Item 1. Business
Overview
Pony Group Inc. (‘Company” or “Pony”)
was incorporated on January 7, 2019 in the state of Delaware.
Our Corporate History
On March 7, 2019, Pony Group Inc (the “Purchaser”),
and Wenxian Fan, the sole owner of Pony Limousine Services Limited, entered into a Stock Purchase Agreement (the “Purchase Agreement”),
pursuant to which Wenxian Fan (the “Seller”) would sell to the Purchaser, and the Purchaser will purchase from the Seller,
10,000 shares of the Pony Limousine Services Limited (“Pony HK”), which represented 100% of the shares. On March 7, 2019,
this transaction was completed.
Pony Limousine Services Limited is a limited liability
company formed under the laws of Hong Kong on April 28, 2016, which was formed by Wenxian Fan. Its registered office is located at Flat/Rm
01 11/F, Lucky Comm Bldg, 103 Des Voeux Rd West, Sheung Wan, Hong Kong. On February 2, 2019, Universe Travel Culture & Technology
Ltd. (“Universe Travel”) was incorporated as a wholly-owned PRC subsidiary of Pony HK.
Our Corporate Structure
We do not have or intend to set up any subsidiary
or enter into any contractual arrangements to establish a variable interest entity (“VIE”) structure with any entity in China.
The following diagram illustrates our corporate structure, including our subsidiaries as of the date of this Report:
Our holding company structure presents unique
risks as our investors may never directly hold equity interests in our Hong Kong or Shenzhen operating subsidiary and will be dependent
upon dividends and other distributions from our subsidiaries to finance our cash flow needs. We are, however, not a Chinese or Hong Kong
operating company but a United States holding company with operations conducted by our subsidiaries. Our ability to receive dividends
and other contributions from our subsidiaries are significantly affected by regulations promulgated by Hong Kong and PRC authorities.
Any change in the interpretation of existing rules and regulations or the promulgation of new rules and regulations may materially affect
our operations and or the value of our securities, including causing the value of our securities to significantly decline or become worthless.
For a detailed description of the risks facing the Company associated with our structure, please refer to “Item 1A. Risk Factors
- Risks Related to Doing Business in China.”
Currently, PRC laws and
regulations do not prohibit direct foreign investment in our Hong Kong or Shenzhen operating subsidiary. Nonetheless, in light of
the recent statements and regulatory actions by the PRC government, such as those related to Hong Kong’s national security,
the promulgation of regulations prohibiting foreign ownership of Chinese companies operating in certain industries, which are
constantly evolving, and anti-monopoly concerns, we may be subject to the risks of uncertainty of any future actions of the PRC
government in this regard, which would likely result in a material change in our operations, including our ability to continue our
existing holding company structure, carry on our current business, accept foreign investments, and offer or continue to offer
securities to our investors, and the resulting adverse change in value to our common stock. We may also be subject to penalties and
sanctions imposed by the PRC or Hong Kong regulatory agencies, including the China Securities Regulatory Commission, or CSRC, if we
fail to comply with such rules and regulations, which would likely adversely affect the ability of the Company’s securities to
continue to trade on the OTCQB, which would likely cause the value of our securities to significantly decline or become
worthless.
The Holding Foreign Companies Accountable Act (the “HFCA Act”)
As more stringent criteria applying to emerging
market companies upon assessing the qualification of their auditors have been imposed by the United States Securities and Exchange Commission
(the “SEC”) and the Public Company Accounting Oversight Board (the “PCAOB”) recently, and under the HFCA Act,
our securities may be prohibited from being traded on the over-the-counter (the “OTC”) markets if our auditor is not inspected
by the PCAOB for three consecutive years, and this ultimately could result in trading in our securities being prohibited.
The HFCA Act was enacted on December 18, 2020.
The HFCA Act states that if the SEC determines that an issuer’s audit reports issued by a registered public accounting firm have
not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC shall prohibit such issuer’s
securities from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On March
24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the
HFCA Act. We will be required to comply with these rules if the SEC identifies us as having a “non-inspection” year under
a process to be subsequently established by the SEC. If we fail to meet the new rules before the deadline specified thereunder, we could
face possible prohibition from trading on the OTCQB, deregistration from the SEC and/or other risks, which may materially and adversely
affect, or effectively terminate, our securities trading in the United States. On December 2, 2021, the SEC issued amendments to finalize
rules implementing the submission and disclosure requirements in the HFCA Act. The rules apply to registrants that the SEC identifies
as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction
and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions.
Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating
Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s
securities from trading on any U.S. stock exchanges or the OTC markets if its auditor is not subject to PCAOB inspections for two consecutive
years instead of three thus reducing the time before our securities may be prohibited from trading or being delisted.
On December 16, 2021, the PCAOB issued a determination,
under the HFCA Act, on registered public accounting firms headquartered in Hong Kong and the mainland China of the People’s Republic
of China that it is unable to inspect or investigate completely. As of this Report, our auditor, BF Borgers CPA PC, is not headquartered
in China nor Hong Kong and thus is not subject to such determination.
As a firm registered
with the BF Borgers CPA PC is subject to laws in the United States which provide that the PCAOB shall conduct regular inspections to assess
the auditor’s compliance with the applicable professional standards. We have no intention of dismissing BF Borgers CPA PC in the
future or engaging any auditor not based in the U.S. and not subject to regular inspection by the PCAOB. There is no guarantee, however,
that any future auditor engaged by the Company would remain subject to full PCAOB inspection during the entire term of our engagement.
If it is later determined that the PCAOB is unable to inspect or investigate our auditor completely, investor may be deprived of the benefits
of such inspection. Any audit reports not issued by auditors that are completely inspected by the PCAOB, or a lack of PCAOB inspections
of audit work undertaken in China or Hong Kong that prevents the PCAOB from regularly evaluating our auditors’ audits and their
quality control procedures, could result in a lack of assurance that our financial statements and disclosures are adequate and accurate.
Future developments in
respect of increased U.S. regulatory access to audit information are uncertain, as the legislative developments are subject to the legislative
process and the regulatory developments are subject to the rule-making process and other administrative procedures.
See also “Item
1A. Risk Factors - Risks Related to Doing Business in China - Our common stock may be delisted under the Holding Foreign
Companies Accountable Act if the PCAOB is unable to inspect our auditors. The delisting of our common stock, or the threat of their being
delisted, may materially and adversely affect the value of your investment. Furthermore, on June 22, 2021, the U.S. Senate passed the
Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an
issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive
years instead of three.”
Regulatory Permissions and Developments
We have determined that the laws and regulations
of the PRC do not currently have any material impact on our business, financial condition or results of operations. However, there is
no assurance that there will not be any changes in the economic, political and legal environment in Hong Kong, where Pony HK operates,
in the future. If there is significant change to current political arrangements between mainland China and Hong Kong, companies operated
in Hong Kong such as us may face similar regulatory risks as those operated in PRC, including their ability to offer securities to investors,
list their securities on a U.S. or other foreign exchange, conduct their business or accept foreign investment. In light of China’s
recent expansion of authority in Hong Kong, there are risks and uncertainties which we cannot foresee for the time being, and rules and
regulations in China can change quickly with little or no advance notice. The Chinese government may intervene or influence our current
and future operations in Hong Kong at any time, or may exert more control over offerings conducted overseas and/or foreign investment
in issuers likes ourselves. See “Item 1A. Risk Factors - Risks Related to Doing Business in China.”
Except for the Basic Law, national laws of
the PRC do not apply in Hong Kong unless they are listed in Annex III of the Basic Law and applied locally by promulgation or local legislation.
National laws that may be listed in Annex III are currently limited under the Basic Law to those which fall within the scope of defense
and foreign affairs as well as other matters outside the limits of the autonomy of Hong Kong. National laws and regulations relating
to data protection, cybersecurity and anti-monopoly have not been listed in Annex III and do not apply directly to Hong Kong and, as
such, the CAC and CSRC do not currently have jurisdiction over companies operating in Hong Kong.
In addition, in light of the recent statements
and regulatory actions by the PRC government, such as those related to Hong Kong’s national security, the promulgation of regulations
prohibiting foreign ownership of Chinese companies operating in certain industries, which are constantly evolving, and anti-monopoly
concerns, we may be subject to the risks of uncertainty of any future actions of the PRC government in this regard including the risk
that the PRC government could disallow our holding company structure, which may result in a material change in our operations, including
our ability to continue our existing holding company structure, carry on our current business, accept foreign investments, and offer
or continue to offer securities to our investors. These adverse actions could cause the value of our securities to significantly decline
or become worthless.
We also have operations in mainland China through
our subsidiary Universe Travel and that the risks with regards to obtaining regulatory permissions equally apply to both our China and
Hong Kong operation. We are aware that, recently, the PRC government initiated a series of regulatory actions and statements to regulate
business operations in certain areas in China with little advance notice, including cracking down on illegal activities in the securities
market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures
to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. For example, on July 6, 2021, the
General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued a document
to crack down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among
other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation,
to enhance supervision over China-based companies listed overseas, and to establish and improve the system of extraterritorial application
of the PRC securities laws. Also, on July 10, 2021, the Cyberspace Administration of China (the “CAC”) issued a revised draft
of the Measures for Cybersecurity Review for public comments, or the Revised Draft, which required that, among others, in addition to
“operator of critical information infrastructure”, any “data processor” controlling personal information of no
less than one million users (which to be further specified) which seeks to list in a foreign stock exchange should also be subject to
cybersecurity review, and further elaborated the factors to be considered when assessing the national security risks of the relevant
activities.
We have also determined that we, and our
subsidiaries, are not currently required to obtain any permission approval or business licenses from the CSRC, the CAC or any other
regulatory authority in the PRC or in Hong Kong for our operations, the trading of our securities on the OTCQB and the offering of
our securities to foreign investors. The business of our Hong Kong subsidiary, Pony HK is not subject to cybersecurity review with
the CAC, given that PRC laws on data protection and cybersecurity do not currently apply to Hong Kong. Further, for our Shenzhen
subsidiary, Universe Travel, and to the extent that if we become subject to such PRC laws in the future, we do not believe we are
required to conduct a cybersecurity review because (i) we do not possess a large amount of personal information on more than one
million users in our business operations; and (ii) data processed in our business does not have a bearing on national security and
thus may not be classified as core or important data by the authorities. However, our operations could be adversely affected,
directly or indirectly, by future laws and regulations relating to our business or industry, if we inadvertently conclude that such
approvals or permissions are not required when they are, or applicable laws, regulations, or interpretations change and we are
required to obtain approvals or permissions in the future. We may be subject to penalties and sanctions imposed by the PRC or Hong
Kong regulatory agencies, including the CSRC, if we fail to comply with such rules and regulations, which could adversely affect the
ability of the Company’s securities to continue to trade on the OTCQB, which may cause the value of our securities to
significantly decline or become worthless.
There may be prominent risks associated with
Pony HK’s operations being in Hong Kong and Universe Travel being the PRC. For example, as a U.S.-listed public company with business
revenue derived primarily from our PRC-subsidiary, we may face heightened scrutiny, criticism and negative publicity, which could result
in a material change in our operations and the value of our common stock. Additionally, Pony HK is subject to certain legal and operational
risks associated with our business operations in Hong Kong, which is subject to political and economic influence from China. PRC laws
and regulations governing our current business operations are sometimes vague and uncertain, and we may face the risk that changes in
the policies of the PRC government could have a significant impact upon the business we conduct, through our subsidiaries Pony HK and
Universe Travel, in Shenzhen and in Hong Kong and the profitability of such business. Therefore, these risks associated with having part
of our operations in Hong Kong could likely cause the value of our securities to significantly decline or be worthless. Furthermore,
these risks would likely result in a material change in our business operations or a complete hinderance of our ability to offer or continue
to offer our securities to investors. In addition, changes in Chinese internal regulatory mandates, such as the Regulations on Mergers
and Acquisitions of Domestic Enterprises by Foreign Investors (the “M&A Rules”), the Anti-Monopoly Law, the Cybersecurity
Law and the Data Security Law, may target the Company’s corporate structure and impact our and our subsidiaries’ ability
to conduct business in Hong Kong and in Shenzhen, accept foreign investments, or list on an U.S. or other foreign exchange.
The U.S. government,
including the SEC, has recently made statements and taken certain actions that may lead to significant changes to U.S. and international
relations, and will impact companies with connections to the United States or China (including Hong Kong). The SEC has issued statements
primarily focused on companies with significant China-based operations. For example, on July 30, 2021, Gary Gensler, Chairman of the SEC,
issued a Statement on Investor Protection Related to Recent Developments in China, pursuant to which Chairman Gensler stated that he has
asked the SEC staff to engage in targeted additional reviews of filings for companies with significant China-based operations.
For a detailed description of the risks facing
the Company and the risks associated with having our operations in Hong Kong, please refer to “Item 1A. Risk Factors -
Risks Related to Doing Business in China.”
Our Services
The business nature of the Company is to provide
carpooling, airport pick-up and drop-off, and personal drivers services for travelers between Guangdong Province and Hong Kong.
We offer our customers seamless, customized and
on-demand access to a variety of transportation options. Currently, most of our customers are entities such as business companies, travel
agencies or societal associations. To be as flexible and convenience as possible to our customers, we take orders from customers any time
through WeChat, Tencent QQ, email and phone call, upon which we obtain a quote from our car fleet companies and forward it to the customer.
Once the order is confirmed, the accepted car fleet company will perform the service by sending a driver to pick up the customer at the
scheduled time. We charge the car fleet company a 5-15% service fee on each completed order.
Sales and Marketing
We market our services to users directly through
word-of-mouth referrals, brand advertising. We plan to attract consumers and promote offerings on our “Let’s Go” application
through sponsored events, social networking sites including Facebook, Twitter and Instagram and other similar initiatives.
Seasonality
Our current operations experience seasonality.
We see high demands of our services during the golden weeks in China which was intended to help expand the domestic tourism market. Our
business slows down during February to April.
Intellectual Property
We currently do not have any intellectual property.
In July 2019, we started the process of registering our trademark with the Trade Marks Registry in Hong Kong.
Competition
Competition in the car service industry is intense
and evolving. Our primary competitors are Shenzhen Anxun Automobile Rental Co., Ltd, The Motor Transport Company of Guangdong and Hong
Kong Limited and China Comfort (Shenzhen) Travel Services Co. Ltd. We believe the primary competitive factors in our markets include pricing,
user experience, brand, technological innovation, safety and reliability. We believe we compete favorably across these factors. We are
strategically positioned in the Guangdong-Hong Kong market where the demand for traveling between these two places is high. However, many
of our competitors and potential competitors are larger and have greater brand name recognition, longer operating histories, larger marketing
budgets and established marketing relationships, access to larger customer bases and significantly greater resources for the development
of their offerings. For additional information about the risks to our business related to competition, see the section titled “Risk
Factors- We face intense competition and could lose market share to our competitors, which could adversely affect our business,
financial condition and results of operations.”
Employees
As of the date of this Report, we have a total
of 3 full-time employees and 1 part-time employee working for customer services. The following table sets forth the number of our employees
categorized by function as of that date:
Function |
|
Total Number of Employees |
Technology & Product Development |
|
2 |
Human Resource & Administration |
|
1 |
Customer Services |
|
1 |
Total |
|
4 |
Facilities
We lease an office at Engineer Experiment Building, A202, 7 Gaoxin
South Avenue, Nanshan District, Shenzhen, Guangdong Province, China, encompassing approximately 205 square meters of space for a monthly
rent of RMB 10,000 (approximately $1,570). The lease for this facility expires on February 28, 2022. We believe the rented space is sufficient
for our current operations. We believe our facilities are sufficient for our current needs.
Insurance
We currently do not have any insurance coverage
other than participation in various governm可ent statutory social
security plans, including a pension contribution plan, a medical insurance plan, an unemployment insurance plan, a work-related injury
insurance plan, a maternity insurance plan and a housing provident fund.
Item 1A. Risk Factors
The following discussion of risk factors contains
forward-looking statements. These risk factors may be important to understanding other statements in this Report. The following information
should be read in conjunction with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and the consolidated financial statements and related notes in Part II, Item 8, “Financial Statements and
Supplementary Data” of this Form 10-K.
The business, financial condition and operating
results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those
described below, any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating
results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in
whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock
price. In particular, our risks include, but are not limited to, the following:
Risks
Related to Our Business
| ● | We
are an early stage company with a limited operating history. Our limited operating history may not provide an adequate basis to judge
our future prospects and results of operations. |
| ● | We
face intense competition and could lose market share to our competitors, which could adversely affect our business, financial condition
and results of operations. |
| ● | We
could be subject to claims from riders, drivers or third parties that are harmed whether or not our service or platform is in use, which
could adversely affect our business, brand, financial condition and results of operations. |
| ● | We
rely on other third-party service providers and if such third parties do not perform adequately or terminate their relationships with
us, our costs may increase and our business, financial condition and results of operations could be adversely affected. |
| ● | If
we are not able to successfully develop new offerings and enhance our existing offerings, our business, financial condition and results
of operations could be adversely affected. |
| ● | Any
failure to offer high-quality user support may harm our relationships with users and could adversely affect our reputation, brand, business,
financial condition and results of operations. |
| ● | Our
business could be adversely impacted by changes in the Internet and mobile device accessibility of users and unfavorable changes in or
our failure to comply with existing or future laws governing the Internet and mobile devices. |
| ● | The
impact of any kind of epidemic, such as the coronavirus, on our operations, and the operations of the car fleet companies, may harm our
business. |
| ● | We
rely on mobile operating systems and application marketplaces to make our apps available to the drivers and riders on our platform, and
if we do not effectively operate with or receive favorable placements within such application marketplaces and maintain high rider reviews,
our usage or brand recognition could decline and our business, financial results and results of operations could be adversely affected. |
| ● | We
depend on the interoperability of our platform across third-party applications and services that we do not control. |
| ● | Failure
to protect or enforce our intellectual property rights could harm our business, financial condition and results of operations. |
| ● | Our
platform contains third-party open source software components, and failure to comply with the terms of the underlying open source software
licenses could restrict our ability to provide our offerings. |
| ● | Failure
to maintain our reputation and brand image could negatively impact our business. |
| ● | Our
success is dependent on retaining key personnel who would be difficult to replace. |
| ● | The
legal requirements associated with being a public company, including those contained in and issued under the Sarbanes-Oxley Act, may
make it difficult for us to retain or attract qualified officers and directors, which could adversely affect the management of our business
and our ability to obtain listing of our common stock |
| ● | If
we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately
or prevent fraud. Any inability to report and file our financial results accurately and timely could harm our business and adversely
impact the trading price of our common stock. |
| ● | Operating
as a public company requires us to incur substantial costs and requires substantial management attention. In addition, key members of
our management team have limited experience managing a public company. |
| ● | As
an “emerging growth company” under applicable law, we will be subject to lessened disclosure requirements, which could leave
our shareholders without information or rights available to shareholders of more mature companies. |
| ● | Because
we have elected to use the extended transition period for complying with new or revised accounting standards for an “emerging growth
company,” our financial statements may not be comparable to companies that comply with public company effective dates. |
Risks Related to Doing Business in China
| ● | Changes
in the political and economic policies of the PRC government may materially and adversely affect our business, financial condition and
results of operations and may result in our inability to sustain our growth and expansion strategies. |
| ● | There
are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations. |
| ● | The
PRC government exerts substantial influence over the manner in which we conduct our business activities. The PRC government may also
intervene or influence our operations and this offering at any time, which could result in a material change in our operations and our
common stock could decline in value or become worthless. |
| ● | The
CSRC has released for public consultation the draft rules for China-based companies seeking to conduct initial public offerings in foreign
markets. While such rules have not yet gone into effect, the Chinese government may exert more oversight and control over offerings that
are conducted overseas and foreign investment in China-based issuers, which could significantly limit or completely hinder our ability
to offer or continue to offer our common stock to investors and could cause the value of our common stock to significantly decline or
become worthless. |
| ● | Failure
to make adequate contributions to various employee benefit plans and withhold individual income tax on employees’ salaries as required
by PRC regulations may subject us to penalties. |
| ● | We
must remit the offering proceeds to China before they may be used to benefit our business in China, and we cannot assure that we can
finish all necessary governmental registration processes in a timely manner. |
| ● | If
relations between the United States and China worsen, investors may be unwilling to hold or buy our stock and our stock price may decrease. |
| ● | The
fluctuation of the Renminbi may have a material adverse effect on your investment. |
| ● | Restrictions
on currency exchange may limit our ability to receive and use our revenue effectively. |
| ● | The
PRC’s legal and judicial system may not adequately protect our business and operations and the rights of foreign investors. |
| ● | Because
our principal assets are located outside of the United States, it may be difficult for you to enforce your rights based on U.S. federal
securities laws against us or to enforce a U.S. court judgment against us or our operating subsidiaries in the PRC and in Hong Kong |
| ● | Our
operations could be adversely affected, directly or indirectly, by future PRC laws and regulations relating to our business or industry,
if we inadvertently conclude that such approvals or permissions, including business licenses, are not required when they are, or applicable laws, regulations, or interpretations
change and we are required to obtain approvals or permissions in the future. |
| ● | You
may face difficulties in protecting your interests and exercising your rights as our stockholder since we conduct the bulk of our operations
in China. |
| ● | We
and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises or other assets
attributed to a Chinese establishment of a non-Chinese company, or immovable properties located in China owned by non-Chinese companies. |
| ● | The
future development of national security laws and regulations in Hong Kong could materially impact our business by possibly triggering
sanctions and other measures which can cause economic harm to our business. |
| ● | Potential
political and economic instability in Hong Kong may adversely impact our results of operations. We may also face the risk that changes
in the policies of the PRC government could have a significant impact upon the business we conduct in Hong Kong and the profitability
of such business. |
| ● | Our
Hong Kong and Shenzhen subsidiaries may be subject to restrictions on paying dividends or making other payments to us, which may restrict
its ability to satisfy liquidity requirements, conduct business and pay dividends to holders of our common stock. Dividends payable to
our foreign investors and gains on the sale of our shares of common stock by our foreign investors may become subject to tax by the PRC. |
| ● | Our
common stock may be delisted under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect our auditors. The
delisting of our common stock, or the threat of their being delisted, may materially and adversely affect the value of your investment.
Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted,
would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its
auditor is not subject to PCAOB inspections for two consecutive years instead of three. |
Risks
Related to Our Common Stock
| ● | Our
majority stockholders will control our company for the foreseeable future, including the outcome of matters requiring shareholder approval. |
| ● | No
public market for our common stock currently exists, and an active trading market may not develop or be sustained following this offering. |
| ● | While
we believe our revenues and cash on hand are adequate to meet our immediate needs, we may require additional funding in order to progress
our business in the future. If we are unable to raise additional capital, we could be forced to delay, reduce or eliminate portions of
our business. |
| ● | Raising
additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies
or product candidates. |
| ● | Even
if our common stock becomes publicly-traded and an active trading market develops, the market price for our common stock may be volatile. |
| ● | Our
common stock may be thinly traded and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise
money or otherwise desire to liquidate your shares. |
| ● | Our
common stock may be considered a “penny stock,” and thereby be subject to additional sale and trading regulations that may
make it more difficult to sell. |
| ● | FINRA
sales practice requirements may also limit your ability to buy and sell shares of our common stock, which could depress the price of
shares of our common stock. |
| ● | You
may face significant restrictions on the resale of your shares of our common stock due to state “blue sky” laws. |
| ● | Potential
future sales under Rule 144 may depress the market price for the common stock. |
| ● | Volatility
in our common stock price may subject us to securities litigation. |
| ● | We
are not likely to pay cash dividends in the foreseeable future. |
| ● | U.S.
investors may experience difficulties in attempting to effect a service of process and enforce judgments based upon U.S. Federal Securities
Laws against the company and its non U.S. resident officer and director. |
| ● | The
Company is selling shares without an underwriter and may not be able to sell all or any of the shares offered herein. |
| ● | The
exclusive forum provision in our subscription agreement may have the effect of limiting a purchaser’s ability to bring legal action
against the company and could limit a purchaser’s ability to obtain a favorable judicial forum for disputes. |
| ● | Purchasers
in this offering may not be entitled to a jury trial with respect to claims arising under the subscription agreement, which could result
in less favorable outcomes to the plaintiff(s) in any such action. |
Because
of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past financial
performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends
to anticipate results or trends in future periods.
Risks Related to Our Business
We are an early stage company with a limited operating history.
Our limited operating history may not provide an adequate basis to judge our future prospects and results of operations.
We have a limited operating history. Our first
operating subsidiary, Pony Limousine Services Limited was established in Hong Kong on April 28, 2018 to engage in providing car services
to travelers between Guangdong Province and Hong Kong. Pony Group Inc. was established in the State of Delaware on January 7, 2019. We
have limited experience and operating history in the travel industry. Our limited history may not provide a meaningful basis for investors
to evaluate our business, financial performance and prospects.
We face intense competition and could lose market share to our
competitors, which could adversely affect our business, financial condition and results of operations.
The market for car services is intensely competitive
and characterized by rapid changes in technology, shifting rider needs and frequent introductions of new services and offerings. We expect
competition to continue, both from current competitors and new entrants in the market that may be well-established and enjoy greater resources
or other strategic advantages. If we are unable to anticipate or react to these competitive challenges, our competitive position could
weaken, or fail to improve, and we could experience a decline in revenue or growth stagnation that could adversely affect our business,
financial condition and results of operations.
Our main competitors in mainland China and Hong
Kong include Shenzhen Anxun Automobile Rental Co., Ltd., The Motor Transport Company of Guangdong and Hong Kong Limited and China Comfort
(Shenzhen) Travel Services Co., Ltd.
Certain of our competitors have greater financial,
technical, marketing, research and development, manufacturing and other resources, greater name recognition, longer operating histories
or a larger user base than we do. They may be able to devote greater resources to the development, promotion and sale of offerings and
offer lower prices than we do, which could adversely affect our results of operations. Further, they may have greater resources to deploy
towards the research, development and commercialization of new technologies, or they may have other financial, technical or resource advantages.
These factors may allow our competitors to derive greater revenue and profits from their existing user bases, attract and retain new qualified
drivers and new riders at lower costs or respond more quickly to new and emerging technologies and trends. Our current and potential competitors
may also establish cooperative or strategic relationships amongst themselves or with third parties that may further enhance their resources
and offerings.
We believe that our ability to compete effectively
depends upon many factors both within and beyond our control, including:
| ● | the popularity, utility, ease
of use, performance and reliability of our offerings compared to those of our competitors; |
| ● | our reputation and brand strength
relative to our competitors; |
|
● |
the prices of our offerings and the fees we charge drivers on our platform; |
|
● |
our ability to attract and retain qualified drivers and riders; |
|
● |
our ability, and the ability of our competitors, to develop new offerings; |
|
● |
our ability to establish and maintain relationships with partners; |
|
● |
changes mandated by, or that we elect to make, to address, legislation, regulatory authorities or litigation, including settlements, judgments, injunctions and consent decrees; |
|
● |
our ability to attract, retain and motivate talented employees; |
|
● |
our ability to raise additional capital; and |
|
● |
acquisitions or consolidation within our industry. |
If we are unable to compete successfully, our business,
financial condition and results of operations could be adversely affected.
We could be subject to claims from riders,
drivers or third parties that are harmed whether or not our service or platform is in use, which could adversely affect our business,
brand, financial condition and results of operations.
We could be subject to claims, lawsuits, investigations
and other legal proceedings relating to injuries to, or deaths of, riders, drivers or third parties that are attributed to us through
our offerings. We may also be subject to claims alleging that we are directly or vicariously liable for the acts of the drivers from the
car fleet companies that we collaborated with. We may be subject to personal injury claims whether or not such injury actually occurred
as a result of activity on our platform. Regardless of the outcome of any legal proceeding, any injuries to, or deaths of, any riders,
drivers or third parties could result in negative publicity and harm to our brand, reputation, business, financial condition and results
of operations. Any of the foregoing risks could adversely affect our business, financial condition and results of operations.
We rely on other third-party service
providers and if such third parties do not perform adequately or terminate their relationships with us, our costs may increase and our
business, financial condition and results of operations could be adversely affected.
Our success depends in part on our relationships
with other third-party service providers, such as Hong Kong Wanjin Industry Co., Limited and Yahong Business Limited. Further, from time
to time, we enter into collaboration arrangement in connection with car fleets and drivers. If any of our partners terminates its relationship
with us or refuses to renew its agreement with us on commercially reasonable terms, we would need to find an alternate provider, and may
not be able to secure similar terms or replace such providers in an acceptable timeframe. We also rely on other software and services
supplied by third parties, such as communications and internal software, and our business may be adversely affected to the extent such
software and services do not meet our expectations, contain errors or vulnerabilities, are compromised or experience outages. Any of these
risks could increase our costs and adversely affect our business, financial condition and results of operations. Further, any negative
publicity related to any of our third-party partners, including any publicity related to quality standards or safety concerns, could adversely
affect our reputation and brand, and could potentially lead to increased regulatory or litigation exposure.
If we are not able to successfully develop
new offerings and enhance our existing offerings, our business, financial condition and results of operations could be adversely affected.
Our ability to attract new riders, retain existing
riders and increase utilization of our offerings will depend in part on our ability to successfully create and introduce new offerings
and to improve upon and enhance our existing offerings. As a result, we may introduce significant changes to our existing offerings or
develop and introduce new and unproven offerings. Furthermore, new rider demands regarding service, the availability of superior competitive
offerings or a deterioration in the quality of our offerings or our ability to bring new or enhanced offerings to market quickly and efficiently
could negatively affect the attractiveness of our service and the economics of our business and require us to make substantial changes
to and additional investments in our offerings or our business model. In addition, we frequently experiment with and test different offerings
and marketing strategies. If these experiments and tests are unsuccessful, or if the offerings and strategies we introduce based on the
results of such experiments and tests do not perform as expected, our ability to attract new qualified drivers and new riders, retain
existing qualified drivers and existing riders and maintain or increase utilization of our offerings may be adversely affected.
Developing and launching new offerings or enhancements
to the existing offerings involves significant risks and uncertainties, including risks related to the reception of such offerings by
existing and potential future riders, increases in operational complexity, unanticipated delays or challenges in implementing such offerings
or enhancements, increased strain on our operational and internal resources (including an impairment of our ability to accurately forecast
rider demand) and negative publicity in the event such new or enhanced offerings are perceived to be unsuccessful. We have scaled our
business rapidly, and significant new initiatives have in the past resulted in, and in the future may result in, operational challenges
affecting our business. In addition, developing and launching new offerings and enhancements to our existing offerings may involve significant
upfront capital investments and such investments may not generate return on investment. Any of the foregoing risks and challenges could
negatively impact our ability to attract and retain qualified drivers and riders, our ability to increase utilization of our offerings
and our visibility into expected results of operations, and could adversely affect our business, financial condition and results of operations.
Additionally, since we are focused on building our community and ecosystems for the long-term, our near-term results of operations may
be impacted by our investments in the future.
Any failure to offer high-quality user
support may harm our relationships with users and could adversely affect our reputation, brand, business, financial condition and results
of operations.
Our ability to attract and retain riders is dependent
in part on the ease and reliability of our offerings, including our ability to provide high-quality support. Our customers depend on our
support organization to resolve any issues relating to our offerings, such as being overcharged for a ride, leaving something in a driver’s
vehicle or reporting a safety incident. Our ability to provide effective and timely support is largely dependent on our ability to attract
and retain service providers who are qualified to support users and sufficiently knowledgeable regarding our offerings. As we continue
to grow our business and improve our offerings, we will face challenges related to providing quality support services at scale. If we
grow our international rider base, our support organization will face additional challenges, including those associated with delivering
support in languages other than Chinese. Any failure to provide efficient user support, or a market perception that we do not maintain
high-quality support, could adversely affect our reputation, brand, business, financial condition and results of operations.
Systems failures and resulting interruptions
in the availability of our website, applications, platform or offerings could adversely affect our business, financial condition and results
of operations.
Our systems, or those of third parties upon which
we rely, may experience service interruptions or degradation because of hardware and software defects or malfunctions, distributed denial-of-service and
other cyberattacks, human error, earthquakes, hurricanes, floods, fires, natural disasters, power losses, disruptions in telecommunications
services, fraud, military or political conflicts, terrorist attacks, computer viruses, ransomware, malware or other events. Our systems
also may be subject to break-ins, sabotage, theft and intentional acts of vandalism, including by our own employees. Some of
our systems are not fully redundant and our disaster recovery planning may not be sufficient for all eventualities. Our business interruption
insurance may not be sufficient to cover all of our losses that may result from interruptions in our service as a result of systems failures
and similar events.
We will likely continue to experience system failures
and other events or conditions from time to time that interrupt the availability or reduce or affect the speed or functionality of our
offerings. These events have resulted in, and similar future events could result in, losses of revenue. A prolonged interruption in the
availability or reduction in the availability, speed or other functionality of our offerings could adversely affect our business and reputation
and could result in the loss of users. Moreover, to the extent that any system failure or similar event results in harm or losses to the
users using our platform, we may make voluntary payments to compensate for such harm or the affected users could seek monetary recourse
or contractual remedies from us for their losses and such claims, even if unsuccessful, would likely be time-consuming and costly for
us to address.
Our business could be adversely impacted
by changes in the Internet and mobile device accessibility of users and unfavorable changes in or our failure to comply with existing
or future laws governing the Internet and mobile devices.
Our business depends on users’ access to
our platform via a mobile device and the Internet. We may operate in jurisdictions that provide limited Internet connectivity, particularly
as we expand internationally. Internet access and access to a mobile device are frequently provided by companies with significant market
power that could take actions that degrade, disrupt or increase the cost of users’ ability to access our platform. In addition,
the Internet infrastructure that we and users of our platform rely on in any particular geographic area may be unable to support the demands
placed upon it. Any such failure in Internet or mobile device accessibility, even for a short period of time, could adversely affect our
results of operations.
The impact of any kind of epidemic, such as the coronavirus,
on our operations, and the operations of the car fleet companies, may harm our business.
Our business could be adversely affected by the
outbreaks of epidemics in China and globally, such as the Corona Virus Disease 2019, or COVID-19 originated in Wuhan, China, Ebola virus
disease, H1N1 flu, H7N9 flu, avian flu, Severe Acute Respiratory Syndrome, or SARS, or other epidemics. Past occurrences of epidemics
have caused different degrees of damage to the national and local economies. A recurrence of an outbreak of any kind of epidemic could
cause a slowdown in the levels of economic activity generally, which may adversely affect our business, financial condition and results
of operations. Should major public health issues, including pandemics, arise, we could be adversely affected by more stringent travel
restrictions, additional limitations in car services and governmental actions limiting the movement of people between regions.
Moreover, we are subject to a number of laws and
regulations specifically governing the Internet and mobile devices that are constantly evolving. Existing and future laws and regulations,
or changes thereto, may impede the growth and availability of the Internet and online offerings, require us to change our business practices
or raise compliance costs or other costs of doing business. These laws and regulations, which continue to evolve, cover taxation, privacy
and data protection, pricing, copyrights, distribution, mobile and other communications, advertising practices, consumer protections,
the provision of online payment services, unencumbered Internet access to our offerings and the characteristics and quality of online
offerings, among other things. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in
damage to our reputation and brand a loss in business and proceedings or actions against us by governmental entities or others, which
could adversely impact our results of operations.
We rely on mobile operating systems
and application marketplaces to make our apps available to the drivers and riders on our platform, and if we do not effectively operate
with or receive favorable placements within such application marketplaces and maintain high rider reviews, our usage or brand recognition
could decline and our business, financial results and results of operations could be adversely affected.
We depend in part on mobile operating systems,
such as Android and iOS, and their respective application marketplaces to make our apps available to the drivers and riders on our
platform. Any changes in such systems and application marketplaces that degrade the functionality of our apps or give preferential treatment
to our competitors’ apps could adversely affect our platform’s usage on mobile devices. If such mobile operating systems or
application marketplaces limit or prohibit us from making our apps available to drivers and riders, make changes that degrade the functionality
of our apps, increase the cost of using our apps, impose terms of use unsatisfactory to us or modify their search or ratings algorithms
in ways that are detrimental to us, or if our competitors’ placement in such mobile operating systems’ application marketplace
is more prominent than the placement of our apps, overall growth in our rider or driver base could slow. Our apps have experienced fluctuations
in number of downloads in the past, and we anticipate similar fluctuations in the future. Any of the foregoing risks could adversely affect
our business, financial condition and results of operations.
As new mobile devices and mobile platforms are
released, there is no guarantee that certain mobile devices will continue to support our platform or effectively roll out updates to our
apps. Additionally, in order to deliver high-quality apps, we need to ensure that our offerings are designed to work effectively with
a range of mobile technologies, systems, networks and standards. We may not be successful in developing or maintaining relationships with
key participants in the mobile industry that enhance drivers’ and riders’ experience. If drivers or riders on our platform
encounter any difficulty accessing or using our apps on their mobile devices or if we are unable to adapt to changes in popular mobile
operating systems, our business, financial condition and results of operations could be adversely affected.
We depend on the interoperability of
our platform across third-party applications and services that we do not control.
We have integrations with AutoNavi Maps (also known
as Gaode Maps) and a variety of other productivity, collaboration, travel, data management and security vendors. As our offerings expand
and evolve, including as we develop autonomous technology, we may have an increasing number of integrations with other third-party applications,
products and services. Third-party applications, products and services are constantly evolving, and we may not be able to maintain or
modify our platform to ensure its compatibility with third-party offerings following development changes. As our mobile application and
respective products evolve, we expect the types and levels of competition to increase. Should any of our competitors or technology partners
modify their products, standards or terms of use in a manner that degrades the functionality or performance of our platform or is otherwise
unsatisfactory to us or gives preferential treatment to competitive products or services, our products, platform, business, financial
condition and results of operations could be adversely affected.
Failure to protect or enforce our intellectual property rights
could harm our business, financial condition and results of operations.
Our success is dependent in part upon
protecting our intellectual property rights and technology (such as code, information, data, processes and other forms of information,
knowhow and technology), or intellectual property. We rely on a combination of patents, copyrights, trademarks, service marks, trade secret
laws and contractual restrictions to establish and protect our intellectual property. However, the steps we take to protect our intellectual
property may not be sufficient or effective. Even if we do detect violations, we may need to engage in litigation to enforce our rights.
Any enforcement efforts we undertake, including litigation, could be time-consuming and expensive and could divert management attention.
While we take precautions designed to protect our intellectual property, it may still be possible for competitors and other unauthorized
third parties to copy our technology and use our proprietary information to create or enhance competing solutions and services, which
could adversely affect our position in our rapidly evolving and highly competitive industry.
We may be required to spend significant
resources in order to monitor and protect our intellectual property rights, and some violations may be difficult or impossible to detect.
Litigation to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management and could
result in the impairment or loss of portions of our intellectual property. Our efforts to enforce our intellectual property rights may
be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our
inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of
our management’s attention and resources, could impair the functionality of our platform, delay introductions of enhancements to
our platform, result in our substituting inferior or more costly technologies into our platform or harm our reputation or brand. In addition,
we may be required to license additional technology from third parties to develop and market new offerings or platform features, which
may not be on commercially reasonable terms or at all and could adversely affect our ability to compete.
Our industry has also been subject to
attempts to steal intellectual property, particularly regarding autonomous vehicle development, including by foreign actors. We, along
with others in our industry, have been the target of attempted thefts of our intellectual property and may be subject to such attempts
in the future. Although we take measures to protect our property, if we are unable to prevent the theft of our intellectual property or
its exploitation, the value of our investments may be undermined and our business, financial condition and results of operations may be
negatively impacted.
Our platform contains third-party open
source software components, and failure to comply with the terms of the underlying open source software licenses could restrict our ability
to provide our offerings.
Our platform contains software modules
licensed to us by third-party authors under “open source” licenses. Use and distribution of open source software may entail
greater risks than use of third-party commercial software, as open source licensors generally do not provide support, warranties, indemnification
or other contractual protections regarding infringement claims or the quality of the code. In addition, the public availability of such
software may make it easier for others to compromise our platform.
Some open source licenses contain requirements
that we make available source code for modifications or derivative works we create based upon the type of open source software we use,
or grant other licenses to our intellectual property. If we combine our proprietary software with open source software in a certain manner,
we could, under certain open source licenses, be required to release the source code of our proprietary software to the public. This would
allow our competitors to create similar offerings with lower development effort and time and ultimately could result in a loss of our
competitive advantages. Alternatively, to avoid the public release of the affected portions of our source code, we could be required to
expend substantial time and resources to re-engineer some or all of our software. If we are held by the court to have breached
or failed to fully comply with all the terms and conditions of an open source software license, we could face infringement or other liability,
or be required to seek costly licenses from third parties to continue providing our offerings on terms that are not economically feasible,
to re-engineer our platform, to discontinue or delay the provision of our offerings if re-engineering could not be
accomplished on a timely basis or to make generally available, in source code form, our proprietary code, any of which could adversely
affect our business, financial condition and results of operations.
Our business and results of operations
are also subject to global economic conditions, including any resulting effect on spending by us or our riders. If general economic conditions
deteriorate in China or in other markets where we operate, discretionary spending may decline and demand for ridesharing may be reduced.
An economic downturn resulting in a prolonged recessionary period may have a further adverse effect on our revenue.
Failure to maintain our reputation and brand image could negatively
impact our business.
Our brand has received a certain level
of recognition in mainland China, Hong Kong. Our success depends on our ability to maintain and enhance our brand image and reputation.
We could be adversely affected if our brand is tarnished or receives negative publicity. In addition, adverse publicity about regulatory
or legal action against us could damage our reputation and brand image, undermine consumer confidence in us, and reduce long-term demand
for our products, even if the regulatory or legal action is unfounded or not material to our operations.
In addition, our success in maintaining,
extending and expanding our brand image depends on our ability to adapt to a rapidly changing media and internet environment, including
our reliance on online advertising. Negative posts or comments about us on social networking websites could seriously damage our reputation
and brand image. If we do not maintain, extend and expand our brand image, our product sales, financial condition or results of operations
could be materially and adversely affected.
Our success is dependent on retaining key personnel who would
be difficult to replace.
Our success depends largely on the continued
services of our key management members. In particular, our success depends on the continued efforts of Ms. Wenxian Fan, our founder and
Chief Executive Officer, President and Director. There can be no assurance that Ms. Fan will continue in her present capacities for any
particular period of time. The loss of the services of Ms. Fan could materially and adversely affect our business development and our
ability to expand and grow.
The legal requirements associated with being a public company,
including those contained in and issued under the Sarbanes-Oxley Act, may make it difficult for us to retain or attract qualified officers
and directors, which could adversely affect the management of our business and our ability to obtain listing of our common stock.
We may be unable to attract and retain
qualified officers and directors necessary to provide for our effective management because of the rules and regulations that govern publicly
listed companies, including, but not limited to, certifications by principal executive officers. Currently, our Chief Executive Officer
does not have extensive experience in operating a U.S. public company. Moreover, the actual and perceived personal risks associated with
compliance with the Sarbanes-Oxley Act and other public company requirements may deter qualified individuals from accepting roles as directors
and executive officers. At present, we do not maintain an independent board of directors. Further, the requirements for board
or committee membership, particularly with respect to an individual’s independence and level of experience in finance and accounting
matters, may make it difficult to attract and retain qualified board members going forward. If we are unable to attract and
retain qualified officers and directors, the management of our business and our ability to obtain or retain the listing of our common
stock on any stock exchange (assuming we are able to obtain such listing) could be adversely affected.
If we fail to establish and maintain an effective system of internal
controls, we may not be able to report our financial results accurately or prevent fraud. Any inability to report and file
our financial results accurately and timely could harm our business and adversely impact the trading price of our common stock.
We are required to establish and maintain
internal controls over financial reporting, disclosure controls and to comply with other requirements of the Sarbanes-Oxley Act and the
rules promulgated by the U.S. Securities and Exchange Commission (the “SEC”) thereunder. Our senior management, which currently
consists of Ms. Fan, cannot guarantee that our internal controls and disclosure procedures will prevent all possible errors or all fraud.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives
of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints and
the benefit of controls must be relative to their costs. Because of the inherent limitations in all control systems, no system of controls
can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent
limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error
or mistake. Further, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management’s
override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may
deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may
not be detected.
Operating as a public company requires us to incur substantial
costs and requires substantial management attention. In addition, key members of our management team have limited experience managing
a public company.
As a public company, we will incur substantial
legal, accounting and other expenses that we did not incur as a private company. For example, we are subject to the reporting requirements
of the Exchange Act, the applicable requirements of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection
Act, the rules and regulations of the SEC. For example, the Exchange Act
requires, among other things, we file annual, quarterly and current reports with respect to our business, financial condition and results
of operations. Compliance with these rules and regulations will increase our legal and financial compliance costs, and increase demand
on our systems, particularly after we are no longer an emerging growth company. In addition, as a public company, we may be subject to
stockholder activism, which can lead to additional substantial costs, distract management and impact the manner in which we operate our
business in ways we cannot currently anticipate. As a result of disclosure of information in this prospectus and in filings required
of a public company, our business and financial condition will become more visible, which may result in threatened or actual litigation,
including by competitors.
Our current management has limited experience
managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining
to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject
to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities
analysts and investors. These new obligations and constituents will require significant attention from our senior management and could
divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial
condition and results of operations.
As an “emerging growth company” under applicable
law, we will be subject to lessened disclosure requirements, which could leave our shareholders without information or rights available
to shareholders of more mature companies.
For as long as we remain an “emerging
growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (which we refer to herein as the JOBS Act), we have
elected to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that
are not “emerging growth companies” including, but not limited to:
|
● |
not being required to comply with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act; |
|
● |
taking advantage of an extension of time to comply with new or revised financial accounting standards; |
|
● |
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy
statements; and |
|
● |
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation
and shareholder approval of any golden parachute payments not previously approved. |
We expect to take advantage of these
reporting exemptions until we are no longer an “emerging growth company.” Because of these lessened regulatory requirements,
our shareholders would be left without information or rights available to shareholders of more mature companies.
Because we have elected to use the extended transition period
for complying with new or revised accounting standards for an “emerging growth company,” our financial statements may not
be comparable to companies that comply with public company effective dates.
We have elected to use the extended transition
period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay
the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards
apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with
public company effective dates. Consequently, our financial statements may not be comparable to companies that comply with public company
effective dates. As such, investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to
other public companies, which may have a negative impact on the value and liquidity of shares of our common stock.
Risks Related to Doing Business in China
Changes in the political and economic policies of the PRC government
may materially and adversely affect our business, financial condition and results of operations and may result in our inability to sustain
our growth and expansion strategies.
Most of our operations are conducted
in the PRC and a significant percentage of our revenue is sourced from the PRC. Accordingly, our financial condition and results of operations
are affected to a significant extent by economic, political and legal developments in the PRC or changes in government relations between
China and the United States or other governments. There is significant uncertainty about the future relationship between the United States
and China with respect to trade policies, treaties, government regulations and tariffs.
The PRC economy differs from the economies
of most developed countries in many respects, including the extent of government involvement, level of development, growth rate, control
of foreign exchange and allocation of resources. Although the PRC government has implemented measures emphasizing the utilization of
market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate
governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition,
the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government
also exercises significant control over China’s economic growth by allocating resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy, regulating financial services and institutions and providing preferential treatment to particular
industries or companies.
While the PRC economy has experienced
significant growth in the past three decades, growth has been uneven, both geographically and among various sectors of the economy. The
PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures
may benefit the overall PRC economy, but may also have a negative effect on us. Our financial condition and results of operation could
be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable
to us. In addition, the PRC government has implemented in the past certain measures, including interest rate increases, to control the
pace of economic growth. These measures may cause decreased economic activity, which in turn could lead to a reduction in demand for
our services and consequently have a material adverse effect on our businesses, financial condition and results of operations.
In July 2021, the Chinese government
provided new guidance on China-based companies raising capital outside of China, including through VIE arrangements. In light of such
developments, the SEC has imposed enhanced disclosure requirements on China-based companies seeking to register securities with the SEC.
As substantially all of our operations are based in China, any future Chinese, U.S. or other rules and regulations that place restrictions
on capital raising or other activities by China based companies could adversely affect our business and results of operations. If the
business environment in China deteriorates from the perspective of domestic or international investment, or if relations between China
and the United States or other governments deteriorate, the Chinese government may intervene with our operations and our business in China
and United States, as well as the market price of our common stock, may also be adversely affected.
There are uncertainties regarding the interpretation and enforcement
of PRC laws, rules and regulations.
Most of our operations are conducted in the
PRC, and are governed by PRC laws, rules and regulations. Our PRC subsidiary are subject to laws, rules and regulations applicable to
foreign investment in China. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior
court decisions may be cited for reference but have limited precedential value.
In 1979, the PRC government began to promulgate
a comprehensive system of laws, rules and regulations governing economic matters in general. The overall effect of legislation over the
past four decades has significantly enhanced the protections afforded to various forms of foreign investment in China. However, China
has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not sufficiently cover all aspects
of economic activities in China or may be subject to significant degrees of interpretation by PRC regulatory agencies. In particular,
because these laws, rules and regulations are relatively new, and because of the limited number of published decisions and the nonbinding
nature of such decisions, and because the laws, rules and regulations often give the relevant regulator significant discretion in how
to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent
and unpredictable. In addition, the PRC legal system is based in part on government policies and internal rules, some of which are not
published on a timely basis or at all, and which may have a retroactive effect. As a result, we may not be aware of our violation of these
policies and rules until after the occurrence of the violation.
Any administrative and court proceedings in China
may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court
authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to
evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems.
These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our
business, financial condition and results of operations.
Recently, the General Office of the Central Committee
of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions on Severely Cracking Down
on Illegal Securities Activities According to Law,” or the Opinions, which was made available to the public on July 6, 2021. The
Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision
over overseas listings by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems will
be taken to deal with the risks and incidents of China-concept overseas listed companies, and cybersecurity and data privacy protection
requirements and similar matters. The Opinions remain unclear on how the law will be interpreted, amended and implemented by the relevant
PRC governmental authorities, but the Opinions and any related implementing rules to be enacted may subject us to compliance requirements
in the future.
On July 10, 2021, the Cyberspace Administration
of China issued a revised draft of the Measures for Cybersecurity Review for public comments, which required that, among others, in addition
to “operator of critical information infrastructure”, any “data processor” controlling personal information of
no less than one million users which seeks to list in a foreign stock exchange should also be subject to cybersecurity review, and further
elaborated the factors to be considered when assessing the national security risks of the relevant activities.
On November 14, 2021, the Cyberspace Administration
of China released the Regulations on Network Data Security (draft for public comments) and accepted public comments until December 13,
2021. The draft Regulations on Network Data Security provide that data processors refer to individuals or organizations that autonomously
determine the purpose and the manner of processing data. If a data processor that processes personal data of more than one million users
intends to list overseas, it shall apply for a cybersecurity review. In addition, data processors that process important data or are listed
overseas shall carry out an annual data security assessment on their own or by engaging a data security services institution, and the
data security assessment report for the prior year should be submitted to the local cyberspace affairs administration department before
January 31 of each year.
On December 28, 2021, the Measures for Cybersecurity
Review (2021 version) was promulgated and took effect on February 15, 2022, which iterates that any “online platform operators”
controlling personal information of more than one million users which seeks to list in a foreign stock exchange should also be subject
to cybersecurity review. Further, Measures for Cybersecurity Review (2021 version) was recently adopted and the Network Internet Data
Protection Draft Regulations (draft for comments) is in the process of being formulated and the Opinions remain unclear on how it will
be interpreted, amended and implemented by the relevant PRC governmental authorities.
We are of the view as a result of: (i) we do not
hold personal information on more than one million users in our business operations and (ii) data processed in our business does not have
a bearing on national security and thus may not be classified as core or important data by the authorities, we are not required to apply
for a cybersecurity review under the Measures for Cybersecurity Review (2021 version). Further, the business of our Hong Kong subsidiary,
Pony HK is not subject to cybersecurity review with the CAC, given that PRC laws on data protection and cybersecurity do not currently
apply to Hong Kong.
On December 24, 2021, the CSRC released the Administrative
Provisions of the State Council Regarding the Overseas Issuance and Listing of Securities by Domestic Enterprises (Draft for Comments)
and the Measures for the Overseas Issuance of Securities and Listing Record-Filings by Domestic Enterprises (Draft for Comments), both
of which had a comment period that expired on January 23, 2022, and if enacted, may subject us to additional compliance requirement in
the future.
Thus, it is still uncertain how PRC governmental
authorities will regulate overseas listing in general and whether we are required to obtain any specific regulatory approvals. Furthermore,
if the CSRC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for this
offering and any follow-on offering, we may be unable to obtain such approvals which could significantly limit or completely hinder our
ability to offer or continue to offer securities to our investors.
Furthermore, the PRC government authorities may
strengthen oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers like us.
Such actions taken by the PRC government authorities may intervene or influence our operations at any time, which are beyond our control.
Therefore, any such action may adversely affect our operations and significantly limit or hinder our ability to offer or continue to offer
securities to you and reduce the value of such securities.
Uncertainties regarding the enforcement of laws
and the fact that rules and regulations in China can change quickly with little advance notice, along with the risk that the Chinese government
may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment
in China-based issuers could result in a material change in our operations, financial performance and/or the value of our common stock
or impair our ability to raise money.
The PRC government exerts substantial influence over the manner
in which we conduct our business activities. The PRC government may also intervene or influence our operations and this offering at any
time, which could result in a material change in our operations and our common stock could decline in value or become worthless.
We are currently not required to obtain approval
from Chinese authorities to list on U.S exchanges, however, if our holding company or any of our PRC subsidiary were required to obtain
approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue
listing on U.S. exchange, continue to offer securities to investors, or materially affect the interest of the investors and cause significantly
depreciation of our price of common stock.
The Chinese government has exercised and continues
to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability
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 these jurisdictions may impose new, stricter regulations
or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance
with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support
recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in China or particular regions thereof, and could require us to divest
ourselves of any interest we then hold in our operations in China.
For example, the Chinese cybersecurity regulator
announced on July 2, 2021, that it had begun an investigation of Didi Global Inc. (NYSE: DIDI) and two days later ordered that the company’s
app be removed from smartphone app stores. Similarly, our business segments may be subject to various government and regulatory interference
in the regions in which we operate. We could be subject to regulation by various political and regulatory entities, including various
local and municipal agencies and government sub-divisions. We may incur increased costs necessary to comply with existing and newly adopted
laws and regulations or penalties for any failure to comply.
Furthermore, it is uncertain when and whether
we will be required to obtain permission from the PRC government to list on U.S. exchanges in the future, and even when such
permission is obtained, whether it will be denied or rescinded. Although we and our subsidiaries are currently not required to
obtain permission or approvals from any of the PRC or Hong Kong government or regulatory agencies, we have not received any
denial to list on the U.S. exchange, our operations could be adversely affected, directly or indirectly, by existing or future laws
and regulations relating to our business or industry. Recent statements by the Chinese government indicating an intent, and the PRC
government may take actions to exert more oversight and control over offerings that are conducted overseas and/or foreign investment
in China-based issuers, which could significantly limit or completely hinder our ability to offer or continue to offer securities to
investors and cause the value of our securities to significantly decline or become worthless.
The CSRC has released for public consultation the draft rules
for China-based companies seeking to conduct initial public offerings in foreign markets. While such rules have not yet gone into effect,
the Chinese government may exert more oversight and control over offerings that are conducted overseas and foreign investment in China-based
issuers, which could significantly limit or completely hinder our ability to offer or continue to offer our common stock to investors
and could cause the value of our common stock to significantly decline or become worthless.
On December 24, 2021, the CSRC released the Draft
Rules Regarding Overseas Listing, which had a comment period that expired on January 23, 2022. The Draft Rules Regarding Overseas Listing
lay out the filing regulation arrangement for both direct and indirect overseas listing, and clarify the determination criteria for indirect
overseas listing in overseas markets.
The Draft Rules Regarding Overseas Listing stipulate
that the Chinese-based companies, or the issuer, shall fulfill the filing procedures within three working days after the issuer makes
an application for initial public offering and listing in an overseas market. The required filing materials for an initial public offering
and listing should include at least the following: record-filing report and related undertakings; regulatory opinions, record-filing,
approval and other documents issued by competent regulatory authorities of relevant industries (if applicable); and security assessment
opinion issued by relevant regulatory authorities (if applicable); PRC legal opinion; and prospectus.
In addition, an overseas offering and listing is
prohibited under any of the following circumstances: (1) if the intended securities offering and listing is specifically prohibited by
national laws and regulations and relevant provisions; (2) if the intended securities offering and listing may constitute a threat to
or endangers national security as reviewed and determined by competent authorities under the State Council in accordance with law; (3)
if there are material ownership disputes over the equity, major assets, and core technology, etc. of the issuer; (4) if, in the past three
years, the domestic enterprise or its controlling shareholders or actual controllers have committed corruption, bribery, embezzlement,
misappropriation of property, or other criminal offenses disruptive to the order of the socialist market economy, or are currently under
judicial investigation for suspicion of criminal offenses, or are under investigation for suspicion of major violations; (5) if, in past
three years, directors, supervisors, or senior executives have been subject to administrative punishments for severe violations, or are
currently under judicial investigation for suspicion of criminal offenses, or are under investigation for suspicion of major violations;
(6) other circumstances as prescribed by the State Council. The Draft Administration Provisions defines the legal liabilities of breaches
such as failure in fulfilling filing obligations or fraudulent filing conducts, imposing a fine between RMB 1 million and RMB 10 million,
and in cases of severe violations, a parallel order to suspend relevant business or halt operation for rectification, revoke relevant
business permits or operational license.
The Draft Rules Regarding Overseas Listing, if
enacted, may subject us to additional compliance requirement in the future, and we cannot assure you that we will be able to get the clearance
of filing procedures under the Draft Rules Regarding Overseas List on a timely basis, or at all. Any failure of us to fully comply with
new regulatory requirements may significantly limit or completely hinder our ability to offer or continue to offer our common stock, cause
significant disruption to our business operations, and severely damage our reputation, which would materially and adversely affect our
financial condition and results of operations and cause our common stock to significantly decline in value or become worthless.
Failure to make adequate contributions to various employee benefit
plans and withhold individual income tax on employees’ salaries as required by PRC regulations may subject us to penalties.
Companies operating in China are required to participate
in various government-mandated employee benefit contribution plans, including certain social insurance, housing funds and other welfare-oriented
payment obligations, and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances,
of our employees up to a maximum amount specified by the local government from time to time at locations where we operate our businesses.
The requirement of employee benefit contribution plans has not been implemented consistently by the local governments in China given the
different levels of economic development in different locations. Companies operating in China are also required to withhold individual
income tax on employees’ salaries based on the actual salary of each employee upon payment. We may be subject to late fees and fines
in relation to the underpaid employee benefits and under-withheld individual income tax, our financial condition and results of operations
may be adversely affected.
We must remit the offering proceeds
to China before they may be used to benefit our business in China, and we cannot assure that we can finish all necessary governmental
registration processes in a timely manner.
As an offshore holding company of our PRC operating subsidiary, we may make
loans to our PRC subsidiary subject to the approval, registration, and filing with governmental authorities and limitation of amount,
or we may make additional capital contributions to our PRC subsidiary. Any shareholder loan to our PRC subsidiary, which is treated as
a foreign-invested enterprise under PRC law, is subject to foreign exchange loan registration with the local counterpart of the State
Administration of Foreign Exchange, or SAFE. Furthermore, loans by us to our PRC subsidiary to finance its activities cannot exceed statutory
limits and must be registered with the local counterpart of the SAFE and capital contributions to our PRC subsidiary are subject to the
requirement of making necessary filings in the Foreign Investment Comprehensive Management Information System of the MOFCOM, registration
with the local counterpart of the State Administration for Market Regulation, or the SAMR, and the SAFE registration through local commercial
banks in China. In addition, a foreign invested enterprise shall use its capital pursuant to the principle of authenticity and self-use
within its business scope. The capital of a foreign invested enterprise shall not be used for the following purposes: (i)directly
or indirectly used for payment beyond the business scope of the enterprises or the payment prohibited by relevant laws and regulations;
(ii) directly or indirectly used for investment in securities or investments other than banks’ principal secured products unless
otherwise provided by relevant laws and regulations; (iii) the granting of loans to non-affiliated enterprises, except where it is expressly
permitted in the business license; and (iv) paying the expenses related to the purchase of real estate that is not for self-use (except
for the foreign-invested real estate enterprises).
In light of the various requirements
imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that
we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if
at all, with respect to future loans by us to our PRC subsidiary or with respect to future capital contributions by us to our PRC subsidiary.
If we fail to complete such registrations or obtain such approvals, our ability to use the proceeds from this offering and to capitalize
or otherwise fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity, our ability
to fund and expand our business and our common stock.
If relations between the United States and China worsen, investors
may be unwilling to hold or buy our stock and our stock price may decrease.
At various times during recent years,
the U.S and China have had significant disagreements over political and economic issues. Controversies may arise in the future between
these two countries that may affect our economic outlook both in the U.S and in China. Any political or trade controversies between the
U.S and China, whether or not directly related to our business, could reduce the price of our common stock.
The fluctuation of the Renminbi may have a material adverse
effect on your investment.
The exchange rates between the Renminbi
and the U.S. dollar and other foreign currencies are affected by, among other things, changes in China’s political and economic
conditions. In July 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi
was permitted to fluctuate within a band against a basket of certain foreign currencies. As a result, the Renminbi appreciated more than
20% against the U.S. dollar over the following three years. However, the People’s Bank of China regularly intervenes in the foreign
exchange market to limit fluctuations in Renminbi exchange rates and achieve policy goals. For almost two years after July 2008, the
Renminbi traded within a very narrow range against the U.S. dollar, remaining within 1% of its July 2008 high. As a consequence, the
Renminbi fluctuated significantly during that period against other freely traded currencies, in tandem with the U.S. dollar. In June
2010, the PRC government announced that it would increase exchange rate flexibility of the Renminbi. However, it remains unclear how
this flexibility might be implemented. There remains significant international pressure on the PRC government to adopt a more flexible
currency policy, which could result in a further and more significant appreciation of the Renminbi against the U.S. dollar.
As we rely on fees paid to us by
our subsidiary and affiliated consolidated entities in China, any significant revaluation of the Renminbi could adversely affect our
cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, shares of our common stock in
foreign currency terms. To the extent that we need to convert U.S. dollars we received from our offering into Renminbi for our operations,
appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion.
Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our common stock
or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar
amount available to us. In addition, since our functional and reporting currency is the U.S. dollar while the functional currency of
our subsidiary and consolidated affiliated entities in China is Renminbi, appreciation or depreciation in the value of the Renminbi relative
to the U.S. dollar would have a positive or negative effect on our reported financial results, which might not reflect any underlying
change in our business, financial condition or results of operations.
Restrictions on currency exchange may limit our ability to receive
and use our revenue effectively.
Substantially all of our revenue is
denominated in Renminbi. Renminbi is currently convertible under the “current account,” which includes dividends, trade and
service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment
and loans, including loans we may secure from our onshore subsidiaries. Currently, Universe Travel, may purchase foreign currency for
settlement of “current account transactions,” including payment of dividends to us, without the approval of the State Administration
of Foreign Exchange (“SAFE”) by complying with certain procedural requirements. However, the relevant PRC governmental authorities
may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. Since a significant
amount of our future revenue will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our
ability to utilize revenue generated in Renminbi to fund our business activities outside of the PRC or pay dividends in foreign currencies
to our shareholders, including holders of our common stock. Foreign exchange transactions under the capital account remain subject to
limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities. This could affect
our ability to obtain foreign currency through debt or equity financing for our subsidiaries.
Our subsidiaries and affiliated entities in China are subject
to restrictions on making dividends and other payments to us.
We are a holding company, and we rely
on dividends and other equity distributions paid by our PRC subsidiary for our cash and financing requirements, including the funds necessary
to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If our PRC subsidiary incurs debt
on its own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions
to us.
Under PRC laws and regulations, Universe
Travel is a wholly foreign-owned enterprise in China. As such, Universe Travel may pay dividends only out of its accumulated after-tax
profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly foreign-owned enterprise is
required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund certain statutory reserve funds until
the aggregate amount of such funds reaches 50% of its registered capital. At its discretion, a wholly foreign-owned enterprise may allocate
a portion of its after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff
welfare and bonus funds are not distributable as cash dividends.
Any limitation on the ability of our PRC subsidiary
to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions
that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
The PRC’s legal and judicial system may not adequately
protect our business and operations and the rights of foreign investors.
The PRC legal and judicial system may
negatively impact foreign investors. In 1982, the National People’s Congress amended the Constitution of China to authorize foreign
investment and guarantee the “lawful rights and interests” of foreign investors in the PRC. However, the PRC’s system
of laws is not yet comprehensive. The legal and judicial systems in the PRC are still rudimentary and enforcement of existing laws is
inconsistent. As a result, it may be impossible to obtain swift and equitable enforcement of laws that do exist, or to obtain enforcement
of the judgment of one court by a court of another jurisdiction. The PRC’s legal system is based on the civil law regime, that
is, it is based on written statutes. A decision by one judge does not set a legal precedent that is required to be followed by judges
in other cases. In addition, the interpretation of Chinese laws may be varied to reflect domestic political changes.
The promulgation of new laws, changes
to existing laws and the pre-emption of local regulations by national laws may adversely affect foreign investors. There can be no assurance
that a change in leadership, social or political disruption, or unforeseen circumstances affecting the PRC’s political, economic
or social life, will not affect the PRC government’s ability to continue to support and pursue these reforms. Such a shift could
have a material adverse effect on our business and prospects.
Because our principal assets are located outside of the United
States, it may be difficult for you to enforce your rights based on U.S. federal securities laws against us or to enforce a U.S. court
judgment against us or our operating subsidiaries in the PRC and in Hong Kong
A substantial portion of our operations
and assets are located outside of the United States. It may therefore be difficult for investors in the United States to enforce their
legal rights against us based on the civil liability provisions of the U.S. federal securities laws against us in the courts of either
the U.S. or the PRC and, even if civil judgments are obtained in U.S. courts, it may be difficult to enforce such judgments in PRC courts.
Our operations could be adversely affected, directly or indirectly,
by future PRC laws and regulations relating to our business or industry, if we inadvertently conclude that such approvals or permissions, including business licsnes,
are not required when they are, or applicable laws, regulations, or interpretations change and we are required to obtain approvals or
permissions in the future.
We have determined that we and our
subsidiaries are not currently required to obtain any permission or approval from the CSRC, the CAC or any other regulatory
authority in the PRC or in Hong Kong for our operations, the trading of our securities on the OTCQB and the offering of our
securities to foreign investors. The business of our Hong Kong subsidiary, Pony HK is not subject to cybersecurity review with the
CAC, given that PRC laws on data protection and cybersecurity do not currently apply to Hong Kong. Further, for our Shenzhen
subsidiary, Universe Travel, and to the extent that if we become subject to such PRC laws in the future, we do not believe we are
required to conduct a cybersecurity review because (i) we do not possess a large amount of personal information on more than one
million users in our business operations; and (ii) data processed in our business does not have a bearing on national security and
thus may not be classified as core or important data by the authorities. However, our operations could be adversely affected,
directly or indirectly, by future laws and regulations relating to our business or industry, if we inadvertently conclude that such
approvals or permissions, including business licenses, are not required when they are, or applicable laws, regulations, or
interpretations change and we are required to obtain approvals or permissions in the future. We may be subject to penalties and
sanctions imposed by the PRC and Hong Kong regulatory agencies, including the CSRC, if we fail to comply with such rules and
regulations or applicable laws, or if we inadvertently conclude future approvals
or permissions from the such regulatory agencies, including business licenses, are not required when they are. As a result, such non-compliance could adversely affect the ability of the Company’s securities to continue to trade on the OTCQB, which may
cause the value of our securities to significantly decline or become worthless.
You may face difficulties in protecting your interests and exercising
your rights as our stockholder since we conduct the bulk of our operations in China.
We conduct the bulk of our operations
in China through our PRC-subsidiary Universe Travel. Because of this factor, it may be difficult for you to conduct due diligence on
the Company, our executive officers or director and attend stockholders meetings if the meetings are held in China. As a result, our
public stockholders may have more difficulty in protecting their interests through actions against our management, our director or major
stockholders than would stockholders of a corporation doing business entirely or predominantly within the United States.
We and our shareholders face uncertainties with respect to indirect
transfers of equity interests in PRC resident enterprises or other assets attributed to a Chinese establishment of a non-Chinese company,
or immovable properties located in China owned by non-Chinese companies.
On February 3, 2015, the State Administration
of Taxation, or SAT, issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises,
or Bulletin 7, which replaced or supplemented previous rules under the Notice on Strengthening Administration of Enterprise Income Tax
for Share Transfers by Non-PRC Resident Enterprises, or Circular 698, issued by the State Administration of Taxation, on December 10,
2009. Pursuant to this Bulletin, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise,
by non-PRC resident enterprises may be re-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does
not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result,
gains derived from such an indirect transfer may be subject to PRC enterprise income tax. According to Bulletin 7, “PRC taxable
assets” include assets attributed to an establishment in China, immoveable properties located in China, and equity investments
in PRC resident enterprises, in respect of which gains from their transfer by a direct holder, being a non-PRC resident enterprise, would
be subject to PRC enterprise income taxes. When determining whether there is a “reasonable commercial purpose” of the transaction
arrangement, features to be taken into consideration include: whether the main value of the equity interest of the relevant offshore
enterprise derives from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect
investment in China or if its income mainly derives from China; whether the offshore enterprise and its subsidiaries directly or indirectly
holding PRC taxable assets have a real commercial nature which is evidenced by their actual function and risk exposure; the duration
of existence of the business model and organizational structure; the replicability of the transaction by direct transfer of PRC taxable
assets; and the tax situation of such indirect transfer and applicable tax treaties or similar arrangements. In respect of an indirect
offshore transfer of assets of a PRC establishment, the resulting gain is to be included with the enterprise income tax filing of the
PRC establishment or place of business being transferred, and would consequently be subject to PRC enterprise income tax at a rate of
25%. Where the underlying transfer relates to the immoveable properties located in China or to equity investments in a PRC resident enterprise,
which is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise income tax of 10% would
apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements, and the party who is obligated
to make the transfer payments has the withholding obligation. Where the payer fails to withhold any or withholds insufficient tax, the
transferor shall declare and pay such tax to the tax authority by itself within the statutory time limit. Late payment of applicable
tax will subject the transferor to default interest. Bulletin 7 does not apply to transactions of sale of shares by investors through
a public stock exchange where such shares were acquired from a transaction through a public stock exchange.
In October 2017, SAT issued an Announcement
on Issues Relating to Withholding at Source of Income Tax of Nonresident Enterprises, or SAT Circular 37. Effective from December 2017,
SAT Circular 37, among others, repealed the Circular 698 and amended certain provisions in Bulletin 7. According to SAT Circular 37,
where the non-resident enterprise fails to declare the tax payable pursuant to Article 39 of the Enterprise Income Tax, the tax authority
may order it to pay the tax due within required time limits, and the non-resident enterprise shall declare and pay the tax payable within
such time limits specified by the tax authority. However, if the non-resident enterprise voluntarily declares and pays the tax payable
before the tax authority orders it to do so within required time limits, it shall be deemed that such enterprise has paid the tax in
time.
We face uncertainties as to the reporting
and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring,
sale of the shares in our offshore subsidiaries and investments. Our company may be subject to filing obligations or taxed if our company
is transferor in such transactions, and may be subject to withholding obligations if our company is transferee in such transactions,
under Bulletin 7 and SAT Circular 37. For transfer of shares in our company by investors who are non-PRC resident enterprises, our PRC
subsidiary may be requested to assist in the filing under the SAT circulars. As a result, we may be required to expend valuable resources
to comply with the SAT circulars or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars,
or to establish that our company should not be taxed under these circulars, which may have a material adverse effect on our financial
condition and results of operations.
The future development of national security laws and regulations
in Hong Kong could materially impact our business by possibly triggering sanctions and other measures which can cause economic harm to
our business.
On June 30, 2020, the National
People’s Congress of China passed a national security law (the “National Security Law”), which criminalizes certain
offenses, including secession, subversion of the Chinese government, terrorism and collusion with foreign entities. The National Security
Law also applies to non-permanent residents. Although the extra-territorial reach of the National Security Law remains unclear, there
is a risk that its application to conduct outside Hong Kong by non-permanent residents of Hong Kong could limit the activities of or negatively
impact us. The United States and other countries may take action against China, its leaders and leaders of Hong Kong, which may include
the imposition of sanctions. Escalation of tensions resulting from the National Security Law, including conflict between China and other
countries, protests and other government measures, as well as other economic, social or political unrest in the future, could negatively
impact the security and stability of the region and have a material adverse effect on our business. The aforementioned risks, including
an expansionary application of the National Security Law in unpredictable circumstances by the Chinese authorities, and any downturn in
Hong Kong’s economy could negatively impact the industries in which we participate, negatively impact our business operations and
have a material adverse effect on our results of operations, financial condition and cash flow.
Potential political and economic instability
in Hong Kong may adversely impact our results of operations. We may also face the risk that changes in the policies of the PRC government
could have a significant impact upon the business we conduct in Hong Kong and the profitability of such business.
Our operational activities are conducted in Hong
Kong and through our wholly owned subsidiary Universe Travel in Shenzhen in Guangdong Province. Accordingly, political and economic conditions
in Hong Kong and the surrounding region, including Guangdong Province, may directly affect our business. Since early 2019, a number of
political protests and conflicts have occurred in Hong Kong in connection with proposed legislation that would allow local authorities
to detain and extradite people who are wanted in territories that Hong Kong does not have extradition agreements with, including mainland
China and Taiwan. The economy of Hong Kong has been negatively impacted, including our retail market, property market, stock market, and
tourism, from such protests.
Under the Basic Law, Hong
Kong is exclusively in charge of its internal affairs and external relations, while the government of the PRC is responsible for its foreign
affairs and defense. As a separate customs territory, Hong Kong maintains and develops relations with foreign states and regions. We cannot
assure you that the Hong Kong protests will not affect Hong Kong’s status as a Special Administrative Region of the People’s
Republic of China and thereby affecting its current relations with foreign states and regions.
It is unclear whether there
will be other political or social unrest in the near future or that there will not be other events that could lead to the disruption of
the economic, political and social conditions in Hong Kong. If such events persist for a prolonged period of time or that the economic,
political and social conditions in Hong Kong are to be disrupted, our overall business and results of operations may be adversely affected.
In addition, economic, political
and legal developments and social conditions in the PRC may significantly affect our business, financial condition, results of operations
and prospects. The PRC economy is in transition from a planned economy to a market-oriented economy subject to plans adopted by the government
that set national economic development goals. Policies of the PRC government can have significant effects on economic conditions in the
PRC and Hong Kong. While we believe that the PRC will continue to strengthen its economic and trading relationships with foreign countries
and that business development in the PRC will continue to follow market forces, we cannot assure you that this will be the case. Our business
operations and prospects, financial condition, and results of operations may be adversely affected by changes in policies by the PRC government,
including:
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the allocation of resources. |
Our Hong Kong and Shenzhen subsidiaries
may be subject to restrictions on paying dividends or making other payments to us, which may restrict its ability to satisfy liquidity
requirements, conduct business and pay dividends to holders of our common stock. Dividends payable to our foreign investors and gains
on the sale of our shares of common stock by our foreign investors may become subject to tax by the PRC.
Pony Group Inc is a holding company incorporated
in Delaware with its operating subsidiaries located in Hong Kong and Shenzhen. Most of our cash is maintained in Chinese Yuan. We conduct
no other business and, as a result, we depend entirely upon our Hong Kong and Shenzhen operating subsidiaries’ earnings and cash
flow. If we decide in the future to pay dividends, as a holding company, our ability to pay dividends and meet other obligations depends
upon the receipt of dividends or other payments from our operating subsidiary. There are currently no restrictions of transferring funds
between our Delaware holding company and our operating subsidiaries in Hong Kong and Shenzhen or limitations on the ability of our Hong
Kong and Shenzhen subsidiary to issue dividends or other distributions to its overseas shareholders. However, we cannot assure you that
the oversight of the PRC government will not be extended to companies operating in Hong Kong and Shenzhen like our Hong Kong and Shenzhen
subsidiaries. There is a possibility that the PRC government could prevent our cash maintained in Hong Kong or Shenzhen from leaving
or the PRC could restrict the deployment of the cash into our business or for the payment of dividends. However, we do not expect that
a restriction into the deployment of cash into our business to affect the use of our assets in our ordinary course of business. Nevertheless,
any such controls or restrictions in the future could adversely affect our ability to finance our cash requirements, service debt or
make dividend or other distributions to our stockholders and could result in a material adverse change to our business operations, our
prospects, financial condition, and results of operations, and could cause our common stock to significantly decline in value or become
worthless.
Our common stock may be delisted under the Holding Foreign Companies
Accountable Act if the PCAOB is unable to inspect our auditors. The delisting of our common stock, or the threat of their being delisted,
may materially and adversely affect the value of your investment. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating
Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s
securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead
of three.
The Holding Foreign Companies Accountable Act,
or the HFCA Act, was enacted on December 18, 2020. The HFCA Act states if the SEC determines that a company has filed audit reports issued
by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021,
the SEC shall prohibit such common stock from being traded on a national securities exchange or in the over the counter trading market
in the U.S.
On March 24, 2021, the SEC adopted interim final
rules relating to the implementation of certain disclosure and documentation requirements of the HFCA Act. A company will be required
to comply with these rules if the SEC identifies it as having a “non-inspection” year under a process to be subsequently established
by the SEC. The SEC is assessing how to implement other requirements of the HFCA Act, including the listing and trading prohibition requirements
described above. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which,
if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges
if its auditor is not subject to PCAOB inspections for two consecutive years instead of three. On September 22, 2021, the PCAOB adopted
a final rule implementing the HFCA Act, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCA
Act, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction
because of a position taken by one or more authorities in that jurisdiction. On December 2, 2021, the SEC issued amendments to finalize
rules implementing the submission and disclosure requirements in the HFCA Act. The rules apply to registrants that the SEC identifies
as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction
and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions. On
December 16, 2021, the PCAOB issued a Determination Report which found that the PCAOB is unable to inspect or investigate completely registered
public accounting firms headquartered in: (i) China, and (ii) Hong Kong. Our auditor, Ben Borges CPA PC, is not headquartered in China
or Hong Kong and was not identified in this report as a firm subject to the PCAOB’s determination.
Furthermore, various equity-based research organizations
have recently published reports on China-based companies after examining their corporate governance practices, related party transactions,
sales practices and financial statements, and these reports have led to special investigations and listing suspensions on U.S. national
exchanges. Any similar scrutiny on us, regardless of its lack of merit, could cause the market price of our common stock to fall, divert
management resources and energy, cause us to incur expenses in defending ourselves against rumors, and increase the premiums we pay for
director and officer insurance.
Our auditor, the independent registered public
accounting firm that issues the audit report included elsewhere in this prospectus, as an auditor of companies that are traded publicly
in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts
regular inspections to assess its compliance with the applicable professional standards. Our auditor’s registration with the PCAOB
took effect in September 2020 and it is currently subject to PCAOB inspections. The PCAOB currently has access to inspect the working
papers of our auditor. However, the recent developments would add uncertainties to our offering and we cannot assure you whether regulatory
authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit
procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience
as it relates to the audit of our financial statements.
The SEC may propose additional rules or guidance
that could impact us if our auditor is not subject to PCAOB inspection. For example, on August 6, 2020, the President’s Working
Group on Financial Markets, or the PWG, issued the Report on Protecting United States Investors from Significant Risks from Chinese Companies
to the then President of the United States. This report recommended the SEC implement five recommendations to address companies from jurisdictions
that do not provide the PCAOB with sufficient access to fulfil its statutory mandate. Some of the concepts of these recommendations were
implemented with the enactment of the HFCA Act. However, some of the recommendations were more stringent than the HFCA Act. For example,
if a company’s auditor was not subject to PCAOB inspection, the report recommended that the transition period before a company would
be delisted would end on January 1, 2022.
The SEC has announced that the SEC staff is preparing
a consolidated proposal for the rules regarding the implementation of the HFCA Act and to address the recommendations in the PWG report.
It is unclear when the SEC will complete its rulemaking and when such rules will become effective and what, if any, of the PWG recommendations
will be adopted. The implications of this possible regulation in addition to the requirements of the HFCA Act are uncertain. While we
understand that there has been dialogue among the CSRC, the SEC and the PCAOB regarding the inspection of PCAOB-registered accounting
firms in China, there can be no assurance that we will be able to comply with requirements imposed by U.S. regulators. Such uncertainty
could cause the market price of our common stock to be materially and adversely affected, and our securities could be delisted and prohibited
from being traded on the national securities exchange earlier than would be required by the HFCA Act. If our securities are unable to
be listed on another securities exchange by then, such a delisting would substantially impair your ability to sell or purchase our common
stock when you wish to do so, and the risk and uncertainty associated with a potential delisting would have a negative impact on the price
of our common stock.
Further, new laws and regulations or changes in
laws and regulations in both the United States and China could affect our ability to list our common stock, which could materially impair
the market for and market price of our common stock.
Risks Related to Our Common Stock
Our majority stockholders will control our company for the foreseeable
future, including the outcome of matters requiring shareholder approval.
Ms. Fan, our Chief Executive Officer,
President and director have over 78.3% beneficial ownership of our Company, through Pony Group Ltd, KERUIDA Investment Limited, Synionm
Investments Limited and Wisdom Travel Service Investments Limited, which is beneficially owned by Ms. Fan. As a result, Ms. Fan will
have the ability to control the election of our directors and the outcome of corporate actions requiring shareholder approval, such as:
(i) a merger or a sale of our Company, (ii) a sale of all or substantially all of our assets, and (iii) amendments to our articles of
incorporation and bylaws. This concentration of voting power and control could have a significant effect in delaying, deferring or preventing
an action that might otherwise be beneficial to our other shareholders and be disadvantageous to our shareholders with interests different
from those individuals. Certain of these individuals also have significant control over our business, policies and affairs as officers
or directors of our company. Therefore, you should not invest in reliance on your ability to have any control over our company.
No public market for our common stock currently exists, and
an active trading market may not develop or be sustained following this offering.
As we are in our early stages of development,
an investment in our Company will likely require a long-term commitment, with no certainty of return. We have applied for quotation of
our common stock on the OTC Market. Even if our common stock is quoted on the OTC Market, there is no guarantee that there will be any
trading in our common stock. In addition, there is a risk that we will not be able to have our stock listed or quoted on a more established
market, and even if we are able to do so (of which no assurance can be given), we cannot predict whether an active market for our common
stock will ever 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 shares of our common stock may be limited; and |
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a lack of visibility for shares of our common stock may have a depressive effect on the market
price for shares of our common stock. |
While we believe our revenues and cash on hand are adequate
to meet our immediate needs, we may require additional funding in order to progress our business in the future. If we are unable to raise
additional capital, we could be forced to delay, reduce or eliminate portions of our business.
While we believe our cash, cash equivalents
on hand and cash from operations are adequate to meet our liquidity needs and capital expenditure requirements for at least the next
12 months, we may require an additional infusion of funds in the future to grow our business. In the event we were to experience an economic
recession or a slow growth period, such an event could adversely affect our business, liquidity and future growth. In addition, should
we experience instability in or a tightening of the capital markets, such an event could adversely affect our ability to obtain additional
capital to grow our business on terms acceptable to us or at all.
Raising additional capital may cause
dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates.
We may need to raise funding in the
future to further develop our business. There can be no assurance that we will be able to raise sufficient capital on acceptable terms,
or at all. If such financing is not available on satisfactory terms, or is not available at all, we may be required to delay, scale back
or eliminate the development of business opportunities and our operations and financial condition may be adversely affected to a significant
extent.
If we raise additional capital by issuing
equity securities, the percentage and/or economic ownership of our existing stockholders may be reduced, and accordingly these stockholders
may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and privileges senior to
those of our common stock.
Debt financing, if obtained, may involve
agreements that include liens on our assets, covenants limiting or restricting our ability to take specific actions, such as incurring
additional debt, increases in our expenses and requirements that our assets be provided as a security for such debt. Debt financing would
also be required to be repaid regardless of our operating results.
Funding from any source may be unavailable
to us on acceptable terms, or at all. If we do not have sufficient capital to fund our operations and expenses, our business opportunities
could be substantially diminished.
Assuming we can find market makers to
establish quotations for our common stock, and assuming all applicable approvals are obtained, we expect that our common stock will be
quoted on the OTC Market. This market is a relatively unorganized, inter-dealer, over-the-counter markets that provide significantly
less liquidity than any tier of the NASDAQ or the New York Stock Exchange. No assurances can be given that our common stock, even
if quoted on such markets, will ever trade on such markets, much less a senior market like NASDAQ or the New York Stock Exchange. In
this event, there would be a highly illiquid market for our common stock and you may be unable to dispose of your common stock at desirable
prices or at all. Moreover, there is a risk that our common stock could be delisted from the OTC Market, in which case it might be listed
on OTC Pink, which is even more illiquid than the OTC Market.
The lack of an active market impairs
your ability to sell your shares of our common stock at the time you wish to sell them or at a price that you consider reasonable. The
lack of an active market may also reduce the fair market value of your shares of our common stock. An inactive market may also impair
our ability to raise capital to continue to fund operations by selling shares of our common stock and may impair our ability to expand
our operations through acquisitions by using our shares as consideration.
Even if our common stock becomes publicly-traded and an active
trading market develops, the market price for our common stock may be volatile.
Even if our securities become publicly-traded
and even if an active market for our common stock develops, of which no assurance can be given, the market price for our common stock
may be volatile and subject to wide fluctuations due to factors such as:
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the perception of U.S. investors and regulators of U.S. listed Chinese companies; |
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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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negative publicity, studies or reports; |
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our capability to match and compete with technology innovations in the industry; |
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changes in the economic performance or market valuations of other companies in the same industry; |
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announcements by us or our competitors of acquisitions, strategic partnerships, joint ventures
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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; and |
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general economic or political conditions in or influencing China. |
In addition, the securities market has
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 common stock.
Our common stock may be thinly traded and you may be unable
to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.
Assuming our common stock begins trading
over-the-counter, our common stock may be “thinly-traded,” meaning that the number of persons interested in purchasing our
common stock at or near bid prices at any given time may be relatively small or non-existent. This situation may be attributable
to a number of factors, including the fact that we are relatively unknown to stock analysts, stock brokers, institutional investors and
others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons,
they tend to be risk-averse and might be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of
our shares until such time as we became more seasoned. As a consequence, there may be periods of several days or more when trading
activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity
that will generally support continuous sales without an adverse effect on share price. Broad or active public trading market for
our common stock may not develop or be sustained.
Our common stock may be considered a “penny stock,”
and thereby be subject to additional sale and trading regulations that may make it more difficult to sell.
Our common stock, which we plan to have
quoted for trading on the OTC Market, may be considered to be a “penny stock” if it does not qualify for one of the exemptions
from the definition of “penny stock” under Section 3a51-1 of the Exchange Act, as amended. Our common stock may
be a “penny stock” if it meets one or more of the following conditions: (i) the stock trades at a price less than $5.00 per
share; (ii) it is not traded on a “recognized” national exchange; (iii) it is not quoted on the Nasdaq Capital Market or,
even if so, has a price of less than $5.00 per share; or (iv) is issued by a company that has been in business less than three years
with net tangible assets less than $5 million. The principal result or effect of being designated a “penny stock”
is that securities broker-dealers participating in sales of our common stock will be subject to the “penny stock” regulations
set forth in Rules 15g-2 through 15g-9 promulgated under the Exchange Act. For example, Rule 15g-2 requires broker-dealers
dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually
signed and dated written receipt of the document at least two business days before effecting any transaction in a penny stock for the
investor’s account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor
for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer
to: (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives;
(ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor
has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide
the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv)
receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial
situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult
and time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market
or otherwise.
FINRA sales practice requirements may also limit your ability
to buy and sell shares of our common stock, which could depress the price of shares of our common stock.
FINRA rules require broker-dealers to
have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer.
Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts
to obtain information about the customer’s financial status, tax status and investment objectives, among other things. Under interpretations
of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least
some customers. Thus, FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock,
which may limit your ability to buy and sell shares of our common stock, have an adverse effect on the market for shares of our common
stock, and thereby depress price of our common stock.
You may face significant restrictions on the resale of your
shares of our common stock due to state “blue sky” laws.
Each state has its own securities laws,
often called “blue sky” laws, which (1) limit sales of securities to a state’s residents unless the securities are
registered in that state or qualify for an exemption from registration, and (2) govern the reporting requirements for broker-dealers
doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover
the transaction, or it must be exempt from registration. The applicable broker-dealer must also be registered in that state.
We do not know whether our securities
will be registered or exempt from registration under the laws of any state. A determination regarding registration will be made by those
broker-dealers, if any, who agree to serve as market makers for our common stock. We have not yet applied to have our securities registered
in any state and will not do so until we receive expressions of interest from investors resident in specific states after they have viewed
this offering document. There may be significant state blue sky law restrictions on the ability of investors to sell, and on purchasers
to buy, our securities. You should therefore consider the resale market for our common stock to be limited, as you may be unable to resell
your shares without the significant expense of state registration or qualification.
Potential future sales under Rule 144 may depress the market
price for the common stock.
In general, under SEC Rule 144, a person
who has satisfied a minimum holding period of between six months to one-year, as well as meeting any other applicable requirements of
Rule 144, may thereafter sell such shares publicly. Therefore, the possible sale of unregistered shares may, in the future, have a depressive
effect on the price of our common stock in the over-the-counter market.
Volatility in our common stock price may subject us to securities
litigation.
The market for our common stock may
have, when compared to seasoned issuers, significant price volatility and we expect that our share price may continue to be more volatile
than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation
against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar
litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and
resources.
We are not likely to pay cash dividends in the foreseeable future.
We currently intend to retain any future
earnings for use in the operation and expansion of our business. Accordingly, we do not expect to pay any cash dividends in the foreseeable
future, but will review this policy as circumstances dictate. Should we determine to pay dividends in the future, our ability to do so
will depend upon the receipt of dividends or other payments from Universe Travel. Universe Travel may, from time to time, be subject
to restrictions on its ability to make distributions to us, including restrictions on the conversion of RMB into U.S. dollars or other
hard currency and other regulatory restrictions.
U.S. investors may experience difficulties in attempting to
effect a service of process and enforce judgments based upon U.S. Federal Securities Laws against the company and its non U.S. resident
officer and director.
We are a Delaware corporation and, as
such, are subject to the jurisdiction of the State of Delaware and the United States courts for purposes of any lawsuit, action or proceeding
by investors herein. An investor would have the ability to effect service of process in any action on the company within the United States.
However, Ms. Wenxian Fan, our sole officer and director, resides in China and substantially all of our assets are located in China. As
a result, it may not be possible for investors to:
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Effect service of process within the United States against our non-U.S. resident officers or directors; |
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Enforce U.S. court judgments based upon the civil liability provisions of the U.S. federal securities
laws against any of the above referenced foreign persons in the United States; |
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Enforce in foreign courts U.S. court judgments based on the civil liability provisions of the U.S.
federal securities laws against the above foreign persons; and |
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Bring an original action in foreign courts to enforce liabilities based upon the U.S. federal securities laws against the above foreign persons. |
Shareholder claims that are common
in the United States, including securities law class actions and fraud claims, generally are difficult to pursue as a matter of law or
practicality in China. For example, in China, there are significant legal and other obstacles to obtaining information needed for shareholder
investigations or litigation outside China or otherwise with respect to foreign entities. Although the local authorities in China may
establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border
supervision and administration, such regulatory cooperation with the securities regulatory authorities in the Unities States have not
been efficient in the absence of mutual and practical cooperation mechanism. According to Article 177 of the PRC Securities Law, which
became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection
activities within the territory of the PRC. Accordingly, without the consent of the competent PRC securities regulators and relevant
authorities, no organization or individual may provide the documents and materials relating to securities business activities to overseas
parties. Further, there is uncertainty as to whether PRC courts would (i) recognize or enforce judgments of United States courts obtained
against us or our director and officer predicated upon the civil liability provisions of the securities laws of the United States or
any state in the United States, or (ii) entertain original actions brought in each respective jurisdiction against us or our director
and officer predicated upon the securities laws of the United States or any state in the United States.
The Company is selling shares without an underwriter and
may not be able to sell all or any of the shares offered herein.
Shares of common stock are hereby
being offered on our behalf by our officers and directors, on a best-efforts basis. No broker-dealer has been retained as an underwriter
and no broker-dealer is under any obligation to purchase any shares of common stock. There are no firm commitments to purchase
any of the shares in the direct public offering. Consequently, there is no guarantee that the Company, through its officers
and directors, are capable of selling all, or any, of the shares of common stock offered hereby. The sale of a small
number of shares increases the likelihood that no market will ever develop for our common stock. We will likely need to raise
additional capital in the near future to finance our intended growth.
The exclusive forum provision in our subscription agreement
may have the effect of limiting a purchaser’s ability to bring legal action against the company and could limit a purchaser’s
ability to obtain a favorable judicial forum for disputes.
Section 6.5 of our subscription agreement,
a copy of which is filed as Exhibit 10.3 to the registration statement of which this prospectus is a part, provides that, to the extent
permitted by law, the Federal District Court, Southern District of New York (or, if such court does not have proper jurisdiction, the
State Courts of New York County, New York) is the exclusive forum for all actions or proceedings relating to the subscription agreement,
including any claim under federal securities laws. However, it is uncertain whether a court would enforce such a provision as to
claims arising under federal securities laws (see “Description of Capital Stock - Forum Selection Provision”).
Such provision may have the effect of limiting the ability of purchasers to bring a legal claim against us due to geographic limitations.
There is also the possibility that the exclusive forum provision may discourage stockholder lawsuits, or limit stockholders’ ability
to bring a claim in a judicial forum that it finds favorable for disputes with us. Alternatively, if a court were to find this exclusive
forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may
incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect its business and financial
condition.
Purchasers in this offering may not
be entitled to a jury trial with respect to claims arising under the subscription agreement, which could result in less favorable outcomes
to the plaintiff(s) in any such action.
Purchasers in this offering will be
bound by the subscription agreement, which provides that purchasers waive the right to a jury trial of any claim they may have against
us arising out of or relating to the subscription agreement, including any claim under federal securities laws to the extent permitted
by law (see “Description of Capital Stock - Jury Trial Wavier”).
If we or the subscriber opposed a jury
trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of
that case in accordance with the applicable state and federal law. It is uncertain whether or not a court would enforce the waiver. If
any purchasers bring a claim against us in connection with matters arising under the subscription agreement, including claims under federal
securities laws, such purchasers may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting
and discouraging lawsuits against us. If a lawsuit is brought against us under the subscription agreement, it may be heard only by a
judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different
outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action.
Nevertheless, if this jury trial waiver
provision is not permitted by applicable law, an action could proceed under the terms of the subscription agreement with a jury trial.
No condition, stipulation or provision of the subscription agreement serves as a waiver by any purchasers in this offering or by us of
compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.