate all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering.” on pages 58 and 59 of this prospectus.

 

Impacts of COVID-19

 

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The outbreak has reached almost every country, resulting in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans, intended to control the spread of the virus. The PRC government has ordered quarantines, travel restrictions, and the temporary closure of stores and facilities. Companies are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions, and temporarily closing businesses. Therefore, like many others, our business was temporarily and adversely impacted by the COVID-19 coronavirus outbreak to a certain extent.

 

The negative impacts of the COVID-19 pandemic on our business, financial condition, and results of operations include, but are not limited to, the following:

 

  Temporary lockdown or suspension of business. Most of our company’s business training courses are taught in indoor conference rooms. In response to the COVID-19 pandemic, local governments in China have imposed restrictions on large-scale gathering activities in various places or imposed extra requirements on participants of such activities from time to time, which have caused some of our company’s originally booked business training courses to be cancelled or delayed. Our corporate business training and corporate consulting business has been affected to some extent, although not significantly, from January 2021 to June 2021.

 

  Limitations on our employees’ ability to work and travel. Resulting from the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans, intended to control the spread of COVID-19, our employees’ ability to work and travel was adversely affected and therefore impaired our company’s ability to manage day-to-day operations and service delivery.

 

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  Increase cybersecurity risks. Due to the epidemic prevention measures by the government, much of our company’s operations have been transferred to a form of online nature. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit the COVID-19 pandemic. 

 

We have responded to the COVID-19 pandemic in these ways:

 

  Selected multiple different venues in different cities with back-up activity plans, increased our courses on the schedule and our capacity to change venues flexibly; and
     
  Increased networking efforts with local distributors and suppliers who could introduce clients to take our courses if we are not able to develop clients by ourselves because of the COVID-19 and the quarantine policies.

 

The PRC government began to modify its responses to the COVID-19 pandemic in late 2022, and most of the travel restrictions and quarantine requirements were lifted in December 2022. As of the date hereof, we have resumed normal operations. However, there are still uncertainties of COVID-19’s future impact, and the extent of the impact will depend on a number of factors, including the duration and severity of the pandemic; and the macroeconomic impact of government measures to contain the spread of COVID-19 and related government stimulus measures.

 

Summary of Significant Risk Factors 

 

Investing in our Class A Ordinary Shares involves significant risks. You should carefully consider all of the information in this prospectus before making an investment in our Class A Ordinary Shares. Below is a summary of the significant risks we face, organized under relevant headings. These risks are discussed more fully in the section titled “Risk Factors.”

 

Risks Related to Our Business and Industry

 

Risks and uncertainties related to our business and industry, beginning on page 24 of this prospectus, include, but are not limited to, the following:

 

We have a limited operating history and are subject to the risks encountered by early-stage companies. See a more detailed discussion of this risk factor on page 25 of this prospectus.

 

Our historical growth may not be indicative of our future performance, which is dependent upon factors beyond our control such as market conditions of the equity investment industry in China. See a more detailed discussion of this risk factor on page 25 of this prospectus.

 

If we are unable to retain existing clients or attract new ones, or to attract sufficient spending from our clients, our business, results of operations and financial condition could be materially and adversely affected. See a more detailed discussion of this risk factor on page 26 of this prospectus.

 

If we lose the services of any of our key executive officers and other key employees, or are unable to retain, recruit and hire experienced staff, our ability to effectively manage and execute our operations and meet our strategic objectives could be harmed. See a more detailed discussion of this risk factor on page 26 of this prospectus.

 

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The industry in which we operate is highly fragmented and intensively competitive, and if we fail to compete effectively with current or future competitors, our business, results of operations and financial conditions could be materially and adversely affected. See a more detailed discussion of this risk factor on page 27 of this prospectus.

 

Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business, reputation and competitive edge. Intellectual property is crucial to our competitiveness and success. See a more detailed discussion of this risk factor on page 33 of this prospectus.

 

Risks Related to Our Corporate Structure

 

Risks related to our corporate structure, beginning on page 38 of this prospectus, include, but are not limited to, the following:

 

  The dual-class structure of our ordinary shares has the effect of concentrating voting control with our Chairman and Chief Executive Officer, directors and their affiliates. See a more detailed discussion of this risk factor on page 38 of this prospectus.

 

As a “controlled company” under the rules of the Nasdaq Capital Market, we may choose to exempt our company from certain corporate governance requirements that could have an adverse effect on our public shareholders. See a more detailed discussion of this risk factor on page 38 of this prospectus.

 

You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law. See a more detailed discussion of this risk factor on page 39 of this prospectus.

 

Risks Related to Doing Business in China

 

We are based in China and have all of our operations in China. We face risks and uncertainties related to doing business in China in general, including, but not limited to, the following:

 

Because all of our operations are in China, our business is subject to the complex and rapidly evolving laws and regulations there. The PRC government may exercise significant oversight and discretion over the conduct of our business and may intervene in or influence our operations at any time, which could result in a material change in our operations and/or the value of our Class A Ordinary Shares. See a more detailed discussion of this risk factor on page 40 of this prospectus.

 

  PRC laws and regulations governing our current business operations are sometimes vague and uncertain. Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could have a material adverse effect on us and limit the legal protections available to you and us. See a more detailed discussion of this risk factor on page 43 of this prospectus.

 

  With the promulgation of the new filing-based administrative rules for overseas offering and listing by domestic companies in China, or if the PRC government were to impose new requirements for approval from the PRC authorities to issue our Class A Ordinary Shares to foreign investors or list on a foreign exchange, failure to comply with the relevant requirements could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. See a more detailed discussion of this risk factor from page 44 to 46 of this prospectus.

 

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Changes in China’s economic, political or social conditions or government policies, which could occur quickly with little advance notice, could have a material adverse effect on our business and operations. See a more detailed discussion of this risk factor on page 47 of this prospectus.

 

 

The transfer of funds, dividends and other distributions between us and our subsidiaries is subject to restriction. See a more detailed discussion of this risk factor on pages 47 and 48 of this prospectus.

 

  To the extent any funds or assets in the business is in mainland China or Hong Kong or a mainland China or Hong Kong entity, the funds or assets may not be available to fund operations or for other use outside of mainland China or Hong Kong. See a more detailed discussion of this risk factor on pages 48 and 49 of this prospectus.

 

We must remit the offering proceeds to our PRC operating subsidiary before they may be used to benefit our business in China, the process of which may be time-consuming, and we cannot assure that we can finish all necessary governmental registration processes in a timely manner. See a more detailed discussion of this risk factor on pages 48 and 49 of this prospectus.

 

  You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the prospectus. See a more detailed discussion of this risk factor on page 51 of this prospectus.

 

PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiary to liability or penalties, limit our ability to inject capital into our PRC subsidiary, limit our PRC subsidiary’ ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us. See a more detailed discussion of this risk factor on pages 53 and 54 of this prospectus.

 

Risks Related to Our Class A Ordinary Shares and This Offering

 

Risks and uncertainties related to our Class A Ordinary Shares and this offering, beginning on page 58 of this prospectus, include, but are not limited to, the following:

 

  There has been no public market for our Class A Ordinary Shares prior to this offering, and you may not be able to resell our Class A Ordinary Shares at or above the price you paid, or at all. See a more detailed discussion of this risk factor on page 57 of this prospectus.

 

  A sale or perceived sale of a substantial number of our Class A Ordinary Shares may cause the price of our Class A Ordinary Shares to decline. See a more detailed discussion of this risk factor on page 57 of this prospectus.

 

  If our financial condition deteriorates, we may not meet the continued listing standards on the Nasdaq Capital Market. See a more detailed discussion of this risk factor on page 57 of this prospectus.

 

  The market price for the Class A Ordinary Shares may be volatile. See a more detailed discussion of this risk factor on page 59 of this prospectus.

 

 

We may experience extreme stock price volatility unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Class A Ordinary Shares. See a more detailed discussion of this risk factor on pages 59 and 60 of this prospectus.

 

Compliance with Foreign Investment

 

The PRC Foreign Investment Law grants national treatment to foreign-invested entities, except for those foreign-invested entities that operate in industries specified as either “restricted” or “prohibited” from foreign investment in the Negative List (2021). The PRC Foreign Investment Law provides that (i) foreign-invested entities operating in “restricted” industries are required to obtain market entry clearance and other approvals from relevant PRC government authorities; and (ii) foreign investors shall not invest in any industries that are “prohibited” under the Negative List (2021). As of the date of this prospectus, we do not conduct any business that falls into the category of “restricted” industries or “prohibited” industries under the Negative List (2021).

 

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Recent Regulatory Development in PRC

 

We are a holding company incorporated in the Cayman Islands with all of our operations conducted by our operating entity in PRC. We are aware that, recently, the PRC government initiated a series of regulatory actions and made a number of public statements on the regulation of business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. For example, on July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued a document to crack down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securities laws.

 

In addition, on December 28, 2021, the CAC adopted an amended Cybersecurity Review Measures, which became effective on February 15, 2022. Pursuant to the amended Cybersecurity Review Measures, online platform operators holding more than one million users’ individual information shall be subject to cybersecurity review before listing abroad. We believe we may not be subject to the cybersecurity review by the CAC, pursuant to the Cybersecurity Review Measures and the Data Security Management Regulations Draft (if it becomes effective as it is currently published), given that our business does not rely on the collection of user data or implicate cybersecurity and we do not possess more than one million users’ individual information.

 

On February 17, 2023, the CSRC issued the New Administrative Rules Regarding Overseas Listings, which came into force since March 31, 2023. According to the New Administrative Rules Regarding Overseas Listings, among other things, a domestic company in the PRC that seeks to offer and list securities in overseas markets shall fulfill the filing procedure with the CSRC as per requirement of the Trial Administrative Measures. Where a domestic company seeks to directly offer and list securities in overseas markets, the issuer shall file with the CSRC. Where a domestic company seeks to indirectly offer and list securities in overseas markets, the issuer shall designate a major domestic operating entity, which shall, as the domestic responsible entity, file with the CSRC. Initial public offerings or listings in overseas markets shall be filed with the CSRC within 3 working days after the relevant application is submitted overseas. If an issuer offers securities in the same overseas market where it has previously offered and listed securities subsequently, filings shall be made with the CSRC within 3 working days after the offering is completed. Upon occurrence of any material event, such as change of control, investigations or sanctions imposed by overseas securities regulatory agencies or other relevant competent authorities, change of listing status or transfer of listing segment, or voluntary or mandatory delisting, after an issuer has offered and listed securities in an overseas market, the issuer shall submit a report thereof to CSRC within 3 working days after the occurrence and public disclosure of such event. Further, an overseas securities company that serves as a sponsor or lead underwriter for overseas securities offering and listing by domestic companies shall file with the CSRC within 10 working days after signing its first engagement agreement for such business, and submit to the CSRC, no later than January 31 each year, an annual report on its business activities in the previous year associated with overseas securities offering and listing by domestic companies. If an overseas securities company has entered into engagement agreements before the effectuation of the Trial Administrative Measures and is serving in practice as a sponsor or lead underwriter for overseas securities offering and listing by domestic companies, it shall file with the CSRC within 30 working days after the Trial Administrative Measures take effect.

 

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On February 24, 2023, the CSRC promulgated the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality and Archives Administration Provisions”), which also became effective on March 31, 2023. The Confidentiality and Archives Administration Provisions set out rules, requirements and procedures relating to provision of documents, materials and accounting archives for securities companies, securities service providers, overseas regulators and other entities and individuals in connection with overseas offering and listing, including without limitation to, domestic companies that carry out overseas offering and listing (either in direct or indirect means) and the securities companies and securities service providers (either incorporated domestically or overseas) that undertake relevant businesses shall not leak any state secret and working secret of government agencies, or harm national security and public interest, and a domestic company shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level, if it plans to, either directly or through its overseas listed entity, publicly disclose or provide any documents and materials that contain state secrets or working secrets of government agencies. Working papers produced in the Chinese mainland by securities companies and securities service providers in the process of undertaking businesses related to overseas offering and listing by domestic companies shall be retained in the Chinese mainland. Where such documents need to be transferred or transmitted to outside the Chinese mainland, relevant approval procedures stipulated by regulations shall be followed. While we believe we do not involve leaking any state secret and working secret of government agencies, or harming national security and public interest in connection with provision of documents, materials and accounting archives, there is uncertainty how the new provisions will be interpreted and implemented in the future, and we may be required to perform additional procedures in connection with the provision of accounting archives.

 

Since these statements and regulatory actions are new, it is highly uncertain how soon the legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any. It is also highly uncertain what the potential impact such modified or new laws and regulations will have on Tiancheng Jinhui’s daily business operation, its ability to accept foreign investments and the listing of our Class A Ordinary Shares on a U.S. or other foreign exchanges. We were advised by our PRC counsel, Jingtian & Gongcheng, that under existing PRC laws, we and our subsidiaries are not required to obtain regulatory approval for this offering of our Class A Ordinary Shares to foreign investors from the CSRC or other PRC authorities, or to pass cybersecurity review of the CAC, and we, and our subsidiaries have received all requisite permissions and approvals from PRC authorities for current business operation in the PRC and this offering of our Class A Ordinary Shares to foreign investors. As of the date of this prospectus, none of those permissions or approvals has been revoked or denied by PRC authorities. However, pursuant to the New Administrative Rules Regarding Overseas Listings and the Notice on the Arrangement for Filing-based Administration of Overseas Offering and Listing by Domestic Companies issued by the CSRC on February 17, 2023, if the indirect overseas securities offering and listing by a domestic company had been approved by the overseas regulator or stock exchange, such as the registration statement had been declared effective in the case of the U.S. market, prior to the effectuation of the Trial Administrative Measures, and the indirect overseas securities offering and listing will be completed before September 30, 2023 without the need to go through the regulatory procedure of the overseas regulator or stock exchange for offering and listing once again, then such company is not required to file with the CSRC in accordance with the Trial Administrative Measures immediately but shall be required to do so if it involves in re-financing and other filing matters in the future. Since the registration statement with respect to the Class A Ordinary Shares to be sold in this offering was declared effective by the SEC prior to the effectuation of the Trial Administrative Measures, and the Offering is expected to be completed before September 30, 2023 without the need to go through regulatory procedure of offering and listing once again, we do not plan to file with the CSRC in accordance with the Trial Administrative Measures immediately but shall follow the filing procedures set out in the Trial Administrative Measures when carrying out re-financing and other filing matters in the future. Further, if there is significant change to the applicable laws and regulations, or if interpretations change, and that Tiancheng Jinhui is required to obtain any approval in the future, and that Tiancheng Jinhui does not receive the approvals or is denied permission by the PRC authorities, we will not be able to list our Class A Ordinary Shares on a U.S. exchange, or continue to offer securities to investors, which would materially affect the interest of the investors and cause significant depreciation of the price of our Class A Ordinary Shares. See “Risk Factors — Risks Related to Doing Business in China — With the promulgation of the new filing-based administrative rules for overseas offering and listing by domestic companies in China, or if the PRC government were to impose new requirements for approval from the PRC authorities to issue our Class A Ordinary Shares to foreign investors or list on a foreign exchange, failure to comply with the relevant requirements could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless,” from page 44 to 46 of this prospectus.

 

Implications of Being an Emerging Growth Company

 

As a company with less than $1.235 billion in revenue for our last fiscal year, we qualify as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reporting and other requirements compared to those that are otherwise applicable generally to public companies. These provisions include:

 

  being permitted to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in our SEC filings;

 

  not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;

 

  reduced disclosure obligations regarding executive compensation in periodic reports, proxy statements and registration statements; and

 

  exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

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The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. We have elected to use the extended transition period under the JOBS Act. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

 

We will remain an emerging growth company until the earliest of (a) the last day of the fiscal year during which we have total annual gross revenues of at least $1.235 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (c) the date on which we have, during the preceding three-year period, issued more than $1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur as of the end of our fiscal year if the market value of our Class A Ordinary Shares that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act discussed above.

 

Implications of Being a Foreign Private Issuer

 

We are incorporated in the Cayman Islands and more than 50% of our outstanding voting securities are not directly or indirectly held by residents of the United States. Therefore, we are a “foreign private issuer,” as defined in Rule 405 under the Securities Act and Rule 3b-4(c) under the Exchange Act. As a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we will be subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example:

 

  we are not required to provide as many Exchange Act reports or provide periodic and current reports as frequently, as a domestic public company;
     
  for interim reporting, we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic public companies;
     
  we are not required to provide the same level of disclosure on certain issues, such as executive compensation;
     
  we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information;
     
  we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and
     
  we are not required to comply with Section 16 of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction.

 

Implications of Being a Controlled Company

 

Upon the completion of this offering, we will be a “controlled company” as defined under the Nasdaq Stock Market Rules because Ruilin Xu, our Chairman and Chief Executive Officer, will beneficially own 4.38% of our total issued and outstanding Class A Ordinary Shares and 100% of our total issued and outstanding Class B Ordinary Shares, representing 87.91% of the total voting power of our issued and outstanding share capital immediately following the completion of this offering, assuming the underwriters do not exercise their over-allotment option, or 87.49% of our total voting power if the underwriters exercise their over-allotment option in full. Accordingly, we may be deemed to be a “controlled company” under Nasdaq Marketplace Rule 5615(c). For so long as we remain a “controlled company,” we are permitted to elect not to comply with certain corporate governance requirements, including:

 

an exemption from the rule that a majority of our board of directors must be independent directors;

 

an exemption from the rule that the compensation of our chief executive officer must be determined or recommended solely by independent directors; and

 

an exemption from the rule that our director nominees must be selected or recommended solely by independent directors.

 

16

 

 

Although we currently do not intend to rely on the “controlled company” exemption, we could elect to rely on this exemption in the future. If we rely on these exemptions, you will not have the same protections afforded to shareholders of companies that are subject to these corporate governance requirements.

  

Corporate Information

 

Our principal executive offices are located at Room 1304, Building No. 25, Tian’an Headquarters Center, No. 555, North Panyu Avenue, Donghuan Street, Panyu District, Guangzhou, Guangdong Province, PRC. Our telephone number at this address is +86 400 661 3113. Our registered office in the Cayman Islands is currently located at the office of 89 Nexus Way, Camana Bay, Grand Cayman, KY1-9009, Cayman Islands, which may be changed from time to time at the discretion of our directors. Our agent for service of process in the United States is Cogency Global Inc.

 

Investors should contact us for any inquiries through the address and telephone number of our principal executive offices.

 

Notes on Prospectus Presentation

 

This prospectus contains translations of certain RMB amounts into USD amounts at specified rates solely for the convenience of the reader. The relevant exchange rates are listed below:

 

   

Year Ended
December 31,
2022

   

Nine Months
Ended
September 30,

2022

   

Year Ended
December 31,
2021

   

Nine Months
Ended
September 30,

2021

   

Year Ended
December 31,

2020

 
Period Ended RMB: USD exchange rate     6.8972       7.1135       6.3726       6.4434       6.5250  
Period Average RMB: USD exchange rate     6.7290       6.6054       6.4508       6.4701       6.9042  

  

Numerical figures included in this prospectus have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.

 

For clarification, this prospectus follows the English naming convention of first name followed by last name, regardless of whether an individual’s name is Chinese or English. For example, the name of our Chairman will be presented as “Ruilin Xu,” even though, in Chinese, his name is presented as “Xu Ruilin.”

 

We have relied on statistics provided by a variety of publicly-available sources regarding China’s expectations of growth. Certain market data and other statistical information contained in this prospectus are based on information gathered and provided by Frost & Sullivan Inc., which was retained by, and received payments from, us, and other independent industry organizations, publications, surveys and forecasts. Some market data and statistical information contained in this prospectus are also based on management’s estimates and calculations, which are derived from our review and interpretation of the sources listed above, our internal research and our knowledge of the PRC corporate business training industry and corporate consulting industry. While we believe such information is reliable, we have not independently verified any third-party information and our internal data has not been verified by any independent source.

 

17

 

 

THE OFFERING

 

Issuer   Top KingWin Ltd
     
Securities Being Offered  

2,750,000 Class A Ordinary Shares, par value $0.0001 per share, on a firm commitment basis. 

     
Over-Allotment   We have granted to the underwriters an option, exercisable for 45 days from the date of this prospectus, to purchase up to 412,500 additional Class A Ordinary Shares.
     
Offering Price   $4.00 per Class A Ordinary Share.
     
Ordinary Shares Outstanding Immediately Before This Offering   8,213,040 Class A Ordinary Shares and 3,786,960 Class B Ordinary Shares
     
Ordinary Shares Outstanding Immediately After This Offering   10,963,040 Class A Ordinary Shares (or 11,375,540 Class A Ordinary Shares if the underwriters exercise their option to purchase additional Class A Ordinary Shares in full) and 3,786,960 Class B Ordinary Shares. Our founder, Ruilin Xu, will beneficially own 4.38% of our Class A Ordinary Shares and 100% of our Class B Ordinary Shares, collectively equivalent to 87.91 % of the total voting power of our issued and outstanding share capital immediately following the completion of this offering assuming the underwriters do not exercise their over-allotment option, or 87.49 % of our total voting power if the underwriters exercise their over-allotment option in full.
     
Voting Rights  

Shares of Class A Ordinary Share are entitled to one vote per share.

 

Shares of Class B Ordinary Share are entitled to 20 votes per share.

 

Holders of our Class A Ordinary Share and Class B Ordinary Share will generally vote together as a single class. See “Description of Share Capital” on page 134 of this prospectus.

     
Use of Proceeds   We estimate that we will receive net proceeds of approximately $9,200,000 from this offering (or $10,718,000 if the underwriters exercise their over-allotment option in full), based upon the initial public offering price of $4.00 per Class A Ordinary Share and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
     
    We plan to use the net proceeds we receive from this offering for (i) personnel training and recruitment of qualified personnel; (ii) system improvement, building online platforms for future online courses; (iii) enhancement of brand recognition through multi-channel marketing; (iv) mergers and acquisitions within the industry; and (v) general corporate purposes and working capital, including potential strategic investments and acquisitions. We have no agreements or understandings with regard to any investments or acquisitions. See “Use of Proceeds” on page 68 of this prospectus for additional information.

 

18

 

 

Lock-up   Our directors and officers, and holders of 5% or more of our Class A Ordinary Shares on a fully diluted and converted basis immediately prior to this offering have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or otherwise dispose of any Class A Ordinary Shares or similar securities for a period of six months after the effective date of this registration statement, without the prior written consent of the Representative. See “Underwriting” beginning on page 152 and “Shares Eligible for Future Sale” beginning on page 142 of this prospectus for more information.
     
Risk Factors   Investing in our Class A Ordinary Shares involves a high degree of risk and purchasers of our Class A Ordinary Shares may lose part or all of their investment. See “Risk Factors” beginning on page 24 of this prospectus for a discussion of factors you should carefully consider before deciding to invest in our Class A Ordinary Shares.
     
Listing   The Class A Ordinary Shares have been approved for trading on The Nasdaq Capital Market under the symbol “TCJH”. The Class A Ordinary Shares will not be listed on any other stock exchange or traded on any automated quotation system.
     
Payment and Settlement   The Class A Ordinary Shares are delivered against payment on April 20, 2023.
     
Transfer Agent   VStock Transfer, LLC

 

This prospectus assumes that the underwriters will not exercise their option to purchase additional Class A Ordinary Shares in this offering, unless otherwise indicated. 

 

19

 

 

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA

 

The following summary consolidated statements of net income for the years ended December 31, 2021 and 2020 and summary consolidated balance sheet data as of December 31, 2021 and 2020 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statements of net income for the nine months ended September 30, 2022 and 2021 and summary consolidated balance sheet data as of September 30, 2022 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. You should read this “Summary Consolidated Financial Data and Operating Data” section together with our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. Our historical results are not necessarily indicative of results expected for future periods.

 

The following summary consolidated financial data for the nine months ended September 30, 2022 and 2021 has been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus.

 

Selected Statements of Operations Information:

 

   Nine Months ended
September 30, 2022
   Nine Months ended
September 30, 2021
   Variance 
Statement of Operations Data:  $   % of
Revenues
   $  

% of

Revenues

   $   % 
Revenues   2,801,724    100%   3,294,255    100%   (492,531)   (15)%
Cost of revenues   665,389    24%   763,995    23%   (98,606)   (13)%
Gross profit   2,136,335    76%   2,530,260    77%   (393,925)   (16)%
                               
Operating expenses   2,188,386    78%   913,042    28%   1,275,344    140%
Income (loss) from operations   (52,051)   (2)%   1,617,218    49%   (1,669,269)   (103)%
Other income, net   21,200    1%   1,385    -   19,815    1,431%
Net income (loss) before income taxes   (30,851)   (1)%   1,618,603    49%   (1,649,454)   (102)%
                               
Income tax expense   76,930    3%   409,356    12%   (332,426)   (81)%
Net income (loss)   (107,781)   (4)%   1,209,247    37%   (1,317,028)   (109)%
                               
Other comprehensive income (loss)   (306,470)   (11)%   10,694    -%   (317,164)   (2,966)%
Total comprehensive income (loss)   (414,251)   (15)%   1,219,941    37%   (1,634,192)   (134)%

 

20

 

 

Selected Balance Sheet Information:

 

  

As of

September 30,

2022

  

As of

December 31,

2021

   Variance 
Statement of Balance Sheet Data:  $   $   $   % 
Current Assets                
Cash   2,554,803    3,816,940    (1,262,137)   (33)%
Restricted cash   -    78,461    (78,461)   (100)%
Accounts receivable, net   849,090    921,235    (72,145)   (8)%
Interest receivable - related party   -    4,825    (4,825)   (100)%
Prepayments   3,577    104,307    (100,730)   (97)%
Prepaid and other receivables   52,840    36,706    16,134    44%
Total Current Assets   3,460,310    4,962,474    (1,502,164)   (30)%
                     
Non-Current Assets                    
Property and equipment, net   201,973    236,166    (34,193)   (14)%
Intangible assets, net   30,418    20,063    10,355    52%
Operating lease right-of-use assets   573,151    623,236    (50,085)   (8)%
Other non-current assets   39,149    36,809    2,340    6%
Deferred offering costs   439,640    -    439,640    n.m. 
Total Non-Current Assets   1,284,331    916,274    368,057    40%
                     
Total Assets   4,744,641    5,878,748    (1,134,107)   (19)%
                     
Current Liabilities                    
Accounts payable   251,540    836,787    (585,247)   (70)%
Accounts payable - related party   -    1,285    (1,285)   (100)%
Operating lease liabilities - current   162,202    130,198    32,004    25%
Advance from clients   285,300    587,396    (302,096)   (51)%
Due to related parties   739,302    85,784    653,518    762%
Taxes payable   87,255    508,149    (420,894)   (83)%
Accruals and other payables   411,613    437,770    (26,157)   (6)%
Total Current Liabilities   1,937,212    2,587,369    (650,157)   (25)%
                     
Non-Current Liabilities                    
Operating lease liabilities -non-current   424,726    494,425    (69,699)   (14)%
Total Non-Current Liabilities   424,726    494,425    (69,699)   (14)%
                     
Total Liabilities   2,361,938    3,081,794    (719,856)   (23)%
                     
Shareholders’ Equity                    
Class A Ordinary Shares, $0.0001 par value, 300,000,000 shares authorized, 68,442 shares issued and outstanding as of September 30, 2022 and 2021   7    7    -    -%
Class B Ordinary Shares, $0.0001 par value, 200,000,000 shares authorized, 31,558 shares issued and outstanding as of September 30, 2022 and 2021   3    3    -    -%
Share subscription receivables   (10)   (10)   -    -%
Additional paid-in capital   114,726    114,726    -    -%
Statutory reserve   282,545    282,545    -    -%
Retained earnings   2,227,265    2,335,046    (107,781)   (5)%
Accumulated other comprehensive income (loss)   (241,833)   64,637    (306,470)   (474)%
Total Shareholders’ Equity   2,382,703    2,796,954    (414,251)   (15)%
                     
Total Liabilities and Shareholders’ Equity   4,744,641    5,878,748    (1,134,107)   (19)%

 

n.m. = not meaningful.

 

21

 

 

Selected Cash Flow Information:

 

  

Nine Months

Ended

September 30,
2022

  

Nine Months

Ended
September 30,
2021

 
Statement of Balance Sheet Data:  $   $ 
Net cash provided by (used in) operating activities   (1,224,659)   2,220,465 
Net cash used in investing activities   (51,313)   (59,422)
Net cash provided by financing activities   269,183    - 
Effect of exchange rates on cash   (333,809)   11,118 
Net Increase (Decrease) in Cash and Restricted Cash   (1,340,598)   2,172,161 
           
Cash and restricted cash at beginning of period   3,895,401    171,332 
Cash at End of Period   2,554,803    2,343,493 

 

The following summary consolidated financial data for the years ended December 31, 2021 and 2020 has been derived from our audited consolidated financial statements included elsewhere in this prospectus.

 

Selected Statements of Operations Information:

 

   

Year ended

December, 2021

   

Year ended

December, 2020

    Variance  
Statement of Operations Data:   $    

% of

Revenues

    $    

% of

Revenues

    $     %  
Revenues     6,294,667       100.0 %     1,333,930       100.0 %     4,960,737       371.9 %
Cost of revenues     1,356,798       21.6 %     461,038       34.6 %     895,760       194.3 %
Gross profit     4,937,869       78.4 %     872,892       65.4 %     4,064,977       465.7 %
                                                 
Operating expenses     1,894,647       30.1 %     493,034       37.0 %     1,401,613       284.3 %
Income from operations     3,043,222       48.3 %     379,858       28.5 %     2,663,364       701.1 %
Other income (expenses), net     42,625       0.7 %     (375 )     - %     42,250       11,266.7 %
Net income before income taxes     3,085,847       49.0 %     379,483       28.5 %     2,706,364       713.2 %
                                                 
Income tax expense     777,221       12.3 %     39,515       3.0 %     737,706       1,866.9 %
Net income     2,308,626       36.7 %     339,968       25.5 %     1,968,658       579.1 %
                                                 
Other comprehensive income     39,076       0.6 %     25,897       1.9 %     13,179       50.9 %
Total comprehensive income     2,347,702       37.3 %     365,865       27.4 %     1,981,837       541.7 %

 

22

 

Selected Balance Sheet Information:

 

   

As of

December 31,

2021

   

As of

December 31,

2020

    Variance  
Statement of Balance Sheet Data:   $     $     $     %  
Current Assets                        
Cash     3,816,940       171,332       3,645,608       2,127.8 %
Restricted cash     78,461       -       78,461       n.m.  
Accounts receivable, net     921,235       393,911       527,324       133.9 %
Accounts receivable - related party     -       337,165       (337,165 )     (100.0 )%
Interest receivable - related party     4,825       -       4,825       n.m.  
Prepayments     104,307       86,923       17,384       20.0 %
Prepaid and other receivables     36,706       15,403       21,303       138.3 %
Total Current Assets     4,962,474       1,004,734       3,957,740       393.9 %
                                 
Non-Current Assets                                
Property and equipment, net     236,166       135,454       100,712       74.4 %
Intangible assets, net     20,063       -       20,063       n.m.  
Operating lease right-of-use assets     623,236       623,101       135       - %
Other non-current assets     36,809       31,698       5,111       16.1 %
Total Non-Current Assets     916,274       790,253       126,021       15.9 %
                                 
Total Assets     5,878,748       1,794,987       4,083,761       227.5 %
                                 
Current Liabilities                                
Accounts payable     836,787       258,541       578,246       223.7 %
Accounts payable - related party     1,285       15,326       (14,041 )     (91.6 )%
Operating lease liabilities - current     130,198       98,750       31,448       31.8 %
Advance from clients     587,396       205,881       381,515       185.3 %
Due to a related party     85,784       32,337       53,447       165.3 %
Taxes payable     508,149       95,455       412,694       432.3 %
Accruals and other payables     437,770       99,080       338,690       341.8 %
Total Current Liabilities     2,587,369       805,370       1,781,999       221.3 %
                                 
Non-Current Liabilities                                
Operating lease liabilities -non-current     494,425       540,365       (45,940 )     (8.5 )%
Total Non-Current Liabilities     494,425       540,365       (45,940 )     (8.5 )%
                                 
Total Liabilities     3,081,794       1,345,735       1,736,059       129.0 %
                                 
Shareholders’ Equity                                
Class A Ordinary Shares, $0.0001 par value, 300,000,000 shares authorized, 68,442 shares issued and outstanding as of December 31, 2021 and 2020     7       7       -       - %
Class B Ordinary Shares, $0.0001 par value, 200,000,000 shares authorized, 31,558 shares issued and outstanding as of December 31, 2021 and 2020     3       3       -       - %
Share subscription receivables     (10 )     (10 )     -       - %
Additional paid-in capital     114,726       114,726       -       - %
Statutory reserve     282,545       24,320       258,225       1,061.8 %
Retained earnings     2,335,046       284,645       2,050,401       720.3 %
Accumulated other comprehensive income     64,637       25,561       39,076       152.9 %
Total Shareholders’ Equity     2,796,954       449,252       2,347,702       522.6 %
                                 
Total Liabilities and Shareholders’ Equity     5,878,748       1,794,987       4,083,761       227.5 %

n.m. = not meaningful.

 

Selected Cash Flow Information:

 

   

Year ended

December 31,

2021

   

Year ended

December 31,

2020

 
Statement of Balance Sheet Data:   $     $  
Net cash provided by operating activities     3,774,372       184,220  
Net cash used in investing activities     (151,538 )     (129,589 )
Net cash provided by financing activities     52,034       101,860  
Effect of exchange rates on cash     49,201       10,406  
Net Increase in Cash and Restricted Cash     3,724,069       166,897  
                 
Cash and restricted cash at beginning of year     171,332       4,435  
Cash and Restricted Cash at End of Year     3,895,401       171,332  

 

23

 

 

RISK FACTORS

 

An investment in our Class A Ordinary Shares involves a high degree of risk. Before deciding whether to invest in our Class A Ordinary Shares, you should consider carefully the risks described below, together with all of the other information set forth in this prospectus, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operation” and our consolidated financial statements and related notes. If any of these risks actually occurs, our business, financial condition, results of operations or cash flow could be materially and adversely affected, which could cause the trading price of our Class A Ordinary Shares to decline, resulting in a loss of all or part of your investment. The risks described below are not the only ones that we face. Additional risks not presently known to us or that we currently deem immaterial may also affect our business. You should only consider investing in our Class A Ordinary Shares if you can bear the risk of loss of your entire investment.

 

Risks Related to Our Business and Industry

 

The COVID-19 pandemic has adversely affected, and is expected to continue to pose risks, to our business, results of operations, financial condition and cash flows, and other epidemics or outbreaks of infectious diseases may have a similar impact.

In March 2020, the World Health Organization categorized COVID-19 as a pandemic. The spread of the outbreak has caused significant disruptions in the U.S. and global economies, and the impact may continue to be significant during the rest of the calendar year and potentially beyond. We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The effects of a subvariant of the Omicron variant of COVID-19, which may spread faster than the original Omicron variant, as well as the effects of any new variants and subvariants which may develop, including any actions taken by governments to avoid the spread of the virus, could affect our results of operations. Because most of our business training courses are taught in indoor conference rooms, in response to the restrictions on large-scale gathering activities imposed by local governments in China, we recently had to cancel or delay a large number of our originally booked business training courses. We continue to evaluate the global risks and the slowdown in business activity related to COVID-19, including the potential impacts on our employees, clients and financial results. The COVID-19 pandemic or other epidemics or outbreaks of infectious diseases could materially adversely impact our results of operations, financial condition and liquidity in several ways. In particular, the continued spread of COVID-19 and efforts to contain the virus could:

 

impair the Company’s ability to manage day-to-day operations and service delivery;

 

  continue to impact client demand of our services;

 

cause disruptions in or closures of the Company’s operations or those of its clients;

 

impact global liquidity and the availability of capital;

 

cause limitations on our employees’ ability to work and travel;

 

impact the availability of qualified personnel;

 

increase cybersecurity risks as remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that seek to exploit the COVID-19 pandemic; and

 

cause other unpredictable events.

 

As the situation surrounding COVID-19 remains fluid, it is difficult to predict the duration of the pandemic and the impact on our business, operations, financial condition and cash flows. The severity of the impact on our business in the fiscal year ending December 31, 2022 will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic (including the advent of variants and the impact of vaccination on infection and hospitalization rates), the extent and severity of the impact on our clients and suppliers, the continued disruption to the demand for our services, the effect of national or local regulations regarding safety measures to address the spread of COVID-19, and the impact of the global business and economic environment on liquidity and the availability of capital, all of which are uncertain and cannot be predicted. We are staying in close communication with our employees, clients and suppliers, and acting to mitigate the impact of this dynamic and evolving situation, but there is no guarantee we will be able to do so.

 

24

 

 

We have a limited operating history and are subject to the risks encountered by early-stage companies.

 

Our operating entity, Tiancheng Jinhui, was established in October 2018. As a development-stage company, our business strategies and model are constantly being tested by the market and operating results, and we work to adjust our allocation of resources accordingly. As such, our business may be subject to significant fluctuations in operating results in terms of amounts of revenues and percentages of total with respect to the business segments.

 

We are, and expect for the foreseeable future to be, subject to all the risks and uncertainties, inherent in a development-stage business. As a result, we must establish many functions necessary to operate a business, including expanding our managerial and administrative structure, assessing and implementing our marketing program, implementing financial systems and controls and personnel recruitment. Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies with a limited operating history. These risks and challenges are, among other things:

 

we may require additional capital to develop and expand our operations which may not be available to us when we require it;

 

our marketing and growth strategy may not be successful;

 

our business may be subject to significant fluctuations in operating results; and

 

we may not be able to attract, retain and motivate qualified professionals.

 

Our future growth will depend substantially on our ability to address these and the other risks described in this prospectus. If we do not successfully address these risks, our business would be significantly harmed.  

 

Our historical growth may not be indicative of our future performance, which is dependent upon factors beyond our control such as market conditions of the equity investment industry in China.

 

Our revenue increased by 372% from $1,333,930 in the fiscal year ended December 31, 2020 to $6,294,667 in the fiscal year ended December 31, 2021, but decreased by 17% from $3,294,255 for the nine months ended September 30, 2021 to $2,801,724 for the nine months ended September 30, 2022. Our historical growth rate and results may not be indicative of our future growth or performance, and we cannot assure you that we will grow at the same rate as we did in the past or avoid any decline. There is inherent risk in using our historical financial information to project or estimate our financial performance in the future, as it only reflects our past performance under particular conditions. We may not be able to sustain our historical growth rate, revenue, gross margin and return on net assets for various reasons, some of which are beyond our control, including deterioration in the market conditions of the equity investment industry in China, macro-economic measures taken by the PRC government to manage economic growth and intensified competition in the industry. If we fail to successfully address any of the foregoing risks and uncertainties, our business, results of operations and financial condition may be materially and adversely affected. In addition, our future performance will depend in part on our ability to effectively manage our growth and deal with any and all issues that may potentially hinder our growth. As our operations grow in scale, scope and complexity, we will need to improve and upgrade our systems and infrastructure, which will require significant expenditures and allocation of valuable management resources. If we fail to maintain the necessary level of discipline or fail to allocate limited resources effectively in our organization as it grows, our business, results of operations and financial condition could be materially and adversely affected. To effectively manage our growth, we will also need to implement a variety of new and upgraded operational, technological and financial systems, procedures and controls, including the improvement of our accounting, actuarial, claims and other internal management systems and the enhancement of our compliance and risk control capabilities. The expansion of our business may increase our exposure to liquidity risk, credit risk and operational risk. We expect that we will need to continue to devote substantial financial, operational and technical resources to managing our growth and implementing our business strategies. In order to attain and maintain profitability, we will need to recruit, develop and retain skilled and experienced personnel, which will increase our cost. Our results of operations and financial condition may not always meet the expectations of public market analysts or investors, and may vary from period to period due to a variety of factors beyond our control, which could cause the price of our Class A Ordinary Shares to decline.

 

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If we are unable to retain existing clients or attract new ones, or to attract sufficient spending from our clients, our business, results of operations and financial condition could be materially and adversely affected.

 

In order to increase our revenue and maintain our growth, we must retain existing clients and attract new ones, and encourage their usage of our services. As is common in the industry, we do not have long-term service agreements with our clients with respect to each of our business lines. A substantial portion of our revenue comes from agreements that are on a project-by-project basis or for a term of one year or shorter, such as agreements for customized reports and marketing skills training. Revenue from these agreements is not recurrent in nature, which exposes us to the risks of uncertainty and potential volatility with respect to our revenue. Our success depends in large part on our ability to continue to offer high-quality services through our service platform in a cost-effective manner. To this end, we must continue to expand our offline service offerings and keep abreast of user preferences and market trends. Clients may cease their usage of our services or may only be willing to purchase our services at reduced prices if we do not deliver services in an effective manner, or if they do not believe that their spending with us will generate a competitive return or effect as compared to alternative service providers, which will adversely affect our business. Our ability to retain existing clients and attract new ones also depends on the following factors, some of which are out of our control:

 

our brand recognition and market presence;

 

the competitiveness of our pricing and payment terms for our clients, which may, in turn, be constrained by our capital and financial resources;

 

the market acceptance of new services and functionalities we may introduce;

 

mergers, acquisitions or other consolidation among market players; and

 

the effects of domestic and global economic conditions on the development of the equity investment industry generally.

 

If we are unable to retain our existing clients and attracting new clients due to any of the foregoing factors, our business will be adversely affected. Further, if our existing clients decrease or cease their usage of our services, we may be unable to acquire new clients that spend similarly or even more for our services, and our ability to maintain and/or grow our revenue may be materially and adversely affected.

 

If we lose the services of any of our key executive officers and other key employees, or are unable to retain, recruit and hire experienced staff, our ability to effectively manage and execute our operations and meet our strategic objectives could be harmed.

 

Our future success depends on the continued service of our key executive officers and other key employees. We benefit from the leadership of a strong management team with proven vision, rich professional work experience, and extensive knowledge of China’s corporate business training industry and corporate consulting industry. We also rely on a number of key personnel for the development and operation of our business. In addition, we will need to continue attracting and retaining skilled and experienced staff for our businesses to maintain our competitiveness. If one or more of our key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all and may incur additional expenses to recruit and train new personnel, our business could be materially and adversely affected. In addition, if any of our executive officers or key employees joins a competitor or forms a competing company, we may lose know-how, trade secrets and clients. Substantially all of our employees, including each of our executive officers and key employees, have entered into confidentiality agreements with us, which contains customary non-compete provisions. Although non-compete provisions are generally enforceable under PRC laws, PRC legal practice regarding the enforceability of such provisions is not as well-developed as in countries such as the United States. Thus, if we need to enforce our rights under the non-compete provisions, we cannot assure you that a PRC court would enforce such provisions. If we lose the services of any of our key executive officers, senior management, or are unable to retain, recruit and hire experienced staff, our ability to effectively manage and execute our operations and meet our strategic objectives could be harmed.

 

Our business could suffer if we are unable to retain or hire quality in-house writers and editors.

 

We maintain a professional in-house content creation team to create high-quality original content. We intend to continue to invest resources in our in-house writer and editorial team to maintain and improve content creation capabilities. Nevertheless, the demand and competition for talents is intense in our industry, particularly for skilled writers and editors. Therefore, we may need to offer high compensations and additional benefits to maintain a skilled in-house content creation team, which could increase our expenses. If we fail to compete effectively for talents, or to retain existing writers or editors, or fail to otherwise maintain an in-house content creation team at reasonable costs, our in-house content creation capabilities would be negatively affected. If we are unable to offer high-quality original content in a cost-effective manner, our user experience may be adversely affected, and we may suffer from reduced user traffic. Our business, results of operations and financial condition may be materially and adversely affected as a result.

 

We have a substantial client concentration, with a limited number of clients accounting for a substantial portion of our revenues.

 

We derive a significant portion of our revenues from a few major clients. For the nine months ended September 30, 2022, two major clients, Chongqing Longjinyun Enterprise Management Partnership (Limited Partnership) and Qingdao Yingmanli Enterprise Management Partnership (Limited Partnership), accounted for 23% and 22% of the Company’s revenues respectively. The contract with Chongqing Longjinyun Enterprise Management Partnership (Limited Partnership), dated August 22, 2022, has a term of one year, and will expire on August 21, 2023. The contract with Qingdao Yingmanli Enterprise Management Partnership (Limited Partnership), dated March 1, 2022, has a term of one year and will expire on February 28, 2023. In the nine months ended September 30, 2021, two clients, Guangzhou Tiancheng Capital Management Group Co., Ltd. and Jiangmen Jiahong Environmental Protection Technology Co., Ltd., accounted for 26% and 18% of the Company’s revenues, respectively. The contract with Guangzhou Tiancheng Capital Management Group Co., Ltd., dated July 6, 2021, has a term of one year and expired on July 5, 2022. The contract with Jiangmen Jiahong Environmental Protection Technology Co., Ltd., dated June 20, 2021, has a term of one year and expired on June 19, 2022.

 

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In the year ended December 31, 2021, two major clients, Zhangjiajie Zhenghang Commercial Partnership (Limited Partnership) and Guangzhou Tiancheng Capital Management Group Co., Ltd., accounted for 15% and 14% of the Company’s revenues, respectively. The contract with Zhangjiajie Zhenghang Commercial Partnership (Limited Partnership), dated November 29, 2021, has a term of one year and will expire on November 28, 2022. The contract with Guangzhou Tiancheng Capital Management Group Co., Ltd., dated July 6, 2021, has a term of one year and expired on July 5, 2022. In the year ended December 31, 2020, three clients, Guangzhou Tiancheng Capital Management Group Co., Ltd., Chongqing Yangyiyang Enterprise Management Co., Ltd., and Chongqing Qiyun Biotechnology Co., Ltd., each accounted for 17%, 13% and 10% of the Company’s revenues, respectively. The contract with Chongqing Yangyiyang Enterprise Management Co., Ltd., dated June 30, 2020, had a term of one year and expired on June 29, 2021. The contract with Chongqing Qiyun Biotechnology Co., Ltd., dated December 1, 2020, had a term of one year and expired on November 30, 2021.

 

In addition, as of September 30, 2022, one major client, Chongqing Longjinyun Enterprise Management Partnership (Limited Partnership), accounted for 87% of the Company’s accounts receivable. As of December 31, 2021, two clients, Zhangjiajie Zhenghang Commercial Partnership (Limited Partnership) and Guangzhou Bohua Enterprise Management Consulting Co., Ltd., accounted for 37% and 27% of the Company’s accounts receivable, respectively. The contract with Guangzhou Bohua Enterprise Management Consulting Co., Ltd., dated December 1, 2021, has a term of one year and will expire on November 30, 2022.As of December 31, 2020, two clients, Chongqing Yangyiyang Enterprise Management Co., Ltd. and Chongqing Qiyun Biotechnology Co., Ltd., each accounted for 35% and 31% of the Company’s accounts receivable, respectively.

 

Inherent risks exist whenever a large percentage of total revenues are concentrated with a limited number of clients. It is not possible for us to predict the future level of demand for our services that will be generated by these clients or the future demand for our services by these clients in the marketplace. If any of these clients declines our services due to market, economic or competitive conditions, it could have an adverse effect on our margins and financial position, and could negatively affect our revenues and results of operations. 

 

The industry in which we operate is highly fragmented and intensively competitive, and if we fail to compete effectively with current or future competitors, our business, results of operations and financial conditions could be materially and adversely affected.

 

The equity investment service industry in China is highly fragmented and intensely competitive. Market players in the equity investment service industry primarily include service platforms for equity investment industry, referring to service providers which offer two or more types of equity investment services, and other service providers. Our ability to grow and stand out among our peers and competitors in this highly fragmented industry depends on many factors, including our ability to expand our geographical coverage in China, to improve our offline service offerings and enhance online-offline synergy. We cannot assure you that we will achieve any of the foregoing goals, and the failure to achieve such goals could materially and adversely affect our business, results of operations and financial condition. Moreover, the highly fragmented market has presented significant likelihood for market consolidation. If one or more of our competitors, especially other top players in the market, were to merge or partner with another of our competitors, the change in the competitive landscape could also adversely affect our ability to compete effectively or may even cause us to lose our leading position in the market, which may in turn materially and adversely affect our reputation, business, results of operations and financial condition.

 

Increasing competition within our industries could have an impact on our business prospects.

 

We operate in an industry where new competitors can easily enter into since there are no significant barriers to entry. We also face many competitors in the knowledge sharing industry where a number of competitors have been in business longer than us. Competing companies may have significantly greater financial and other resources than we have and may offer services that are more attractive to prospective clients; and increased competition would have a negative impact on both our revenues and our profit margins.

 

Our failure to obtain necessary permits for our offline industry events may subject us to adjustment or cancellation of industry events and may adversely affect our business, results of operations and financial condition.

 

While no license is required for holding offline events in general under PRC laws and regulations, we may be required to obtain an event-specific security permit or make relevant filings for large-scale mass activities each time before we hold an offline industry event if the estimated number of participants exceeds a certain number of people. Although we will endeavor to obtain all necessary permits or complete all required filings according to our estimate of the condition of each specific event and currently we do not plan to hold large-scale events requiring security permits or filings, we cannot assure you that we will be able to obtain relevant permits or complete relevant filings in a timely manner or at all in order to organize our offline industry events as planned, as the regulatory practices with respect to an offline industry event may vary from time to time and the local authorities retain broad discretion in enforcing the relevant requirements. In addition, the permit requirements in China are constantly evolving, and we may be subject to more stringent regulatory requirements due to political or economic changes in the future. If we fail to obtain relevant permits or complete relevant filings to organize our offline industry events as planned, we may have to adjust our event coverage and other arrangements, or even cancel the relevant events. If our offline industry events are reduced in size or even canceled, our business, results of operations and financial condition may be materially and adversely affected. Even if we have obtained all prerequisite permits or completed all required filings, government authorities may unexpectedly suspend our scheduled offline industry events due to a variety of reasons beyond our control. Local police security authorities may prevent participants from entering our offline industry events and impose administrative penalties on us if the visitor flow exceeds the prescribed limit. Such abrupt suspensions and restrictions might adversely affect the brand-building and networking activities of our industry clients, which in turn could discourage them from participating in our future events and materially and adversely affect our business, results of operations and financial condition. Moreover, the provisions of our offline industry events have been disrupted by the COVID-19 outbreak and relevant government measures requiring quarantine and social distancing. If the outbreak persists or escalates, we may be subject to further negative impact as a result of government measures to contain its spread, which may lead to cancellation, suspension or rescheduling of our offline industry events, and our business, reputation, results of operations and financial condition may be materially and adversely affected.

 

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Fluctuation in the value of the Renminbi and other currencies may have a material adverse effect on the value of your investment.

 

Our financial statements are expressed in USD. However, all of our revenues and expenses are denominated in Renminbi (RMB). Our exposure to foreign exchange risk primarily relates to the limited cash denominated in currencies other than the functional currencies of each entity. We do not believe that we currently have any significant direct foreign exchange risk and have not hedged exposures denominated in foreign currencies or any other derivative financial instruments. However, the value of your investment in our Class A Ordinary Shares will be affected by the foreign exchange rate between USD and RMB because the primary value of our business is effectively denominated in RMB, while the Class A Ordinary Shares will be traded in USD. 

 

The value of the RMB against the USD and other currencies is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange policies. The People’s Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in RMB exchange rate and achieve certain exchange rate targets, and through such intervention kept the USD-RMB exchange rate relatively stable.

 

As we may rely on dividends paid to us by our PRC subsidiary, any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition, and the value of any dividends payable on our Class A Ordinary Shares in foreign currency terms. For example, to the extent that we need to convert USD we receive from this offering into for our operations, appreciation of the RMB against the USD would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert our RMB into USD for the purpose of making payments for dividends on our Class A Ordinary Share or for other business purposes, appreciation of the USD against the RMB would have a negative effect on the USD amount available to us. Furthermore, appreciation or depreciation in the value of the RMB relative to the USD would affect our financial results reported in USD terms without giving effect to any underlying change in our business or results of operations. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign exchange losses in the future. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert into foreign currencies.

 

The success of our business depends on our ability to maintain and enhance our brand.

 

We believe that maintaining and enhancing our brand is significant to the success of our business. Our operational and financial performance is highly dependent on the strength of our well-recognized brand, which is critical for forging long-term relationships with China’s investors, entrepreneurs and growth enterprises, and governmental agencies at low client acquisition cost. However, we cannot assure you that we will be able to maintain and enhance our brand and remain our leadership position in China’s equity investment service industry. In addition, negative publicity about us, our services, operations and our management could threaten the perception of our brand. We may receive negative publicity, including negative Internet and blog postings about our Company, our business, our management, our services or our affiliates. Such negative publicity may come from malicious harassment or unfair competition acts by third parties. We may even be subject to government or regulatory investigation as a result of such negative publicity and may be required to spend significant time and incur substantial costs to defend ourselves, and we may not be able to conclusively refute each of the allegations within a reasonable period of time, or at all. Harm to our reputation and client confidence can also arise for many other reasons, including misconduct of our employees or any third parties we conduct business with. As a result, our brand may suffer in the marketplace, our operational and financial performance may be negatively affected and the price of our Class A Ordinary Shares may decline.

 

We may not be able to successfully compete with our competitors, which could materially and adversely affect our business, results of operations and financial condition.

 

The equity investment service industry in China is becoming increasingly competitive, and we expect it to remain so. We compete primarily with other equity investment service providers including data service providers, online advertising service providers, offline event service providers, consulting service providers, training service providers, etc. As China’s equity investment service industry continues to evolve and grow, we may face increased competition from new market entrants. We compete based on a number of factors, including industry experience and insights, ability to adapt to evolving needs of our clients, brand recognition, network, price, breadth of services offered, level of service integration and technology capabilities. If we fail to compete effectively against our competitors, our business, results of operations and financial condition would be materially and adversely affected. Our competitors may operate with different business models, have different cost structures, participate selectively in different market segments or offer a wider range of products and services. They may ultimately prove more successful or more adaptable to new regulatory, technological and other developments. Some of our current and potential competitors may have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their products and services. Our competitors may also have longer operating histories, more extensive client base, greater brand recognition and broader partner relationships than us. Additionally, a current or potential competitor may acquire one or more of our existing competitors or form a strategic alliance with one or more of our competitors. Our competitors may also from time to time solicit our employees in order to compete in each of our business lines; and certain of our services are newly developed and may fail to compete effectively and achieve market adoption. If we are unable to compete effectively with our competitors, we could experience a decline of our market share, which in turn would materially and adversely affect our business, results of operations and financial condition.

 

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Our clients with rapidly evolving business may face inherent risks and uncertainties, which could adversely affect their demands for our services.

 

We are dedicated to serving, among others, entrepreneurs and growth enterprises and investors, whose businesses and prospects are constantly changing and rapidly evolving. As China has witnessed significant economic development and transformation in recent years, an increasing number of innovative business models have emerged, which further contributes to China’s economic growth and the prosperity of the equity investment industry. However, there are significant risks and uncertainties with respect to the growth and sustained profitability of these emerging businesses. The short-term growth of new businesses may not be as fast as we expect, while the long-term viability and prospects of new business models remain relatively untested. Our future business, results of operations and financial condition will depend on the development of these new businesses and the performance of our clients, which is in turn subject to the following factors:

 

our clients’ ability to enhance their existing products and services, to introduce new products and services that meet market preferences, and to expand their markets;

 

the complex regulatory landscape and governmental measures affecting the emerging businesses in China;

 

our clients’ ability to incorporate technological advancements and predict and adapt to market changes;

 

the appeal of the new businesses to continue to attract, retain, manage and motivate the key talents; and

 

the global and domestic economic fluctuations and market trends.

 

Most of these factors are beyond the control of our clients and ourselves. For example, if new regulatory measures impose strict licensing requirements on emerging businesses in which our clients operate, they may incur substantial cost in obtaining the requisite licenses and suffer declines in their profits. Moreover, if they are unable to meet the licensing requirements, they may be compelled to discontinue successful business operations, or be subject to warnings, fines and confiscation of gains. Such significant business interruptions may reduce our clients’ demand for our services, and therefore, materially and adversely affect our business, results of operations and financial condition.

 

The implementation of our expansion plan may not be successful and may lead to increases in our costs and expenses, which may adversely affect our profitability, business, results of operations and financial condition.

 

As part of our growth strategies, we intend to, among others, expand our geographical coverage in China. There is no assurance that we can successfully implement such strategies to capture the market demand or that such strategies can be implemented according to our proposed schedules and estimated costs, due to various factors, such as the sufficiency of financial resources, and our ability to employ sufficient and competent personnel. In addition, benefits to be generated from such expansion plan, such as increase in revenue, may not be as expected due to factors beyond our control, such as changes in general market conditions and client demands, the economic and political environment in the areas where we intend to expand into. Furthermore, in carrying out our expansion plan, we expect to incur additional costs and expenses, such as employee benefit expenses, selling and marketing expenses, rental expenses and depreciation and amortization. Our plan to strengthen our sales and marketing efforts through online advertisement placements and sales and marketing employee recruitment is also expected to result in an increase in our selling and marketing expenses. Such factors may cause a delay in realizing the benefits of our expansion plan and an increase in our overall costs and expenses, or even prevent us from generating sufficient earnings to cover the costs and hence, our results of operations, in particular our profitability, may be adversely affected.

 

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The continued expansion of our business may also place significant strain on our managerial, operational, technological, financial and other resources. To manage and support our growth, we may need to improve our existing operational and administrative systems, improve our financial and management controls, and enhance our ability to recruit, train and retain additional qualified personnel. All of these endeavors will require substantial attention and time from management and may incur significant additional expenditures. We cannot assure you that we will be able to manage our future growth effectively and efficiently, and our ability to capitalize on new business opportunities may be materially and adversely affected if we fail to do so, which could in turn materially and adversely affect our business, results of operations, financial condition and prospects.

 

In view of the above-mentioned uncertainties, there is no assurance that our expansion plan will materialize, or be completed by the predetermined timeframe, or that our objectives will be fully or partially achieved. In the event that we fail to implement our expansion plan as planned, or our expansion plan fails to achieve expected benefits, our profitability, results of operations and financial condition may be materially and adversely affected.

 

Our improvements of our existing services and introduction of new services may not be successful or may fall short of expected results.

 

Our success depends in large part on our ability to improve our existing services, introduce new services and enhance our market competitiveness. The success of any improvement or new service depends on a number of factors, including actual performance, pricing level, market competition, industry trend and client demand, many of which are beyond our control. However, our future plans may require us to devote significant financial and managerial resources, and we cannot assure you that we will achieve our goals to successfully improve our existing services and achieve market acceptance of our new services, which could compromise our ability to serve our users and clients effectively. If our equity investment services become less attractive to existing and potential users and clients, our business, results of operations and financial condition may be materially and adversely affected.

 

If we fail to help facilitate the brand-building and networking of the sponsors and participants of our offline industry events due to factors beyond our control, our operational and financial results might suffer.

 

Sponsors and participants are attracted to our offline industry events due to the brand-building and networking prospects. The brand-building and networking results at our offline industry events might fail to meet the expectation of those sponsors and participants due to factors beyond our control, including among others, changes in the regulatory environment, a downturn or unfavorable development in the equity investment industry in China, overall domestic or global economic downturn and the resulting decrease in investment ability and willingness, and contingencies that occur on event dates such as inclement weather or sudden public security measures which affect our ability to host the events effectively, or at all. Other factors may also affect our ability to host satisfactory offline industry events, such as conflicts with other local events, road traffic control, outbreaks of contagious disease or the potential for infection, or acts of nature, such as earthquakes, storms, and typhoons. If we fail to help facilitate the brand-building and networking of offline industry event sponsors and participants, they might be less inclined to participate in our future events, which could materially and adversely affect our business, results of operations and financial condition.

 

Our failure to honor our obligations may lead to our refund obligation, client dissatisfaction, or even clients’ disputes with us, which may adversely affect our reputation, business, results of operations and financial condition.

 

Clients for customized reports, offline industry events and offline course offerings generally prepay us a majority of the total contract values upon signing. Our contract liabilities primarily consisted of these prepayments. We had contract liabilities of $285,300 and $587,396 as of September 30, 2022 and December 31, 2021. As of the same date, we had cash of $2,554,803 and $3,816,940, respectively. Our contract liabilities are generally not refundable. However, if we fail to honor our obligations in respect of our contract liabilities, clients may request to cancel their agreements with us or ask for a partial or full refund, which may lead to our refund obligation, client dissatisfaction or even clients’ disputes with us. In the event that we are required to refund some or all of the prepayments from our clients pursuant to the contract provisions, we may not have the cash or other available resources to fulfill the refund obligation. Even if we are able to fulfill the refund obligation from available resources (including potentially a portion of the net proceeds of this Offering), we may need to seek additional sources of capital to fund our operations, which funding may not be available when needed or on acceptable terms. In either of those circumstances, our business, results of operations, financial condition and reputation may be materially and adversely affected. Furthermore, in the future, clients may elect not to prepay us for our services in which case we would have to find other sources of funding for our operations, capital expenditures and expansion plans, which would be costly as compared to the aforementioned cost-free client prepayment funding and which may not be available when needed or on acceptable terms.

 

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We may be held liable for injuries to individual participants of our offline industry events, which may materially and adversely affect our reputation, business, results of operations and financial condition.

 

We take event security seriously, and make every effort to ensure the safety of the participants during our offline industry events, such as industry-wide forums and outdoor challenges. However, we cannot guarantee that no physical injury will occur during our offline industry events, for which we could be held liable. Under the PRC laws and regulations, the organizer of a large-scale group activity shall bear tort liability for damages to a third party arising from such organizer’s failure to fulfill its security obligations. If the act of a third party results in damage to others in a large-scale group activity, the organizer that failed to fulfill security obligations shall also bear supplementary liability. Therefore, we might face negligence claims alleging that we fail to maintain our facilities or to supervise our employees. In addition, if any participants of our offline events commit acts of violence, we could also face allegations that we failed to provide adequate security or were otherwise responsible for his or her actions. Additionally, our offline events may be perceived to be unsafe, which may discourage prospective sponsors, participants and media partners from attending. Any of the foregoing could materially and adversely affect our business, results of operations and financial condition.

 

Our consulting business is dependent on our ability to identify, execute and complete projects successfully and is subject to various risks.

 

The transactions that we generally advise on, including equity and debt financing, as well as mergers and acquisitions, may be subject to review and approvals by various regulatory authorities. The results and timing of necessary regulatory approvals are beyond our or involving parties’ control. Any failure to obtain the necessary regulatory approvals for these transactions in a timely manner may cause substantial delays to, or even the termination of, relevant transactions. In addition, the successful conclusion of transactions depends upon a number of other factors, such as market trends and investors’ decisions, many of which are beyond our control. We generally charge consulting fees or commissions based on a certain percentage of the deal size, and we are generally entitled to receive payment of such fees or commissions only after the successful completion of the relevant transaction. If a transaction is not completed as scheduled or at all for any reason, we may not be able to receive fees or commissions for services that we have provided in a timely manner or at all, which could materially and adversely affect our business, results of operations and financial condition. Furthermore, we may face increasing challenges in terms of deal execution, client development, pricing and legal risks in light of the constantly evolving regulatory framework and the market conditions. If we are unable to adapt our business strategies to such economic and legal challenges, we may not be able to compete effectively, which could in turn materially and adversely affect our business, results of operations and financial condition.

 

The due diligence that we undertake in the course of our business operations is inherently limited and may not reveal all facts that may be relevant.

 

In the course of providing consulting services, we endeavor to conduct due diligence review that we deem reasonable and appropriate based on relevant regulatory and market standards, as well as the facts and circumstances applicable to each deal. When conducting due diligence, we are often required to evaluate critical and complex business, financial, tax, accounting, environmental, regulatory and legal issues. Outside consultants, such as legal advisors and accountants, may be involved in the process in varying degrees depending on the type of deal. Nevertheless, when conducting due diligence and making an assessment, we are limited to the resources available, including information provided by the potential clients and, in some circumstances, third-party investigators. Our due diligence may not reveal or highlight all relevant facts and issues that may be necessary or helpful in evaluating potential risks, which may subject us to inaccurate assessment regarding financing opportunities and growth prospects of the potential clients. Moreover, such an investigation will not necessarily result in the successful completion of a deal, which may increase our costs and therefore materially and adversely affect our business, results of operations and financial condition.

 

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If we are not able to continue to retain and attract clients to purchase our course offerings, our business and prospects will be materially and adversely affected.

 

Our ability to continue to attract clients to purchase our course offerings are critical to the continued success and growth of our corporate business training services. This in turn will depend on several factors, including our ability to engage high-level industry practitioners as our instructors, continue to develop, adapt or enhance quality of our course offerings to meet the evolving demands of our existing or prospective clients, and effectively market our course offerings and enhance our brand awareness to a broader base of prospective clients. We may not always be able to meet our clients’ expectations due to a variety of reasons, many of which are outside of our control. We may face client dissatisfaction due to our clients’ perceptions that we fail to help them achieve their learning goals, as well as our clients’ overall dissatisfaction with the quality of our course offerings and our instructors. We must also manage our growth while maintaining consistent and high course quality, and respond effectively to competitive pressures. If we are unable to continue to retain and attract clients to purchase our course offerings, our revenue for corporate business training services may decline, which may have a material adverse effect on our business, results of operations and financial condition. 

 

We may not be able to maintain or increase our course fee level.

 

Our revenue generated from corporate business training services are affected by the pricing of our training courses. We determine our course fees primarily based on the demand for our courses, the cost of our operations, the course fees charged by our competitors, our pricing strategy to gain market share and general economic conditions in the PRC. Leveraging our long-standing industry expertise and comprehensive course offerings, we offer high-end equity investment training services and charge premium fees comparable to trainings services of the same category for our course. Although we charge premium course fees for our courses compared with the majority of the equity investment training service providers, we cannot guarantee that we will be able to maintain or increase our course fees in the future without adversely affecting the demand for our corporate business training services.

 

We may not be able to timely develop our courses in a cost-effective manner to make them appealing to existing and prospective clients, or at all.

 

As our training courses cover topics regarding China’s rapidly evolving equity investment industry, we work closely with our instructors on developing, updating and improving our course materials to stay abreast of the latest development trends in each subsector of the industry. The adjustments, updates and expansions of our existing course content and the development of new course materials may not be accepted by existing or prospective clients. Even if we are able to develop acceptable new course materials, we may not be able to introduce them as quickly as clients require or as quickly as our competitors introduce competing offerings. Furthermore, offering new courses materials or upgrading existing ones may require us to commit significant resources and make significant investments in course content development. If we are unsuccessful in pursuing course content development and upgrading opportunities due to the financial constraints, failure to attract qualified instructors, or other factors, our ability to attract and retain clients could be impaired and our business, results of operations and financial condition could be materially and adversely affected.

 

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We may be subject to liability claims for any inappropriate or illegal content in our courses and any misconduct of our instructors or employees, which could cause us to incur legal costs and damage our reputation.

 

We implement strict monitoring procedures to remove inappropriate or illegal content in our courses. However, we cannot assure you that there will be no inappropriate or illegal materials included in our offline or online courses. Therefore, we may face civil, administrative or criminal liability if an individual or corporate, governmental or other entity believes that the content of our courses violates any laws, regulations or governmental policies or infringes upon its legal rights. In addition, in the event of accident or injuries or other harm to our clients or other people during our course offerings, including those caused by or otherwise arising from the actions or negligence of our employees or instructors, we could face negligence claims for inadequate security measures or lack of supervision of employees or instructors. Even if such claim is not successful, defending such claim may cause us to incur substantial costs. Moreover, any accusation of inappropriate or illegal content in our courses and any misconduct of our instructors or employees could lead to significant negative publicity, which could harm our reputation and future business prospects.

Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business, reputation and competitive edge. Intellectual property is crucial to our competitiveness and success.

 

Unauthorized use of our intellectual property may adversely affect our business and reputation. We rely on a combination of contractual restrictions, confidentiality procedures, and intellectual property registrations to protect our intellectual property rights. Despite our efforts to protect our proprietary rights, third parties may attempt to copy or otherwise obtain or use our intellectual property, including seeking court declaration that they do not infringe upon our intellectual property rights. Monitoring unauthorized use of our intellectual property is difficult and costly, and the steps we have taken may not fully prevent misappropriation of our intellectual property. We may not be able to detect all such websites in a timely manner and, even if we could, technological measures may be insufficient to stop their operations, and could require us to expend significant financial or other resources. Furthermore, the practice of intellectual property rights enforcement action by Chinese regulatory authorities is at its early stage of development and is subject to significant uncertainty. We may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources, and thus may adversely affect our business. In addition, there is no assurance that we will be able to enforce our intellectual property rights effectively or otherwise prevent others from the unauthorized use of our intellectual property. Failure to adequately protect our intellectual property could materially and adversely affect our brand name and reputation, and our business, results of operations and financial condition.

 

Third parties may claim that we infringed their proprietary intellectual property rights, which could cause us to incur significant legal expenses and prevent us from promoting our services.

 

We could be involved in litigation related to allegations of infringement of intellectual property rights. While we screen content offered in our service offerings to avoid potential intellectual property right infringement, we may not be able to identify all instances of infringement, especially those arising from content we source from others. Third parties may claim that, as the service provider delivering such contents, we are also liable for any infringement upon the third parties’ rights jointly with the content providers. We typically rely on representations from third-party content providers that their contents do not infringe upon third parties’ intellectual property rights and on indemnification should any such representations become inaccurate and we suffer damages as a result, including any damages resulting from third-party claims. However, indemnification may not be adequate in recovering our loss if the contents we deliver indeed infringe upon valid patents, trademarks, copyrights or other intellectual property rights. Moreover, third parties may also claim that the software or technologies we currently use in our business operations infringe their intellectual property rights, which may subject us to potential liabilities. We have implemented operational protocols to use our best efforts to ensure compliance with intellectual property laws. However, there can be no assurance that third-party right holders will not assert intellectual property infringement or other related claims against us in the future. Defending against these claims is costly and can impose a significant burden on our management and resources. Such claims may harm our reputation. Any liability or expenses resulting from such claims, or necessary changes to our services to reduce the risk of future liability, may have a material adverse effect on our business, results of operations and financial condition.

 

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We face risk related to our collection and use of data, which could result in regulatory actions, litigations and negative publicity about privacy and data protection practices.

 

Our data capabilities are fundamental to our business operation. We face risks inherent in collecting and handling large volumes of data and in protecting the security of such data. We could be subject to attacks to our systems by outside parties or fraudulent or inappropriate behaviors by our employees or business partners. Third parties may also gain access to our data using computer malware, viruses, spamming, phishing attacks or other means. Data breaches or any misconduct during the process of collection, storage and use of data, could result in a violation of applicable data privacy and protection laws and regulations in China, and subject us to regulatory actions, investigations or litigations. We could incur significant costs in investigating and defending against them and we could be subject to negative publicity about our privacy and data protection practices that may affect our reputation in the marketplace. Our potential risk related to our collection and use of data could require us to implement measures to reduce our exposure to liability, which may require us to expend substantial resources and limit the attractiveness of our data and other services to clients.

 

Non-compliance with law on the part of any third parties with which we conduct business could disrupt our business and adversely affect our results of operations and financial condition.

 

Third parties with which we conduct business, such as third-party content providers and marketing service clients, may be subject to regulatory penalties or punishments because of their regulatory compliance failures or may be infringing upon other parties’ legal rights, which may, directly or indirectly, disrupt our business. Although we conduct review of legal formalities and certifications before entering into contractual relationships with third parties, and use our best efforts to take measures to reduce the risks that we may be exposed to in case of any non-compliance by third parties, we cannot be certain whether such third party has violated any regulatory requirements or infringed or will infringe any other parties’ legal rights. For example, content providers may submit copyrighted content that they have no right to distribute, and we may not be able to identify all instances of copyright infringement. In the event we release content that violates copyrights of a third party on our online platforms, we may be required to pay damages to compensate such third party. Even though we have the contractual right to seek indemnification from the relevant content provider for such payment, there can be no assurance that we will be able to enforce such right. As a result, our business, results of operations and financial condition could be materially and adversely affected. Similarly, advertisement content provided by our clients may also not be in full compliance with applicable laws and regulations.

 

We cannot rule out the possibility of incurring liabilities or suffering losses due to any non-compliance by third parties. We cannot assure you that we will be able to identify irregularities or non-compliance in the business practices of third parties we conduct business with, or that such irregularities or non-compliance will be corrected in a prompt and proper manner. Any legal liabilities and regulatory actions affecting third parties involved in our business may affect our business activities and reputations, and may in turn affect our business, results of operations and financial condition.

 

We may be involved in legal proceedings or arbitration claims, and the court ruling or arbitration award may not be favorable to us.

 

We were not and currently are not involved in any litigation or arbitration proceedings pending or, to our knowledge, threatened against us or any of our directors that could have a material and adverse effect on our reputation, business, financial condition or results of operations. Therefore, no provision was made for legal proceedings or arbitration claims. However, we cannot assure you that there will not be such proceedings or claims in the future or any proceedings or claims during the ordinary course of our business (including but not limited to those in relation to contract disputes between us and our clients). We may also bring legal proceedings against others. We may incur enormous legal costs and, if the outcomes of these legal proceedings or arbitration claims are unfavorable to us, we may be confronted with significant legal liabilities, waste enormous legal costs incurred, and/or suffer financial or reputational damages, which may materially and adversely affect our business, financial condition, and results of operations.

 

Immediate impact on global economy caused by the ongoing Russian invasion of Ukraine and any other conflicts could adversely affect our business and results of operations.

 

On February 24, 2022, the Russian Federation launched an invasion of Ukraine that has had an immediate impact on the global economy resulting in higher energy prices and higher prices for certain raw materials and goods and services which in turn is contributing to higher inflation in the United States and other countries across the globe with significant disruption to financial markets and supply and distribution chains for certain raw materials and goods and services on an unprecedented scale. The impact of the sanctions has also included disruptions to financial markets, an inability to complete financial or banking transactions, restrictions on travel and an inability to service existing or new clients in a timely manner in the affected areas of Europe. The Russian Federation could resort to cyberattacks and other action that impact businesses across the United States, the European Union and other nations across the globe including those without any direct business ties to the Russian Federation. The Russian invasion of Ukraine has continued to escalate without any resolution of the invasion foreseeable in the near future with the short and long-term impact on financial and business conditions in Europe remaining highly uncertain.

 

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The U.S. and the European Union responded to Russia’s invasion of Ukraine by imposing various economic sanctions on the Russian Federation to which the Russian Federation has responded in kind. The United Kingdom, Japan, South Korea, Australia and other countries across the globe have imposed their own sanctions on the Russian Federation. The United States, the European Union and such other countries acting together or separately could impose wider sanctions or take further actions against the Russian Federation if the conflict continues to escalate. Multinational corporations and other corporations and businesses with business and financial ties to the Russian Federation have either reduced or eliminated their ties to the Russian Federation in a manner that often exceeds what is required pursuant to sanctions by these countries. While we do not have any direct business or financial ties to the Russian Federation or Ukraine as part of our own business, the impact of higher energy prices and higher prices for certain goods and services resulting in higher inflation and disruptions to financial markets across the globe may impact our business in the future.

In addition, any deterioration in credit markets resulting directly or indirectly from the ongoing Russian invasion of Ukraine could limit our ability to obtain external financing to fund our operations and capital expenditures. Adverse economic conditions may also result in a higher rate of losses on accounts receivables that we accrue in the future due to credit defaults. As a result, a downturn in the worldwide economy resulting from the Russian invasion of Ukraine and other conflicts with a global impact that may arise from time to time could have a material adverse effect on our business, results of operations, and/or financial condition.

 

A severe or prolonged downturn in Chinese or global economy could materially and adversely affect our business, results of operations, financial condition and prospects.

 

The global macroeconomic environment is facing challenges, including the US-China trade war, the end of quantitative easing and start of interest rate hike by the U.S. Federal Reserve, the economic slowdown in the Eurozone since 2014, uncertainties over the impact of Brexit and the Russian Federation’s invasion of Ukraine. The Chinese economy has shown slower growth since 2012 compared to the previous decade and the trend may continue. There is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China. There have been concerns over unrest and terrorist threats in the Middle East, Europe and Africa, which have resulted in market volatility. There have also been concerns on the relationship between China and other countries, including the surrounding Asian countries, which may potentially have economic effects. Recent international trade disputes, including tariff actions announced by the United States, China and certain other countries, and the uncertainties created by such disputes may cause disruptions in the international flow of goods and services and may adversely affect the Chinese economy as well as global markets and economic conditions. In addition, the recent market panics over the global outbreak of COVID-19 and the drop in oil prices materially and negatively affected the global financial markets, which may cause slowdown of the global economy. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in Chinese or the global economy may materially and adversely affect our business, results of operations, financial condition and prospects.

 

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We may need additional capital, and we may be unable to obtain such capital in a timely manner or on acceptable terms, or at all.

 

We may require additional capital beyond those generated by this offering from time to time to grow our business, including to better serve our clients, develop new service offerings, enhance our data collection and analytics capabilities and online platforms, improve our operating and technology infrastructure or conduct acquisition of complementary businesses and technologies. Accordingly, we may need to sell additional equity or debt securities. Future issuances of equity or equity-linked securities could significantly dilute our existing Shareholders, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A Ordinary Shares. The incurrence of debt financing would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations or our ability to pay dividends to our shareholders.

 

Our ability to obtain additional capital is subject to a variety of uncertainties, including:

 

our market position and competitiveness in the equity investment service industry;

 

our future profitability, overall financial condition, results of operations and cash flows;

 

general market conditions for fundraising activities by equity investment service providers in China; and

 

economic, political and other conditions in China and internationally.

 

We may be unable to obtain additional capital in a timely manner or on acceptable terms or at all. If we are unable to obtain adequate financing on terms satisfactory to us when we require it, our ability to continue to support our business growth could be significantly impaired, and our business and prospects could be materially and adversely affected.

 

Our insurance coverage may not be adequate, which could expose us to significant costs and business disruption.

 

We have maintained insurance policies covering damages to certain of our properties. However, insurance companies in China generally do not offer as extensive an array of insurance products as insurance companies do in countries with more developed economies. Consequently, we do not maintain sufficient business interruption insurance, business liability insurance or key man life insurance, which are not mandatory under PRC laws. Any business disruption, litigation or natural disasters, or any significant damages to our equipment or facilities may cause to incur substantial costs and divert our resources, and we may have no insurance to cover such losses. As a result, our business, results of operations and financial condition could be materially and adversely affected.

 

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Class A Ordinary Shares less attractive to investors.

 

We are an “emerging growth company” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our Class A Ordinary Shares less attractive because we may rely on these exemptions. If some investors find our Class A Ordinary Shares less attractive as a result, there may be a less active trading market for our Class A Ordinary Shares and our stock price may be more volatile.

 

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An “emerging growth company” can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are choosing to follow the extended transition period, and as a result, we will delay adoption of certain new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

   

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We may undertake mergers, acquisition or investments to diversify or expand our business, which may pose risks to our business and dilute the ownership of our existing shareholders, and we may not realize the anticipated benefits of these mergers, acquisition or investments.

 

As part of our growth and service diversification strategy, we may evaluate opportunities to acquire or invest in other business in the industry. Mergers, investment or acquisitions that we may enter in the future entail a number of risks that could materially and adversely affect our business, operating and financial results, including, among others:

 

problems integrating the acquired operations, technologies or products into our existing business;

 

diversion of management’s time and attention from our core business;

 

  adverse effect on our existing business relationships with clients;

 

need for financial resources above our planned investment levels;

 

failures in realizing anticipated synergies;

 

  difficulties in retaining business relationships with suppliers and clients of the acquired company;

 

risks associated with entering markets in which we lack experience;

 

potential loss of key employees of the acquired company; and

 

potential write-offs of acquired assets.

 

Our failure to address these risks successfully may have a material adverse effect on our financial condition and results of operations. Any such acquisition or investment will likely require a significant amount of capital investment, which would decrease the amount of cash available for working capital or capital expenditures. In addition, if we use our equity securities to pay for acquisitions; the value of your Class A Ordinary Shares may be diluted. If we borrow funds to finance acquisitions, such debt instruments may contain restrictive covenants that can, among other things, restrict us from distributing dividends.

 

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Risks Related to Our Corporate Structure

 

The dual-class structure of our ordinary shares has the effect of concentrating voting control with our Chairman and Chief Executive Officer, directors and their affiliates.

 

Each of our Class B Ordinary Shares has 20 votes per share, and each of our Class A Ordinary Shares, which are the share we are offering in this offering, has 1 vote per share. Mr. Ruilin Xu, our chairman of the board of directors and our chief executive officer, will beneficially own 4.38% of our total issued and outstanding Class A Ordinary Shares and 100% of our total issued and outstanding Class B Ordinary Shares, representing 87.49% of our total voting power following our initial public offering, assuming the full exercise of the over-allotment option by the underwriters. Because of the twenty-to-one voting ratio between our Class B and Class A Ordinary Shares, the holder of our Class B Ordinary Shares will continue to control a majority of the combined voting power of our ordinary share and therefore be able to control all matters submitted to our shareholders for approval so long as the collective voting power of the shares of Class B Ordinary Shares represent more than 50% of the voting power of all outstanding shares of our Class A and Class B Ordinary Shares. As a result, until such time as his collective voting power is below 50%, Mr. Xu as the controlling shareholder has substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions, such as (i) making amendments to our certificate of incorporation and by-laws, (ii) whether to issue additional Class A Ordinary Shares, including to himself, (iii) employment decisions, including compensation arrangements, and (iv) whether to enter into material transactions with related parties. The interests of Mr. Xu as the controlling shareholder may differ from the interests of our other shareholders. He may take actions that are not in the best interests of us or our other shareholders. These corporate actions may be taken even if they are opposed by our other shareholders. Further, concentration of ownership of our Class B Ordinary Shares may discourage, prevent or delay the consummation of change of control transactions that shareholders may consider favorable, including transactions in which shareholders might otherwise receive a premium for their shares. Future issuances of Class B Ordinary Shares may also be dilutive to the holders of Class A Ordinary Shares. As a result, the market price of our Class A Ordinary Shares could be adversely affected. The concentration in the ownership of our ordinary shares will limit the ability of holders of our Class A Ordinary Shares to influence corporate matters for the foreseeable future and may cause a material decline in the value of our Class A Ordinary Shares.

 

For more information regarding our beneficial owners and their affiliated entities, see “Principal Shareholders.” beginning on page 130 of this prospectus. For a description of the dual-class structure, see “Description of Capital Stock—Anti-Takeover Provisions.” on page 135 of this prospectus.

 

As a “controlled company” under the rules of the Nasdaq Capital Market, we may choose to exempt our company from certain corporate governance requirements that could have an adverse effect on our public shareholders.

 

Mr. Ruilin Xu, our chairman of the board of directors and our chief executive officer, will beneficially own 4.38% of our total issued and outstanding Class A Ordinary Shares and 100%% of our total issued and outstanding Class B Ordinary Shares, representing 87.91% of our total voting power, assuming the underwriters do not exercise their over-allotment option, or 87.49% of our total voting power if the underwriters exercise their over-allotment option in full. As such, Mr. Xu will control matters subject to a vote by our shareholders. Under Rule 4350I of the Nasdaq Capital Market, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirement that a majority of our directors be independent, as defined in the Nasdaq Capital Market Rules, and the requirement that our compensation and nominating and corporate governance committees consist entirely of independent directors. Although we do not intend to rely on the “controlled company” exemption under the Nasdaq listing rules, we could elect to rely on this exemption in the future. If we elect to rely on the “controlled company” exemption, a majority of the members of our board of directors might not be independent directors and our nominating and corporate governance and compensation committees might not consist entirely of independent directors. Accordingly, during any time we remain a controlled company relying on the exemption and during any transition period following a time when we are no longer a controlled company, you would not have the same protections afforded to shareholders of companies that are subject to all of the Nasdaq Capital Market corporate governance requirements. Our status as a controlled company could cause our Class A Ordinary Shares to look less attractive to certain investors or otherwise harm our trading price.

 

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You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.

 

We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our amended and restated memorandum of association and articles of association, the Companies Act (As Revised) of the Cayman Islands (the “Companies Act”) and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. It may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of the PRC may render you unable to enforce a judgment against our assets or the assets of our directors and officers. For more information regarding the relevant laws of the Cayman Islands and the PRC. In particular, the Cayman Islands has a different body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.

 

Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

 

Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporated in other jurisdictions such as the United States. To the extent we choose to follow home country practice with respect to corporate governance matters, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.

 

As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States. For a discussion of significant differences between the provisions of the Companies Act and the laws applicable to companies incorporated in the United States and their shareholders, see “Description of Share Capital — Differences in Corporate Law” on page 136 of this prospectus.

 

You may be unable to present proposals before annual general meetings or extraordinary general meetings not called by shareholders.

 

Cayman Islands law provides shareholders with only limited rights to convene a general meeting and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our articles of association allow our shareholders holding shares representing in aggregate not less than 10 percent of our voting share capital in issue, to convene a general meeting of our shareholders, in which case our directors are obliged to call such meeting. Advance notice of at least 7 days is required for the convening of our general meetings. A quorum required for a meeting of shareholders consists of at least one shareholder present or by proxy, representing a majority of the paid up voting share capital in the Company.

 

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Recently introduced economic substance legislation of the Cayman Islands may impact the Company or its operations.

 

The Cayman Islands, together with several other non-European Union jurisdictions, have recently introduced legislation aimed at addressing concerns raised by the Council of the European Union as to offshore structures engaged in certain activities which attract profits without real economic activity. Effective January 1, 2019, the International Tax Co-operation (Economic Substance) Act, 2018 (the “Substance Law”) and issued Regulations and Guidance Notes came into force in the Cayman Islands introducing certain economic substance requirements for “relevant entities” which are engaged in certain “relevant activities,” which in the case of exempted companies incorporated before January 1, 2019, will apply in respect of fiscal years commencing July 1, 2019, onwards. A “relevant entity” includes an exempted company incorporated in the Cayman Islands; however, it does not include an entity that is tax resident outside the Cayman Islands. Accordingly, for so long as the Company is a tax resident outside the Cayman Islands, it is not required to satisfy the economic substance test under the Substance Law. Although it is presently anticipated that the Substance Law will have little material impact on the Company or its operations, as the legislation is new and remains subject to further clarification and interpretation it is not currently possible to ascertain the precise impact of these legislative changes on the Company.

 

The Financial Action Task Force’s Increased Monitoring of the Cayman Islands.

 

In February 2021, the Cayman Islands was added to the Financial Action Task Force (“FATF”) list of jurisdictions whose anti-money laundering practices are under increased monitoring, commonly referred to as the “FATF grey list.” When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring during that timeframe. In its October 2021 plenary, the FATF recognized the progress made by the Cayman Islands to improve its anti-money laundering and counter-terrorist financing regime. Despite this recognition, it is unclear how long this designation will remain in place and what ramifications, if any, the designation will have for the Company.

 

Cayman Islands was added to the EU AML High-Risk Third Countries List.

 

On March 13, 2022, the European Commission (“EC”) updated its list of ‘high-risk third countries’ (“EU AML List”) identified as having strategic deficiencies in their anti-money laundering/counter-terrorist financing regimes to add nine countries, including the Cayman Islands. The EC has noted it is committed to there being a greater alignment between the EU AML List and the FATF listing process. The addition of the Cayman Islands to the EU AML List is a direct result of the inclusion of the Cayman Islands on the FATF grey list in February 2021. It is unclear how long this designation will remain in place and what ramifications, if any, the designation will have for the Company.

  

Risks Related to Doing Business in China

 

Because all of our operations are in China, our business is subject to the complex and rapidly evolving laws and regulations there. The PRC government may exercise significant oversight and discretion over the conduct of our business and may intervene in or influence our operations at any time, which could result in a material change in our operations and/or the value of our Class A Ordinary Shares.

 

As a business operating in the PRC, we are subject to the laws and regulations of the PRC, which can be complex and evolve rapidly. The PRC government has the power to exercise significant oversight and discretion over the conduct of our business, and the regulations to which we are subject may change rapidly and with little notice to us or our shareholders. As a result, the application, interpretation, and enforcement of new and existing laws and regulations in the PRC are often uncertain. In addition, these laws and regulations may be interpreted and applied inconsistently by different agencies or authorities, and inconsistently with our current policies and practices. New laws, regulations, and other government directives in the PRC may also be costly to comply with, and such compliance or any associated inquiries or investigations or any other government actions may:

 

Delay or impede our development,

 

Result in negative publicity or increase our operating costs,

 

Require significant management time and attention, and

 

Subject us to remedies, administrative penalties and even criminal liabilities that may harm our business, including fines assessed for our current or historical operations, or demands or orders that we modify or even cease our business practices.

 

The promulgation of new laws or regulations, or the new interpretation of existing laws and regulations, in each case that restrict or otherwise unfavorably impact the ability or manner in which we conduct our business and could require us to change certain aspects of our business to ensure compliance, which could decrease demand for our services, reduce revenues, increase costs, require us to obtain more licenses, permits, approvals or certificates, or subject us to additional liabilities. To the extent any new or more stringent measures are required to be implemented, our business, financial condition and results of operations could be adversely affected as well as materially decrease the value of our Class A Ordinary Shares.

 

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Furthermore, if the PRC government determines that our corporate structure does not comply with PRC regulations, or if these regulations change or are interpreted differently in the future, our Class A Ordinary Shares may decline significantly in value or become worthless if the determinations, changes or interpretations result in impermissibility of our corporate structure and our inability to assert control over the assets of our PRC subsidiary that accordingly conduct all or substantially all of our operations.

 

The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to customer rights, taxation, employment, property and other matters. The central or local governments of China may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest we then hold in Chinese properties. Given recent statements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers, any such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless.

 

Recently, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the Opinions on Severely Cracking Down on Illegal Securities Activities According to Law, or the Opinions, which was made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems, will be taken to deal with the risks and incidents of China-concept overseas listed companies. Such future administrative measure or actions may have material adverse effects on the offering of our securities to investors, our proposed listing in the U.S. or our business operation, for example in the event that it is required that we should obtain permission from the Chinese government to offer our securities to investors or list on U.S. exchanges, it is unpredictable whether such permission can be obtained by us, as the case may be, or, if permission is obtained, whether it could be later denied or rescinded. If we, including our subsidiaries, do not receive or maintain such permissions or approvals, or inadvertently conclude that such permissions or approvals are not required, it could significantly limit or completely hinder our ability to offer or continue to offer our securities to investors, list in the U.S. and cause the value of our securities to significantly decline or become worthless. As of the date of this prospectus, we have not received any inquiry, notice, warning, or sanctions from PRC government authorities in connection with the Opinions.

 

On June 10, 2021, the Standing Committee of the National People’s Congress of China (the “SCNPC”), promulgated the PRC Data Security Law, which took effect in September 2021. The PRC Data Security Law imposes data security and privacy obligations on entities and individuals carrying out data activities, and introduces a data classification and hierarchical protection system based on the importance of data in economic and social development, and the degree of harm it will cause to national security, public interests, or legitimate rights and interests of individuals or organizations when such data is tampered with, destroyed, leaked, illegally acquired or used. The PRC Data Security Law also provides for a national security review procedure for data activities that may affect national security and imposes export restrictions on certain data an information.

 

In early July 2021, regulatory authorities in China launched cybersecurity investigations with regard to several China-based companies that are listed in the United States. In July 2021, the Chinese cybersecurity regulator launched the investigation on three Internet platforms.

 

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On November 14, 2021, the CAC released the Regulations on the Network Data Security Management (Draft for Comments) (the “Data Security Management Regulations Draft”), to solicit public opinion and comments. Pursuant to the Data Security Management Regulations Draft, data processor holding more than one million users’ individual information shall be subject to cybersecurity review before listing abroad. Data processing activities refers to activities such as the collection, retention, use, processing, transmission, provision, disclosure, or deletion of data. According to the latest amended Cybersecurity Review Measures, which was promulgated on December 28, 2021 and became effective on February 15, 2022, and replaced the Cybersecurity Review Measures promulgated on April 13, 2020, online platform operator holding more than one million users’ individual information shall be subject to cybersecurity review before listing abroad. Since the Cybersecurity Review Measures is new, the implementation and interpretation thereof is not yet clear. As of the date of this prospectus, we have not been informed by any PRC governmental authority of any requirement that we file for approval for this offering.

 

On July 30, 2021, the State Council promulgated the Regulations on the Protection of the Security of Critical Information Infrastructure, or the Regulations, which took effect on September 1, 2021. The Regulations supplement and specify the provisions on the security of critical information infrastructure as stated in the Cybersecurity Review Measures. The Regulations provide, among others, that protection department of certain industry or sector shall notify the operator of the critical information infrastructure in time after the identification of certain critical information infrastructure.

 

On August 20, 2021, the SCNPC promulgated the Personal Information Protection Law of the PRC, or the Personal Information Protection Law, which took effect in November 2021. As the first systematic and comprehensive law specifically for the protection of personal information in the PRC, the Personal Information Protection Law provides, among others, that (i) an individual’s consent shall be obtained to use sensitive personal information, such as biometric characteristics and individual location tracking, (ii) personal information operators using sensitive personal information shall notify individuals of the necessity of such use and impact on the individual’s rights, and (iii) where personal information operators reject an individual’s request to exercise his or her rights, the individual may file a lawsuit with a People’s Court.

 

On February 17, 2023, the CSRC issued the New Administrative Rules Regarding Overseas Listings, which came into force since March 31, 2023. According to the new administrative rules, among other things, a domestic company in the PRC that seeks to offer and list securities in overseas markets shall fulfill the filing procedure with the CSRC as per requirement thereof. Initial public offerings or listings in overseas markets shall be filed with the CSRC within 3 working days after the relevant application is submitted overseas. If an issuer offers securities in the same overseas market where it has previously offered and listed securities subsequently, filings shall be made with the CSRC within 3 working days after the offering is completed. Upon occurrence of any material event, such as change of control, investigations or sanctions imposed by overseas securities regulatory agencies or other relevant competent authorities, change of listing status or transfer of listing segment, or voluntary or mandatory delisting, after an issuer has offered and listed securities in an overseas market, the issuer shall submit a report thereof to CSRC within 3 working days after the occurrence and public disclosure of such event. Further, an overseas securities company that serves as a sponsor or lead underwriter for overseas securities offering and listing by domestic companies shall file with the CSRC within 10 working days after signing its first engagement agreement for such business, and submit to the CSRC, no later than January 31 each year, an annual report on its business activities in the previous year associated with overseas securities offering and listing by domestic companies. If an overseas securities company has entered into engagement agreements before the effectuation of the Trial Administrative Measures and is serving in practice as a sponsor or lead underwriter for overseas securities offering and listing by domestic companies, it shall file with the CSRC within 30 working days after the Trial Administrative Measures take effect.

 

On February 24, 2023, the CSRC promulgated the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality and Archives Administration Provisions”), which also became effective on March 31, 2023. The Confidentiality and Archives Administration Provisions set out rules, requirements and procedures relating to provision of documents, materials and accounting archives for securities companies, securities service providers, overseas regulators and other entities and individuals in connection with overseas offering and listing, including without limitation to, domestic companies that carry out overseas offering and listing (either in direct or indirect means) and the securities companies and securities service providers (either incorporated domestically or overseas) that undertake relevant businesses shall not leak any state secret and working secret of government agencies, or harm national security and public interest, and a domestic company shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level, if it plans to, either directly or through its overseas listed entity, publicly disclose or provide any documents and materials that contain state secrets or working secrets of government agencies. Working papers produced in the Chinese mainland by securities companies and securities service providers in the process of undertaking businesses related to overseas offering and listing by domestic companies shall be retained in the Chinese mainland. Where such documents need to be transferred or transmitted to outside the Chinese mainland, relevant approval procedures stipulated by regulations shall be followed.

 

Given that the above mentioned newly promulgated laws, regulations and policies were recently promulgated or issued, their interpretation, application and enforcement are subject to substantial uncertainties. See “Risk Factors — Risks Related to Doing Business in China — With the promulgation of the new filing-based administrative rules for overseas offering and listing by domestic companies in China, or if the PRC government were to impose new requirements for approval from the PRC authorities to issue our Class A Ordinary Shares to foreign investors or list on a foreign exchange, failure to comply with the relevant requirements could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless,” from page 44 to 46 of this prospectus.

 

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PRC laws and regulations governing our current business operations are sometimes vague and uncertain. Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China with little advance notice could have a material adverse effect on us and limit the legal protections available to you and us.

 

There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations including, but not limited to, the laws and regulations governing our business and the enforcement and performance of our arrangements with clients in certain circumstances. The laws and regulations are sometimes vague and may be subject to future changes, and their official interpretation and enforcement could be unpredictable, with little advance notice. The effectiveness and interpretation of newly enacted laws or regulations, including amendments to existing laws and regulations, may be delayed, and our business may be affected if we rely on laws and regulations which are subsequently adopted or interpreted in a manner different from our current understanding of these laws and regulations. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. We cannot predict what effect the interpretation of existing or new PRC laws or regulations may have on our business.

 

The PRC legal system is based on written statutes. Prior court decisions are encouraged to be used for reference but it remains unclear to what extent the prior court decisions may impact the current court ruling as the encouragement policy is new and there is limited judicial practice in this regard. We conduct our business primarily through our subsidiary established in China.

 

This subsidiary is generally subject to laws and regulations applicable to foreign investment in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties, which may limit legal protections available to us. In addition, any new or changes in PRC laws and regulations related to foreign investment in China could affect the business environment and our ability to operate our business in China. Recently, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,” or the Opinions, which was made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems will be taken to deal with the risks and incidents of China-concept overseas listed companies, and cybersecurity and data privacy protection requirements, etc. The Opinions and any related implementing rules to be enacted may subject us to compliance requirement in the future. In addition, some regulatory requirements issued by certain PRC government authorities may not be consistently applied by other government authorities (including local government authorities), thus making strict compliance with all regulatory requirements impractical, or in some circumstances impossible. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. However, since PRC administrative and court authorities have discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to predict the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into with our business partners, clients and suppliers. In addition, such uncertainties, including any inability to enforce our contracts, together with any development or interpretation of PRC law that is adverse to us, could materially and adversely affect our business and operations. Furthermore, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other more developed countries and the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have retroactive effects. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. Such unpredictability towards our contractual, property, and procedural rights could adversely affect our business and impede our ability to continue our operations. We cannot predict the effect of future developments in the PRC legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us and other foreign investors, including you. In addition, any litigation in China may be protracted and result in substantial costs and diversion of our resources and management attention.

 

The PRC government has significant oversight and discretion over the conduct of our business and may intervene or influence our operations as the government deems appropriate to further regulatory, political and societal goals. The PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations.

 

Furthermore, if China adopts more stringent standards with respect to certain areas such as corporate social responsibilities, we may incur increased compliance costs or become subject to additional restrictions in our operations. We cannot predict the effects of future developments in the PRC legal system on our business operations, including the promulgation of new laws, or changes to existing laws or the interpretation or enforcement thereof. These uncertainties could limit the legal protections available to us and our investors, including you.

 

Recent greater oversight by the CAC over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our proposed offering.

 

On December 28, 2021, the CAC, together with 12 other governmental departments of the PRC, jointly promulgated the Cybersecurity Review Measures, which became on February 15, 2022. The Cybersecurity Review Measures provides that, in addition to critical information infrastructure operators that intend to purchase Internet products and services, data processing operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review by the Cybersecurity Review Office of the PRC. According to the Cybersecurity Review Measures, a cybersecurity review assesses potential national security risks that may be brought about by any procurement, data processing, or overseas listing. The Cybersecurity Review Measures further requires that critical information infrastructure operators and data processing operators that possess personal data of at least one million users must apply for a review by the Cybersecurity Review Office of the PRC before conducting listings in foreign countries.

 

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On November 14, 2021, the CAC published the Data Security Management Regulations Draft, which provides that data processing operators engaging in data processing activities that affect or may affect national security must be subject to network data security review by the relevant Cyberspace Administration of the PRC. According to the Data Security Management Regulations Draft, data processing operators who possess personal data of at least one million users or collect data that affects or may affect national security must be subject to network data security review by the relevant Cyberspace Administration of the PRC. The deadline for public comments on the Data Security Management Regulations Draft was December 13, 2021. On July 7, 2022, the CAC promulgated the Measures for the Security Assessment of Outbound Data Transfers, or the Measures, which will become effective from September 1, 2022. The Measures shall apply to the security assessment of the provision of important data and personal information collected and generated by data processors in the course of their operations within the territory of the PRC by such data processors to overseas recipients. The Measures stipulates the circumstances under which security assessment of outbound data transfers should be declared, including: (i) outbound transfer of important data by a data processor; (ii) outbound transfer of personal information by a critical information infrastructure operator or a personal information processor who has processed the personal information of more than one million people; (iii) outbound transfer of personal information by a personal information processor who has made outbound transfers of the personal information of one million people cumulatively or the sensitive personal information of 10,000 people cumulatively since January 1 of the previous year; or (iv) other circumstances where an application for the security assessment of an outbound data transfer is required as prescribed by the national cyberspace administration authority. Based on the relevant regulations relating to outbound data transfer in the Cybersecurity Law, the Data Security Law, and the Personal Information Protection Law, the Measures provide the scope, conditions and procedures of security assessment of outbound data transfer and thereby provide specific guidelines for security assessment of outbound data transfers.

 

We believe that we are in compliance with the current data security, cybersecurity, and other regulations and policies issued by the CAC, and we have not received any inquiry, notice, warning, or sanctions from the CAC or other PRC governmental authorities for violation of those regulations or policies to date. However, since many of those regulations or policies are relatively new, there remains significant uncertainty as to their interpretation and implementation. If PRC governmental authorities interpret or implement those regulations or policies in a way different from us and conclude that there are violations by us in the future, or new laws, regulations, rules, or detailed implementation and interpretation are adopted that result in noncompliance by us, we may be subject to fines, penalties or other sanctions, which may have a significant adverse impact on our financial position, operations and the value of our Class A Ordinary Shares. As of the date of this prospectus, we have not received any notice from any authorities identifying our PRC subsidiary as a critical information infrastructure operator or requiring us to go through cybersecurity review or network data security review by the CAC. We believe that our proposed listing in the U.S. will not be affected by the Cybersecurity Review Measures, Data Security Management Regulations Draft or the Measures, and our PRC operations will not be subject to cybersecurity review or network data security review by the CAC for this offering, because our business does not rely on the collection of user data or implicate cybersecurity and we do not possess more than one million users’ individual information. There remains uncertainty, however, as to how the Cybersecurity Review Measures, the Data Security Management Regulations Draft and the Measures will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures, the Data Security Management Regulations Draft and the Measures. If any such new laws, regulations, rules, or implementation and interpretation come into effect, we will take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on us. We cannot guarantee, however, that we will not be subject to cybersecurity review or network data security review in the future.

 

With the promulgation of the new filing-based administrative rules for overseas offering and listing by domestic companies in China, or if the PRC government were to impose new requirements for approval from the PRC authorities to issue our Class A Ordinary Shares   to foreign investors or list on a foreign exchange, failure to comply with the relevant requirements could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.

 

As of the date of this prospectus, as advised by our PRC legal counsel, Jingtian & Gongcheng, we believe that we and our PRC subsidiary are not required to obtain permissions from any PRC authorities to issue our Class A Ordinary Shares to foreign investors, and have not received or were denied any permission in relation to our business operation by any PRC authorities. Nevertheless, on February 17, 2023, the CSRC issued the New Administrative Rules Regarding Overseas Listings, which came into force since March 31, 2023, and the Notice on the Arrangement for Filing-based Administration of Overseas Offering and Listing by Domestic Companies, pursuant to which, a domestic company shall file with the CSRC within 3 working days after the relevant application with initial public offerings or listings in overseas markets is submitted overseas. If the indirect overseas securities offering and listing by a domestic company had been approved by the overseas regulator or stock exchange, such as the registration statement had been declared effective in the case of the U.S. market, prior to the effectuation of the Trial Administrative Measures, and the indirect overseas securities offering and listing will be completed before September 30, 2023 without the need to go through the regulatory procedure of the overseas regulator or stock exchange for offering and listing once again, then such company is not required to file with the CSRC in accordance with the Trial Administrative Measures immediately but shall be required to do so if it involves in re-financing and other filing matters in the future. Since the registration statement with respect to the Class A Ordinary Shares to be sold in this offering was declared effective by the SEC prior to the effectuation of the Trial Administrative Measures, and this offering is expected to be completed before September 30, 2023 without the need to go through regulatory procedure of offering and listing once again, we do not plan to file with the CSRC in accordance with the Trial Administrative Measures immediately but shall follow the filing procedures set out in the Trial Administrative Measures when carrying out re-financing and other filing matters in the future.

 

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Further, under the New Administrative Rules Regarding Overseas Listings, if an issuer offers securities in the same overseas market where it has previously offered and listed securities subsequently, filings shall be made with the CSRC within 3 working days after the offering is completed. Upon occurrence of any material event, such as change of control, investigations or sanctions imposed by overseas securities regulatory agencies or other relevant competent authorities, change of listing status or transfer of listing segment, or voluntary or mandatory delisting, after an issuer has offered and listed securities in an overseas market, the issuer shall submit a report thereof to CSRC within 3 working days after the occurrence and public disclosure of such event. Moreover, an overseas securities company that serves as a sponsor or lead underwriter for overseas securities offering and listing by domestic companies shall file with the CSRC within 10 working days after signing its first engagement agreement for such business, and submit to the CSRC, no later than January 31 each year, an annual report on its business activities in the previous year associated with overseas securities offering and listing by domestic companies. If an overseas securities company has entered into engagement agreements before the effectuation of the Trial Administrative Measures and is serving in practice as a sponsor or lead underwriter for overseas securities offering and listing by domestic companies, it shall file with the CSRC within 30 working days after the Trial Administrative Measures take effect.

 

Pursuant to the New Administrative Rules Regarding Overseas Listings, a domestic company is prohibited from overseas offering and listing if any of the following circumstances is involved: (1) where such securities offering and listing is explicitly prohibited by provisions in laws, administrative regulations and relevant state rules; (2) where the intended securities offering and listing may endanger national security as reviewed and determined by competent authorities under the State Council in accordance with law; (3) where the domestic company intending to make the securities offering and listing, or its controlling shareholders and the actual controller, have committed crimes such as corruption, bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy during the latest three years; (4) where the domestic company intending to make the securities offering and listing is suspected of committing crimes or major violations of laws and regulations, and is under investigation according to law, and no conclusion has yet been made thereof; and (5) where there are material ownership disputes over equity held by the domestic company’s controlling shareholder or by other shareholders that are controlled by the controlling shareholder and/or actual controller. Moreover, a domestic company that seeks to offer and list securities in overseas markets shall abide by certain other regulatory requirements as set out in the New Administrative Rules Regarding Overseas Listings, including without limitation to, compliance with national secrecy, foreign investment, cybersecurity, data security, cross-border investment and financing, foreign exchange, and other laws and relevant provisions. If we are required to file with the CSRC in accordance with the New Administrative Rules Regarding Overseas Listings in the future, there is also the possibility that we may not be able to complete the filing in a timely manner or at all.

 

On February 24, 2023, the CSRC promulgated the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality and Archives Administration Provisions”), which also became effective on March 31, 2023. The Confidentiality and Archives Administration Provisions set out rules, requirements and procedures relating to provision of documents, materials and accounting archives for securities companies, securities service providers, overseas regulators and other entities and individuals in connection with overseas offering and listing, including without limitation to, domestic companies that carry out overseas offering and listing (either in direct or indirect means) and the securities companies and securities service providers (either incorporated domestically or overseas) that undertake relevant businesses shall not leak any state secret and working secret of government agencies, or harm national security and public interest, and a domestic company shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level, if it plans to, either directly or through its overseas listed entity, publicly disclose or provide any documents and materials that contain state secrets or working secrets of government agencies. Working papers produced in the Chinese mainland by securities companies and securities service providers in the process of undertaking businesses related to overseas offering and listing by domestic companies shall be retained in the Chinese mainland. Where such documents need to be transferred or transmitted to outside the Chinese mainland, relevant approval procedures stipulated by regulations shall be followed. While we believe we do not involve leaking any state secret and working secret of government agencies, or harming national security and public interest in connection with provision of documents, materials and accounting archives, there is uncertainty how the new provisions will be interpreted and implemented in the future, and we may be required to perform additional procedures in connection with the provision of accounting archives. Moreover, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,” or the Opinions, which were made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Given the current PRC regulatory environment, it is uncertain when and whether we or our PRC subsidiary, will be required to obtain permission from the PRC government to list on U.S. exchanges in the future, and even when such permission is obtained, whether it will be denied or rescinded. We have been closely monitoring regulatory developments in China regarding any necessary approvals from PRC governmental authorities required for overseas listings, including this offering. As of the date of this prospectus, we have not received any inquiry, notice, warning, sanctions or regulatory objection to this offering from the CSRC or other PRC governmental authorities.

 

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On August 8, 2006, six Chinese regulatory agencies, including the MOFCOM, jointly issued the M&A Rules, which became effective on September 8, 2006 and amended on June 22, 2009. The M&A Rules contain provisions that require that an offshore special purpose vehicle (“SPV”) formed for listing purposes and controlled directly or indirectly by Chinese companies or individuals shall obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published procedures specifying documents and materials required to be submitted to it by an SPV seeking CSRC approval of overseas listings. As advised by our PRC counsel, Jingtian & Gongcheng, based on their understanding of the current PRC law, rules and regulations, and given that KingWin is not a special purpose vehicle which has acquired PRC domestic companies’ equities with its shares prior to the listing of its shares on the Nasdaq Stock Market, the CSRC approval is not required for the listing and trading of our Class A Ordinary Shares on the Nasdaq Capital Market in the context of this offering. However, there remains uncertainty as to how the M&A Rules will be interpreted or implemented by the relevant PRC authorities, and the opinions summarized above will be subject to any new PRC laws, rules and regulations or detailed implementations and interpretations in any form relating to overseas listing of SPVs like the Company. We cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as we do.

 

Moreover, there remains significant uncertainty as to the enactment, interpretation and implementation of regulatory requirements related to overseas securities offerings and other capital markets activities. If any PRC regulatory approval was required while we inadvertently concluded that such approval was not required or if applicable laws and regulations or the interpretation of such were modified to require us to obtain the regulatory approval in the future, we may face regulatory actions or other sanctions from the relevant Chinese regulatory authorities. These authorities may impose fines and penalties upon our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from this offering into China, or take other actions that could have a material adverse effect upon our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our Class A Ordinary Shares. The Chinese regulatory agencies may also take actions requiring us, or making it advisable for us, to terminate this offering prior to closing. Any failure of us to fully comply with new regulatory requirements may significantly limit or completely hinder our ability to offer or continue to offer the Class A Ordinary Shares, cause significant disruption to our business operations, severely damage our reputation, materially and adversely affect our financial condition and results of operations, and cause the Class A Ordinary Shares to significantly decline in value or become worthless.

 

Under the rules for cross-border provision and examination of auditing records and other materials in connection with overseas securities issuance and listing in the PRC, the PRC government may impose more stringent requirement for domestic Chinese companies to share business and accounting records with foreign auditing firms and other securities service institutions, which could significantly limit or completely hinder our ability to offer or continue to offer our Ordinary Shares to investors and could cause the value of our Ordinary Shares to significantly decline or become worthless.

 

On February 24, 2023, the CSRC promulgated the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality and Archives Administration Provisions”), which became effective on March 31, 2023. The Confidentiality and Archives Administration Provisions require that, before providing or publicly disclosing documents and materials involving state secrets or government work secrets to securities companies, securities service institutions, or overseas regulators, the domestic enterprises shall seek approval from the relevant government regulators, and make filings with the secret protection administration at the same level.

 

The Confidentiality and Archives Administration Provisions expand the scope of the regulations from “state secrets” to “state secrets and work secrets of government agencies.” However, the provisions do not define the scope of such secrets, but merely provide that in case where it is unclear or disputed as to whether state secrets are involved, the relevant state secret protection regulator shall make final the determination; in case where it is unclear or disputed as to whether government work secrets are involved, the relevant government regulator shall make final the determination.

 

The Confidentiality and Archives Administration Provisions mandates that domestic enterprises needs to follow due procedures in compliance with applicable national regulations before furnishing accounting records or copies of accounting records to relevant securities companies, securities service institutions, and overseas regulators. Working papers produced in the Chinese mainland by securities companies and securities service providers in the process of undertaking businesses related to overseas offering and listing by domestic companies shall be retained in the Chinese mainland. Where such documents need to be transferred or transmitted to outside the Chinese mainland, relevant approval procedures stipulated by regulations shall be followed.

 

Since the Confidentiality and Archives Administration Provisions are newly promulgated, and the interpretation and implementation are not very clear, we cannot assure you that whether we will be required to undergo any approval, filing or other procedures in relation to the provision of auditing records and other materials in connection with this offering or our list on the Nasdaq or we will be able to receive clearance of such regulatory requirements in a timely manner, or at all, in the future. If the CSRC, the state secret protection regulator or any other relevant government regulator requires that we obtain approval or complete relevant procedure prior to the completion of this offering, the offering will be delayed until we have obtained such approval or completed such procedure. There is also possibility that we may not be able to obtain or maintain such approval, complete such procedure or that we inadvertently conclude that such approval or procedure is not required. If prior approval or procedure is required while we inadvertently conclude that such approval or procedure is not required or if applicable laws and regulations or the interpretation of such are modified to require us to obtain such approval or procedure in the future, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory authorities. These authorities may impose fines and penalties upon our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from this offering into the PRC, or take other actions that could have a material adverse effect upon our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our Ordinary Shares. The CSRC or other PRC regulatory agencies may also require us, or make it advisable for us, to terminate this offering prior to closing. Any failure of us to fully comply with new regulatory requirements may significantly limit or completely hinder our ability to offer or continue to offer the Ordinary Shares, cause significant disruption to our business operations, severely damage our reputation, materially and adversely affect our financial condition and results of operations, and cause the Ordinary Shares to significantly decline in value or become worthless.

 

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Changes in China’s economic, political or social conditions or government policies, which could occur quickly with little advance notice, could have a material adverse effect on our business and operations.

 

Substantially all of our assets and operations are located in the PRC. Accordingly, our business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in the PRC generally. The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, development, growth rate, control of foreign exchange, monetary and tax policies, allocation of resources, and regulation of the growth of the general or specific market and a host of other government policies such as those that encourage or restrict investment in certain industries by foreign investors. Although the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in the PRC is still owned by the government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over the PRC’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.

 

While the Chinese economy has experienced significant growth over past decades, growth has been uneven, both geographically and among various sectors of the economy. Any adverse changes in economic conditions in the PRC, in the policies of the PRC government or in the laws and regulations in the PRC, which may occur quickly with little advance notice, could have a material adverse effect on the overall economic growth of the PRC. Such developments could adversely affect our business and operating results, lead to a reduction in demand for our services and adversely affect our competitive position. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the PRC government has implemented certain measures, including interest rate adjustment, to control the pace of economic growth. These measures may cause decreased economic activity in the PRC, which may adversely affect our business and operating results. In addition, although these government involvements have been instrumental in China’s significant growth, if the PRC government’s current or future policies fail to help the Chinese economy achieve further growth, our growth rate or strategy, our results of operations could also be adversely affected as a result.

 

Non-compliance with labor-related laws and regulations of the PRC and increases in labor costs in the PRC may have an adverse impact on our financial condition and results of operation.

 

We have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and childbearing insurance to designated government agencies for the benefit of our employees. Pursuant to the PRC Labor Contract Law, or the Labor Contract Law, that became effective in January 2008 and was last amended in December 2012 and its implementing rules that became effective in September 2008, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations. Furthermore, the Labor Contract Law sets forth additional restrictions and increases the costs involved with dismissing employees. In addition, for employees whose employment contracts include noncompetition terms, the Labor Contract Law requires us to pay monthly compensation after such employment is terminated, which will increase our operating expenses. We expect that our labor costs, including wages and employee benefits, will continue to increase. Companies operating in China are also required to withhold individual income tax on employees’ salaries based on the actual salary of each employee upon payment. We believe our current practice complies with the Labor Contract Law and its amendments. However, the relevant governmental authorities may take a different view and impose fines on us.

 

As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our employment practice does not and will not violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees and be subject to orders by competent labor authorities for rectification, and failure to comply with the orders may further subject us to administrative fines. We may also be subject to late fees and fines in relation to the under-withheld individual income tax. In any of such events, our business, financial condition and results of operations could be materially and adversely affected.

 

Failure to comply with relevant regulation regarding the leased property of our PRC subsidiary may cause interruptions to its business operations.

 

As of the date of this prospectus, the construction plan for one leased property of our PRC subsidiary is inconsistent with the project planning permit, and there may be risks that the lessor would be punished by the relevant authorities due to inconsistency, and therefore our PRC subsidiary may not be able to continue to occupy and use such property. Our PRC subsidiary may be forced to relocate. We cannot assure you that our PRC subsidiary will be able to find a suitable replacement sites on terms acceptable to it on a timely basis.

 

The transfer of funds, dividends and other distributions between us and our subsidiaries is subject to restriction.

 

As a holding company, we may rely on transfer of funds, dividends and other distributions on equity paid by our subsidiaries in mainland China and Hong Kong for our cash and financing requirements.

 

As of the date of this prospectus, there has been no cash flows, including dividends, transfers and distributions, between KingWin and its subsidiaries. In the future, cash proceeds raised from overseas financing activities, including this offering, will be transferred by us to our subsidiaries via capital contributions or shareholder loans, as the case may be. Such cash proceeds will be transferred by KingWin to KingWin BVI, and then KingWin HK, then transferred to Tiancheng Jinhui, via capital contributions or shareholder loans, as the case may be.

 

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We intend to keep any future earnings to re-invest in and finance the expansion of the business of the PRC operating entity, and we do not anticipate that any cash dividends will be paid in the foreseeable future to our U.S. investors immediately following the consummation of this offering. Under Cayman Islands law, a Cayman Islands company may pay a dividend on its shares out of profits of the company or its share premium amount or a combination of both, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. In order for us to pay dividends to our shareholders, we may rely on the distribution of profits of the PRC operating entity to the Hong Kong subsidiary. PRC regulations currently permit the payment of dividends only out of accumulated profits, as determined in accordance with accounting standards and PRC regulations. The PRC government imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends payable by Chinese companies to enterprises outside of mainland China unless reduced under treaties or arrangements between the PRC central government and the governments of other countries or regions where the enterprises outside of mainland China are tax resident.

 

Foreign currency exchange regulation in the PRC is primarily governed by Foreign Exchange Administration Regulations, most recently revised by the State Council on August 5, 2008, Notice on Further Simplifying and Improving Policies of Foreign Exchange Administration on Direct Investment issued by SAFE on February 13, 2015 and most recently amended on December 30, 2019, and the Provisions on the Administration of Settlement, Sale and Payment of Foreign Exchange promulgated by the People’s Bank of China on June 20, 1996. Currently, RMB is convertible for current account items, including the distribution of dividends, interest payments, trade and service related foreign exchange transactions. Renminbi is generally freely convertible for payments of current account items, such as trade and service-related foreign exchange transactions, interest and dividend payments, but not freely convertible for capital account items, such as direct investment, loan or investment in securities outside China, unless prior approval of State Administration of Foreign Exchange, or the SAFE, or its local office has been obtained. Capital investments by foreign enterprises are also subject to the regulations of the National Development and Reform Commission of China (the “NDRC”), the MOFCOM and the SAFE.

 

Therefore, KingWin and its subsidiaries may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any.

 

To the extent any funds or assets in the business is in mainland China or Hong Kong or a mainland China or Hong Kong entity, the funds or assets may not be available to fund operations or for other use outside of mainland China or Hong Kong.

 

To the extent funds are generated in our PRC operating subsidiary, and may need to be used to fund operations outside of mainland China, such funds may not be available due to limitations placed by the PRC government. Furthermore, to the extent assets (other than cash) in our business are located in mainland China or held by a mainland China entity, the assets may not be available to fund operations or for other use outside of mainland China due to interventions in or the imposition of restrictions and limitations on the ability of us and our subsidiaries to transfer assets by the PRC government. Based on our understanding of the Hong Kong laws and regulations, as of the date of this prospectus, there is no restriction imposed by the Hong Kong government on the transfer of capital within, into and out of Hong Kong (including funds from Hong Kong to mainland China), except transfer of funds involving money laundering and criminal activities. Notwithstanding the foregoing, if certain PRC laws and regulations, including existing laws and regulations and those enacted or promulgated in the future were to become applicable to our Hong Kong subsidiary in the future, and to the extent cash is generated in our Hong Kong subsidiary, and to the extent assets (other than cash) in our business are located in Hong Kong or held by a Hong Kong entity and may need to be used to fund operations outside of Hong Kong, such funds or assets may not be available due to interventions in or the imposition of restrictions and limitations on the ability of us and our subsidiaries to transfer funds or assets by the PRC government. Furthermore, there can be no assurance that the PRC government will not intervene or impose restrictions or limitations on our ability to transfer or distribute cash, which could result in an inability or prohibition on making transfers or distributions to entities outside of mainland China and Hong Kong and adversely affect our business.

 

We must remit the offering proceeds to our PRC operating subsidiary before they may be used to benefit our business in China, the process of which may be time-consuming, and we cannot assure that we can finish all necessary governmental registration processes in a timely manner.

 

The proceeds of this offering may be sent back to the PRC, and the process for sending such proceeds back to the PRC may be time-consuming after the closing of this offering. We may be unable to use these proceeds to grow our business until our PRC subsidiary receives such proceeds in the PRC. Any transfer of funds by us to our PRC subsidiary, either as a shareholder loan or as an increase in registered capital, are subject to approval by or registration or filing with relevant governmental authorities in China. Any foreign loans procured by our PRC subsidiary is required to be registered with China’s State Administration of Foreign Exchange (“SAFE”) in its local branches and satisfy relevant requirements, and our PRC subsidiary may not procure loans which exceed the difference between its respective total project investment amount and registered capital or two times (which may be varied year by year due to the change of PRC’s national macro-control policy) of the net worth of our PRC subsidiary. According to the relevant PRC regulations on foreign-invested enterprises in China, capital contributions to our PRC subsidiary are subject to the registration with State Administration for Market Regulation in its local branches, report submission to the Ministry of Commerce in its local branches and registration with a local bank authorized by SAFE.

 

To remit the proceeds of the offering, we must take the steps legally required under the PRC laws, for example, we will open a special foreign exchange account for capital account transactions, remit the offering proceeds into such special foreign exchange account and apply for settlement of the foreign exchange. The timing of the process is difficult to estimate because the efficiencies of different SAFE branches can vary materially.

 

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In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans by us to our PRC subsidiary or with respect to future capital contributions by us to our PRC subsidiary. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds from this offering and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity, our ability to fund and expand our business and the value of our Class A Ordinary Shares.

 

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

 

We are an offshore holding company conducting our operations in China through our subsidiary established in China. We may make loans to our PRC subsidiary subject to the approval from governmental authorities and limitation of amount, or we may make additional capital contributions to our wholly foreign-owned subsidiary in China.

 

Any loans to our wholly foreign-owned subsidiary in China, which are treated as foreign-invested enterprises under PRC law, are subject to PRC regulations and foreign exchange loan registrations. For example, loans by us to our wholly foreign-owned subsidiary in China to finance their activities must be registered with the local counterpart of SAFE. In addition, a foreign invested enterprise shall use its capital pursuant to the principle of authenticity and self-use within its business scope. The capital of a foreign invested enterprise shall not be used for the following purposes: (i) directly or indirectly used for payment beyond the business scope of the enterprises or the payment prohibited by relevant laws and regulations; (ii) directly or indirectly used for investment in securities or investments other than banks’ principal-secured products unless otherwise provided by relevant laws and regulations; (iii) the granting of loans to non-affiliated enterprises, except where it is expressly permitted in the business license; and (iv) paying the expenses related to the purchase of real estate that is not for self-use (except for the foreign-invested real estate enterprises).

 

SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises, or SAFE Circular 19, effective June 2015, in replacement of the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, the Notice from the State Administration of Foreign Exchange on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Businesses, and the Circular on Further Clarification and Regulation of the Issues Concerning the Administration of Certain Capital Account Foreign Exchange Businesses. According to SAFE Circular 19, the flow and use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance of RMB entrusted loans, the repayment of inter-enterprise loans or the repayment of banks loans that have been transferred to a third party. Although SAFE Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be used for equity investments within China, it also reiterates the principle that RMB converted from the foreign currency-denominated capital of a foreign-invested company may not be directly or indirectly used for purposes beyond its business scope. SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or SAFE Circular 16, effective on June 9, 2016, which reiterates some of the rules set forth in SAFE Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominated registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of SAFE Circular 19 and SAFE Circular 16 could result in administrative penalties. SAFE Circular 19 and SAFE Circular 16 may significantly limit our ability to transfer any foreign currency we hold, including the net proceeds from this offering, to our PRC subsidiary, which may adversely affect our liquidity and our ability to fund and expand our business in China. On October 23, 2019, the SAFE promulgated the Notice of the State Administration of Foreign Exchange on Further Promoting the Convenience of Cross-border Trade and Investment, or the SAFE Circular 28, which, among other things, allows all foreign-invested companies to use Renminbi converted from foreign currency-denominated capital for equity investments in China, as long as the equity investment is genuine, does not violate applicable laws, and complies with the negative list on foreign investment. However, since the SAFE Circular 28 is newly promulgated, it is unclear how SAFE and competent banks will carry this out in practice.

 

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In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans to our PRC subsidiary or future capital contributions by us to our wholly foreign-owned subsidiary in China. As a result, uncertainties exist as to our ability to provide prompt financial support to our PRC subsidiary when needed. If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds we expect to receive from this offering and to capitalize or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

 

Fluctuations in exchange rates could have a material adverse effect on our results of operations and the price of our Class A Ordinary Shares.

 

Our revenues and expenditures are denominated in RMB, whereas our reporting currency is the USD. As a result, fluctuations in the exchange rate between the USD and RMB will affect the relative purchasing power, in RMB terms, of our USD assets and the proceeds from our initial public offering. Our reporting currency is the USD, while the functional currency for our PRC subsidiary is RMB. Gains and losses from the re-measurement of assets and liabilities receivable or payable in RMB are included in our consolidated statements of operations. The re-measurement has caused the USD value of our results of operations to vary with exchange rate fluctuations, and the USD value of our results of operations will continue to vary with exchange rate fluctuations. A fluctuation in the value of RMB relative to the USD could reduce our profits from operations and the translated value of our net assets when reported in USD in our financial statements. This change in value could negatively impact our business, financial condition, or results of operations as reported in USD. In the event that we decide to convert our RMB into USD to make payments for dividends on our Class A Ordinary Shares or for other business purposes, appreciation of the USD against the RMB will harm the USD amount available to us. In addition, fluctuations in currencies relative to the periods in which the earnings are generated may make it more difficult to perform period-to-period comparisons of our reported results of operations.

 

The value of the RMB against the USD and other currencies is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange policies. On July 21, 2005, the PRC government changed its decades-old policy of pegging the value of the RMB to the USD, and the RMB appreciated more than 20% against the USD over the following three years. However, the People’s Bank of China, or PBOC, regularly intervenes in the foreign exchange market to limit fluctuations in RMB exchange rates and achieve policy goals. Between July 2008 and June 2010, the exchange rate between the RMB and the USD had been stable and traded within a narrow range. Since June 2010, the RMB has fluctuated against the USD, at times significantly and unpredictably. Since October 1, 2016, Renminbi has joined the International Monetary Fund (“IMF”)’s basket of currencies that make up the Special Drawing Right (“SDR”) and includes the USD, the Euro, the Japanese yen, and the British pound. In the fourth quarter of 2016, the RMB depreciated significantly in the backdrop of a surging USD and persistent capital outflows of China. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may announce further changes to the exchange rate system. We cannot assure you that the Renminbi will not appreciate or depreciate significantly in value against the USD in the future. It is difficult to predict how market forces or the PRC or U.S. government policy may impact the exchange rate between the Renminbi and the USD in the future.

 

There remains significant international pressure on the PRC government to adopt a flexible currency policy. Any significant appreciation or depreciation of the RMB may materially and adversely affect our revenues, earnings and financial position, and the value of, and any dividends payable on, our Class A Ordinary Shares in USD. For example, to the extent that we need to convert USD we receive from our initial public offering into RMB to pay our operating expenses, appreciation of the RMB against the USD would adversely affect the RMB amount we would receive from the conversion. Conversely, a significant depreciation of the RMB against the USD may significantly reduce the USD equivalent of our earnings, which in turn could adversely affect the price of our Class A Ordinary Shares.

 

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Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited. We may not be able to hedge our exposure adequately. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on the price of our Class A Ordinary Shares.

 

There are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities.

 

We conduct substantially all of our business operations in China, and a majority of our directors and senior management are based in China, which is an emerging market. The SEC, U.S. Department of Justice and other authorities often have substantial difficulties in bringing and enforcing actions against non-U.S. companies and non-U.S. persons, including company directors and officers, in certain emerging markets, including China. Additionally, our public shareholders may have limited rights and few practical remedies in emerging markets where we operate. While shareholder claims are common in the United States, including class action securities law and fraud claims, shareholders are generally difficult to pursue as a matter of law or practicality in many emerging markets, including China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder investigations or litigation outside China or otherwise with respect to foreign entities. Although the local authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, the regulatory cooperation with the securities regulatory authorities in the Unities States has not been efficient in the absence of a mutual and practical cooperation mechanism. According to Article 177 of the PRC Securities Law which became effective in March 2020, no foreign securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant authorities, no organization or individual may provide the documents and materials relating to securities business activities to foreign securities regulators.

 

As a result, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.

 

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the prospectus.

 

We conduct substantially all of our operations in China, and substantially all of our assets are located in China, which is an emerging market. In addition, other than our independent director Kenneth K. Cheng, all of our directors and officers are nationals or residents of countries other than the United States, and a substantial portion of the assets of these persons is located outside the United States. As a result, it may be difficult for our shareholders to effect service of process upon us or those persons inside the PRC. 

 

It may also be difficult for you to enforce the U.S. courts judgments obtained in U.S. courts, including judgments based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, many of whom are not residents in the United States, and whose significant part of assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC, respectively, would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. In addition, it is uncertain whether such Cayman Islands or PRC courts would entertain original actions brought in the courts of the Cayman Islands or the PRC against us or such persons predicated upon the securities laws of the United States or any state. 

 

Specifically, regarding judgment enforcement in the PRC, the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of reciprocal arrangement with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest of the PRC. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the U.S.

 

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We may rely on dividends and other distributions on equity paid by our PRC subsidiary to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiary to make payments to us could have a material and adverse effect on our ability to conduct our business.

 

We may rely principally on dividends and other distributions on equity from our PRC subsidiary for our cash requirements, including for services of any debt we may incur.

 

Our PRC subsidiary’s ability to distribute dividends is based upon their distributable earnings. Current PRC regulations permit our PRC subsidiary to pay dividends to their respective shareholders only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiary is required to draw 10% of its after-tax profits each year, if any, to fund a common reserve, which may stop drawing its after-tax profits if the aggregate balance of the common reserve has already accounted for over 50 percent of its registered capital. These reserves are not distributable as cash dividends. If our PRC subsidiary incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. Any limitation on the ability of our PRC subsidiary to distribute dividends or other payments to their respective shareholders could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends or otherwise fund and conduct our business.

 

In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to enterprises outside of mainland China unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the enterprises outside of mainland China are incorporated.

 

Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.

 

The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in Renminbi. Under our current corporate structure, we may primarily rely on dividend payments from our PRC subsidiary to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of SAFE by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our PRC subsidiary in China may be used to pay dividends to our company. However, approval from or registration with appropriate government authorities is required, in principle, where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from the operations of our PRC subsidiary to pay off their respective debt in a currency other than Renminbi owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of the Class A Ordinary Shares.

 

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Certain PRC regulations may make it more difficult for us to pursue growth through acquisitions.

 

Among other things, the M&A Rules and Anti-Monopoly Law established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. Such regulation requires, among other things, that State Administration for Market Regulation (the “SAMR”) be notified in advance of any change-of-control transaction in which a foreign investor acquires control of a PRC domestic enterprise or a foreign company with substantial PRC operations, if certain thresholds under the Provisions of the State Council on the Standard for Declaration of Concentration of Business Operators, issued by the State Council in 2008, are triggered. Moreover, the Anti-Monopoly Law requires that transactions which involve the national security, the examination on the national security shall also be conducted according to the relevant provisions of the State. In addition, PRC Measures for the Security Review of Foreign Investment which became effective in January 2021 require acquisitions by foreign investors of PRC companies engaged in military-related or certain other industries that are crucial to national security be subject to security review before consummation of any such acquisition. We may pursue potential strategic acquisitions that are complementary to our business and operations.

 

Complying with the requirements of these regulations to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval or clearance from the MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

 

PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiary to liability or penalties, limit our ability to inject capital into our PRC subsidiary, limit our PRC subsidiary’s ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.

 

In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37, to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles, or SAFE Circular 75, which ceased to be effective upon the promulgation of SAFE Circular 37. SAFE Circular 37 requires PRC residents (including PRC individuals and PRC corporate entities) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future.

 

Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore SPVs, will be required to register such investments with SAFE or its local branches. In addition, any PRC resident who is a direct or indirect shareholder of an SPV is required to update its filed registration with the local branch of SAFE with respect to that SPV, to reflect any material change. Moreover, any subsidiary of such SPV in China is required to urge the PRC resident shareholders to update their registration with the local branch of SAFE. If any PRC shareholder of such SPV fails to make the required registration or to update the previously filed registration, the subsidiary of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contributions into its subsidiary in China. On February 13, 2015, the SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct investments, including those required under SAFE Circular 37, will be filed with qualified banks instead of SAFE. The qualified banks will directly examine the applications and accept registrations under the supervision of SAFE.

 

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Some of our shareholders that we are aware of are subject to SAFE regulations, and we expect all of these shareholders will have completed all necessary registrations with the local SAFE branch or qualified banks as required by SAFE Circular 37. We cannot assure you, however, that all of these shareholders may continue to make required filings or updates in a timely manner, or at all. We can provide no assurance that we are or will in the future continue to be informed of identities of all PRC residents holding direct or indirect interest in our company. Any failure or inability by such shareholders to comply with SAFE regulations may subject us to fines or legal sanctions, such as restrictions on our cross-border investment activities or our PRC subsidiary’s ability to distribute dividends to, or obtain foreign exchange-denominated loans from, our company or prevent us from making distributions or paying dividends. As a result, our business operations and our ability to make distributions to you could be materially and adversely affected.

 

As of the date of this prospectus, the PRC resident shareholders have completed foreign exchange registration under the SAFE Circular 37 and other related rules.

 

Furthermore, as these foreign exchange regulations are still relatively new and their interpretation and implementation have been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of operations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our future acquisition strategy and could adversely affect our business and prospects.

 

Our business may be negatively affected by the potential obligations if PRC subsidiary fails to comply with social insurance and housing provident fund related laws and regulations.

 

Our PRC subsidiary is required by PRC labor-related laws and regulations to pay various statutory employee benefits, including pensions insurance, medical insurance, work-related injury insurance, unemployment insurance, maternity insurance and housing provident fund, to designated government agencies for the benefit of its employees and associates. In October 2010, SCNPC promulgated the Social Insurance Law of PRC, effective on July 1, 2011 and amended on December 29, 2018. On April 3, 1999, the State Council promulgated the Regulations on the Administration of Housing Provident Fund, which was amended on March 24, 2002 and March 24, 2019. Companies registered and operating in China are required under the Social Insurance Law of PRC and the Regulations on the Administration of Housing Provident Fund to apply for social insurance registration and housing provident fund deposit registration within thirty (30) days of their establishment and to pay for their employees different social insurance including pension insurance, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance as well as housing provident fund to the extent required by law. Our PRC subsidiary could be subject to orders by competent labor authorities for rectification if it fails to comply with such social insurance and housing provident fund related laws and regulations, and failure to comply with the orders may further subject to administrative fines. The relevant government agencies may examine whether an employer has made adequate payments of the requisite statutory employee benefits, and employers who fail to make adequate payments may be subject to late payment fees, fines and/or other penalties.

 

Our PRC subsidiary does not make contributions in full for the social insurance fund and housing provident fund for its employees as required under the relevant PRC laws and regulations. Although it has not received any order or notice from the local authorities nor any claims or complaints from its current and former employees regarding its non-compliance in this regard, we cannot assure you that it will not be subject to any order to rectify non-compliance in the future, nor can we assure you that there are no, or will not be any, employee complaints regarding social insurance payment or housing provident fund contributions against it, or that it will not receive any claims in respect of social insurance payment or housing provident fund contributions under the PRC laws and regulation. In addition, our PRC subsidiary may incur additional costs to comply with such laws and regulations by the PRC Government or relevant local authorities. Any such development could materially and adversely affect its business, financial condition and results of operations.

 

Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

 

Pursuant to the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company, promulgated by SAFE in 2012, or SAFE Notices No. 7, PRC citizens and non-PRC citizens who reside in China for a continuous period of no less than one year who participate in any stock incentive plan of an overseas publicly listed company offered to the director, supervisor, senior management and other employees of, and any individual who has labor relationship with its domestic affiliated entities are required to register with SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our directors, executive officers and other employees who are PRC citizens or who reside in the PRC for a continuous period of no less than one year and who have been granted stock options will be subject to these regulations when our company becomes an overseas listed company upon the completion of this offering. Failure to complete the SAFE registrations for our employee incentive plans after our listing may subject them to fines and legal sanctions, and may also limit our ability to contribute additional capital into our PRC subsidiary and limit our PRC subsidiary’s ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law.

 

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In addition, the State Administration of Taxation, or SAT, has issued certain circulars concerning employee stock options and restricted shares. Under these circulars, our employees working in China who exercise stock options or are granted restricted shares will be subject to PRC individual income tax. Our PRC subsidiary has obligations to file documents related to employee stock options or restricted shares with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share options or are granted with restricted shares. If our employees fail to pay or we fail to withhold their income taxes according to relevant laws and regulations, we may face sanctions imposed by the tax authorities or other PRC governmental authorities.

 

U.S. regulatory bodies may be limited in their ability to conduct investigations or inspections of our operations in China.

 

Any disclosure of documents or information located in China by foreign agencies may be subject to jurisdiction constraints and must comply with China’s state secrecy laws, which broadly define the scope of “state secrets” to include matters involving economic interests and technologies. There is no guarantee that requests from U.S. federal or state regulators or agencies to investigate or inspect our operations will be honored by us, by entities who provide services to us or with whom we associate, without violating PRC legal requirements, especially as those entities are located in China. Furthermore, under the current PRC laws, an on-site inspection of our facilities by any of these regulators may be limited or prohibited.

 

If we become directly subject to the recent scrutiny involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and or defend the matter, which could harm our business operations, stock price and reputation and could result in a complete loss of your investment in us.

 

Recently, U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny by investors, financial commentators and regulatory agencies. Much of the scrutiny has centered around financial and accounting irregularities and mistakes, a lack of effective internal controls over financial reporting and, in many cases, allegations of fraud. As a result of the scrutiny, the publicly traded stock of many U.S. listed China-based companies that have been the subject of such scrutiny has sharply decreased in value. Many of these companies are now subject to shareholder lawsuits and or SEC enforcement actions that are conducting internal and or external investigations into the allegations. If we become the subject of any such scrutiny, whether any allegations are true or not, we may have to expend significant resources to investigate such allegations and or defend our company. Such investigations or allegations will be costly and time-consuming and distract our management from our business plan and could result in our reputation being harmed and our stock price could decline as a result of such allegations, regardless of the truthfulness of the allegations.

 

If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.

 

Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with its “de facto management body” within the PRC is considered a “resident enterprise” and will be subject to the enterprise income tax on its global income at the rate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. In 2009, the State Administration of Taxation, or SAT, issued a circular, known as SAT Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular applies only to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China, and will be subject to PRC enterprise income tax on its global income only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.

 

We believe our company is not a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” If the PRC tax authorities determine that our company is a PRC resident enterprise for enterprise income tax purposes, we would be subject to PRC enterprise income on our worldwide income at the rate of 25%. Furthermore, we would be required to withhold a 10% tax from dividends we pay to our shareholders that are non-resident enterprises. In addition, non-resident enterprise shareholders (including the common shareholders) may be subject to PRC tax on gains realized on the sale or other disposition of the common stock, if such income is treated as sourced from within the PRC. Furthermore, if we are deemed a PRC resident enterprise, dividends paid to our non-PRC individual shareholders (including the common shareholders) and any gain realized on the transfer of the common stock or ordinary shares by such shareholders may be subject to PRC tax at a rate of 20% (which, in the case of dividends, may be withheld at source by us). These rates may be reduced by an applicable tax treaty, but it is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on your investment in our Class A Ordinary Shares.

 

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We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.

 

On February 3, 2015, the SAT issued the Public Notice Regarding Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises, or SAT Bulletin 7. SAT Bulletin 7 extends its tax jurisdiction to transactions involving the transfer of taxable assets through offshore transfer of a foreign intermediate holding company. In addition, SAT Bulletin 7 has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. SAT Bulletin 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets, as such persons need to determine whether their transactions are subject to these rules and whether any withholding obligation applies.

 

On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Bulletin 37, which came into effect on December 1, 2017. The SAT Bulletin 37 further clarifies the practice and procedure of the withholding of non-resident enterprise income tax.

 

Where a non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, which is an “Indirect Transfer”, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such Indirect Transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC enterprise income tax, and the transferee or other person who pays for the transfer is obligated to withhold the applicable taxes currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes.

 

We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries and investments. Our company may be subject to filing obligations or taxed if our company is transferor in such transactions, and may be subject to withholding obligations if our company is transferee in such transactions, under SAT Bulletin 7 and/or SAT Bulletin 37. For transfer of shares in our company by investors who are enterprises outside of mainland China, our PRC subsidiary may be requested to assist in the filing under SAT Bulletin 7 and/or SAT Bulletin 37. As a result, we may be required to expend valuable resources to comply with SAT Bulletin 7 and/or SAT Bulletin 37 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our company should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.

 

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Risks Related to Our Class A Ordinary Shares and This Offering

 

There has been no public market for our Class A Ordinary Shares prior to this offering, and you may not be able to resell our Class A Ordinary Shares at or above the price you paid, or at all.

 

Prior to this initial public offering, there has been no public market for our shares. If an active trading market for our Class A Ordinary Shares does not develop after this offering, the market price and liquidity of our Class A Ordinary Shares will be materially and adversely affected. Negotiations with the underwriters will determine the initial public offering price for our Class A Ordinary Shares which may bear no relationship to their market price after the initial public offering. We cannot assure you that an active trading market for our Class A Ordinary Shares will develop or that the market price of our Class A Ordinary Shares will not decline below the initial public offering price.

 

The price of the Class A Ordinary Shares and other terms of this Offering have been determined by us along with our underwriters.

 

If you purchase our Class A Ordinary Shares in this Offering, you will pay a price that was not established in a competitive market. Rather, you will pay a price that was determined by us along with our underwriters. The offering price for our Class A Ordinary Shares may bear no relationship to our assets, book value, historical results of operations or any other established criterion of value. The trading price, if any, of the Class A Ordinary Shares that may prevail in any market that may develop in the future, for which there can be no assurance, may be higher or lower than the price you paid for our Class A Ordinary Shares.

 

Shares eligible for future sale may adversely affect the market price of our Class A Ordinary Shares, as the future sale of a substantial amount of outstanding Class A Ordinary Shares in the public marketplace could reduce the price of our Class A Ordinary Shares.

 

The market price of our Class A Ordinary Shares could decline as a result of sales of substantial amounts of our Class A Ordinary Shares in the public market, or the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds through future offerings of our Class A Ordinary Shares. An aggregate of 8,213,040 Class A Ordinary Shares are outstanding before the consummation of this offering. All of the Class A Ordinary Shares sold in the offering will be freely transferable without restriction or further registration under the Securities Act. The remaining Class A Ordinary Shares will be “restricted securities” as defined in Rule 144. These Class A Ordinary Shares may be sold without registration under the Securities Act to the extent permitted by Rule 144 or other exemptions under the Securities Act.

 

A sale or perceived sale of a substantial number of our Class A Ordinary Shares may cause the price of our Class A Ordinary Shares to decline.

 

All of our officers and directors and holders of 5% or more of our Class A Ordinary Shares on a fully diluted and converted basis have agreed not to sell our Class A Ordinary Shares for a period of six months following the effective date of this registration statement, subject to extension under specified circumstances. Class A Ordinary Shares subject to these lock-up agreements will become eligible for sale in the public market upon expiration of these lock-up agreements, subject to limitations imposed by Rule 144 under the Securities Act of 1933, as amended. If our shareholders sell substantial amounts of our Class A Ordinary Shares in the public market, the market price of our Class A Ordinary Shares could fall. Moreover, the perceived risk of this potential dilution could cause shareholders to attempt to sell their shares and investors to short our Class A Ordinary Shares. These sales may also make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

 

If our financial condition deteriorates, we may not meet continued listing standards on the Nasdaq Capital Market.

 

The Nasdaq Capital Market also requires companies to fulfill specific requirements in order for their shares to continue to be listed. If our Class A Ordinary Shares are delisted from the Nasdaq Capital Market at some later date, our shareholders could find it difficult to sell our Class A Ordinary Shares. In addition, if our Class A Ordinary Shares are delisted from the Nasdaq Capital Market at some later date, we may apply to have our Class A Ordinary Shares quoted on the Bulletin Board or in the “pink sheets” maintained by the National Quotation Bureau, Inc. The Bulletin Board and the “pink sheets” are generally considered to be less efficient markets than the Nasdaq Capital Market. In addition, if our Class A Ordinary Shares are delisted at some later date, our Class A Ordinary Shares may be subject to the “penny stock” regulations. These rules impose additional sales practice requirements on broker-dealers that sell low-priced securities to persons other than established clients and institutional accredited investors and require the delivery of a disclosure schedule explaining the nature and risks of the penny stock market. As a result, the ability or willingness of broker-dealers to sell or make a market in our Class A Ordinary Shares might decline. If our Class A Ordinary Shares are delisted from the Nasdaq Capital Market at some later date or become subject to the penny stock regulations, it is likely that the price of our Class A Ordinary Shares would decline and that our shareholders would find it difficult to sell their shares.

 

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Recent joint statement by the SEC and the PCAOB, proposed rule changes submitted by Nasdaq, and an act passed by the US Senate all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. These developments could add uncertainties to our offering.

 

In May 2013, the PCAOB announced that it had entered into a Memorandum of Understanding on Enforcement Cooperation with the CSRC, and the PRC Ministry of Finance, which establishes a cooperative framework between the parties for the production and exchange of audit documents relevant to investigations undertaken by the PCAOB, the CSRC or the PRC Ministry of Finance in the United States and the PRC, respectively. The PCAOB continues to be in discussions with the CSRC, and the PRC Ministry of Finance to permit joint inspections in the PRC of audit firms that are registered with PCAOB and audit Chinese companies that trade on U.S. exchanges.

 

On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. The joint statement reflects a heightened interest in an issue that has vexed U.S. regulators in recent years. On April 21, 2020, SEC Chairman Jay Clayton and PCAOB Chairman William D. Duhnke III, along with other senior SEC staff, released a joint statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets.

 

On June 4, 2020, the U.S. President issued a memorandum ordering the President’s Working Group on Financial Markets, or the PWG, to submit a report to the President within 60 days of the memorandum that includes recommendations for actions that can be taken by the executive branch and by the SEC or PCAOB on Chinese companies listed on U.S. stock exchanges and their audit firms, in an effort to protect investors in the U.S.

 

On August 6, 2020, the PWG released a report recommending that the SEC take steps to implement the five recommendations outlined in the report. In particular, to address companies from jurisdictions that do not provide the PCAOB with sufficient access to fulfil its statutory mandate, or Non-Cooperating Jurisdictions (“NCJs”), the PWG recommends enhanced listing standards on U.S. stock exchanges. This would require, as a condition to initial and continued exchange listing, PCAOB access to work papers of the principal audit firm for the audit of the listed company. Companies unable to satisfy this standard as a result of governmental restrictions on access to audit work papers and practices in NCJs may satisfy this standard by providing a co-audit from an audit firm with comparable resources and experience where the PCAOB determines it has sufficient access to audit work papers and practices to conduct an appropriate inspection of the co-audit firm. There is currently no legal process under which such a co-audit may be performed in China. The report permits the new listing standards to provide for a transition period until January 1, 2022 for listed companies, but would apply immediately to new listings once the necessary rulemakings and/or standard-setting are effective. The measures in the PWG Report are presumably subject to the standard SEC rulemaking process before becoming effective. On August 10, 2020, the SEC announced that SEC Chairman had directed the SEC staff to prepare proposals in response to the PWG Report, and that the SEC was soliciting public comments and information with respect to these proposals. If we fail to meet the new listing standards before the deadline specified thereunder due to factors beyond our control, we could face possible de-listing from the Nasdaq Capital Market, deregistration from the SEC and/or other risks, which may materially and adversely affect, or effectively terminate, our Class A Ordinary Shares trading in the United States.

 

On March 24, 2021, the SEC announced that it had adopted interim final amendments to implement congressionally mandated submission and disclosure requirements of the Act. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report on Forms 10-K, 20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction. The SEC will implement a process for identifying such a registrant and any such identified registrant will be required to submit documentation to the SEC establishing that it is not owned or controlled by a governmental entity in that foreign jurisdiction, and will also require disclosure in the registrant’s annual report regarding the audit arrangements of, and governmental influence on, such a registrant.

 

Furthermore, the HFCA Act, which requires that the PCAOB be permitted to inspect the issuer’s public accounting firm within three years, may result in the delisting of our Company in the future if the PCAOB is unable to inspect our accounting firm at such future time.

 

In addition, on June 22, 2021, the U.S. Senate passed the AHFCAA, which, if signed into law, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three consecutive years.

 

On November 5, 2021, the SEC approved the PCAOB’s Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act. Rule 6100 provides a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 16, 2021, the PCAOB issued a Determination Report which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China, and (2) Hong Kong. The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China. As a result, the investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firms’ audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections, which could cause existing and potential investors in our stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

 

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On August 26, 2022, a Statement of Protocol was signed by the PCAOB, the CSRC and the Ministry of Finance of the PRC governing inspections and investigations of audit firms based in mainland China and Hong Kong (the “Statement of Protocol”). Pursuant to the Statement of Protocol, the PCAOB conducted inspections on select registered public accounting firms subject to the Determination Report in Hong Kong between September and November 2022. On December 15, 2022, the PCAOB board announced that it has completed the inspections, determined that it had complete access to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, and voted to vacate the Determination Report. On December 29, 2022, the CAA was signed into law by President Biden. The CAA contained, among other things, an identical provision to the AHFCAA, which reduces the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from three years to two.

 

Our former auditor, Friedman LLP, the independent registered public accounting firm that issues the audit report for the years ended December 31, 2021, and 2020 included elsewhere in this prospectus, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Friedman LLP is headquartered in Manhattan, New York, with no branches or offices outside of the United States, and has been inspected by the PCAOB on a regular basis.

 

Our current auditor, Marcum Asia CPAs LLP, an independent registered public accounting firm that reviewed the unaudited interim condensed consolidated financial statements for the nine months ended September 30, 2022 and 2021, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Marcum Asia CPAs LLP is headquartered in Manhattan, New York, and is subject to inspection by the PCAOB on a regular basis.

 

Friedman LLP and Marcum Asia CPAs LLP are not identified in the report issued by PCAOB on December 16, 2021 as a firm subject to the PCAOB’s determination. Notwithstanding the foregoing, in the future, if there is any regulatory change or step taken by PRC regulators that does not permit Friedman LLP or Marcum Asia CPAs LLP to provide audit workpapers to the PCAOB for inspection or investigation, or the PCAOB re-evaluates its determination as a result of any obstruction with the implementation of the Statement of Protocol in the future, you may be deprived of the benefits of such inspection which could result in limitation or restriction to our access to the U.S. capital markets and trading of our securities on a national exchange or “over-the-counter” markets may be prohibited under the HFCA Act.  In addition, under the HFCA Act, our securities may be prohibited from trading on the Nasdaq or other U.S. stock exchanges if our auditor is not inspected by the PCAOB for three consecutive years, which could be reduced to two consecutive years if the AHFCAA, passed by the U.S. Senate on June 22, 2021, is signed into law, and this ultimately could result in our Class A Ordinary Shares being delisted by the exchange. Furthermore, we cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements.

 

If a limited number of participants in this offering purchase a significant percentage of the offering, the effective public float may be smaller than anticipated and the price of our Class A Ordinary Shares may be volatile.

 

As a company conducting a relatively modest public offering, we are subject to the risk that a small number of investors will purchase a high percentage of the offering. If this were to happen, investors could find our Class A Ordinary Shares to be more volatile than they might otherwise anticipate. Companies that experience such volatility in their stock price may be more likely to be the subject of securities litigation. In addition, if a large portion of our public float were to be held by a few investors, smaller investors may find it more difficult to sell their shares.

 

The market price for the Class A Ordinary Shares may be volatile.

 

The trading prices of the Class A Ordinary Shares are likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation in the market prices or the underperformance or deteriorating financial results of internet or other companies based in China that have listed their securities in the United States in recent years. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial price declines in their trading prices. The trading performances of other Chinese companies’ securities after their offerings, including internet and e-commerce companies, may affect the attitudes of investors toward Chinese companies listed in the United States, which consequently may impact the trading performance of the Class A Ordinary Shares, regardless of our actual operating performance. Any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or other matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have conducted any inappropriate activities. In addition, securities markets may from time to time experience significant price and volume fluctuations that are not related to our operating performance, such as the large decline in share prices in the United States, China and other jurisdictions in late 2008, early 2009 and the second half of 2011, which may have a material adverse effect on the market price of the Class A Ordinary Shares.

 

We may experience extreme stock price volatility unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Class A Ordinary Shares.

 

Recently, there have been instances of extreme stock price run-ups followed by rapid price declines and strong stock price volatility with a number of recent initial public offerings, especially among companies with relatively smaller public floats. As a relatively small-capitalization company with relatively small public float, we may experience greater stock price volatility, extreme price run-ups, lower trading volume and less liquidity than large-capitalization companies. In particular, our Class A Ordinary Shares may be subject to rapid and substantial price volatility, low volumes of trades and large spreads in bid and ask prices. Such volatility, including any stock-run up, may be unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Class A Ordinary Shares.

 

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In addition, if the trading volumes of our Class A Ordinary Shares are low, persons buying or selling in relatively small quantities may easily influence prices of our Class A Ordinary Shares. This low volume of trades could also cause the price of our Class A Ordinary Shares to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Holders of our Class A Ordinary Shares may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our Class A Ordinary Shares. As a result of this volatility, investors may experience losses on their investment in our Class A Ordinary Shares. A decline in the market price of our Class A Ordinary Shares also could adversely affect our ability to issue additional Class A Ordinary Shares or other securities and our ability to obtain additional financing in the future. No assurance can be given that an active market in our Class A Ordinary Shares will develop or be sustained. If an active market does not develop, holders of our Class A Ordinary Shares may be unable to readily sell the Class A Ordinary Shares they hold or may not be able to sell their Class A Ordinary Shares at all.

 

Furthermore, the stock market in general, and the market prices for companies with operations in China in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. The securities of some China-based companies that have listed their securities in the United States have experienced significant volatility since their initial public offerings in recent years, including, in some cases, substantial declines in the trading prices of their securities. The trading performances of these companies’ securities after their offerings may affect the attitudes of investors towards China-based companies listed in the United States in general, which consequently may impact the trading performance of our Class A Ordinary Shares, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or other matters of other China-based companies may also negatively affect the attitudes of investors towards China-based companies in general, including us, regardless of whether we have engaged in any inappropriate activities.

 

In addition to the above factors, the price and trading volume of the Class A Ordinary Shares may be highly volatile due to multiple factors, including the following:

 

  regulatory developments affecting us, our clients or our industry;

 

  conditions in the financing advisory industry in China;

 

  announcements of studies and reports relating to the quality of our service offerings or those of our competitors;

 

 

 

 

investor perceptions about us, our business and in general companies with operations in China;

 

  changes in the economic performance or market valuations of other financing advisory companies;
 

 

 

general economic and securities market conditions;

 

  actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results;

 

 

 

 

the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

 

 

 

the absence of cash dividends on our Class A Ordinary Shares;

 

  changes in financial estimates by securities research analysts;

 

  announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures or capital commitments;

 

  additions to or departures of our senior management;

 

  detrimental negative publicity about us, our management or our industry;

 

  fluctuations of exchange rates between the Renminbi and the U.S. dollar;

 

  release or expiry of lock-up or other transfer restrictions on our outstanding Class A Ordinary Shares; 

 

 

 

 

the development and sustainability of an active trading market for our Class A Ordinary Shares;

 

  sales or perceived potential sales of additional Class A Ordinary Shares; and
 

 

 

The COVID-19 pandemic, the ensuing economic recessions and deterioration in the credit market in many countries.

 

Other than the aforementioned potential factors that may affect the price and trading volume of our Class A Ordinary Shares, there are no known factors particular to our offering that may add to this risk.

 

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If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding our Class A Ordinary Shares, the market price for the Class A Ordinary Shares and trading volume could decline.

 

The trading market for our Class A Ordinary Shares will be influenced by research or reports that industry or securities analysts publish about our business. If industry or securities analysts decide to cover us and in the future downgrade our Class A Ordinary Shares, the market price for our Class A Ordinary Shares would likely decline. If one or more of these analysts cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for our Class A Ordinary Shares to decline.

 

We have not finally determined the use of the proceeds from this offering, and we may use the proceeds in ways with which you may not agree.

 

While we have identified the priorities to which we expect to put the proceeds of this offering, our management will have considerable discretion in the application of the net proceeds received by us. We have reserved the right to re-allocate funds currently allocated to that purpose to our general working capital. If that were to happen, then our management would have discretion over even more of the net proceeds to be received by our company in this offering. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. The net proceeds may be used for corporate purposes that do not improve our efforts to achieve profitability or increase our stock price. The net proceeds from this offering may be placed in investments that do not produce profit or increase value. See “Use of Proceeds” on page 67 of this prospectus.

 

We are a “foreign private issuer,” and our disclosure obligations differ from those of U.S. domestic reporting companies. As a result, we may not provide you the same information as U.S. domestic reporting companies or we may provide information at different times, which may make it more difficult for you to evaluate our performance and prospects.

 

We are a foreign private issuer and, as a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we will be subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxy statements. We will not be required to disclose detailed individual executive compensation information. Furthermore, our directors and executive officers will not be required to report equity holdings under Section 16 of the Exchange Act and will not be subject to the insider short-swing profit disclosure and recovery regime. As a foreign private issuer, we will also be exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. However, we will still be subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many of the disclosure obligations imposed on us as a foreign private issuer differ from those imposed on U.S. domestic reporting companies, you should not expect to receive the same information about us and at the same time as the information provided by U.S. domestic reporting companies.

 

Shares eligible for future sale may adversely affect the market price of our Class A Ordinary Shares, as the future sale of a substantial amount of outstanding Class A Ordinary Shares in the public marketplace could reduce the price of our Class A Ordinary Shares.

 

The market price of our Class A Ordinary Shares could decline as a result of sales of substantial amounts of our Class A Ordinary Shares in the public market, or the perception that these sales could occur. In addition, these factors could make it more difficult for us to raise funds through future offerings of our Class A Ordinary Shares. An aggregate of 8,213,040 Class A Ordinary Shares is outstanding before the consummation of this offering and 10,963,040 Class A Ordinary Shares (11,375,540 Class A Ordinary Shares if the underwriters exercise their over-allotment option in full) will be outstanding immediately after this offering. All of the Class A Ordinary Shares sold in the Offering will be freely transferable without restriction or further registration under the Securities Act. The remaining shares will be “restricted securities” as defined in Rule 144. These Class A Ordinary Shares may be sold in the future without registration under the Securities Act to the extent permitted by Rule 144 or other exemptions under the Securities Act.

 

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We are a foreign private issuer and, as a result, will not be subject to U.S. proxy rules and will be subject to more lenient and less frequent Exchange Act reporting obligations than a U.S. issuer.

 

Upon consummation of this offering, we will report under the Exchange Act as a foreign private issuer. Because we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. public companies, including:

 

  the sections of the Exchange Act that regulate the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

 

  the sections of the Exchange Act that require insiders to file public reports of their stock ownership and trading activities and impose liability on insiders who profit from trades made in a short period of time; and

 

  the rules under the Exchange Act that require the filing of quarterly reports on Form 10-Q containing unaudited financial and other specified information and current reports on Form 8-K upon the occurrence of specified significant events.

 

In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are not large accelerated filers or accelerated filers are required to file their annual report on Form 10-K within 90 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation FD, aimed at preventing issuers from making selective disclosures of material information. There is no formal requirement under the Company’s memorandum and articles of association mandating that we hold an annual meeting of our shareholders. However, notwithstanding the foregoing, we intend to hold such meetings on our annual meeting to, among other things, elect our directors. As a result, you may not have the same protections afforded to stockholders of companies that are not foreign private issuers.

 

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

 

The determination of our status as a foreign private issuer is made annually on the last business day of our most recently completed second fiscal quarter. We would lose our foreign private issuer status if (1) a majority of our outstanding voting securities are directly or indirectly held of record by U.S. residents, and (2) a majority of our shareholders or a majority of our directors or management are U.S. citizens or residents, a majority of our assets are located in the United States, or our business is administered principally in the United States. If we were to lose our foreign private issuer status, the regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. We may also be required to modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers, which would involve additional costs.

 

As an “emerging growth company” under the Jumpstart Our Business Startups Act, or JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.

 

As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. We are an emerging growth company until the earliest of:

 

  the last day of the fiscal year during which we have total annual gross revenues of $1 billion or more;

 

  the last day of the fiscal year following the fifth anniversary of this offering;

 

  the date on which we have, during the previous 3-year period, issued more than $1 billion in non-convertible debt; or

 

  the date on which we are deemed a “large accelerated issuer” as defined under the federal securities laws.

 

For so long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section 404 of the Sarbanes-Oxley Act for up to five fiscal years after the date of this offering. We cannot predict if investors will find our Class A Ordinary Shares less attractive because we may rely on these exemptions. If some investors find our Class A Ordinary Shares less attractive as a result, there may be a less active trading market for our Class A Ordinary Shares and the trading price of our Class A Ordinary Shares may be more volatile. In addition, our costs of operating as a public company may increase when we cease to be an emerging growth company.

 

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We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. holders of our Class A Ordinary Shares.

 

Based on the anticipated market price of our Class A Ordinary Shares in this offering and expected price of our Class A Ordinary Shares following this offering, and the composition of our income, assets and operations, we do not expect to be treated as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for the current taxable year or in the foreseeable future. However, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you the U.S. Internal Revenue Service will not take a contrary position. Furthermore, this is a factual determination that must be made annually after the close of each taxable year. If we are a PFIC for any taxable year during which a U.S. holder holds our Class A Ordinary Shares, certain adverse U.S. federal income tax consequences could apply to such U.S. holder, including increased U.S. federal income tax liability and additional reporting requirements. Our status as a PFIC is a fact-intensive determination made on an annual basis. Accordingly, our U.S. counsel expresses no opinion with respect to our PFIC status and also expresses no opinion with regard to our expectations regarding our PFIC status.

 

For a more detailed discussion of the application of the PFIC rules to us and the consequences to U.S. holders who own our Class A Ordinary Shares if we were determined to be a PFIC, see “United States Federal Income Taxation Considerations — Passive Foreign Investment Company (“PFIC”).”

 

Our corporate structure, together with applicable law, may impede shareholders from asserting claims against us and our principals.

 

All of our operations and records, and all of our senior management are located in the PRC. Shareholders of companies such as ours have limited ability to assert and collect on claims in litigation against such companies and their principals. In addition, China has very restrictive secrecy laws that prohibit the delivery of many of the financial records maintained by a business located in China to third parties absent PRC government approval. Since discovery is an important part of proving a claim in litigation, and since most if not all of our records are in China, Chinese secrecy laws could frustrate efforts to prove a claim against us or our management. In addition, in order to commence litigation in the United States against an individual such as an officer or director, that individual must be served. Generally, service requires the cooperation of the country in which a defendant resides. China has a history of failing to cooperate in efforts to affect such service upon Chinese citizens in China.

 

If we become directly subject to the recent scrutiny involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and or defend the matter, which could harm our business operations, stock price and reputation and could result in a complete loss of your investment in us.

 

Recently, U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny by investors, financial commentators and regulatory agencies. Much of the scrutiny has centered around financial and accounting irregularities and mistakes, a lack of effective internal controls over financial reporting and, in many cases, allegations of fraud. As a result of the scrutiny, the publicly traded stock of many U.S. listed China-based companies that have been the subject of such scrutiny has sharply decreased in value. Many of these companies are now subject to shareholder lawsuits and or SEC enforcement actions that are conducting internal and or external investigations into the allegations. If we become the subject of any such scrutiny, whether any allegations are true or not, we may have to expend significant resources to investigate such allegations and or defend our company. Such investigations or allegations will be costly and time-consuming and distract our management from our business plan and could result in our reputation being harmed and our stock price could decline as a result of such allegations, regardless of the truthfulness of the allegations.

 

Because our initial public offering price is substantially higher than our net tangible book value per share, you will experience immediate and substantial dilution.

 

If you purchase Class A Ordinary Shares in this offering, you will pay more for your Class A Ordinary Shares than the amount paid per share by our existing shareholders for their Class A Ordinary Shares. As a result, you will experience immediate and substantial dilution of approximately $2.95 per Class A Ordinary Share, representing the difference between the initial public offering price of $4.00 per Class A Ordinary Share and our net tangible book value per Class A Ordinary Share as of September 30, 2022 after giving effect to the net proceeds to us from this offering. In addition, you may experience further dilution to the extent that our Class A Ordinary Shares are issued upon the exercise of any share options. See “Dilution” on page 71 for a more complete description of how the value of your investment in the Class A Ordinary Shares will be diluted upon completion of this offering.

 

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Because we do not expect to pay dividends in the foreseeable future after this offering, you must rely on price appreciation of the Class A Ordinary Shares for return on your investment.

 

We currently intend to retain most, if not all, of our available funds and any future earnings after this offering to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the foreseeable future. Therefore, you should not rely on an investment in our Class A Ordinary Shares as a source for any future dividend income.

 

Our board of directors has discretion as to whether to distribute dividends, subject to certain restrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or share premium; provided that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our Class A Ordinary Shares will likely depend entirely upon any future price appreciation of our Class A Ordinary Shares. There is no guarantee that our Class A Ordinary Shares will appreciate in value after this offering or even maintain the price at which you purchased the Class A Ordinary Shares. You may not realize a return on your investment in our Class A Ordinary Shares and you may even lose your entire investment in our Class A Ordinary Shares.

 

We may need additional capital and may sell additional Class A Ordinary Shares or other equity securities or incur indebtedness, which could result in additional dilution to our shareholders or increase our debt service obligations.

 

We may require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our cash resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities. The sale of additional equity securities or equity-linked debt securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or terms acceptable to us, if at all.

 

We will incur increased costs as a result of being a public company.

 

Upon completion of this offering, we will become a public company and expect to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as well as rules subsequently implemented by the SEC and the Nasdaq Capital Market, impose various requirements on the corporate governance practices of public companies. As a company with less than $1.235 billion in net revenues for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s internal control over financial reporting.

 

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We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. We expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC. For example, as a result of becoming a public company, we will need to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.

 

In the past, shareholders of a public company often brought securities class action suits against the company following periods of instability in the market price of that company’s securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.

 

Our lack of effective internal controls over financial reporting may affect our ability to accurately report our financial results or prevent fraud which may affect the market for and price of our Class A Ordinary Shares.

 

Prior to this offering, we were a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. Upon the completion of this offering, we will become a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, will require that we include a report from management on our internal control over financial reporting in our annual report on Form 20-F. In addition, once we cease to be an “emerging growth company” as such term is defined in the JOBS Act, our independent registered public accounting firms must attest to and report on the effectiveness of our internal control over financial reporting. In connection with the audits of our consolidated financial statements as of December 31, 2021 and 2020, we and our independent registered public accounting firms identified material weaknesses and significant deficiencies in our internal control over financial reporting. As defined in the standards established by the PCAOB, a “material weakness” is 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 our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses identified are: (i) inadequate segregation of duties for certain key functions due to limited staff and resources; (ii) lack of documented policies and controls (including IT controls and cybersecurity framework) which enable management and other personnel to understand and carry out their internal control responsibilities; (iii) lack of audit committee and internal audit function to establish formal risk assessment process and internal control framework; and (iv) the Company does not have accounting personnel familiar with U.S. GAAP, and there is no proper monitor on daily transaction recording and general ledger work.

 

We intend to implement measures designed to improve our internal control over financial reporting to address the underlying causes of these material weaknesses, including (i) hiring more qualified staff to fill up the key roles in the operations; (ii) setting up a financial and system control framework with formal documentation of polices and controls in place; (iii) appointing independent directors, establishing an audit committee and strengthening corporate governance; and (iv) hiring additional qualified financial professionals such as corporate controller familiar with U.S. GAAP to increase the number of qualified financial reporting personnel and monitor daily transaction recording and general ledger work. We will not be able to fully remediate these material weaknesses until these steps have been completed and have been operating effectively for a sufficient period of time. There can be no assurance that we will be successful in pursuing these measures, or that these measures will significantly improve or remediate the material weaknesses described above.

 

In addition, in the course of preparing our financial statements for the years ended December 31, 2021 and 2020, we and our independent registered public accounting firms identified two significant deficiencies: (i) lack of evidence or track to show management’s review performance; and (ii) lack of documentary evidence of proper review or approval process to ensure the list of related parties is complete. To address these significant deficiencies, we plan to adopt a remediation plan to set up a management’s review system with requirements to leave accounting supervisor /manager or management’s signature after reviewing financial statements and the list of related parties. There can be no assurance that we will be successful in pursuing the measures, or that the measures will significantly improve or remediate the significant deficiencies described above.

 

We cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to the material weaknesses and significant deficiencies in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses or significant deficiencies. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, material weaknesses or significant deficiencies in internal control over financial reporting may be discovered in the future. If we fail to remediate our current or future material weaknesses or significant deficiencies or to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results, or report them within the timeframes required by law, our consolidated financial statements may be restated, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our Class A Ordinary Shares could be materially and adversely affected, the Class A Ordinary Shares may be suspended or delisted from Nasdaq, and our reputation, results of operations and financial condition may be adversely affected. Failure to comply with Section 404 could also potentially subject us to sanctions or investigations by the SEC or other regulatory authorities.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements that involve risks and uncertainties. All statements other than statements of current or historical facts are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

 

You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to, statements about:

 

  our goals and strategies;

 

  our future business development, financial condition and results of operations;

 

  expected changes in our revenues, costs or expenditures;

 

  our expectations regarding demand for and market acceptance of our services;

 

  competition in our industry; and

 

  government policies and regulations relating to our industry.

 

You should read this prospectus and the documents that we refer to in this prospectus with the understanding that our actual future results may be materially different from and worse than what we expect. Other sections of this prospectus include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

 

You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

This prospectus also contains statistical data and estimates that we obtained from industry publications and reports generated by third-party providers of market intelligence, including the statistical data from Frost & Sullivan. Although we have not independently verified the data, we believe that the publications and reports are reliable.

 

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USE OF PROCEEDS

 

We estimate that we will receive net proceeds from the sale of our Class A Ordinary Shares of approximately $9,200,000, (or up to $10,718,000 if the underwriters exercise the over-allotment option) based upon the initial public offering price of $4.00 per share , and after deducting underwriting discounts and commissions and estimated offering expenses.

 

We plan to use the net proceeds we receive from this offering for the following purposes:

 

Use of Proceeds 

Percentage of
the Net

Proceeds

 
Personnel training and recruitment of talented personnel   30%
System improvement, building online platforms for future online courses   20%
Enhancement of brand recognition through multi-channel marketing   10%
Mergers and acquisitions within the industry   30%
General corporate purposes and working capital, including potential strategic investments and acquisitions   10%

 

The precise amounts and percentage of proceeds we would devote to particular categories of activity will depend on prevailing market and business conditions as well as particular opportunities that may arise from time to time. The above expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures may vary significantly from the above depending on numerous factors, including any unforeseen cash needs. Similarly, the priority of our prospective uses of proceeds will depend on business and market conditions. Accordingly, our management will have significant flexibility and broad discretion in applying the net proceeds of the offering. If any unforeseen event occurs or the business conditions change, we may use the proceeds of this offering differently from that described in this prospectus.

 

In utilizing the proceeds of this offering, we are permitted under PRC laws and regulations to provide funding to our PRC subsidiary only through loans or capital contributions. For those proceeds of this offering to be used in China, we will need to convert the proceeds from U.S. dollars to RMB by way of capital contributions or loans to our PRC subsidiary. None of the proceeds of this offering can be loaned or contributed to our PRC subsidiary without additional government registration or approval. Subject to satisfaction of applicable government registration and approval requirements, we may extend inter-company loans or make additional capital contributions to our PRC subsidiary to fund their capital expenditures or working capital. The relevant registration or approval processes for capital contributions typically take around eight weeks to complete. The registration or approval processes for loans typically take approximately four weeks or longer to complete. While we currently see no material obstacles to completing the registration or approval procedures with respect to future capital contributions and loans to our PRC subsidiary, we cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all. There is, in effect, no statutory limit on the amount of capital contribution that we can make to our PRC subsidiary. This is because there are no statutory limits on the amount of registered capital for our PRC subsidiary, and we are allowed to make capital contributions to our PRC subsidiary by subscribing for its initial registered capital and increased registered capital, provided that our PRC subsidiary complete the relevant necessary filing and registration procedures in accordance with the applicable laws and regulations. With respect to loans to the PRC subsidiary by us, (i) if the relevant PRC subsidiary is permitted by the competent governmental authorities to adopt the traditional foreign exchange administration mechanism, or the current foreign debt mechanism, the outstanding amount of the loans shall not exceed the difference between the total investment and the registered capital of the PRC subsidiary; and (ii) if the relevant PRC subsidiary adopts the foreign exchange administration mechanism as provided in the Notice of the People’s Bank of China (“PBOC”) on Full-coverage Macro-prudent Management of Cross-border Financing (the “PBOC Notice No. 9”), the risk-weighted outstanding amount of the loans, which shall be calculated based on the formula provided in the PBOC Notice No. 9, shall not exceed 200% of the net asset of the relevant PRC subsidiary. Based on the amount of net asset of our PRC subsidiary as of December 31, 2021, the amount of loans we may provide for the PRC subsidiary shall not exceed USD 5,593,908. According to the PBOC Notice No. 9, after a transition period of one year since the promulgation of the PBOC Notice No. 9, the PBOC and SAFE will determine the cross-border financing administration mechanism for the foreign-invested enterprises after evaluating the overall implementation of the PBOC Notice No. 9. As of the date hereof, neither PBOC nor SAFE has promulgated and made public any further rules, regulations, notices or circulars in this regard. It is uncertain which mechanism will be adopted by PBOC and SAFE in the future and what statutory limits will be imposed on us when providing loans to our PRC subsidiary. Therefore, we will adopt capital contributions or loans to our PRC subsidiary in consideration of the available statutory limits set out above and other factors such as usage of the fund when using the proceeds to finance our business operations in the PRC.

 

Although we may use a portion of the proceeds for the acquisition of, or investment in, companies, technologies, products or assets that complement our business, we have no present understandings, commitments or agreements to enter into any acquisitions or make any investments. We cannot assure you that we will make any acquisitions or investments in the future.

 

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DIVIDEND POLICY 

 

We have not previously declared or paid cash dividends and we have no plan to declare or pay any dividends in the near future on our shares. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

 

We are a holding company incorporated in the Cayman Islands. We may rely principally on transfer of funds, dividends and other distributions on equity paid by our PRC subsidiary for our cash and financing requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiary to pay dividends to us. See “Risk Factors – Risk Factors Related to Doing Business in China - The transfer of funds, dividends and other distributions between us and our subsidiaries is subject to restriction.” on pages 47 and 48 of this prospectus; “We may rely on dividends and other distributions on equity paid by our PRC subsidiary to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiary to make payments to us could have a material and adverse effect on our ability to conduct our business.” on page 52 of this prospectus; and “Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.” on page 52 of this prospectus.

 

Our board of directors has discretion as to whether to distribute dividends, subject to certain restrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or share premium and provided always that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. Please see the section entitled “Taxation” beginning on page 142 of this prospectus for information on the potential tax consequences of any cash dividends. Our historical results are not necessarily declared.

 

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EXCHANGE RATE INFORMATION

 

Our business is conducted in China and all of our revenues are denominated in RMB. Capital accounts of our financial statements are translated into USD from RMB at their historical exchange rates when the capital transactions occurred. RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation. The following table sets forth information concerning exchange rates between the RMB and the USD for the periods indicated. Assets and liabilities are translated at the exchange rates as of the balance sheet date and include the exchange rate information for the fiscal year ended December 31, 2022, the nine months ended September 30, 2022 and 2021 and the fiscal years ended December 31, 2021 and 2020.

 

   

Year Ended
December 31,
2022

   

Nine Months
Ended
September 30,

2022

   

Year Ended
December 31,
2021

   

Nine Months
Ended
September 30,

2021

   

Year Ended
December 31,
2020

 
Period Ended RMB: USD exchange rate     6.8972       7.1135       6.3726       6.4434       6.5250  
Period Average RMB: USD exchange rate     6.7290       6.6054       6.4508       6.4701       6.9042  

 

69

 

 

CAPITALIZATION

 

The following table sets forth our capitalization as of September 30, 2022:

 

  on an actual basis;

 

  on an as-adjusted basis taking into account of an issuance on January 10, 2023; and

 

  on a pro forma as-adjusted basis, based on the numbers of shares outstanding as of the date of this prospectus which have taken into account of the issuance on January 10, 2023, to give effect to the issuance and sale of the 2,750,000 Class A Ordinary Shares by us in this offering at the initial public offering price of $4.00 per share, after deducting the underwriting commissions and estimated offering expenses.

 

You should read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus. 

 

       September 30, 2022 
   Actual   As adjusted
(Including
issuance in
January
2023) (1)
   As adjusted
(Over-
allotment
option not
 exercised) (1) (2)
   As adjusted
(Over-allotment
option 
exercised
in full) (1) (3)
 
   (Presented in USD) 
Class A Ordinary Shares, 300,000,000 shares authorized, 68,442 shares issued and outstanding as of September 30, 2022 (adjusted to 8,213,040 shares taking into account of an issuance on January 10, 2023);(1) 10,963,040 shares issued and outstanding, as adjusted assuming the over-allotment option is not exercised, and 11,375,540 shares issued and outstanding, as adjusted assuming the over-allotment option is exercised in full   7    821    1,096    1,138 
Class B Ordinary Shares, 31,558 shares issued and outstanding as of September 30, 2022 (adjusted to 3,786,960 shares taking into account of an issuance on January 10, 2023)(1)     3    379    379    379 
Share subscription receivable   (10)   (1,200)   (1,475)   (1,516)
Additional paid-in capital   114,726    114,726    9,314,726    10,832,726 
Statutory reserve   282,545    282,545    282,545    282,545 
Retained earnings   2,227,265    2,227,265    2,227,265    2,227,265 
Accumulated other comprehensive income   (241,833)   (241,833)   (241,833)   (241,833)
Total capitalization   2,382,703    2,382,703    11,582,703    13,100,703 

  

  (1) As of September 30, 2022, the number of issued and outstanding Class A Ordinary Shares and Class B Ordinary Shares were 68,442 and 31,558, respectively. The above table takes into account of the issuance of additional 8,144,598 Class A Ordinary Shares and 3,755,402 Class B Ordinary Shares by the Company on January 10, 2023 to its existing shareholders, which increased pro rata the number of shares owned by each existing shareholder and did not change their respective percentage of ownership in the Company. Following the issuance on January 10, 2023 and as of the date of this prospectus, there are 8,213,040 Class A Ordinary Shares and 3,786,960 Class B Ordinary Shares issued and outstanding.

 

  (2) Reflects the sale of Class A Ordinary Shares in this offering at the initial public offering price of $4.00 per share, and after deducting the underwriting discounts and estimated offering expenses payable by us, assuming the underwriters’ over-allotment option has not been exercised. Additional paid-in capital reflects the net proceeds we expect to receive, after deducting the underwriting discounts and estimated offering expenses payable by us. We estimate that such net proceeds will be approximately $9,200,000 assuming the underwriters have not exercised the over-allotment option. The net proceeds of $9,200,000 are calculated as follows: $11,000,000 gross offering proceeds, less underwriting discounts and commissions of $770,000, underwriter non-accountable expense allowance of $110,000, accountable expense of $200,000, and other estimated offering expenses of $720,000 (which includes deferred offering costs of $439,640 and other expenses of $280,360).The pro forma as adjusted total equity of $11,582,703 is the sum of the net proceeds of $9,200,000 and the adjusted equity of $2,382,703.

 

  (3) In the event that the underwriters’ over-allotment option is exercised in full, pro forma total ordinary shares outstanding would be 3,162,500 shares, pro forma additional paid-in capital would be $10,832,726 and pro forma adjusted total equity would be $13,100,703, reflecting the sum of net proceeds in the amount of $10,718,000 and the adjusted equity of $2,382,703.

 

70

 

 

DILUTION

 

Our adjusted net tangible book value as of September 30, 2022 was $1,912,645, or approximately $0.23 per Class A Ordinary Share based on 8,213,040 Class A Ordinary Shares outstanding. Net tangible book value per Class A Ordinary Share represents the amount of our total consolidated assets, less the amount of our intangible assets, net, deferred offering costs and total consolidated liabilities, divided by the number of Class A Ordinary Shares outstanding. Adjusted net tangible book value per Class A Ordinary Share is calculated after giving effect to the issuance of additional Class A Ordinary Shares on January 10, 2023.

 

Our pro forma as adjusted net tangible book value as of September 30, 2022 was $13,852,285 (or $15,715,285 if the over-allotment option is exercised in full), or approximately $1.24 per Class A Ordinary Share (or $1.35 per Class A Ordinary Share if the over-allotment option is exercised in full). Pro forma as adjusted net tangible book value represents the amount of our total consolidated assets, less the amount of our intangible assets, net, deferred offering costs and total consolidated liabilities, divided by 10,963,040 Class A Ordinary Shares (or 11,375,540 if the over-allotment option is exercised in full) outstanding as of such date, after giving effect to (i) the issuance and sale of 2,750,000 Class A Ordinary Shares (or 3,162,500 if the over-allotment option is exercised in full) in this offering at the initial public offering price of $4.00 per Class A Ordinary Share, (ii) the deduction of underwriting discounts and commissions and estimated offering expenses payable by us.

 

Dilution is determined by subtracting pro forma as adjusted net tangible book value per Class A Ordinary Share from the public offering price per Class A Ordinary Share. Our pro forma as adjusted net tangible book value as of September 30, 2022 would have been $1.05 per Class A Ordinary Share (or $1.15 per Class A Ordinary Share if the underwriters’ over-allotment option is exercised in full). This represents an immediate increase in net tangible book value of $0.82 per Class A Ordinary Share (or $0.92 per Class A Ordinary Share if the over-allotment option is exercised in full) to existing shareholders and an immediate dilution in net tangible book value of $2.95 per Class A Ordinary Share (or $2.85 per Class A Ordinary Share if the over-allotment option is exercised in full) to purchasers of Class A Ordinary Shares in this offering. The following table illustrates such dilution:

 

   Offering without Over-allotment Option   Offering with Full Exercise of Over-allotment Option 
Initial public offering price per Class A Ordinary Share  $4.00   $4.00 
Adjusted net tangible book value per Class A Ordinary Share as of September 30, 2022*  $0.23   $0.23 
Increase in pro forma as adjusted net tangible book value per ordinary share attributable to new investors purchasing Class A Ordinary Shares in this offering  $

0.82

   $0.92 
Pro forma as adjusted net tangible book value per ordinary share after this offering  $1.05   $1.15 
Dilution per Class A Ordinary Share to new investors in this offering  $2.95   $2.85 

 

* As of September 30, 2022, the number of issued and outstanding Class A Ordinary Shares was 68,442. The above table takes into account of the issuance of additional 8,144,598 Class A Ordinary Shares by the Company on January 10, 2023 to its existing shareholders of Class A Ordinary Shares, which increased pro rata the number of Class A Ordinary Shares owned by each existing shareholder and did not change their respective percentage of ownership of Class A Ordinary Shares. Following the issuance on January 10, 2023 and as of the date of this prospectus, there are 8,213,040 issued and outstanding Class A Ordinary Shares. For the purpose of illustrating the effect of dilution by this public offering, pro forma net tangible book value per Class A Ordinary Share is calculated after giving effect to the issuance of additional Class A Ordinary Shares on January 10, 2023.

 

71

 

 

The following table summarizes, on a pro forma basis as of September 30, 2022, the differences between the existing shareholders and the new investors with respect to the number of Class A Ordinary Shares purchased from us, the total consideration paid and the average price per Class A Ordinary Share paid at the initial public offering price of $4.00 per Class A Ordinary Share before deducting underwriting discounts and commissions and estimated offering expenses.

 

           Average 
   Class A Ordinary Shares       Price Per
Class A
 
   Purchased   Total Consideration   Ordinary 
Over-allotment option not exercised  Number   Percent   Amount   Percent   Share 
Existing shareholders   8,213,040    75%   821    1%   0.0001 
New investors   2,750,000    25%   11,000,000    99%   4.0000 
Total   10,963,040    100%   11,000,821    100%   1.0034 

 

           Average 
   Class A Ordinary Shares       Price Per
Class A
 
   Purchased   Total Consideration   Ordinary 
Over-allotment exercised in full  Number   Percent   Amount   Percent   Share 
Existing shareholders   8,213,040    73%   821    1%   0.0001 
New investors   3,162,500    27%   12,650,000    99%   4.0000 
Total   11,375,540    100%   12,650,821    100%   1.1121 

 

72

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors” and elsewhere in this prospectus. See “SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS”. All amounts in annual financial statements included in the fiscal years ended December 31, 2021 and 2020 (“Annual Financial Statements”) are derived from our audited consolidated financial statements included elsewhere in this prospectus. All amounts in interim financial statements included in the nine months ended September 30, 2022 and 2021 (“Interim Financial Statements”) are derived from our unaudited condensed interim consolidated financial statements included elsewhere in this prospectus. These Annual Financial Statements and Interim Financial Statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles, or U.S. GAAP.

 

Overview

 

Since our inception on October 25, 2018, the main focus of our business has been offering high-quality contents that focused on equity investment industry in order to increase clients’ awareness and professional knowledge of capital market. We started our operation as a corporate consulting company providing personal/management corporate business training and corporate consulting services to SMEs in the PRC from 2019. From July 2020, with the brand recognition and trust built from referrals and word of mouth introductions by clients, we commenced offering advisory and transaction services to effectively extend our value chain and enhance our monetization capability.

 

Key Factors that Affect Operating Results

 

We believe the following key factors may affect our financial condition and results of operations:

 

Ability to acquire clients effectively

 

Our business success depends on our ability to acquire new clients and retain existing clients. In order to effectively acquire more new clients, we plan to provide more free or low-priced seminars, which we consider an efficient and effective marketing tool for promoting our brand and services to prospective clients due to the large number of attendees in each seminar. After the prospective clients gain some basic knowledge about capital markets and entrepreneurship through our seminars, some of them may be interested in signing up for our higher margin services, such as business consulting services or advisory and transaction services. Due to the ability of promoting our brand and services to a large number of prospective clients through our free or low-priced seminars, we generally do not need to incur significant expenses on other promoting channels. Furthermore, in order to retain existing clients through providing high-quality services, we intend to continue to develop and improve the quality of our courses, especially the fee-paying ones, recruit and retain industry experts, and maintain a strong management team.

 

In addition to the two above-mentioned strategies to acquire and retain clients, we also rely on the influence of our management team and existing client referrals. Early in our business, in order to acquire new clients, we mainly marketed our services through the influence of our management team, who collectively has a wide personal and business network and provides us a valuable source of potential new clients. In addition, we build our brand over time through high-quality services, and our reputation in the industry has been enhanced through referrals and word of mouth of existing clients. We believe that our services consistently meet or exceed our clients’ expectations, which promotes client acquisition and retention.

 

If any of the current client acquisition channels becomes less effective, it may affect our cost-effective manner of attracting new clients, converting potential clients to active clients or even lose our existing clients to our competitors. To the extent that our current client acquisition and retention efforts become less effective, our service revenues may be significantly impacted, which would have a significant adverse effect on our revenues, financial condition and results of operations.

 

Ability to attract and retain our key personnel

 

Due to the nature of our business, we heavily rely on the leadership of our directors, officers and our expertise team to maintain our core competence. Our team has remained stable since we started our business in 2019. Under their leadership, our business has achieved rapid expansion and growth since 2019. As our business scope increases, we expect to continue to invest significant resources in hiring and retaining a talent pool of financial consultancy professionals. Our ability to sustain our growth depends on our ability to attract qualified personnel and retain our current staff.

 

73

 

 

Transition to public company status

 

Subsequent to our initial public offering, our general and administrative expenses are expected to increase materially in connection with meeting our public company reporting obligations and corporate governance requirements. The increased expenses will include legal, accounting and other professional service fees, insurance premiums, auditing fees, investor relations, shareholders’ meetings, printing and filing fees, share-based compensation expense, as well as employee-related expenses for regulatory compliance and other costs. We are a relatively early-stage company, and therefore our operating costs as a public company are expected to constitute a bigger proportion of revenues and net profit as compared to a larger or more mature company.

 

A severe or prolonged slowdown in the global or Chinese economy

 

The demand for advisory and transaction services and corporate consulting services is dependent on the overall economic conditions in China as well as globally. A slowdown in the economy, such as deterioration of overall economic condition may decrease corporate clients’ desire to expand their business, which in turn may decrease their need for corporate services and therefore affects our operating business performance.

 

Impact of the COVID-19 pandemic on our business and operations

 

The COVID-19 pandemic has resulted in quarantines, travel restrictions, limitations on social or public gatherings, and the temporary closure of business venues and facilities across the world, including China. Many of the quarantine and lockdown measures within China have been relaxed since the second quarter in 2021. Nevertheless, relaxation of restrictions on economic and social activities may lead to new cases which may result in the return of restrictions. Our clients as well as revenue generation are all from China. Although the Company’s operations in China have fully resumed in July 2020, the COVID-19 pandemic continued to affect the Company’s business performance in 2020, and 2021, and the nine months ended September 30, 2022. The negative impacts of the COVID-19 outbreak on our business include: (i) the uncertain economic conditions may refrain clients from engaging our services; and (ii) quarantines impeded our ability to contact existing and new clients. Travel restrictions and limitations on social and public gatherings have caused us to cancel 1 free on-site seminar (1st Level - Opportunities of Capital Markets) in 2020, and 1 free (1st Level - Opportunities of Capital Markets) and 2 fee-paying on-site corporate business training courses (2nd Level - System of Capital Markets and Model of Capital Markets) in 2021, and 20 free on-site seminars (1st Level - Opportunities of Capital Markets) and 2 fee-paying on-site corporate business training courses (2nd - System of Capital Markets and Model of Capital Markets) for the nine months ended September 30, 2022. We charge each attendee $612 for 2nd Level courses. Each seminar usually has 100-200 attendees. We have lost $122,400 to $244,800 in corporate business training services for the year ended December 31, 2021 and $122,400 to $244,800 for the nine months ended September 30, 2022 in corporate business training services. However, these courses are offered free or at low prices to attract potential clients for our other higher paying services, such as business consulting services or advisory and transaction services. As a result of the cancellation of the courses, we lost some opportunities to promote our courses and other higher paying services. There will be a new challenge for us to retain existing clients and attract new clients, and we believe that this impact cannot be quantified with reasonable certainty.

 

The extent to which the COVID-19 pandemic impacts our operations will depend on its future developments, which are highly uncertain and cannot be predicted, including the duration of the outbreak, new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or minimize its harm, among others. We will continue to closely monitor the effects of the pandemic impact on our business.

 

74

 

 

Results of Operations

 

Comparison of Results of Operations for the Nine Months Ended September 30, 2022 and 2021

 

The following table summarizes the results of our operations during the nine months ended September 30, 2022 and 2021, respectively, and provides information regarding the dollar and percentage increase or decrease during such periods.

 

    Nine months ended September 30,  
    2022     2021  
    $    

% of

Revenues

    $    

% of

Revenues

 
REVENUES     2,801,724       100 %     3,294,255       100 %
COST OF REVENUES     (665,389 )     (24 )%     (763,995 )     (23 )%
GROSS PROFIT     2,136,335       76 %     2,530,260       77 %
OPERATING EXPENSES                                
Selling expenses     (671,181 )     (24 )%     (432,488 )     (13 )%
General and administrative expenses     (1,517,205 )     (54 )%     (480,554 )     (15 )%
Total operating expenses     (2,188,386 )     (78 )%     (913,042 )     (28 )%
INCOME (LOSS) FROM OPERATIONS     (52,051 )     (2 )%     1,617,218       49 %
OTHER INCOME, NET                                
Other income     25,248       1 %     1,999       - %
Other expense     (4,048 )     - %     (614 )     - %
Total other income, net     21,200       1 %     1,385       - %
NET INCOME (LOSS) BEFORE INCOME TAXES     (30,851 )     (1 )%     1,618,603       49 %
Income tax expense     (76,930 )     (3 )%     (409,356 )     (12 )%
NET INCOME (LOSS)     (107,781 )     (4 )%     1,209,247       37 %
OTHER COMPREHENSIVE (LOSS) INCOME                                
Foreign currency translation (loss) income     (306,470 )     (11 )%     10,694       - %
TOTAL COMPREHENSIVE (LOSS) INCOME     (414,251 )     (15 )%     1,219,941       37 %

 

Revenues

 

The following table presents revenues by service categories for the nine months ended September 30, 2022 and 2021, respectively:

 

    Nine months ended September 30,              
    2022     2021     Variance  
Service Category   $     % of
revenues
    $     % of
revenues
    $     %  
Advisory and transaction services     1,945,838       70 %     1,904,162       58 %     41,676       2 %
Corporate business training services     201,650       7 %     1,020,386       31 %     (818,736     (80 )%
Corporate consulting services     650,554       23 %     323,784       10 %     326,770       101 %
Others     3,682       - %     45,923       1 %     (42,241     (92 )%
Total revenues     2,801,724       100 %     3,294,255       100 %     (492,531     (15 )%

 

Our total revenues decreased by $492,531 or 15%, from $3,294,255 for the nine months ended September 30, 2021, to $2,801,724 for the nine months ended September 30, 2022, primarily due to the decrease in the revenue generated from corporate business training services and other services, partly offset the increase of revenue generated from corporate consulting services.

 

Revenues from advisory and transaction services

 

Revenues from advisory and transaction services accounted for $1,945,838 or approximately 70% of total revenues for the nine months ended September 30, 2022, as compared to $1,904,162 or 58% for the nine months ended September 30, 2021. Although the number of clients decreased from 8 in the nine months ended September 2021 to 6 in the nine months ended September 2022, per-client revenue has increased. This was mainly due to the expansion of our services scope and the growth of the underling transaction size.

 

75

 

 

Revenues from corporate business training services

 

Revenues from corporate business training services accounted for $201,650 or 7% of total revenues for the nine months ended September 30, 2022, as compared to $1,020,386 or 31% for the nine months ended September 30, 2021, primarily due to the decrease of $380,709 or 69% from set-up services offered to new partners and the decrease of $438,023 or 94% from corporate seminars. For the nine months ended September 30, 2021, we attracted more new partners to promote the corporate business training services for us. Our staffs helped the partners familiar with the training and conduct the business. In the period ended September 30, 2022, the number of new partners and the revenue from corporate seminars decreased, primarily due to the negative impacts of the COVID-19 pandemic in the first three quarters of 2022. The COVID-19 pandemic has resulted in quarantines, travel restrictions, limitation of social or public gatherings, and the temporary closure of business venues and facilities across China, some of our company’s originally booked business training courses has been canceled or delayed.

 

Revenues from corporate consulting services

 

We provide consulting services to small and medium-sized enterprises to develop strategies and solutions for the following: corporate governance, leadership training, share structure consulting services and so on. The consulting services are adapted to each client’s specific needs. Revenues from corporate consulting services increased by $326,770, or 101% from $323,784 for the nine months ended September 30, 2021, to $650,554 for the nine months ended September 30, 2022. We enriched and diversified the content of our corporate consulting services to meet the clients’ need, which charged at a higher price.

 

Revenues from others

 

Revenue from others is mainly derived from referral services and site leasing. Others decreased by $42,241 and 92% as compared to the nine months ended September 30, 2021 due to the decreased amount of revenue from referral services. This reduction of referral services is within the expectation of the management, as we focused on the expansion of the main services and relaxation in the referral services.

  

Cost of revenues

 

The following table presents cost of revenue by service categories for the nine months ended September 30, 2022 and 2021, respectively:

 

   Nine months ended September 30,         
   2022   2021   Variance     
Service Category  $   % of cost   $   % of cost   $   % 
Advisory and transaction services*   -    -%   -    -%   -    -%
Corporate business training services   149,438    22%   529,625    69%   (380,187)   (72)%
Corporate consulting services   515,791    78%   233,607    31%   282,184    121%
Others   160    -%   763    -%   (603)   (79)%
Total cost   665,389    100%   763,995    100%   (98,606)   (13)%

 

  * Revenues from advisory and transaction services are recognized on net basis.

 

Our service costs primarily include (1) referral fees paid to referral and marketing service companies for the recommendation of potential clients, (2) service fees paid to service providers for report editing, due diligence and, (3) commission fees of service personnel paid to third parties and the Company’s staff. Cost of revenues for the nine months ended September 30, 2022 was $665,389, a decrease of $98,606, or 13%, from $763,995 for the nine months ended September 30, 2021. The decrease was proportionally in line with the decrease of revenues.

 

The following table shows different categories of services we provided for the nine months ended September 30, 2022 in USD:

 

Service category  Advisory
and
transaction
services
   Corporate
business
training
services
   Corporate
consulting
services
   Others   Total 
Revenue   1,945,838    201,650    650,554    3,682    2,801,724 
% of revenue   70%   7%   23%   -%   100%
Cost of revenue   -    149,438    515,791    160    665,389 
% of cost   -%   22%   78%   -%   100%
Gross profit   1,945,838    52,212    134,763    3,522    2,136,335 
Gross margin   100%   26%   21%   96%   76%

 

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The following table presents revenues by service categories we provided for the nine months ended September 30, 2021 in USD:

 

Service category 

Advisory

and

transaction

services

  

Corporate

business

training

services

  

Corporate

consulting

services

   Others   Total 
Revenue   1,904,162    1,020,386    323,784    45,923    3,294,255 
% of revenue   58%   31%   10%   1%   100%
Cost of revenue   -    529,625    233,607    763    763,995 
% of cost   -%   69%   31%   -%   100%
Gross profit   1,904,162    490,761    90,177    45,160    2,530,260 
Gross margin   100%   48%   28%   98%   77%

 

As a result of the foregoing, we had gross profit of $2,136,335 and $2,530,260 with gross margins of 76% and 77% for the nine months ended September 30, 2022 and 2021 respectively. The gross profit rate of corporate business training services decreased by 22%, to 26% for the period ended September 30, 2022, from the period ended September 30, 2021, which is due to the reduction of revenue generated from corporate business training service but the fixed costs did not go down with revenue. And the gross profit rate of corporate consulting services decreased by 7%, to 21% for the period ended September 30, 2022, from the period ended September 30, 2021, which is due to the fact that we incurred more services fees to improve our corporate consulting services.

 

Operating expenses

 

The following table sets forth the breakdown of our operating expenses for the nine months ended September 30, 2022 and 2021:

 

   Nine months ended September 30,   Change 
   2022   %   2021   %   Amount   % 
             
Selling expenses  $671,181    31%  $432,488    47%  $238,693    55%
General and administrative expenses   1,517,205    69%   480,554    53%   1,036,651    216%
Total operating expenses  $2,188,386    100%  $913,042    100%  $1,275,344    140%

 

 Selling expenses

 

   Nine months ended
September 30,
         
   2022   2021   Variance     
   $   $   $   % 
Salary and welfare   236,598    246,133    (9,535)   (4)%
Promotional expenses   318,362    4,328    314,034    7,256%
Conference fee   36,865    108,893    (72,028)   (66)%
Travel and transportation   42,523    28,914    13,609    47%
Entertainment   32,578    35,291    (2,713)   (8)%
Others   4,255    8,929    (4,674)   (52)%
Total   671,181    432,488    238,693    55%

 

Our selling expenses increased by $238,693 or 55% from $432,488 for the nine months ended September 30, 2021 to $671,181 for the nine months ended September 30, 2022. The increase was mainly due to the growth of promotional expenses related to sales and marketing, which partially offset the decrease of conference fee. The increase of the promotional expenses by $314,034 or 7,256% was due to the increased expenses used in marketing our services to the general public. The decrease of the conference fee by $72,028 or 66% was due to the limitations on social and public gathering, we have canceled 20 free on-site seminars and 2 fee-paying on-site corporate business training courses for the nine months ended September 30, 2022.

 

General and administrative expenses

 

   Nine months ended
September 30,
         
   2022   2021   Variance     
   $   $   $   % 
Salary and welfare   741,625    270,094    471,531    175%
Rental and property management fee   155,468    122,190    33,278    27%
Legal and professional fees   478,912    2,359    476,553    20,201%
Office expense   47,406    41,494    5,912    14%
Depreciation and amortization   48,245    24,011    24,234    101%
Others   45,549    20,406    25,143    123%
Total   1,517,205    480,554    1,036,651    216%

 

77

 

 

Our general and administrative expenses increased by $1,036,651 or 216%, from $480,554 for the nine months ended September 30, 2021 to $1,517,205 for the nine months ended September 30, 2022. Such increase was primarily due to an increase in salary and welfare expenses of $471,531 due to increase in headcount and pay raise for meeting our business expansion needs and an increase in legal and professional fees of $476,553 due to increase in annual audit fees and listing preparation related expenses.

 

Other income and expense

 

Total net other income was $21,200 for the nine months ended September 30, 2022, compare to net other income of $1,385 for the nine months ended September 30, 2021, primarily due to an increase in interest income and government grant.

 

Income tax expense

 

We are subject to income tax on an entity basis on profit arising in or derived from the jurisdiction in which members of our Group domicile or operate.

 

BVI

 

We are not subject to any income tax in the BVI.

 

Hong Kong

 

We are not subject to any income tax in Hong Kong.

 

PRC

 

Our income tax expense was $76,930 and $409,356 for the nine months ended September 30, 2022 and 2021, respectively. The decrease resulted from the decreased taxable income for the nine months ended September 30, 2022.

 

Net income (loss)

 

As a result of the foregoing, we reported a net loss of $107,781 for the nine months ended September 30, 2022, compared to a net income of $1,209,247 for the nine months ended September 30, 2021.

 

Comparison of Results of Operations for Years Ended December 31, 2021 and 2020

 

The following table summarizes the results of our operations during the years ended December 31, 2021 and 2020, respectively, and provides information regarding the dollar and percentage increase or decrease during such periods.

 

   Years ended December 31, 
   2021   2020 
   $   % of
Revenues
   $   % of
Revenues
 
REVENUES   6,294,667    100%   1,333,930