Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See
the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒
RISK
FACTORS
Investing in our securities
involves a high degree of risk. You should carefully consider the risk factors set forth under “Risk Factors” described
in our most recent annual report on Form 20-F, filed on June 15, 2020, as supplemented and updated by subsequent current reports
on Form 6-K that we have filed with the SEC, together with all other information contained or incorporated by reference in this
prospectus and any applicable prospectus supplement and in any related free writing prospectus in connection with a specific offering,
before making an investment decision. Each of the risk factors could materially and adversely affect our business, operating results,
financial condition and prospects, as well as the value of an investment in our securities, and the occurrence of any of these
risks might cause you to lose all or part of your investment.
In addition to the
risk factors referenced above, as described in our most recent annual report on Form 20-F, we want to disclose the additional
risk factors below.
Risks Related to Our Newly Acquired Data Mining and Analysis
Business
Development of data warehouses
is capital intensive. We may not be able to generate sufficient capital or obtain additional capital to meet our future capital
needs, on favorable terms or at all, which may lead to significant disruption to our business expansion and adversely affect our
financial position.
Expanding and developing
data warehouses and data mining capabilities are capital intensive. We are required to fund the costs of expanding and developing
our data warehouses and data mining capacity with cash deriving from operations. There can be no assurance that our future revenues
would be sufficient to offset increases in these costs, or that our business operations will generate capital sufficient to meet
our anticipated capital requirements. If increase in our future revenues would not be sufficient to offset the increased costs,
or we cannot generate sufficient capital to meet our anticipated capital requirements, our financial condition, business expansion
and future prospects could be materially and adversely affected.
To fund our future
growth, we may need to raise additional funds through equity or debt financing in the future in order to meet our operating and
capital needs, which may not be available on favorable terms, or at all. If we raise additional funds through issuances of equity
or equity-linked securities, our existing shareholders could suffer significant dilution in their ownership percentage of our company,
and any new equity securities we issue could have rights, preferences, and privileges senior to those of holders of our ordinary
shares. In addition, any debt financing that we may obtain in the future could have restrictive covenants relating to our capital
raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital
and to pursue business opportunities, including potential acquisitions. Our inability to obtain additional debt and/or equity financing
or to generate sufficient cash from operations may require us to prioritize projects or curtail capital expenditures and could
adversely affect our results of operations.
The market in which we participate
is competitive. Failure to compete effectively may result in loss of our market share and a decrease in our revenues and profitability.
We compete with
other wide range of data mining providers in the markets we participate. Some of our current and future competitors may have advantages
over us, including greater name recognition, longer operating histories, pre-existing relationships with current or potential
clients, significantly greater financial, marketing and other resources and more ready access to capital, all of which allow them
to offer competitive prices and respond more quickly to new or changing opportunities. Many of these competitors own capabilities
similar to ours in the same markets in which our business targets, or in markets where the cost to operate a data warehouse and
data mining capacity is less than the costs to our operation. Many of our competitors and new entrants to the data mining market
are developing additional data warehouses space and data mining capacity in the markets that we serve.
We face pricing
pressure for our services. Prices for our services are affected by a variety of factors, including supply and demand conditions
and pricing pressures from our competitors. A buildup of new data warehouse and data mining capacity or reduced demand for data
warehouse services and data mining capacity could result in an oversupply of data warehouse space and data mining capacity in the
markets where we operate. Excess data warehouse or data mining capacity could cause downward pricing pressure and limit the number
of economically attractive markets that are available to us for expansion, which could negatively impact our business and results
of operations. In addition, our competitors may offer services that are more competitively priced compared to ours. We may be required
to lower our prices to remain competitive, which may decrease our margins and adversely affect our business prospects, financial
condition and results of operations.
We will also face
increased competition as we expand our operations, and our competitors in new markets we expand into may have more experience than
us in operating in those markets. If we fail to compete effectively, our business, financial performance and prospects will be
materially and adversely affected.
Our revenues are highly dependent
on a limited number of major clients, and the loss of any such client or any other significant client, or the inability of any
such client or any other significant client to make payments to us as due, could have a material adverse effect on our business,
results of operations and financial condition.
We have in the
past derived, and believe that we will continue to derive, a significant portion of our revenues from a limited number of clients.
96.2% of our revenues generated in six months ended June 30, 2020, are from insurance marketing business, which we highly rely
on two key clients or agents to dispatch insurance data mining business to us from. Revenues from Beijing Sense Time Information
Technology Co., Ltd. (“BSIT”) accounted for 90% and 96% of our total revenues in 2019 and for the six months ended
June 30, 2020. Revenues from Beijing Ruijing Hengbao Insurance Agency Ltd. accounted for 4% and 2% of our total revenues in 2019
and for the six months ended June 30, 2020. No other client accounted for 10% or more of our total revenues in 2019 and for the
six months ended June 30, 2020. As a data mining solution provider, we expect our revenues will continue to be highly dependent
on a limited number of clients who account for a large percentage of our contractually committed capacity. If one or more of our
significant clients fail to make payments to us or does not honor their contractual commitments, our revenues and results of operations
would be materially and adversely affected. In addition, some contracts we entered into with our significant clients provide that
they have early termination options if we breach the terms of contracts, subject to payment of liquidated damages. If any of our
significant clients exercises any applicable early termination options or we are unable to renew our existing contracts with them
on similar terms or at all, and we are unable to find new clients to utilize the space to be vacated in a timely manner or at the
same fee levels, our results of operations will be adversely affected. For example, certain of our agreements with BSIT will expire
in September, 2021, and we may not be able to renew them at favorable terms to us, or at all. As of the date of this prospectus,
none of our clients have exercised their early termination options which we believe would have a material adverse effect on our
business, results of operations and financial condition. However, we cannot provide any assurance that they will not do so in the
future.
There are a number
of factors that could cause us to lose major clients. Because many of our contracts involve services that are mission-critical
to our clients, any failure by us to meet a client’s expectations could result in cancellation or non-renewal of
the contract. Our contracts usually allow our clients or agents to terminate their contracts with us before the end of the contract
period under certain specified circumstances, including our failure to deliver services as required under such agreements. In addition,
our clients may decide to reduce spending on our services in response to a challenging economic environment or other factors, both
internal and external, relating to their business such as corporate restructuring or changing their outsourcing strategy by moving
more facilities in-house or outsourcing to other service providers. Some of our clients may choose to develop or expand
their own data warehouse facilities and data mining capacities in the future, which may result in a decline in our existing or
potential clients.
In addition, our
reliance on any individual significant client may give that client a degree of pricing leverage against us when negotiating contracts
and terms of services with us. The loss of any of our major clients, or a significant decrease in the extent of the services that
they outsource to us or the level of prices we offer, could materially and adversely affect our financial condition and results
of operations.
Any of our clients
could experience a downturn in their business, which in turn could result in their inability or failure to make timely payments
to us pursuant to their contracts with us. In the event of any client default, our liquidity could be adversely impacted and we
may experience delays in enforcing our rights and may incur substantial costs in protecting our investment. These risks would be
particularly significant if one of our major clients were to experience adverse effects to its business and defaults under their
contracts with us. The inability of any significant client to meet its payment obligations could impact us negatively and significantly.
If we do not succeed in attracting
new clients or agents for our services and/or growing revenues from existing clients or agents, our business and results of operation
may be adversely affected.
We have been expanding
our client base to cover more insurance companies and different types of insurance category. We are highly relying on our agents
to dispatch data mining business of insurance company to us. Our ability to attract new clients, as well as our ability to grow
revenues from our existing clients, depends on a number of factors, including our data warehouse capacity, our ability to offer
high-quality services at competitive prices, the strength of our competitors and the capabilities of our client acquisition team
to attract new clients. If we fail to attract new clients, we may not be able to grow our revenue as quickly as we anticipate or
at all.
In addition, as
our client base grows and diversifies into other types of insurance category, we may be unable to provide services that cater to
their changing needs, which could result in client dissatisfaction, decreased overall demand for our services and loss of expected
revenues. Moreover, our inability to meet client expectations may damage our reputation and could consequently limit our ability
to retain existing clients and attract new clients, which would adversely affect our ability to generate revenues and negatively
impact our results of operations.
Factors that adversely affect
the industries in which our clients operate or information technology spending in these industries, particularly in the Internet
and cloud service industries and insurance industries, may adversely affect our business.
Our clients are
primarily technology companies in the Internet, cloud, software and other technology-based industries. The end-users of our data
mining products are primarily large insurance companies in China. Our clients, some of whom have experienced rapid changes in their
business, substantial price competition and pressures on their profitability, may request price reductions or decrease their demand
for our data mining analysis, which could harm our financial performance. Furthermore, a decline in the technology industry or
the demand for cloud-based services, or the desire of any of these companies, including our client and the end-user insurance companies,
to outsource their data warehouse and data mining needs, could lead to a decrease in the demand for space in our data warehouses
and data mining analysis business, which would have an adverse effect on our business and financial condition. We also are susceptible
to adverse developments in the industries in which our clients operate, such as decreases in demand for their products or services,
business layoffs or downsizing, industry slowdowns, relocations of businesses, costs of complying with government regulations or
increased regulation and other factors. We also may be materially adversely affected by any downturns in the market for data warehouses
and data mining due to, among other things, oversupply of or reduced demand for space or a slowdown in the technology industry.
Also, a lack of demand for data warehouse space and data mining by enterprise clients could have a material adverse effect on our
business, results of operations and financial condition. If any of these events happen, we may lose clients or have difficulties
in selling our services, which would materially and adversely affect our business and results of operations.
We purchase a significant portion
of our meta data from a small number of data suppliers. A significant disruption in any of such data suppliers could materially
and adversely affect our business, results of operations and financial condition.
We purchase a
significant portion of our raw data from a small number of data suppliers and a significant disruption to any single location could
materially and adversely affect our operations. We highly rely on three data suppliers, Shandong Shubao IT Ltd., Jiangxi Chacha
IT Ltd., and Liaoning Tianzheng Ltd. to provide large amounts of data that we need, in which we conducted data mining and data
analysis. The occurrence of a catastrophic event, or a prolonged disruption in any of these data providers, could materially and
adversely affect our operations.
If we do not succeed in maintaining
business relationship with our data suppliers, our business and results of operation may be adversely affected.
We have been purchasing
a significant portion of our raw data from a small number of data suppliers and termination of business relationship with them
could materially and adversely affect our business. We are highly relying on our data suppliers to provide us large amounts of
data that we need. Our business to conduct data mining analysis, as well as our ability to sell our insurance marketing information
to our agents, depends on a number of factors, including a consistent and reliable data supply by our data suppliers. If we fail
to maintain our business relationship with our data suppliers, or the costs of gaining data from our data suppliers increase, we
may not be able to grow our revenue as quickly as we anticipate or at all.
If we are unable to adapt to
new technologies or industry standards in a timely and cost-effective manner, our business, financial performance and prospects
could be materially and adversely affected.
The markets for
the data warehouses and data mining facilities we own and operate, as well as certain of the insurance industry in which our end-use
clients operate, are characterized by rapidly changing technologies, evolving industry standards, and frequent new service introductions.
As a result, the infrastructure at our data warehouses and data mining facilities may become obsolete or unmarketable due to demand
for new processes and technologies, including new technology that permits higher levels of critical load and heat removal than
our data warehouses are currently designed to provide. In addition, the systems that connect our data warehouses and data mining
facilities to the Internet and other external networks may become outdated, including with respect to latency, reliability and
diversity of connectivity. When clients demand new processes or technologies, we may not be able to upgrade our data warehouse
facilities and data mining capacities on a cost-effective basis, or at all, due to, among other things, increased expenses to us
that cannot be passed on to clients or insufficient revenues to fund the necessary capital expenditures. The obsolescence of our
power and cooling systems and/or our inability to upgrade our data mining capacities, including associated connectivity, could
reduce revenues at our data mining and analysis and could have a material adverse effect on us. To be successful, we must adapt
to our rapidly changing market by continually improving the performance, features and reliability of our services and modifying
our business strategies accordingly, which could cause us to incur substantial costs. We may not be able to adapt to changing technologies
in a timely and cost-effective manner, if at all, which would adversely impact our ability to sustain and grow our business. If
we are unable to purchase the hardware or obtain a license for the software that our services depend on, our business could be
significantly and adversely affected.
Furthermore, potential
future regulations that apply to industries we serve may require us, our data suppliers, or our clients to seek specific requirements
from their data operations that we are unable to provide. If such regulations were adopted, we could lose clients or be unable
to attract new clients in certain industries, which could have a material adverse effect on us.
In addition, new
technologies or industry standards have the potential to replace or provide lower cost alternatives to our services. We focus primarily
on providing data mining services and solutions through data warehouses. We cannot guarantee that we will be able to identify the
emergence of all the new service alternatives successfully, modify our services accordingly, or develop and bring new services
to market in a timely and cost-effective manner to address these changes. If and when we do identify the emergence of new service
alternatives and introduce new services to market, those new services may need to be made available at lower profit margins than
our then-current services. Failure to provide services to compete with new technologies or the obsolescence of our services could
lead us to lose current and potential clients or could cause us to incur substantial costs, which would harm our operating results
and financial condition. Our introduction of new alternative services that have lower price points than our current offerings may
also result in our existing clients switching to the lower cost products, which could reduce our revenues and have a material adverse
effect on our results of operation.
Any significant or prolonged
failure in the data warehouse facilities and data mining facilities we operate or services we provide, including events beyond
our control, would lead to significant costs and disruptions and would reduce the attractiveness of our facilities, harm our business
reputation and have a material adverse effect on our results of operation.
The data warehouse
facilities and data mining facilities we operate are subject to failure. Any significant or prolonged failure in any data warehouse
and data mining facilities we operate or services that we provide, including a breakdown in critical plant, equipment or services,
such as the generators, backup batteries, routers, switches, or other equipment, power supplies, or network connectivity, whether
or not within our control, could result in service interruptions and data losses for our clients as well as equipment damage, which
could significantly disrupt the normal business operations of our clients and harm our reputation and reduce our revenues. Any
failure or downtime in one of the data warehouse and data mining facilities that we operate could affect many of our clients. The
total destruction or severe impairment of any of the data warehouse and data mining facilities we operate could result in significant
downtime of our services and catastrophic loss of client data. Since our ability to attract and retain clients depends on our ability
to provide highly reliable service, even minor interruptions in our service could harm our reputation and cause us to incur financial
penalties. The services we provide are subject to failures resulting from numerous factors, including, but not limited to, human
error or accident, natural disasters and security breaches, whether accidental or willful.
We may in the future
experience interruptions in service, power outages and other technical failures or be otherwise unable to satisfy the requirements
of the agreements we have with clients for reasons outside of our control. As our services are critical to many of our clients’
business operations, any significant or prolonged disruption in our services could result in lost profits or other indirect or
consequential damages to our clients and subject us to lawsuits brought by the clients for potentially substantial damages. Furthermore,
these interruptions in service, regardless of whether they result in breaches of the agreements we have with clients, may negatively
affect our relationships with clients and lead to clients terminating their agreements with us or seeking damages from us or other
compensatory actions. We have taken and continue to take steps to improve our infrastructure to prevent service interruptions and
satisfy the requirements of the agreements we have with clients, including upgrading our electrical and mechanical infrastructure
and sourcing, designing the best facilities possible and implementing rigorous operational procedures to maintenance programs to
manage risk. Service interruptions continue to be a significant risk for us and could affect our reputation, damage our relationships
with clients and materially and adversely affect our business. Any breaches of the agreements we have with clients will damage
our relationships with clients and materially and adversely affect our business.
Security breaches or alleged
security breaches of our data warehouses could disrupt our operations and have a material adverse effect on our business, financial
condition and results of operation.
A security breach
of our data warehouse facilities could result in the misappropriation of our or our clients’ information, and may cause interruptions
or malfunctions in our operations or the operations of our clients. As we and our data warehouse service provider commit to implementing
effective security measures to safeguard our data warehouses, such a compromise could be particularly harmful to our brand and
reputation. We may be required to expend significant capital and resources to protect against such threats or to alleviate
problems caused by breaches in security. Security risks and deficiencies may also be identified in the course of government inspections,
which could subject us to fines and other sanctions. As techniques used to breach security change frequently and are often not
recognized until launched against a target, we may not be able to implement new security measures in a timely manner or, if and
when implemented, we may not be certain whether these measures could be circumvented. Any breaches that may occur could expose
us to increased risk of lawsuits, regulatory penalties, loss of existing or potential clients, harm to our reputation and increases
in our security costs, which could have a material adverse effect on our financial condition and results of operations.
In addition, any
assertions of alleged security breaches or systems failure made against us, whether true or not, could harm our reputation, cause
us to incur substantial legal fees and have a material adverse effect on our business, reputation, financial condition and results
of operations.
Our subscription agreements for
data warehouses could be terminated early and we may not be able to renew our existing leases on commercially acceptable terms
or our rent or payment under the agreements could increase substantially in the future, which could materially and adversely affect
our operations.
We enter into certain
data warehouse subscription agreements with Tencent Cloud Computing (Beijing) Co., Ltd. for our data warehouses. Upon the expiration
of such subscription agreements, we may not be able to renew these subscription agreements on commercially reasonable terms, if
at all. Under certain subscription agreements, the data warehouse service provider may terminate the agreement by giving prior
notice and paying default penalties to us. However, such default penalties may not be sufficient to cover our losses. Even though
the data warehouse service provider for our data warehouses generally do not have the right of unilateral early termination unless
they provide the required notice, the subscription agreements may nonetheless be terminated early if we are in material breach
of the subscription agreements. We may assert claims for compensation against the data warehouse service provider if they elect
to terminate a subscription agreement early and without due cause. Although there is no substantial barriers to renew subscription
agreements we want to renew, and we do not believe that any of our subscription agreements will be terminated early in the future,
there can be no assurance that the data warehouse service provider will not terminate any of our subscription agreements prior
to its expiration date. If the data warehouse subscription agreements were terminated early prior to their expiration date, notwithstanding
any compensation we may receive for early termination of such leases, or if we are not able to renew such subscription agreements,
or if we are unable to find suitable alternative data warehouses in a timely manner, we may have to incur significant costs related
to relocation of our data. Any relocation could also affect our ability to provide continuous uninterrupted services to our customers
and harm our reputation. Furthermore, rent or payment under such leases in the future may increase substantially in the future.
Any of the foregoing could have an adverse impact on our business and results of operations.
We may face claims of privacy
infringement and other related claims, which could be time-consuming and costly to defend and may result in an adverse impact over
our operations.
We cannot assure
you that our operations or any aspects of our business do not or will not infringe upon or violate privacy rights owned or held
by third parties. We may also be subject to legal or administrative proceedings and claims relating to privacy rights of third
parties in the future. If we become liable to third parties for infringing upon their privacy rights, we could be required to pay
a substantial damage award. We may also be subject to injunctions that prohibit us from using such data and require us to alter
our processes or methodologies, which may not be technically or commercially feasible and may cause us to expend significant resources.
Any claims or litigation in this area, whether we ultimately win or lose, could be time-consuming and costly, could cause the diversion
of management’s attention and resources away from the operations of our business and could damage our reputation.
Although we purchase
data from our data suppliers, we cannot assure you that our use of such data will not be subject to infringement litigation or
proceeding. A third party who claims the ownership over data we purchase from our data suppliers may impeding our ability to use
the data. As of the date of this prospectus, we had not encountered any legal claims brought by third parties relating to infringement
or violation of any privacy rights which may have a material adverse effect on us. However, there can be no assurance that third
parties holding ownership over the data and privacy would not take actions against us alleging infringement of such rights or otherwise
assert their rights.
We face risks related to natural
disasters, health epidemics and other catastrophes, which could significantly disrupt our business, operations, liquidity and financial
condition.
Our business could
be materially and adversely affected by natural disasters or other catastrophes, such as earthquakes, fire, floods, hail, windstorms,
severe weather conditions, environmental accidents, power loss, communications failures, explosions, terrorist attacks and similar
events. Our business could also be materially and adversely affected by public health emergencies, such as the outbreak of avian
influenza, severe acute respiratory syndrome, or SARS, Zika virus, Ebola virus, COVID-19 or other local health epidemics in China
and worldwide. If any of our employees is suspected of having contracted any contagious disease, we may under certain circumstances
be required to quarantine such employees and the affected areas of our premises. As a result, we may have to temporarily suspend
part of or all our operations. Furthermore, authorities may impose restrictions on travel and transportation and implement other
preventative measures in affected regions to contain a disease outbreak, which may lead to the temporary closure of our facilities
and declining economic activity at large. A prolonged outbreak of any of these illness or other adverse public health developments
in China or elsewhere in the world could have a material adverse effect on our business operations.
Risks Relating to Doing Business
in China
We may fail to obtain, maintain
and update licenses and permits necessary to conduct our operations in the PRC, and our business may be materially and adversely
affected as a result of any changes in the laws and regulations governing the VATS industry in the PRC.
The laws and regulations
regarding value-added telecommunications services, or VATS, licenses in the PRC are relatively new and are still evolving, and
their interpretation and enforcement involve significant uncertainties. Investment activities in the PRC by foreign investors are
principally governed by the Industry Catalog Relating to Foreign Investment, or the Catalog. The Catalog divides industries into
three categories: encouraged, restricted and prohibited. Industries not included in the Catalog are permitted industries. Industries
such as VATS, including Internet data warehouse services, or IDC services, restrict foreign investment. Specifically, the Administrative
Regulations on Foreign-Invested Telecommunications Enterprises restrict the ultimate capital contribution percentage held by foreign
investor(s) in a foreign-invested VATS enterprise to 50% or less. Under the Telecommunications Regulations, telecommunications
service providers are required to procure operating licenses prior to their commencement of operations. The Administrative Measures
for Telecommunications Business Operating License, which took effect on April 10, 2009 and was amended on September 1,
2017, set forth the types of licenses required to provide telecommunications services in China and the procedures and requirements
for obtaining such licenses.
As of the date
of this prospectus, we have obtained a Telecommunications Business License and a Telecommunication Network Number Utilization Resource
Certificate for our 10086 hot-line center and are currently applying for an ICP license from the Chinese Ministry of Industry and
Information Technology.
There can be no
assurance that we will be able to maintain our existing licenses or permits necessary to provide our current IDC services in the
PRC, renew any of them when their current term expires, or update existing licenses or obtain additional licenses necessary for
our future business expansion. The failure to obtain, retain, renew or update any license or permit generally, and our IDC licenses
in particular, could materially and adversely disrupt our business and future expansion plans.
In addition, if
future PRC laws or regulations governing the VATS industry require that we obtain additional licenses or permits or update existing
licenses in order to continue to provide our IDC services, there can be no assurance that we would be able to obtain such licenses
or permits or update existing licenses in a timely fashion, or at all. If any of these situations occur, our business, financial
condition and prospects would be materially and adversely affected.
We may rely principally on dividends
and other distributions on equity paid by our wholly foreign-owned entities, or WFOEs, to fund any cash and financing requirements
we may have, and any limitation on the ability of our WFOEs to pay dividends to us could have a material adverse effect on our
ability to conduct our business.
We are a holding
company, and we may rely principally on dividends and other distributions on equity paid by our WFOEs, which in turn relies on
consulting and other fees paid to us by our variable interest entities, for our cash and financing requirements, including the
funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If our WFOEs
incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or
make other distributions to us. In addition, the PRC tax authorities may require us to adjust our taxable income under the contractual
arrangements our WFOEs currently have in place with our VIEs in a manner that would materially and adversely affect their ability
to pay dividends and other distributions to us.
Under PRC laws
and regulations, our WFOEs, as wholly foreign-owned enterprise in the PRC, may pay dividends only out of their accumulated profits
as determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned enterprise, such as
our WFOEs, is required to set aside at least 10% of its accumulated after-tax profits after making up the previous year’s
accumulated losses each year, if any, to fund statutory reserve funds, until the aggregate amount of such fund reaches 50% of its
registered capital. It may allocate a portion of its after-tax profits based on PRC accounting standards to discretionary
reserve funds according to its shareholder’s decision. These statutory reserve funds and discretionary reserve funds are
not distributable as cash dividends.
In addition, the
PRC Enterprise Income Tax Law and its implementation rules provide that withholding tax rate of 10% will be applicable to dividends
payable by PRC companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or
arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises
are incorporated.
Any limitation
on the ability of our WFOEs to pay dividends or make other distributions to us 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.
Adverse changes in China’s
economic, political and social conditions, as well as laws and government policies, may materially and adversely affect our business,
financial condition, results of operations and growth prospects.
We conduct businesses
in the PRC, and therefore our financial conditions and results of operations are subject to influences from PRC’s economic,
political and social conditions to a great extent. The PRC economy differs from the economies of most developed countries in many
aspects, including, but not limited to, the degree of government involvement, control level of corruption, control of capital investment,
reinvestment control of foreign exchange, allocation of resources, growth rate and development level. Although the PRC government
has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of
productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive
assets in China is still owned by the government. In addition, the PRC government continues to play a significant role in regulating
industry development by imposing industrial policies. The PRC government also exercises significant control over China’s
economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy,
regulating financial services and institutions and providing preferential treatment to particular industries or companies.
For approximately
four decades, the PRC government has implemented economic reform measures to utilize market forces in the development of the PRC
economy. We cannot predict whether changes in the PRC’s economic, political and social conditions and in its laws, regulations
and policies will have any adverse effect on our current or future business, financial condition or results of operations. In addition,
many of the economic reforms carried out by the PRC government are unprecedented or experimental and are expected to be refined
and improved over time. This refining and improving process may not necessarily have a positive effect on our operations and business
development. For example, the PRC government has in the past implemented a number of measures intended to slow down certain segments
of the economy, including the real property industry, which the government believed to be overheating. These actions, as well as
other actions and policies of the PRC government, could cause a decrease in the overall level of economic activity in the PRC and,
in turn, have an adverse impact on our business and financial condition.
Uncertainties in the interpretation
and enforcement of PRC laws and regulations could limit the legal protections available to you and us.
We conduct a substantial
portion of business operations in the PRC, and our PRC subsidiaries and consolidated VIEs are subject to laws, rules and regulations
applicable to foreign investment in China. The PRC legal system is a civil law system based on written statutes. Unlike the common
law system, prior court decisions may be cited for reference but have limited precedential value. The PRC legal system is evolving
rapidly, and the interpretation of many laws, regulations and rules may contain inconsistencies and enforcement of these laws,
regulations and rules involves uncertainties.
In 1979, the PRC
government began to promulgate a comprehensive system of laws, rules and regulations governing economic matters in general. The
overall effect of legislation over the past four decades has significantly enhanced the protections afforded to various forms of
foreign investment in China. However, China has not developed a fully integrated legal system, and recently enacted laws, rules
and regulations may not sufficiently cover all aspects of economic activities in China or may be subject to significant degrees
of interpretation by PRC regulatory agencies. In particular, because these laws, rules and regulations are relatively new, and
because of the limited number of published decisions and the nonbinding nature of such decisions, and because the laws, rules and
regulations often give the relevant regulator significant discretion in how to enforce them, the interpretation and enforcement
of these laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable.
From time to time,
we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC judicial and administrative
authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be
more difficult to predict the outcome of a judicial or administrative proceeding than that in more developed jurisdictions. Furthermore,
the PRC legal system is based, in part, on government policies and internal rules, some of which are not published in a timely
manner, or at all, but which may have retroactive effects. As a result, we may not always be aware of any potential violation of
these policies and rules. Such unpredictability towards our contractual, property (including intellectual property) and procedural
rights could adversely affect our business and impede our ability to continue our operations.
Failure to comply with PRC regulations
regarding the registration requirements for employee share ownership plans or share option plans may subject the PRC plan participants
or us to fines and other legal or administrative sanctions.
Pursuant to the
Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan
of Overseas Publicly Listed Company, issued by the State Administration of Foreign Exchange, or SAFE, in February 2012, employees,
directors, supervisors and other senior management participating in any stock incentive plan of an overseas publicly listed company
who are PRC citizens or who are non-PRC citizens residing in China for a continuous period of not less than one year,
subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be a PRC subsidiaries
of such overseas listed company, and complete certain other procedures. We and our directors, executive officers and other employees
who are PRC citizens or who reside in the PRC for a continuous period of not less than one year and who have been granted restricted
shares, restricted share units or options will be subject to these regulations if those employees exercise such restricted shares,
restricted share units or options. Separately, SAFE Circular 37 also requires certain registration procedures to be completed if
those employees exercise restricted shares, restricted share units or options before listing. Failure to complete the SAFE registrations
may subject them to fines and legal sanctions and may also limit our ability to contribute additional capital into our wholly foreign-owned
subsidiaries in China and limit these subsidiaries’ ability to distribute dividends to us. We also face regulatory uncertainties
that could restrict our ability to adopt additional incentive plans for our directors and employees under PRC law.
In addition, the
State Administration of Taxation, or the SAT has issued certain circulars concerning employee share options or restricted shares.
Under these circulars, the employees working in the PRC who exercise share options or are granted restricted share units will be
subject to PRC individual income tax. Our WFOEs have obligations to file documents related to employee share options or restricted
shares with relevant tax authorities and to withhold individual income taxes of those employees who exercise their share options.
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 government authorities.
Failure to make adequate contributions
to various employee benefit plans as required by PRC regulations may subject us to penalties.
Companies operating
in China are required to participate in various government-mandated employee benefit contribution plans, including certain social
insurance, housing funds and other welfare plans, open and register accounts for social insurance accounts and housing funds, and
contribute in their own names to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances,
of employees up to a maximum amount specified by the local government from time to time at locations where companies operate our
businesses. The requirements of employee benefit contribution plans have not been implemented consistently by the local governments
in China given the different levels of economic development in different geographical areas.
As of the date
of this prospectus, certain of our PRC subsidiaries failed to open and register the accounts for social insurance and housing funds,
and entrust third-party agencies to pay social insurance and housing provident fund for some of our employees. We may be required
to make up the contributions for these welfare plans as well as late fees and fines. If we are subject to investigations or penalties
related to non-compliance with labor laws, our business, financial condition and results of operations could be adversely
affected.
The enforcement of the Labor
Contract Law of the People’s Republic of China, or the PRC Labor Contract Law, and other labor-related regulations in the
PRC may increase our labor costs, impose limitations on our labor practices and adversely affect our business and our results of operations.
On June 29,
2007, the Standing Committee of the National People’s Congress of China enacted the PRC Labor Contract Law, which became
effective on January 1, 2008 and was amended on December 28, 2012. The PRC Labor Contract Law introduces specific provisions
related to fixed-term employment contracts, part-time employment, probation, consultation with labor unions and employee assemblies,
employment without a written contract, dismissal of employees, severance, and collective bargaining, which together represent enhanced
enforcement of labor laws and regulations. According to the PRC Labor Contract Law, an employer is obliged to sign an unfixed-term
labor contract with any employee who has worked for the employer for 10 consecutive years. Further, if an employee requests
or agrees to renew a fixed-term labor contract that has already been entered into twice consecutively, the resulting contract must
have an unfixed term, with certain exceptions. The employer must pay economic compensation to an employee where a labor contract
is terminated or expires in accordance with the PRC Labor Contract Law, except for certain situations which are specifically regulated.
In addition, the government has issued various labor-related regulations to further protect the rights of employees. According
to such laws and regulations, employees are entitled to annual leave ranging from five to 15 days and are able to be compensated
for any untaken annual leave days in the amount of three times their daily salary, subject to certain exceptions. In the event
that we decide to change our employment or labor practices, the PRC Labor Contract Law and its implementation rules may also limit
our ability to effect those changes in a manner that we believe to be cost-effective. In addition, as the interpretation and implementation
of these new regulations are still evolving, our employment practices may not be at all times deemed in compliance with the new
regulations. If we are subject to severe penalties or incur significant liabilities in connection with labor disputes or investigations,
our business and financial conditions may be adversely affected.
It may be difficult to effect
service of process upon us, our directors or our executive officers that reside in China or to enforce any judgments obtained from
non-PRC courts or bring actions against them or us in China.
Certain of our
directors and most of our executive officers reside in China. In addition, most of our assets and those of our directors and executive
officers are located in China. The PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments
of courts with the United States, the United Kingdom, Japan and many other jurisdictions. As a result, it may not be possible for
investors to serve process upon us or those persons in China, or to enforce against us or them in China, any judgments obtained
from non-PRC jurisdictions.
On July 14,
2006, the Supreme People’s Court of China and the Government of the Hong Kong Special Administrative Region signed an Arrangement
on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters, or the 2006 Arrangement. Under such arrangement,
where any designated People’s Court or any designated Hong Kong court has made an enforceable final judgment requiring payment
of money in a civil and commercial case pursuant to a choice of court agreement, any party concerned may apply to the relevant
People’s Court or Hong Kong court for recognition and enforcement of the judgment. On January 18, 2019, the Supreme
Court of the People’s Republic of China and the Department of Justice under the Government of the Hong Kong Special Administrative
Region signed the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts
of the Mainland and of the Hong Kong Special Administrative Region, or the 2019 Arrangement. The 2019 Arrangement, for the reciprocal
recognition and enforcement of judgments in civil and commercial matters between the courts in mainland China and those in the
Hong Kong Special Administrative Region, stipulates the scope and particulars of judgments, the procedures and ways of the application
for recognition or enforcement, the review of the jurisdiction of the court that issued the original judgment, the circumstances
where the recognition and enforcement of a judgment shall be refused, and the approaches towards remedies, among others. After
a judicial interpretation has been promulgated by the Supreme People’s Court and the relevant procedures have been completed
by the Hong Kong Special Administrative Region, both sides shall announce a date on which the 2019 Arrangement shall come into
effect. The 2019 Arrangement shall apply to any judgment made on or after its effective date by the courts of both sides. The 2006
Arrangement shall be terminated on the same day when the 2019 Arrangement comes into effect. If a “written choice of court
agreement” has been signed by parties according to the 2006 Arrangement prior to the effective date of the 2019 Arrangement,
the 2006 Arrangement shall still apply. Although the 2019 Arrangement has been signed, its effective date has yet to be announced.
Therefore, there are still uncertainties about the outcomes and effectiveness of enforcement or recognition of judgments under
the 2019 Arrangement.
Shareholder claims
that are common in the United States, including securities law class actions and fraud claims, generally are difficult to pursue
as a matter of law or practicality in 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, such regulatory cooperation with the securities regulatory
authorities in the United States has not been efficient in the absence of mutual and practical cooperation mechanism. According
to Article 177 of the PRC Securities Law which became effective in March 2020, no overseas securities regulator is allowed to directly
conduct investigation or evidence collection activities within the PRC. Accordingly, without the consent of the competent PRC securities
regulators or other relevant authorities, no entity or individual may provide any documents and materials relating to securities
business activities to foreign entities or government agencies.
Risk Relating to Being a Smaller Reporting and Foreign Private
Issuer
Because we are a smaller reporting
company, the requirements of being a public company, including compliance with the reporting requirements of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), and the requirements of the Sarbanes-Oxley Act and the Dodd-Frank Act,
may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in
a timely or cost-effective manner.
As a public company
with listed equity securities, we must comply with the federal securities laws, rules and regulations, including certain corporate
governance provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and the Dodd-Frank Act, related
rules and regulations of the SEC and the NYSE, with which a private company is not required to comply. Complying with these laws,
rules and regulations occupies a significant amount of the time of our Board of Directors and management and significantly increases
our costs and expenses. Among other things, we must:
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maintain
a system of internal control over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley
Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;
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comply
with rules and regulations promulgated by the NYSE;
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prepare
and distribute periodic public reports in compliance with our obligations under the federal securities laws;
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maintain
various internal compliance and disclosures policies, such as those relating to disclosure controls and procedures and insider
trading in our ordinary shares;
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involve
and retain to a greater degree outside counsel and accountants in the above activities;
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maintain
a comprehensive internal audit function; and
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maintain
an investor relations function.
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Future sales of our ADSs, whether by us or our shareholders,
could cause our share price to decline
If our existing shareholders
sell, or indicate an intent to sell, substantial amounts of our ADSs in the public market, the trading price of our ADSs could
decline significantly. Similarly, the perception in the public market that our shareholders might sell of our ADSs could also depress
the market price of our ADSs. A decline in the price of our ADSs might impede our ability to raise capital through the issuance
of additional of our ADSs or other equity securities. In addition, the issuance and sale by us of additional of our ADSs or securities
convertible into or exercisable for our ADSs, or the perception that we will issue such securities, could reduce the trading price
for our ADSs as well as make future sales of equity securities by us less attractive or not feasible. The sale of ADSs issued upon
the exercise of our outstanding options and warrants could further dilute the holdings of our then existing shareholders.
Securities analysts may not cover
our Ordinary Shares or ADSs and this may have a negative impact on the market price of our ordinary shares
The trading market
for our ADSs will depend, in part, on the research and reports that securities or industry analysts publish about us or our business.
We do not have any control over independent analysts (provided that we have engaged various non-independent analysts). We do not
currently have and may never obtain research coverage by independent securities and industry analysts. If no independent securities
or industry analysts commence coverage of us, the trading price for our ADSs would be negatively impacted. If we obtain independent
securities or industry analyst coverage and if one or more of the analysts who covers us downgrades our ADSs, changes their opinion
of our shares or publishes inaccurate or unfavorable research about our business, our share price would likely decline. If one
or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our ADSs could decrease
and we could lose visibility in the financial markets, which could cause our share price and trading volume to decline.
You may experience future dilution as a result of future
equity offerings or other equity issuances
We may in the future
issue additional of our ADSs or other securities convertible into or exchangeable for of our ADSs. We cannot assure you that we
will be able to sell of our ADSs or other securities in any other offering or other transactions at a price per share that is equal
to or greater than the price per share paid by investors in this offering. The price per share at which we sell additional of our
ADSs or other securities convertible into or exchangeable for our ADSs in future transactions may be higher or lower than the price
per share in this offering.
DETERMINATION OF OFFERING PRICE
The Selling Shareholders will determine
at what price they may sell the offered shares, and such sales may be made at prevailing market prices or at privately negotiated
prices. See “Plan of Distribution” below for more information.