Item
1. Business
History
of the Company
Wave
Sync Corp. (the “Company”), formerly known as China Bio-Energy Corp., formerly known as China INSOnline Corp., was
initially incorporated on December 23, 1988 as Lifequest Medical, Inc. (“DEXT”) as a Delaware corporation. On December
6, 2010, the Company entered into an Amendment (the “Amendment”) to a certain share exchange agreement dated November
12, 2010 with Ding Neng Holdings, a British Virgin Islands company (“Ding Neng Holdings”). This share exchange agreement
and the Amendment provides for an acquisition transaction in which the Company, through the issuance of 25,875,000 shares of its
common stock, par value $0.001, representing 90% of the issued and outstanding common stock immediately following the closing
of this acquisition, acquired 100% of Ding Neng Holdings.
The
closing of this acquisition took place on February 10, 2011, on which date, pursuant to the terms of the share exchange agreement
as amended, the Company shall acquire all of the outstanding equity securities of Ding Neng Holdings from the shareholders of
Ding Neng Holdings; and the shareholders of Ding Neng Holdings shall transfer and contribute all of their issued and outstanding
shares of Ding Neng Holdings to the Company. Accordingly, the Company, via Ding Neng Holdings, held 100% of Ding Neng Bio-technology
Co., Limited, a Hong Kong Company, which held 100% of Zhangzhou Fuhua Biomass Energy Technology Co., Ltd., a wholly-foreign owned
enterprise in China (“Fuhua Biomass”), which, via a series of variable interest entity (or VIE) arrangements, controlled
the operating company Fujian Zhangzhou Ding Neng Bio-technology Co., Ltd. (“Ding Neng Bio-tech”). In connection of
this share exchange, the Company changed its fiscal year end from June 30 to December 31.
In
or about early October 2011, Mr. Nie Xinfeng, the Company’s former chairman of the Board of Directors, took possession,
among other things, the company seal, financial seal, and original books and records of Ding Neng Bio-tech. Since then, the Company
was prevented from obtaining and did not have access to the financial information of Ding Neng Bio-tech.
It
is within the Company’s knowledge that from late 2011 to 2014, due to change in law, unfavorable market conditions, and
lack of effective management, the business of Ding Neng Bio-tech deteriorated significantly and eventually defaulted on various
loan obligations. The Company also believes that Ding Neng Bio-tech guaranteed some of Mr. Nie’s personal debts. From 2011
to 2014, multiple legal proceedings were brought against Ding Neng Bio-tech by creditors, service vendors and former employees
of the Company and against Mr. Nie by his creditors. As a result, substantially all of Ding Neng Bio-tech’s assets were
seized or disposed of by Ding Neng Bio-tech’s or Mr. Nie’s creditors. Eventually, Ding Neng Bio-tech completely ceased
its operations.
On
June 4, 2015, Fuhua Biomass filed a civil action in Haicang District People’s Court of Xiamen, Fujian, PRC (the “Court”)
against Ding Neng Bio-tech, alleging that the purposes of those certain Consulting Service Agreement, Operating Agreement, Pledge
and Security Agreement, Option Agreement, and Voting Rights Proxy Agreement (the “VIE Agreements”) entered into by
Fuhua Biomass and Ding Neng Bio-tech on October 28, 2010 had been frustrated, and that these VIE Agreements should be terminated.
Fuhua Biomass alleged that Ding Neng Bio-tech did not make any payment of service fees to Fuhua Biomass, and that Ding Neng Bio-tech
failed to perfect the security interest in the pledged stock. On July 14, 2015, this case was settled via in-court mediation directed
by the Court. As a result, Fuhua Biomass and Ding Neng Bio-tech entered into binding settlement (i) to terminate the VIE Agreements,
(ii) that Fuhua Biomass and Ding Neng Bio-tech did not have any other disputes over this case, and (iii) that the litigation fee
in the amount of RMB10,000 (approximately $1,610.5) would be borne by Ding Neng Bio-tech.
Given
that the Company was unable to exercise effective control over Ding Neng Bio-tech or gain access to Ding Neng Bio-tech’s
financial information since 2011, and that the VIE Agreements were terminated, the Company deconsolidated Ding Neng Bio-tech’s
financial results.
During
a review of the Company’s financial statements by its auditor, the auditor examined the share register and all transactional
bought note, sold notes, and instruments of transfer provided by the Secretary of the Company. There was no evidence that ownership
of Ding Neng Holdings was ever registered to be transferred and held by the Company. The Company also discovered that Ding Neng
Holdings was delinquent and defunct. Accordingly, it was unable to determine whether the Company was registered as the sole shareholder
of Ding Neng Holdings pursuant to the share exchange agreement dated November 12, 2010, as amended on December 6, 2010. As a result,
the Company excluded the accounts of Ding Neng Holdings and its subsidiaries in the Company’s consolidated financial statements
and accompanying notes as contained herein. The Company has written off all investments made in Ding Neng Holdings as loss on
investment in subsidiary.
Share
Purchase Agreement with EGOOS Mobile Technology Co. Ltd.
On
October 19, 2015, the Registrant entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with EGOOS
Mobile Technology Company Limited, a British Virgin Islands holding company (“EGOOS BVI”), which owns 100% of EGOOS
Mobile Technology Company Limited, a Hong Kong company (“EGOOS HK”), which owns 100% of Move the Purchase Consulting
Management (Shenzhen) Co., Ltd. (“WOFE” or “Yigou”), a foreign investment enterprise organized under the
laws of the PRC, and which has, through various contractual agreements, management control and the rights to the profits of Guangzhou
Yuzhi Information Technology Co., Ltd., a corporation organized under the laws of the PRC as a variable interest entity(“Guangzhou
Yuzhi”), which owns 100% of Shenzhen Qianhai Exce-card Technology Co., Ltd., a Chinese corporation (“Shenzhen Exce-card”),
which owns 100% of Guangzhou Rongsheng Information Technology Co., Ltd., a Chinese corporation (“Guangzhou Rongsheng”,
together with Guangzhou Yuzhi and Shenzhen Exce-card, is collectively referred to herein as “Guangzhou Yuzhi and its Subsidiaries”),
and the sole shareholder of EGOOS BVI. Guangzhou Yuzhi and its Subsidiaries engage in research, development, marketing and distribution
of inlays/audio chips for audio bank card products.
The
Share Purchase Agreement provides for an acquisition transaction (the “Acquisition”) in which the Registrant, through
the issuance of a convertible note in the principal sum of Fifteen Million U.S. Dollars ($15,000,000) to EGOOS BVI’s sole
shareholder, will acquire 100% of EGOOS BVI.
The
closing of the Acquisition (the “Closing”) took place on October 19, 2015 (the “Closing Date”). On the
Closing Date, pursuant to the terms of the Share Purchase Agreement, the Registrant acquired all of the outstanding equity securities
of EGOOS BVI from the sole shareholder of EGOOS BVI; and the shareholder of EGOOS BVI transferred and contributed all of his issued
and outstanding shares of EGOOS BVI to the Registrant. In exchange, the Registrant issued to the sole shareholder of EGOOS BVI
a convertible note, which was subsequently converted into an aggregate of 15,000,000 post-Reverse Split (as defined below) Common
Shares of the Registrant. There is no material relationship between the sole shareholder of EGOOS BVI and/or EGOOS BVI, on one
hand, and the Company and its affiliates or associates, on the other hand. Upon conversion of the note (the “Conversion”),
the then existing shareholders of the Registrant collectively own an aggregate of 24.7% of the post-Acquisition entity.
On
August 5, 2015, Yigou entered into an Exclusive Service Agreement which entitles Yigou to receive substantially all of the economic
benefits of Guangzhou Yuzhi and its Subsidiaries in consideration of services provided by Yigou to Guangzhou Yuzhi and its Subsidiaries.
In addition, Yigou entered into certain agreements with each of Wenbin Yang, Ping Li, (collectively, the “Guangzhou Yuzhi
shareholders”), as well as Guangzhou Yuzhi and its Subsidiaries, including (i) a Call Option Agreement allowing Yigou to
acquire the shares of Guangzhou Yuzhi as permitted by PRC laws, (ii) a Voting Rights Proxy Agreement that provides Yigou with
the voting rights of the Guangzhou Yuzhi shareholders and those of Guangzhou Yuzhi, and (iii) an Equity Pledge Agreement that
pledges the shares in Guangzhou Yuzhi and its Subsidiaries to Yigou. This VIE structure provides Yigou, a wholly-owned subsidiary
of EGOOS HK, with control over the operations and benefits of Guangzhou Yuzhi and its Subsidiaries without having a direct equity
ownership in Guangzhou Yuzhi and its Subsidiaries (EGOOS BVI, EGOOS HK, Guangzhou Yuzhi, Shenzhen Exce-card, Guangzhou Rongsheng
and Yigou are collectively referred to herein as the “Group”).
EGOOS
BVI’s organizational structure was crafted to abide by the laws of the PRC and maintain tax benefits as well as internal
organizational efficiencies. EGOOS BVI’s post–Acquisition organization structure is summarized below:
Reverse
Stock Split
On
October 13, 2015, the Company’s board of directors and stockholders collectively holding approximately 70.5% of the Company’s
outstanding common stock executed a joint written consent approving a reverse stock split at a ratio of one-for-twenty (the “Reverse
Split”). A Certificate of Amendment to our Certificate of Incorporation effecting the Reverse Split was filed with the Secretary
of State of Delaware on December 1, 2015.
Business
Overview
EGOOS
BVI, a British Virgin Islands business company, acts as a holding company and indirectly controls Guangzhou Yuzhi (a variable
interest entity in China) and its Subsidiaries. EGOOS BVI’s sole source of income and operations is through its indirect,
contractual control of Guangzhou Yuzhi and its Subsidiaries.
Based
in the city of Guangzhou, Guangdong Province, China, Guangzhou Yuzhi and Guangzhou Rongsheng are principally engaged in software
and information technology services and share full-time employees with Shenzhen Exce-card.
Shenzhen
Exce-card is based in the city of Guangzhou, Guangdong Province, China, with a business development department in New York, NY.
Additionally, Shenzhen Exce-card has entered into a partnership agreement with UINT France located in Saint Aubin, France (“UINT”),
amended and supplemented by an amendment dated March 27, 2015 (as amended and supplemented, the “Partnership Agreement”),
pursuant to which UINT is engaged by Shenzhen Exce-card to conduct product research and development (“R&D”) and
other related services in connection with new audio signals, testing and producing new inlays for audio bank card and assisting
the card manufacturers with lamination test, new generation of audio card, and assisting the card manufacturers with certification
of the new audio card products.
Shenzhen
Exce-card is principally engaged in the design and production of inlays composed of flexible circuit boards for active smart cards
and other products in the related technological field, which provide a comprehensive solution for mobile payment. As of the date
of this annual report, Shenzhen Exce-card has approximately 23 full-time employees.
In
February 2015, Shenzhen Exce-card developed an electronic inlay utilizing innovative audio technology and embedded in a specialized
IC card product, namely, “audio bank card.” We were granted the patent (expiring in 2023) pertaining to such audio
bank cards inlay. The audio bank cards meet innovative product standards set forth by UnionPay, the only domestic bank card organization
in China as well as the only interbank network in mainland China. UnionPay has authorized its logo to be displayed on the audio
bank cards. However, it should be noted that we have no contractual agreement or arrangement with UnionPay with respect to audio
bank cards.
We
supply and sell electronic inlays embedded with audio chips and other modules to card manufacturers, such as Hengbao Co., Ltd.
(“Hengbao”) and Wuhan Tianyu Information Industry Co., Ltd. (“Tianyu”), which have established relationships
with major banks in China. As of December 31, 2015, we generated revenue in the amount of RMB150,000 (approximately $23,602.72),
from the aforementioned sales to Tianyu.
Our
Business Plan
We
believe our growth in the coming years may be supported by the continuing expansion of the market for bank cards and electronic
payment in the PRC. According to data compiled by the People’s Bank of China (the “PBOC”), by the end of 2015,
the amount of bank cards issued in aggregate reached 5.4 billion in the PRC, with on average 3.99 cards held by each citizen.
We
are seeking to develop and maintain long-term relationships with major card issuers in China. Since 2014, we have been actively
communicating with China Construction Bank (“CCB”), one of China’s four major banks, in the pursuit of promoting
new audio bank cards embedded with our inlays, which communications led to CCB’s desire to launch a pilot audio bank card
program to be operated by its Guangdong branch offices (“CCB Guangdong”). Under this proposed program, 500,000 audio
cards are expected to be manufactured by Tianyu, with inlays supplied by Shenzhen Exce-card, and issued and distributed by CCB
Guangdong to some of its 25 million customers. At a meeting among Shenzhen Exce-card, Tianyu, and CCB Guangdong in Guangzhou,
Guangdong Province, PRC held on September 24, 2015, CCB Guangdong indicated that they would report to the individual finance department
and procurement department of CCB’s headquarters for approval to start the procurement process regarding these 500,000 audio
bank cards. In March 2016, CCB Guangdong started testing the audio cards internally (Phase I of the pilot program), and 500,000
audio bank cards are expected to be gradually introduced to the bank’s customers three to six months from Phase I. We also
plan to pursue CCB’s Guangxi branch offices to promote another pilot program in the province of Guangxi, a province to the
west of Guangdong, with a population of approximately 47 million. If these two pilot programs are launched and proved to be successful,
CCB is expected to issue 4 million audio bank cards in various locations throughout China.
On
April 22, 2016, Guangdong Branch (“CCB Guangdong”) of China Construction Bank, one of China’s four major banks,
launched a pilot program to issue new audio bank cards embedded with our inlays. Under this pilot program, the audio cards with
our inlays, once applied for by the end-users, will be issued and distributed by CCB Guangdong to its selected customers from
its pool of 25 million customers.
On
August 22, 2016, we announced that Guangdong Qilong Internet Technology Co., Ltd. (“Qilong”), a high technology company
based in Guangzhou, China, and one of the Company’s subsidiaries, Shenzhen Exce-card, entered into a strategic agreement
to jointly develop the next generation of audio bank cards within the China Union Pay network. It is expected that the end users
of the audio bank cards to be developed under this strategic agreement will have the ability to use various services, including
the ability to connect their savings accounts thereto, purchase items on credit, transfer among their accounts, take advantage
of discounts on certain purchases and travel arrangements and manage their capital.
On February 15, 2017, we, through Shenzhen Exce-card, entered into a card supply agreement (the “SD
Card Supply Agreement”) with SmartDisplayer Technology, Co. Ltd. (“SmartDisplayer”), a company incorporated under
the law of Taiwan, Republic of China, pursuant to which SmartDisplayer agrees to supply audio bank cards in compliance with Shenzhen
Exce-card’s specifications and the ISO 7810 standard and in amounts requested by Shenzhen Exce-card from time to time for
a term of two years commencing from the execution date of the SD Card Supply Agreement.
Other
than the research, development, marketing and distribution of inlays for audio bank cards, we are developing and expanding our
product and services to other fields, which may include providing business consulting services, solutions and software products,
and system development services to card issuing banks, third party payment entities, and other card issuing entities, and may
also include entering into cooperation agreements with banks to issue co-branded cards in order to share annual fees and transaction
fees generated by these co-branded cards, and developing customers and commercial users via the operation of audio payment platform.
Our
Market
The
Chinese Bank Card Market
According
to a report published by the PBOC, in 2015, an aggregate of 5.442 billion bank cards were issued in China, an increase of 10.25%
over 2014; national cardholding per capita was 4.39 as of the end of the third fiscal quarter of 2016. In terms of number of cards
in circulation, the Chinese payment cards market is expected to grow at a CAGR of 4.9% over the period 2015-2020. Respecting the
markets outside China, 68 million UnionPay cards have been issued in over 40 countries and regions by the end of November 2016.
The
Chinese Contactless Bank Card Market
Audio
bank cards enable a direct communication between bank cards and electronic devices (including telephones, cell phones, tablets,
and computers), allowing electronic payment by bank cards. Audio bank cards can be used in swiped transactions (including point
of sale payment and ATM deposit, withdrawal and transfer) as a regular bank card as well as transactions via electronic payment
which, according to the Payment and Settlement System Report published by the PBOC in April 2014, is a combined market of potentially
up to 1.85 quadrillion RMB.
Supportive
Government Policies and Legislation in the PRC
In
April 2005, the PBOC and other state departments jointly promulgated Certain Opinions on Promoting the Development of Bank Card
Industry, which encouraged and promoted work emphasis of related government authorities on, among other things, meeting the demand
and improving the varieties and functions of bank cards, promoting a fast and sound development of bank card handling market,
enhancing the risk management of bank cards, and implementing industrial incentive policies to support the bank card industry.
On
January 1, 2008, the National People’s Congress of China passed “the Enterprise Income Tax Law of the People’s Republic
of China.” Accordingly, “the enterprise income tax on important high- and new-tech enterprises that are necessary
to be supported by the state shall be levied at the reduced tax rate of 15%”, which applies to Guangzhou Yuzhi and its Subsidiaries.
The regular enterprise income tax rate is 25% in China.
On
July 18, 2015, the PBOC, the Ministry of Industry and Information Technology, the Ministry of Finance and seven other state government
authorities jointly issued the Guideline Opinions on Promoting the Healthy Development of Internet Finance (the “Guidelines”),
which aim to encourage innovation and support the steady development of internet finance.
Our
Customers
Our
inlays and relevant technology support are expected to be sold to bank card manufacturers. Audio bank cards embedded with our
inlays are then expected to be sold to CCB Guangdong via its pilot program. In addition, we expect to develop and maintain our
relationships with other banks throughout China.
Shenzhen
Exce-card has entered into cooperation agreements on July 23, 2014 and July 7, 2014, respectively, to partner with two bank card
manufacturers in China, Hengbao and Tianyu, both of which are publicly traded on China’s Shenzhen Stock Exchange and have
established relationships with major commercial banks in China as their bank card providers, including Bank of China, Bank of
Communications, CCB, Agricultural Bank of China, and Industrial and Commercial Bank of China.
Additionally,
Shenzhen Exce-card and Tianyu signed a more detailed audio bank card production preparation service agreement (the “Service
Agreement”), according to which, from May 1, 2015 to May 1, 2016, Shenzhen Exce-card is to provide inlays for testing, technology
and support to Tianyu for the manufacturing of the audio bank card end product, and in return, Tianyu pays RMB150,000 (approximately
$23,630.61) for Shenzhen Exce-card’s services. Tianyu, headquartered at Huazhong University of Science and Technology Science
Park in Wuhan City, Hubei Province, China, is a high-tech enterprise focusing on the research and development, manufacturing,
and sale of products and services related to data security, mobile internet, and payment services. It has an annual production
capacity of 500 million IC cards, and an estimated annual production capacity of 10 million audio bank cards. At present, Tianyu
is testing and digesting the technics for the lamination of audio bank cards, and thus, is manufacturing a portion of the 10,000
beta testing audio bank cards for Guangzhou Yuzhi and its Subsidiaries.
A
second cooperation agreement was entered into between Shenzhen Exce-card and Tianyu on September 16, 2015, with a 10-year term,
confirming terms of services and cooperation between the parties detailed in the Service Agreement.
Shenzhen
Exce-card has also entered into a cooperation agreement with Hengbao on September 28, 2015, according to which, for 10 years from
the date of this agreement, Shenzhen Exce-card is to provide inlays, technology and support to Hengbao for the manufacturing of
the audio card end product, and in return, Hengbao pays RMB200,000 (approximately $31,507.48) for Shenzhen Exce-card’s services.
Shenzhen Exce-card and Hengbao also agree to cooperate and develop the market application and to gradually increase the market
shares of audio bank cards. Hengbao, headquartered in Beijing, China, with a manufacturing facility in Danyang City, Jiangsu Province,
China, is one of the largest card manufacturers and providers in China. Hengbao has recently started to test and adjust the technics
for the lamination of audio bank cards according to the cooperation agreement between Shenzhen Exce-card and Hengbao.
Through
the strategic partnership with Qilong, we are exploring the possibility of selling our next generation audio bank cards to customers
or members of Qilong, which is a joint developer of such said cards.
Change
of Management and Directors of the Company
On
January 6, 2015, the Board elected Ms. Mei Yang as a director and the chairman of board of directors of the Company.
On
March 9, 2015, the Board elected Ms. Hongxiao Zhao as the director of the Company. On March 9, 2015, the Board elected Mr. Xiaoqiang
Zuo as the director of the Company.
On
March 9, 2015, Mr. Jianjun Xu, Mr. Mingyong Hu, Mr. Bin Zhao submitted to the Board their resignations as directors of the Company,
which became effective on March 9, 2015.
On
October 16, 2015, the Board elected Mr. Zuyue Xiang as CEO and director of the Company. On October 16, 2015, the Board elected
Ms. Xinqian Zhang as Director and Secretary.
Marketing
Since
we supply audio chips/inlays for bank cards, we have not engaged in direct advertising efforts for marketing our products to the
mass bank card end users.
Our
marketing strategy is to develop relationships with major banks and strategic business partners in China, starting with the pilot
program in March of 2016 when CCB started testing internally the audio bank cards embedded with our flexible circuit board with
the audio chips. Upon a consistent positive response from the market and relying on the success of this pilot program, we may
seek to further develop relationships with other card issuers including banks, such as China Industrial and Commercial Bank, Bank
of China, Agricultural Bank of China, and Bank of Communications. Issuance of audio bank cards by these card issuers and large
banks may in turn encourage other smaller banks and card issuers in China to work with us and market our products to their customers.
In addition, we are exploring co-development opportunities with non-bank businesses. On August 22, 2016, we entered into a strategic
agreement with Qilong to jointly develop the next generation of audio bank cards within the China Union Pay network. We hope that
we can leverage Qilong’s customer base to market the next generation of our audio bank cards.
Pricing
At
present, there are no similar products on the market. Taking into account the level of acceptance by the market and the negotiation
with issuing banks, we suggest that the unit price of the audio bank cards with our inlays to be set at per unit RMB 55, approximately
$8.65, and inlay audio chips at per unit RMB 45, approximately $7.08. Price will be adjusted downwards upon the increase of volume
issued and the amounts of competitive offers.
Research
and Development
Pursuant
to the Partnership Agreement between Shenzhen Exce-card and UINT, for the period from May 1, 2014 to April 30, 2016, Shenzhen
Exce-card paid UINT €120,000 for R&D services, €20,000 of which was for developing new audio signals of new audio
card product, €30,000 of which was for the testing of new Inlay and assisting the card manufacturers with lamination test,
€50,000 of which was for the conception of new generation audio cards, and the last €20,000 of which was for assisting
the card manufacturers with certification of the new audio card product. Another €60,000 was loaned to UINT to cover its
operation costs. We plan to continue our cooperation relationship with UINT after the expiration of the Partnership Agreement,
and plan to engage UINT for R&D and other related services for next generations of our audio card products in the future.
UINT
currently have 12 employees for R&D. We expect to invest resources to retain more qualified employees and update our R&D
equipment in China for our second generation audio bank cards with one chip of a combined function of audio chip and financial
chip, and third generation audio bank cards with fingerprint sensor chips and other personalized functions.
Seasonality
We
do not expect our operating results and operating cash flows to be subject to seasonal variations.
Employees
A
substantial part of our employees are located in China. As of the date of this annual report, Guangzhou Yuzhi and its subsidiaries
have 20 employees in China and 9 employees are located in the U.S. There are no collective bargaining contracts covering any of
our employees. We believe our relationship with our employees is satisfactory.
We
are required to contribute a portion of our employees’ total salaries to the Chinese government’s social insurance
funds, including medical insurance, unemployment insurance and workers’ compensation insurance, and a housing assistance
fund, in accordance with relevant regulations. Guangzhou Yuzhi and its Subsidiaries are currently paying social insurance for
all of their twenty (20) full-time employees through a third party agent. We expect the amount of contribution to the government’s
social insurance funds to increase in the future as we expand our workforce and operations.
Insurance
companies in China offer limited business insurance products. While business interruption insurance is available to a limited
extent in China, we have determined that the risks of interruption, cost of such insurance and the difficulties associated with
acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. As a result, we could
face liability from the interruption of our business.
Intellectual
Property
Currently
we have five valid patents that were granted by the State Intellectual Property Office of the P.R.C. (“SIPO”) and
the terms of which are ten years from the dates of grant of the patent applications. The five patents relate to the audio bank
card technology and designs and its transaction system, such as the design of the circuit board embedded in the audio card, the
transaction platform processing the audio data and the design of the audio chip. Two of the five patents were granted on May 4,
2016 and the rest were granted respectively on January 22, 2014, September 9, 2015 and December 23, 2015. We obtained one trademark
of the Company’s logo from SIPO on August 21, 2016, which remains valid until August 20, 2026. In addition, we have two
other pending trademark applications in P.R.C. On April 23, 2015, the Company through one of its subsidiaries obtained the copyright
on its software of Zhuozhi Changtian bank audio card application for micro and small businesses
Pursuant
to the Partnership Agreement, any background information and know-how used in connection with the agreement remain the property
of the party introducing such background information. UINT’s know-how relating to the services it provides under this agreement
remains the exclusive property of UINT and it may use such know-how for other clients. Additionally, the costs and rights of any
patent related to the new audio bank card product arises during the Term are borne by and shared equally by both parties.
Government
Approval and Regulation
We
believe that we have been compliant to date with all requirements required by the applicable governing authorities in China for
the research, development, production and distribution of audio bank cards embedded with our inlays, and that such laws, rules
and regulations do not currently have a material impact on our operations. However, it is possible that more stringent rules or
regulations could be adopted, which may increase our operating costs and expenses.
Additionally,
since 1997, the PBOC has issued several versions of Financial IC Card Specifications. On November 3, 2014, PBOC published a Notice
on Further Application of Financial IC Card, proposing a time frame, i.e., from April 1, 2015, new financial IC cards issued by
any issuing banks should comply with the PBOC Financial IC Card Specifications version 3.0. We believe that we are in compliance
with these requirements by the PBOC.
Competition
We
currently are not aware of any other companies in or outside of China which is producing or marketing the similar products as
our audio bank cards.
However,
upon the introduction of our products and technology into the market, our potential competitors worldwide may include NagraID
Security SA, a Switzerland-based technology and security services supplier for governments, enterprises, the banking industry
and online electronic transactions; SmartPlayer Technology Co., Ltd., a Taiwan-based developer of viable display module for smart
card applications; Suzhou HierStar System Limited, a PRC-based company that focuses on display cards embedded with one-time password
(OTP) and public key infrastructure (PKI) technologies; and UINT.
Going
Concern
As
reflected in the accompanying financial statements, as of December 31, 2016, the Company had accumulated deficits of $16,576,102
and working capital deficit of current liabilities exceeding current assets by $838,559 due to the substantial losses in operation
in previous periods. Management’s plan to support the Company in operations and to maintain its business strategy is to
raise funds through public and private offerings and to rely on officers and directors to perform essential functions with minimal
compensation. If we do not raise all of the money we need from public or private offerings, we will have to find alternative sources,
such as loans or advances from our officers, directors or others. Such additional financing may not become available on acceptable
terms and there can be no assurance that any additional financing that the Company does obtain will be sufficient to meet its
needs in the long term. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations,
in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing. If we require
additional cash and cannot raise it, we will either have to suspend operations or cease business entirely. The accompanying financial
statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classifications
of liabilities that might be necessary should the Company be unable to continue as a going concern.
ITEM
1A. RISK FACTORS
Our
business, operations and financial condition are subject to various risks. Some of these risks are described below and you should
take these risks into account in making a decision to invest in our common Stock. If any of the following risks actually occurs,
we may not be able to conduct our business as currently planned and our financial condition and operating results could be seriously
harmed. In that case, the market price of our common Stock could decline and you could lose all or part of your investment in
our common Stock.
Risks
Related to the Business and Operations of Guangzhou Yuzhi and its Subsidiaries
Risks
Related to the Overall Business of Guangzhou Yuzhi and its Subsidiaries
Guangzhou
Yuzhi and its Subsidiaries have a limited operating history, which makes it difficult to evaluate their financial position and
future success.
Guangzhou
Yuzhi and its Subsidiaries have had a limited prior operating history by which to evaluate the likelihood of success or their
ability to continue as a going concern. Although Guangzhou Yuzhi and its Subsidiaries have been developing technology for and
producing inlays for audio bank cards, and are participating in a pilot program with CCB Guangdong, there is no assurance our
production capacity and sales will keep increasing in a profitable manner.
Guangzhou
Yuzhi and its Subsidiaries heavily depend on sales of one key product, namely, inlays for audio bank cards.
Since
the beginning of 2017, Guangzhou Yuzhi and its Subsidiaries began generating revenue from the sales of inlays for audio bank cards,
and are expected to derive a significant portion of their future revenue from such sales.
Audio
bank cards embedded with our inlays are sold in the People’s Republic of China as a new generation of bank cards, seeking
to substitute the traditional magnetic stripe bank cards. Because we have a very limited sales history of the inlays of our bank
audio cards, it is difficult for us to estimate the market and sales of our products. Demand for audio bank cards may not meet
our expectation if audio bank cards do not gain broad market acceptance and build consumer confidence in their quality, security
and availability, or if the technology in audio bank cards is replaced by a more innovative alternate, our prospects will be negatively
impacted.
The
results of operations, financial position and business outlook of Guangzhou Yuzhi and its Subsidiaries will be highly dependent
on the market’s response.
Although
the audio bank card meets the international standards such as those established by Mastercard for active smart bank cards and
the innovative product standards set forth by UnionPay, CCB will only be testing the market’s response in Guangdong Province,
China with the first 500,000 cards. In addition, bank cards with IC chips have just been popularized in China since January 1,
2015. The market may not respond immediately to another new bank card technology. Further, the market may perceive the traditional
cash payment method or the cardless payment method (e.g., mobile wallet) to be more convenient or secured. If the market does
not respond to the product as quickly or does not accept the product as widely as expected, the results of operations, financial
position and business outlook of Guangzhou Yuzhi and its Subsidiaries will be negatively affected.
The
results of operations, financial position and business outlook of Guangzhou Yuzhi and its Subsidiaries will be highly dependent
on Shenzhen Exce-card being and remaining the exclusive distributor of audio chips and audio bank card products in the Greater
China Area.
According
to the Partnership Agreement with UINT, Shenzhen Exce-card will be the exclusive distributor in the Greater China Area for five
years from the date on which the first audio bank card is officially deployed by any commercial banks in China, and to keep its
exclusivity status, Shenzhen Exec-card has to order 1 million audio card products from UINT annually. In the event that Shenzhen
Exce-card does not meet this annual quota, it will lose its status of exclusive distributor in the Greater China Area, which may
have an adverse effect on our results of operations, financial position and business outlook.
EGOOS
BVI is a holding company and there are significant limitations on its ability to receive distributions from its subsidiaries.
EGOOS
BVI conducts substantially all of its operations through subsidiaries and through contractual arrangements with Guangzhou Yuzhi,
an affiliated variable interest entity (“VIE”) and Guangzhou Yuzhi’s subsidiaries Shenzhen Exce-card and Guangzhou
Rongsheng, and is dependent on dividends and other intercompany transfers of funds from its subsidiaries and affiliated VIE to
meet its financial obligations. EGOOS BVI’s subsidiaries have not made significant distributions to it and may not have
funds legally available for dividends or distributions in the future. In addition, EGOOS BVI may enter into credit or other agreements
that would contractually restrict its subsidiaries or affiliated VIE from paying dividends or making distributions. Any inability
of EGOOS BVI to receive funds from its subsidiaries including Guangzhou Yuzhi can be expected to impair its ability to pay dividends
on the Common Stock and may otherwise have an adverse effect on our future operating or growth prospects.
The
research and development of audio chip/inlay is entirely dependent on the partnership relationship between Guangzhou Yuzhi and
UINT.
Shenzhen
Exce-card engaged UINT pursuant to the Partnership Agreement with a term from May 1, 2014 to April 30, 2016 to research and develop
audio bank card technology. Although Guangzhou Yuzhi and its Subsidiaries intend to continue to cooperate with UINT, and to eventually
acquire UINT, there is no assurance that the merger transaction will be consummated, or that UINT will continue to develop any
audio bank card technology for Guangzhou Yuzhi. In addition, pursuant to the Partnership Agreement, the know-how relating to the
services provided by UINT will remain the exclusive property of UINT, and UINT may use such know-how for its other clients. Competitors
of Guangzhou Yuzhi and its Subsidiaries may engage UINT to develop new technology and potentially compete with the audio bank
card product of Guangzhou Yuzhi and its Subsidiaries. Any such incidents may harm the financial condition, results of operations
and future growth prospects of Guangzhou Yuzhi and its Subsidiaries.
We
depend on third-party suppliers for the manufacturing of a substantial portion of our products, which subjects the Company to
risks, including unanticipated increases in expenses, decreases in revenues and disruptions in the supply chain.
We are
dependent on SmartDisplayer”), a third-party supplier, for the manufacturing of all bank audio cards as of the date of this
report. Currently, we rely on the testing workshop in Shenzhen, China and the operations of UINT in Limoges, France to manufacture
inlays, a type of key components of our audio bank cards. We only have commercial contracts with UINT and SmartDisplayer. Our ability
to select reliable suppliers who provide timely deliveries of quality products will impact our success in meeting customer demand.
Any inability of our suppliers to timely deliver products that meet our specifications or any unanticipated changes in suppliers
could be disruptive and costly to the Company.
Shenzhen
Exce-card leases the workshop from Shenzhen Tianshi Qiancheng Co., Ltd. (“Shenzhen Tianshi Qiancheng”) to manufacture
the inlays on a small scale and owns the furniture, equipment and relating properties in the workshop. We anticipate that our
manufacturing capacity might be negatively affected or disrupted if the lease agreement with Shenzhen Tianshi Qiancheng is terminated
unexpectedly and a new lease for a similar space with appropriate accommodations at a reasonable price is not available in a timely
manner or at all.
A
significant portion of EGOOS BVI’s revenues are derived from the sale of inlays for audio bank cards, the manufacture of
some of which is in Limoges, France. Although the Company and its Subsidiaries plan to expand the testing workshop to a full-service
factory in China in the near future, we cannot assure that we will be successful on constructing such a factory to produce the
inlays or the bank audio cards in a timely and cost-efficient manner.
Manufacturing
operations, both domestic and international, are subject to inherent risks, all of which could have a material adverse effect
on its financial condition or results of operations. Risks affecting operations include:
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unexpected
changes in regulatory requirements;
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political
and economic instability;
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terrorism
and civil unrest;
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equipment
and machinery breakdowns;
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injuries
or accidents at our facilities
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severe
weather or other natural disasters;
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work
stoppages or strikes;
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currency
fluctuations;
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difficulties
in staffing and managing operations; and
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variations
in tariffs, quotas, taxes and other market barriers.
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Some
of these hazards may cause severe damage to, or destruction of, property and equipment or environmental damages, and may result
in suspension of operations and the imposition of civil or criminal penalties. Any such delay or disruption can be expected to
harm EGOOS BVI’s financial condition, results of operations and future growth prospects.
Guangzhou
Yuzhi and its Subsidiaries have not entered into and may not be able to enter into any enforceable agreement with CCB in connection
with the pilot program in which CCB will distribute 500,000 of audio bank cards with our inlays.
Although
Guangzhou Yuzhi and its Subsidiaries have negotiated with CCB and have obtained an oral agreement from CCB Guangdong for CCB to
issue 500,000 audio bank cards with our inlays through its Guangdong branches, and CCB has started an internal testing since March
2016, in the event that CCB partially or completely fails to implement the rest of the pilot program, such oral agreement is not
enforceable against CCB or CCB Guangdong. Moreover, there is no assurance that an enforceable agreement in writing between CCB
and Guangzhou Yuzhi or its Subsidiaries will be entered into regarding this pilot program. Our future operating results and financial
condition could be significantly disrupted if the pilot program is not implemented as planned.
In
the near future, the distribution of audio bank cards embedded with our inlays may be entirely dependent on one pilot program
of the Guangdong branches of CCB in China.
In
the near future, CCB may remain the only distributor of the audio bank cards with our inlays in China. In the event that the CCB’s
pilot program in Guangdong Province, China fails to gain positive market response as expected, CCB may elect to discontinue the
distribution of audio bank card products. Although Guangzhou Yuzhi and its Subsidiaries are actively developing relationships
with other potential issuers and other major banks in China for the distribution of the audio bank cards with our inlays, there
is no assurance such efforts will be successful or will result in steady income cash flow for the Company. Therefore, the financial
condition, results of operations and future growth prospects may be materially negatively affected in the event that CCB discontinues
the distribution of the audio bank cards with our inlays.
Currently,
our revenues are primarily dependent on two customers that are engaged in the mass production of audio bank cards.
We
cooperate with our two customers, Hengbao and Tianyu, based on cooperation agreements with each of them, and there is no assurance
that these agreements will not be terminated earlier, and Guangzhou Yuzhi and its Subsidiaries may not be able to secure orders
from other card manufacturers. Any such incidents may harm the financial condition, results of operations and future growth prospects
of Guangzhou Yuzhi and its Subsidiaries.
Gross
margins are principally dependent on the spread between development and production cost and sale price. If the cost of development
and production increases and sale price does not increase or if the sale price decreases and the cost of development and production
does not decrease, gross margins will decrease and EGOOS BVI’s results of operations could be harmed should the sales volume
of the product does not increase.
EGOOS
BVI’s gross margins depend principally on the spread between development and production cost and sale price.
While
moving the production from France to China could potentially decrease the cost of production, the sale price of audio chips/inlays
may decrease as well, as potential competitors start developing and producing like products, which may narrow the gross margins
should the sales volume does not increase. Any event that tends to negatively impact the sales volume of audio chips of Guangzhou
Yuzhi and its Subsidiaries will potentially harm its financial condition and results of operation.
Consumer
acceptance or rejection of audio bank cards will have a material impact on EGOOS BVI’s future prospects.
The
market in China for audio bank cards has not developed. Therefore, widespread acceptance of audio bank cards is not assured and
depends on market acceptance of audio bank cards as an addition, or an alternative, to traditional bank cards or other channels
to bank or make payment. Because this market is new, it is difficult to predict its potential size or future growth rate. In addition,
a long-term customer base has not been adequately defined. The success of Guangzhou Yuzhi and its Subsidiaries in generating revenue
in this emerging market will depend, among other things, on its ability to educate potential customers and end-users about the
practical benefits of audio bank cards. In the event a substantial market for audio bank cards fails to materialize, or if we
fail to properly capitalize on such market, our growth and future operating prospects will be materially harmed.
Unanticipated
problems or delays with product quality or product performance could result in a decrease in customers and revenue, unexpected
expenses and loss of market share.
EGOOS
BVI’s cash flow depends on the timely and economical operations of and its partnership with the R&D and production centers
in France, and potentially other production facilities in China.
The
development and production of audio chips are complex, and the audio chips must meet detailed quality requirements in order to
ensure the safety and efficiency of use. Concerns about audio chips quality may impact the ability of Guangzhou Yuzhi and its
Subsidiaries to successfully market their audio chips and audio bank cards embedded with our inlays to a larger market. If the
product does not meet its promised and marketed quality standards, its credibility and the market acceptance and sales volume
could be negatively affected. In addition, actual or perceived problems with protection of user’s information in the industry
generally may lead to a lack of consumer confidence in bank cards encrypted with chips of new technology. Prolonged problems may
threaten the commercial viability of audio bank cards generally or the production and sale of the product specifically.
Guangzhou
Yuzhi and its Subsidiaries plan to primarily sell their audio chips/inlays and relevant technology to card manufacturers, which
are expected to sell audio bank cards through banks in China and if their relationships with one or more of these card manufacturers
or banks were to end, their operating results could be harmed.
Guangzhou
Yuzhi and its Subsidiaries are expected to market and distribute a substantial portion of its audio chips/inlays and relevant
technology to card manufacturers, which are expected to sell audio bank cards through major banks in China. Their future operating
results and financial condition could be significantly disrupted by the loss of one or more of these card manufacturers or banks
with current or future relationships, order cancellations or the failure of the card manufacturers or banks to successfully sell
the products.
Financial
instability in the Chinese financial markets could materially and adversely affect our results of operations and financial condition.
The
Chinese financial markets and the Chinese economy are influenced by economic and market conditions in other countries, including
other Asian emerging countries and the United States. Financial turmoil in Asia, Russia and elsewhere in the world in recent years
has affected the Chinese economy. Although economic conditions are different in each country, investors’ reactions to developments
in one country can have adverse effects on the securities of companies operating in other countries, including China. A loss in
investor confidence in the financial systems of other countries may cause increased volatility in Chinese financial markets and,
indirectly, in the Chinese economy in general. Financial disruptions could harm Guangzhou Yuzhi’s operation or its stock
price, results of operations and financial condition.
Natural
calamities could have a negative impact on the Chinese economy and harm the business of Guangzhou Yuzhi and its Subsidiaries.
China
has experienced natural calamities such as earthquakes, floods, droughts and a tsunami in recent years. The extent and severity
of these natural disasters determines their impact on the economies in the local communities that experience these calamities.
Natural disasters could have an adverse impact on the economies in the geographic regions in which Guangzhou Yuzhi and its Subsidiaries
operate, which could adversely affect their operating and growth prospects.
Growth
may impose a significant burden on the administrative and operational resources of Guangzhou Yuzhi and its Subsidiaries which,
if not effectively managed, could impair their growth.
The
strategy of Guangzhou Yuzhi and its Subsidiaries envisions a period of rapid growth that may impose a significant burden on their
administrative and operational resources. The growth of their business will require significant investments of capital and management’s
close attention. Their ability to effectively manage their growth will require them to substantially expand the capabilities of
their administrative and operational resources and to attract, train, manage and retain qualified management, technicians and
other personnel. Failure to successfully manage their growth could result in their sales not increasing commensurately with capital
investments. If Guangzhou Yuzhi and its Subsidiaries are unable to successfully manage their growth, they may be unable to achieve
their growth goals.
Guangzhou
Yuzhi and its Subsidiaries may be unable to protect their intellectual property, which could negatively affect its ability to
compete.
Guangzhou
Yuzhi and its Subsidiaries rely on a combination of patent, registered trademark, confidentiality agreements, and other contractual
restrictions on disclosure to protect their intellectual property rights. They also enter into confidentiality agreements with
their employees, consultants, and corporate partners, and control access to and distribution of their confidential information.
These measures may not preclude the disclosure of their confidential or proprietary information. Despite efforts to protect their
proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use their proprietary technologies and information.
Monitoring unauthorized use of confidential information is difficult, and Guangzhou Yuzhi and its Subsidiaries cannot be certain
that the steps they takes to prevent unauthorized use of its proprietary technologies and confidential information, particularly
in foreign countries where the laws may not protect proprietary rights as fully as in the U.S., will be effective. Failure to
protect our intellectual property rights can be expected to have a material, adverse impact on our competitive advantage and potentially
on our financial condition, stock price and future growth prospects.
Guangzhou
Yuzhi and its Subsidiaries will be required to hire and retain skilled technical and managerial personnel.
Personnel
qualified to continue researching and developing, and to operate and manage production center and other facilities are in demand.
The success of Guangzhou Yuzhi and its Subsidiaries depends in large part on their ability to attract, train, motivate and retain
qualified management and highly-skilled employees, particularly managerial, technical, sales and marketing personnel, technicians,
and other critical personnel. Any failure to attract and retain such personnel may have a negative impact on the operations of
Guangzhou Yuzhi and its Subsidiaries, which would have a negative impact on revenues.
Guangzhou
Yuzhi and its Subsidiaries are dependent upon their officers and directors for management and direction and the loss of any of
these persons could adversely affect their operations and results.
Guangzhou
Yuzhi and its Subsidiaries are dependent upon their officers and directors for implementation and execution of their business
plan. The loss of any of their officers or directors could have a material adverse effect upon their results of operations and
financial position. Guangzhou Yuzhi and its Subsidiaries do not maintain “key person” life insurance for any of their
officers. The loss of any of their officers or directors could delay or prevent the achievement of their business objectives.
EGOOS
BVI’s lack of business diversification could result in the devaluation of its securities if it does not generate revenue
from its primary products, or such revenues decrease.
The
current business of Guangzhou Yuzhi and its Subsidiaries consists solely of the research and development, production and sale
of audio chips in China. Currently, sales of the products account for almost 100% of EGOOS BVI’s revenues. The lack of business
diversification could cause you to lose all or some of your investment, since EGOOS BVI does not have any other lines of business
or alternative revenue sources.
Failure
to fully comply with PRC labor laws, including laws relating to social insurance, may expose Guangzhou Yuzhi and its Subsidiaries
to potential liability and increased costs.
Companies
operating in China must comply with a variety of labor laws, including certain pension, health insurance, unemployment insurance
and other welfare-oriented payment obligations. Guangzhou Yuzhi and its Subsidiaries are currently paying social insurance for
all of their twenty full-time employees through a third party agent. If the PRC regulatory authorities take the view that payment
of social insurance through a third party agent is invalid, the failure to comply may be in violation of applicable PRC labor
laws and we cannot assure you that PRC governmental authorities will not impose penalties on Guangzhou Yuzhi and its Subsidiaries
therefor, which could have a material adverse effect on the financial condition and results of operations of Guangzhou Yuzhi and
its Subsidiaries.
In
addition, the new PRC Labor Contract Law took effect January 1, 2008 and governs standard terms and conditions for employment,
including termination and lay-off rights, contract requirements, compensation levels and consultation with labor unions, among
other topics. In addition, the law limits non-competition agreements with senior management and other employees who have access
to confidential information to two years and imposes restrictions or geographical limits. This new labor contract law will increase
the labor costs of Guangzhou Yuzhi and its Subsidiaries, which could adversely impact the results of operations.
EGOOS
BVI may have difficulty establishing adequate management, governance, legal and financial controls in the PRC.
The
PRC historically has been deficient in western style management, governance and financial reporting concepts and practices, as
well as in modern banking and other control systems. Our current management has little experience with western style management,
governance and financial reporting concepts and practices, and we may have difficulty in hiring and retaining a sufficient number
of qualified employees to work in the PRC. As a result of these factors, and especially given that we expect to be a publicly
listed company in the U.S. and subject to regulation as such, we may experience difficulty in establishing management, governance
legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records
and instituting business practices that meet western standards. We may have difficulty establishing adequate management, governance,
legal and financial controls in the PRC. Therefore, we may, in turn, experience difficulties in implementing and maintaining adequate
internal controls as required under applicable U.S. laws, rules and regulations. This may result in significant deficiencies or
material weaknesses in our internal controls which could impact the reliability of our financial statements and prevent us from
complying with SEC rules and regulations. Any such deficiencies, weaknesses or lack of compliance could have a materially adverse
effect on our business and the public announcement of such deficiencies could adversely impact our stock price.
The
Company has not yet developed comprehensive independent corporate governance.
Although
the Company has formed audit, compensation and nominating committees of its board of directors, it is inexperienced in formal
U.S. corporate governance procedures. A lack of functioning independent controls over the Company’s corporate affairs may
result in potential or actual conflicts of interest between controlling shareholders and other shareholders. It presently has
no policy to resolve such conflicts. The absence of customary standards of corporate governance may leave its shareholders without
protections against interested director transactions, conflicts of interest, if any, and similar matters and any potential investors
may be reluctant to provide the Company with funds necessary to expand its operations.
Although
our financial statements have been prepared on a going concern basis, we must raise additional capital to fund our operations
in order to continue as a going concern.
WWC,
P.C., our independent registered public accounting firm for the fiscal year ended December 31, 2015 and 2016, has included an
explanatory paragraph in their opinion that accompanies our audited consolidated financial statements as of and for the year ended
December 31, 2016, indicating that our current liquidity position raises substantial doubt about our ability to continue as a
going concern. If we do not raise all of the money we need from public or private offerings, we will have to find alternative
sources, such as loans or advances from our officers, directors or others. Such additional financing may not become available
on acceptable terms and there can be no assurance that any additional financing that the Company does obtain will be sufficient
to meet its needs in the long term. Even if the Company is able to obtain additional financing, it may contain undue restrictions
on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.
If we require additional cash and cannot raise it, we will either have to suspend operations or cease business entirely, which
could cause investors to suffer the loss of all or a substantial portion of their investment.
Risks
Related to the VIE Agreements
The
PRC government may determine that the VIE Agreements are not in compliance with applicable PRC laws, rules and regulations.
EGOOS
BVI manages and operates the business of Guangzhou Yuzhi and its Subsidiaries through Yigou pursuant to the rights it holds under
the VIE Agreements. Almost all economic benefits and risks arising from the operations of Guangzhou Yuzhi and its Subsidiaries
are transferred to EGOOS BVI under these agreements.
There
are risks involved with the operation of the business of Guangzhou Yuzhi and its Subsidiaries in reliance on the VIE Agreements,
including the risk that the VIE Agreements may be determined by PRC regulators or courts to be unenforceable. If the VIE Agreements
were for any reason determined to be in breach of any existing or future PRC laws or regulations, the relevant regulatory authorities
would have broad discretion in dealing with such breach, including:
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imposing
economic penalties;
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discontinuing
or restricting the operations of Yigou or Guangzhou Yuzhi and its Subsidiaries;
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imposing
conditions or requirements in respect of the VIE Agreements with which the Group may not be able to comply;
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requiring
EGOOS BVI to restructure the relevant ownership structure or operations;
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taking
other regulatory or enforcement actions that could adversely affect its business; and
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revoking
the business licenses or certificates of Guangzhou Yuzhi and its Subsidiaries and/or voiding the VIE Agreements.
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Any
of these actions could adversely affect EGOOS BVI’s ability to manage, operate and gain the financial benefits of Guangzhou
Yuzhi and its Subsidiaries, which represents its sole operations, which would have a material adverse impact on its business,
financial condition and results of operations.
EGOOS
BVI’s ability to manage and operate Guangzhou Yuzhi and its Subsidiaries under the VIE Agreements may not be as effective
as direct ownership.
EGOOS
BVI’s plans for future growth are based substantially on growing the operations of Guangzhou Yuzhi and its Subsidiaries.
However, the VIE Agreements may not be as effective in providing EGOOS BVI with control over Guangzhou Yuzhi and its Subsidiaries
as direct ownership. Under the current VIE arrangements, as a legal matter, if Guangzhou Yuzhi and its Subsidiaries fail to perform
their obligations, EGOOS BVI may have to (i) incur substantial costs and resources to enforce such arrangements, and (ii) rely
on legal remedies under PRC law, which it cannot be sure would be effective. Therefore, if EGOOS BVI is unable to effectively
control Guangzhou Yuzhi and its Subsidiaries, it may have an adverse effect on its ability to achieve its business objectives
and grow its revenues.
Risks
Related to Doing Business in the PRC
The
Chinese government exerts substantial influence over the manner in which Guangzhou Yuzhi and its Subsidiaries must conduct their
business activities.
Guangzhou
Yuzhi and its Subsidiaries are dependent on its relationship with the local government in Guangdong province where they operate.
The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese
economy through regulation and state ownership. The ability of Guangzhou Yuzhi and its Subsidiaries to operate in China may be
harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights,
property and other matters. The central or local governments of the PRC may impose new, stricter regulations or interpretations
of existing regulations that would require additional expenditures and efforts on Guangzhou Yuzhi and its Subsidiaries’
part to ensure 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 EGOOS BVI to divest itself of any interest it then holds in Chinese properties.
Future
inflation in China may inhibit the ability of Guangzhou Yuzhi and its Subsidiaries to conduct business in China. In recent years,
the Chinese economy has experienced periods of rapid expansion and high rates of inflation. Rapid economic growth can lead to
growth in the money supply and rising inflation. If prices for the products of Guangzhou Yuzhi and its Subsidiaries rise at a
rate or unchanged or even decrease so that they are insufficient to compensate for the rise in the costs of development and production,
it may have an adverse effect on profitability. These factors have led to the adoption by the Chinese government, from time to
time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation.
High inflation may in the future cause Chinese government to impose controls on credit and/or prices, or to take other action
which could inhibit economic activity in China, and thereby harm the market for audio chips and audio bank cards products.
The
operations and assets of Guangzhou Yuzhi and its Subsidiaries in China are subject to significant political and economic uncertainties
and EGOOS BVI may lose all of their assets and operations if the Chinese government alters its policies to further restrict foreign
participation in business operating in the PRC.
Changes
in PRC laws and regulations, or their interpretation, or the imposition of confiscatory taxation, restrictions on currency conversion,
imports and sources of supply, devaluations of currency or the nationalization or other expropriation of private enterprises could
have a material adverse effect on the business, results of operations and financial condition of. Under its current leadership,
the Chinese government has been pursuing economic reform policies that encourage private economic activities and greater economic
decentralization. There is no assurance, however, that the Chinese government will continue to pursue these policies, or that
it will not significantly alter these policies from time to time without notice. EGOOS BVI may lose all of its assets and operations
if the Chinese government alters its policies to further restrict foreign participation in business operating in the PRC.
EGOOS
BVI derives all of its sales in China and a slowdown or other adverse development in the PRC economy may materially and adversely
affect the customers and end-users of Guangzhou Yuzhi and its Subsidiaries, demand for their products and their business.
All
of the sales of Guangzhou Yuzhi and its Subsidiaries are generated in China and they anticipates that sales of their audio bank
cards and audio chips in China will continue to represent all of their total sales in the near future. Although the PRC economy
has grown significantly in recent years, no assurances can be given that such growth will continue. The industry in which Guangzhou
Yuzhi and its Subsidiaries is involved in the PRC is new and growing, but Guangzhou Yuzhi and its Subsidiaries do not know how
sensitive this industry is to a slowdown in economic growth or other adverse changes in the PRC economy which may affect demand
for audio chips and audio bank cards products. In addition, the Chinese government also exercises significant control over Chinese
economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting
monetary policy and providing preferential treatment to particular industries or companies. Efforts by the Chinese government
to slow the pace of growth of the Chinese economy could result in reduced demand for biodiesel products. A slowdown in overall
economic growth, an economic downturn or recession or other adverse economic developments in the PRC may materially reduce the
demand for bank cards in general or audio bank cards in particular and materially and adversely affect the business, results of
operations and future operating prospects of Guangzhou Yuzhi and its Subsidiaries.
Currency
fluctuations and restrictions on currency exchange may adversely affect the business of Guangzhou Yuzhi and its Subsidiaries,
including limiting the ability to convert Chinese Renminbi into foreign currencies and, if Chinese Renminbi were to decline in
value, reducing EGOOS BVI’s financial results in U.S. dollar terms.
EGOOS
BVI’s reporting currency is the U.S. dollar and the operations of Guangzhou Yuzhi and its Subsidiaries in China use China’s
local currency as their functional currency. Substantially all of EGOOS BVI’s revenues and expenses are in the Chinese currency,
the Renminbi, or RMB. EGOOS BVI is subject to the effects of exchange rate fluctuations with respect to both of these currencies.
For example, the value of the Renminbi depends to a large extent on Chinese government policies and China’s domestic and
international economic and political developments, as well as supply and demand in the local market. Since 1994, the official
exchange rate for the conversion of the Renminbi to the U.S. dollar had generally been stable and the Renminbi had appreciated
slightly against the U.S. dollar. In July 2005, the Chinese government changed its policy of pegging the value of the Renminbi
to the U.S. dollar. Under this policy, which was halted in 2008 due to the worldwide financial crisis, the Renminbi was permitted
to fluctuate within a narrow and managed band against a basket of certain foreign currencies. In June 2010, the Chinese government
announced its intention to again allow the Renminbi to fluctuate within the 2005 parameters. It is possible that the Chinese government
could adopt an even more flexible currency policy, which could result in more significant fluctuation of Renminbi against the
U.S. dollar, or it could adopt a more restrictive policy. Thus, no assurance can be given that the Renminbi will remain stable
against the U.S. dollar or any other foreign currency.
EGOOS
BVI’s financial statements are translated into U.S. dollars at the average exchange rates in each applicable period. To
the extent the U.S. dollar strengthens against the RMB, the translation of RMB-denominated transactions will result in reduced
revenue, operating expenses and net income. Similarly, to the extent the U.S. dollar weakens against the RMB, the translation
of RMB-denominated transactions will result in increased revenue, operating expenses and net income. EGOOS BVI is also exposed
to foreign exchange rate fluctuations as it converts the financial statements of its foreign consolidated subsidiaries into U.S.
dollars in consolidation. If there is a change in RMB exchange rates, such conversion into U.S. dollars will lead to a translation
gain or loss which is recorded as a component of other comprehensive income. EGOOS BVI has not entered into agreements or purchased
instruments to hedge its exchange rate risks, although it may do so in the future. The availability and effectiveness of any hedging
transaction may be limited and EGOOS BVI may not be able to effectively hedge its exchange rate risks.
The
State Administration of Foreign Exchange (“SAFE”) restrictions on currency exchange may limit EGOOS BVI’s ability
to receive and use its funds effectively and to pay dividends.
All
of EGOOS BVI’s sales revenue and expenses are denominated in RMB. Under PRC law, the Renminbi is currently convertible under
the “current account,” which includes dividends and trade and service-related foreign exchange transactions, but not
under the “capital account,” which includes foreign direct investment and loans. Currently, Guangzhou Yuzhi and its
Subsidiaries may purchase foreign currencies for settlement of current account transactions, including distributions in the form
of consulting fees and payments of dividends to EGOOS BVI, without the approval of SAFE, by complying with certain procedural
requirements. However, the relevant PRC government authorities may limit or eliminate their ability to purchase foreign currencies
in the future.
All
of EGOOS BVI’s income is derived from the consulting fees it receives from Guangzhou Yuzhi and its Subsidiaries through
the VIE Agreements. SAFE restrictions may delay the payment of dividends, since Guangzhou Yuzhi and its Subsidiaries have to comply
with certain procedural requirements and they may experience difficulties in completing the administrative procedures necessary
to obtain and remit foreign currency for the distribution of consulting fees or payment of dividends.
Foreign
exchange transactions by PRC operating subsidiaries under the capital account continue to be subject to significant foreign exchange
controls and require the approval of or need to register with PRC government authorities, including SAFE. In particular, if Guangzhou
Yuzhi and its Subsidiaries borrow foreign currency through loans from EGOOS BVI or other foreign lenders, these loans must be
registered with SAFE, and if Guangzhou Yuzhi and its Subsidiaries refinance by means of additional capital contributions, these
capital contributions must be approved by certain PRC government authorities, including the PRC Ministry of Commerce, or their
respective local counterparts. These limitations could affect the ability of Guangzhou Yuzhi and its Subsidiaries to conduct foreign
exchange through debt or equity financing.
In
the future, SAFE may make more restrictive policies or implement its policies in a tightened manner to control the foreign currency
exchange. The PRC government also may at its discretion restrict access in the future to foreign currencies for current account
transactions. If the foreign exchange control system prevents Guangzhou Yuzhi and its Subsidiaries from obtaining foreign currency,
they may be unable to pay dividends or meet obligations that may be incurred in the future that require payment in foreign currency.
PRC
regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our
PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries or limit our PRC subsidiaries’
ability to increase their registered capital or distribute profits.
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, on July 4, 2014, which replaced
the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37
requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control
of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets
or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special
purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes
with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer
or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose
vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited
from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities,
and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover,
failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for
evasion of foreign exchange controls. According to the Notice on Further Simplifying and Improving Policies for the Foreign Exchange
Administration of Direct Investment released on February 13, 2015 by SAFE, local banks will examine and handle foreign exchange
registration for overseas direct investment, including the initial foreign exchange registration and amendment registration, under
SAFE Circular 37 from June 1, 2015.
The
nationality of EGOOS BVI’s sole shareholder, Mr. Jie Yang, is the Republic of Guinea-Bissau and he resides in the PRC. We
do not have control over our beneficial owner and our future beneficial owner(s), and cannot assure you that all of our PRC-resident
beneficial owners will comply with SAFE Circular 37 and subsequent implementation rules. The failure of our beneficial owners
who are PRC resident to register or amend their foreign exchange registration in a timely manner pursuant to SAFE Circular 37
and subsequent implementation rules, or the failure of future beneficial owners of our company who are PRC residents to comply
with the registration procedures set forth in SAFE Circular 37 and subsequent implementation rules, may subject such beneficial
owners or our PRC subsidiaries to fines and legal sanctions. Furthermore, since SAFE Circular 37 was recently promulgated and
it is unclear how this regulation, and any future regulation concerning offshore or cross-border transactions, will be interpreted,
amended and implemented by the relevant PRC government authorities, we cannot predict how these regulations will affect our business
operations or future strategy. Failure to register or comply with relevant requirements may also limit our ability to contribute
additional capital to our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to our company.
These risks may have a material adverse effect on our business, financial condition and results of operations.
Because
all of EGOOS BVI’s assets are located outside of the United States and its sole director resides outside of the United States,
and because all of Guangzhou Yuzhi and its Subsidiaries’ officers reside outside of the United States, it may be difficult
for you to enforce your rights against EGOOS BVI based on United States federal securities laws or against these persons in the
United States or to enforce judgments of United States courts against EGOOS BVI or the officers or directors of EGOOS BVI in the
PRC.
The
sole director of EGOOS BVI, Mr. Jie Yang, as well as all of Guangzhou Yuzhi and its Subsidiaries’ officers reside outside
of the United States. Furthermore, the operating subsidiaries, Guangzhou Yuzhi and its Subsidiaries, are located in the PRC. All
of their assets are located outside of the United States. China does not have a treaty with United States providing for the reciprocal
recognition and enforcement of judgments of courts. It may therefore be difficult for investors in the United States to enforce
their legal rights based on the civil liability provisions of the United States federal securities laws against EGOOS BVI in the
courts of either the United States or the PRC or France and, even if civil judgments are obtained in courts of the United States,
to enforce such judgments in the PRC courts or French courts. Further, it is unclear if extradition treaties now in effect between
the United States and the PRC would permit effective enforcement against EGOOS BVI or its officers and directors of criminal penalties,
under the United States federal securities laws or otherwise.
EGOOS
BVI may have limited legal recourse under PRC laws if disputes arise under contracts with third parties.
The
Chinese government has enacted laws and regulations dealing with matters such as corporate organization and governance, foreign
investment, commerce, taxation and trade. However, their experience in implementing, interpreting and enforcing these laws and
regulations is limited, and EGOOS BVI’s ability to enforce commercial claims or to resolve commercial disputes is unpredictable.
The resolution of these matters may be subject to the exercise of considerable discretion by agencies of the Chinese government,
and forces unrelated to the legal merits of a particular matter or dispute may influence their determination. Any rights Guangzhou
Yuzhi and its Subsidiaries may have to specific performance, or to seek an injunction under PRC laws, in either of these cases,
are severely limited, and without a means of recourse by virtue of the Chinese legal system, Guangzhou Yuzhi and its Subsidiaries
may be unable to prevent these situations from occurring. The occurrence of any such events could have a material adverse effect
on EGOOS BVI’s business, financial condition and results of operations. Although legislation in China has significantly
improved the protection afforded to various forms of foreign investment and contractual arrangements in China, these laws, regulations
and legal requirements are relatively new and their interpretation and enforcement involve uncertainties, which could limit the
legal protection available to Guangzhou Yuzhi and its Subsidiaries as well as foreign investors. The inability to enforce or obtain
a remedy under any of the future agreements of Guangzhou Yuzhi and its Subsidiaries could result in a significant loss of business,
business opportunities or capital and could have a material adverse impact on EGOOS BVI’s results of operations and future
business prospects.
Failure
to comply with the registration requirements for employee share option plans may subject our PRC equity incentive plan participants
or us to fines and other legal or administrative sanctions.
On
February 15, 2012, SAFE promulgated the Circular of the SAFE on Relevant Issues Concerning the Foreign Exchange Administration
for Domestic Individuals’ Participating in the Share Incentive Schemes of Overseas-Listed Companies, or SAFE Circular 7,
to replace the previous Operating Procedures for Administration of Domestic Individuals Participating in the Employee Stock Ownership
Plan or Stock Option Plan of Offshore Listed Companies issued by SAFE in March 2007, also known as “SAFE Circular 8.”
SAFE Circular 7 regulates foreign exchange matters associated with employee stock option incentives or similar incentives permitted
under applicable laws and regulations granted to PRC residents by companies whose shares are listed on offshore stock exchanges.
In
accordance with SAFE Circular 7, all PRC residents who participate in share incentive plans of an overseas publicly-listed company
are required, through the PRC subsidiary of the overseas publicly-listed company, to jointly entrust a PRC agent to handle foreign
exchange registration with SAFE or its local office and complete procedures relating to the share incentive schemes such as opening
accounts and capital transfers. PRC residents include PRC nationals or foreign citizens having been consecutively residing in
PRC for not less than one year, acting as directors, supervisors, senior management personnel or other employees of PRC companies
affiliated with such offshore listed company. A PRC agent can be one of the PRC subsidiaries of the offshore listed company participating
in the share incentive scheme or another PRC institution qualified for asset trusteeship s as designated by the PRC subsidiary
and in accordance with PRC laws. The foreign exchange proceeds received by the PRC residents from sale of shares under share incentive
plans granted by offshore listed companies must be remitted to bank accounts in China opened by the PRC agents. Further, a Notice
Concerning Individual Income Tax on Earnings from Employee Stock Options, jointly issued by the Ministry of Finance and the State
Administration of Taxation provides that domestic companies that implement employee share option programs must file the employee
share option plans and other relevant documents with local tax authorities having jurisdiction over the companies before implementing
such plans, and must file share option exercise notices and other relevant documents with local tax authorities before their employees
exercise any share options.
We
may adopt an equity incentive plan and make numerous stock option grants under the plan to its officers, directors and employees,
some of whom are PRC citizens and may be required to complete the relevant foreign exchange registration procedures in accordance
with SAFE Circular 7. We plan to advise our employees to complete these procedures in connection with our future share incentive
plans. However, we cannot assure you that registration procedures with SAFE or its local counterparts in full compliance with
SAFE Circular 7 will be completed on a timely basis, if at all. The failure to complete these procedures may subject us or our
PRC employees holding restricted shares or share options under our share incentive plans to fines and other legal or administrative
sanctions.
Due
to various restrictions under PRC laws on the distribution of dividends by PRC operating subsidiaries and VIE affiliates, EGOOS
BVI may not be able to pay dividends to its stockholders.
The
Wholly-Foreign Owned Enterprise Law (1986), as amended, and the Wholly-Foreign Owned Enterprise Law Implementing Rules (1990),
as amended, and the Company Law of the PRC (2006) contain the principal regulations governing dividend distributions by wholly
foreign owned enterprises. Under these regulations, wholly foreign owned enterprises, such as Yigou, may pay dividends only out
of their accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. Additionally,
Yigou is required to set aside a certain amount of their accumulated profits each year, if any, to fund certain reserve funds.
These reserves are not distributable as cash dividends except in the event of liquidation and cannot be used for working capital
purposes.
Furthermore,
if the consolidated subsidiaries incur debt on their own in the future, the instruments governing the debt may restrict EGOOS
BVI’s ability to pay dividends or make other payments. If EGOOS BVI or its consolidated subsidiaries and VIE affiliates
are unable to receive all of the revenues from operations due to these contractual or dividend arrangements, EGOOS BVI may be
unable to pay dividends.
EGOOS
BVI may have difficulty establishing adequate management, governance, legal and financial controls in the PRC.
The
PRC historically has been deficient in western style management, governance and financial reporting concepts and practices, as
well as in modern banking, and other control systems. EGOOS BVI’s current management has little experience with western
style management, governance and financial reporting concepts and practices, and it may have difficulty in hiring and retaining
a sufficient number of qualified employees to work in the PRC. As a result of these factors, and especially given that EGOOS BVI
expects to be a publicly listed company in the U.S. and subject to regulation as such, it may experience difficulty in establishing
management, governance legal and financial controls, collecting financial data and preparing financial statements, books of account
and corporate records and instituting business practices that meet western standards. EGOOS BVI may have difficulty establishing
adequate management, governance, legal and financial controls in the PRC. Therefore, it may, in turn, experience difficulties
in implementing and maintaining adequate internal controls as required under applicable U.S. laws, rules and regulations. This
may result in significant deficiencies or material weaknesses in its internal controls which could impact the reliability of its
financial statements and prevent it from complying with SEC rules and regulations. Any such deficiencies, weaknesses or lack of
compliance could have a materially adverse effect on EGOOS BVI’s business and the public announcement of such deficiencies
could adversely impact its stock price.
Risks
Related to Our Common Stock
Trading
in our common stock over the last 12 months has been very limited, so investors may not be able to sell as many of their shares
as they want at prevailing prices.
Shares
of our common stock are quoted on the OTCQB Market under the symbol “WAYS”. If limited trading in the Common Stock
continues, it may be difficult for investors to sell such shares in the public market at any given time at prevailing prices.
Also, the sale of a large block of Common Stock could depress the market price of the Common Stock to a greater degree than a
company that has a higher volume of trading of its securities.
An
active and visible trading market for our Common Stock may not develop.
We
cannot predict whether an active market for our Common Stock will develop in the future. In the absence of an active trading market:
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Investors
may have difficulty buying and selling or obtaining market quotations;
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Market
visibility for our Common Stock may be limited; and
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A
lack of visibility for our Common Stock may have a depressive effect on the market price for our Common Stock.
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The
OTCQB market is an over-the-counter market that provides significantly less liquidity than NASDAQ or the NYSE AMEX. The trading
price of the Common Stock is expected to be subject to significant fluctuations in response to variations in quarterly operating
results, changes in analysts’ earnings estimates, announcements of innovations by us or our competitors, general conditions
in the industry in which we operate and other factors. These fluctuations, as well as general economic and market conditions,
may have a material or adverse effect on the market price of our Common Stock.
The Company may be subject to the risks relating
to penny stocks.
Trading in our common stock may,
from time to time, be subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934. These
rules require additional disclosure by broker–dealers in connection with any trades involving a stock defined as a “penny
stock” and impose various sales practice requirements on broker–dealers who sell penny stocks to persons other than
established customers and accredited investors, generally institutions. These additional requirements may discourage broker–dealers
from effecting transactions in securities that are classified as penny stocks, which could severely limit the market price and
liquidity of such securities and the ability of purchasers to sell such securities in the secondary market. A penny stock is defined
generally as any non–exchange listed equity security that has a market price of less than $5.00 per share, subject to certain
exceptions.
The
market price for our stock may be volatile.
The
market price for our stock may be volatile and subject to wide fluctuations in response to factors including the following:
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actual
or anticipated fluctuations in our quarterly operating results;
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changes
in financial estimates by securities research analysts;
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announcements
by us or our competitors of acquisitions, strategic partnerships, joint ventures or capital commitments;
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addition
or departure of key personnel;
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fluctuations
of exchange rates between RMB and the U.S. dollar;
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intellectual
property or other litigation; and
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general
economic or political conditions in China.
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addition, the securities markets have from time to time experienced significant price and volume fluctuations that are not related
to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market
price of our stock.
Compliance
with changing regulation of corporate governance and public disclosure, and our management’s inexperience with such regulations
will result in additional expenses and creates a risk of non-compliance.
Changing
laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002
and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated
with accessing the public markets and public reporting. Our management team will need to invest significant management time and
financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general
and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance
activities. In addition, our management located in the PRC has little experience with compliance with U.S. laws (including securities
laws). This inexperience may cause us to fall out of compliance with applicable regulatory requirements, which could lead to enforcement
action against us and a negative impact on our stock price.
We
do not foresee paying cash dividends in the foreseeable future and, as a result, our investors’ sole source of gain, if
any, will depend on capital appreciation, if any.
We
do not plan to declare or pay any cash dividends on our shares of Common Stock in the foreseeable future and currently intend
to retain any future earnings for funding growth. As a result, investors should not rely on an investment in our securities if
they require the investment to produce dividend income. Capital appreciation, if any, of our shares may be investors’ sole
source of gain for the foreseeable future. Moreover, investors may not be able to resell their Common Stock at or above the price
they paid for them.