Blue Hat Interactive Entertainment Technology F-1, filed Feb 9, 2026
Blue Hat Interactive Entertainment Technology (BHATF)
As filed with the Securities and Exchange Commission on February 9, 2026
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BLUE HAT INTERACTIVE ENTERTAINMENT TECHNOLOGY
(Exact name of registrant as specified in its charter)
| Cayman Islands | 3942 | Not Applicable | ||
| (State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (IRS Employer
Identification Number) |
7th Floor, Building C
No. 1010 Anling Road
Huli District, Xiamen, China 361009
86-592-228-0081
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Puglisi & Associates
850 Library Avenue, Suite 204
Newark, Delaware 19711
(302) 738-6680
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copy to:
|
Elizabeth F. Chen, Esq. Pryor Cashman LLP 7 Times Square New York, New York 10036 (212) 326-0199 |
Joan Wu, Esq. Hunter Taubman Fischer & Li LLC 950 Third Avenue, 19th Floor New York, NY 10022 (212) 530-2206 |
Approximate date of commencement of proposed sale to public: As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933: Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
| † | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION, DATED FEBRUARY 9, 2026 |
10,666,666 Units, Each Unit Consisting of One Ordinary Share or One Pre-funded Warrant to Purchase One Ordinary Share and One Warrant to Purchase One Ordinary Share
Up to 10,666,666 Ordinary Shares underlying the Pre-Funded Warrants
Up to 42,666,666 Ordinary Shares underlying the Warrants (which includes a zero exercise price option)
Blue Hat Interactive Entertainment Technology
This is a firm commitment public offering of 10,666,666 units (“Units”), each Unit consisting of one share of our ordinary shares, par value $0.0000001 per share (“Ordinary Shares”) and one Warrant (each, a “Warrant”) to purchase one Ordinary Share, at an assumed public offering price of $0.75 per Unit, based upon the closing price of our Ordinary Shares on the Nasdaq Capital Market on February 6, 2026. Blue Hat Interactive Entertainment Technology (“Blue Hat”, or the “Company”) is a Cayman Islands holding company with operations primarily conducted by our subsidiaries established in the People’s Republic of China (“PRC” or “China”). Therefore, the investors are buying shares of a Cayman Islands holding company and you will not hold any interests of our Chinese operating companies.
The Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. Each Warrant will be immediately exercisable upon issuance, subject to certain beneficial ownership limitations, at an initial exercise price of $0.75 per Ordinary Share (the “initial Exercise Price”) and will expire one (1) year after the issuance date. Subject to certain conditions, the exercise price for the Warrants will be adjusted downward on each of the 2nd and 5th trading day following the closing of this offering (each, a “Reset Date”) to the price that is equal to 70% and 50%, respectively, of the initial exercise price (each, a “Reset Price”), or the closing price of our Ordinary Shares on the Nasdaq Capital Market immediately prior to the effectiveness of the registration statement of which this prospectus forms a part (the “Basis Price”), provided that the Reset Price is less than the exercise price then in effect (and subject to the applicable floor price, as explained at the end of the next paragraph) and the number of Ordinary Shares underlying the Warrants will be proportionally increased, so that the applicable Reset Price multiplied by the increased number of Ordinary Shares equal the aggregate proceeds that would have resulted from the full exercise of the Warrants immediately prior to the applicable Reset Date. The Warrants also contain certain mechanisms for cashless exercise, including a zero cash exercise option pursuant to which holders of the Warrants have the option, upon exercise and for no additional cash consideration, to receive an aggregate number of Ordinary Shares equal to the product of (x) the aggregate number of Ordinary Shares that would be issuable upon a cash exercise of the Warrant and (y) 2. Accordingly, we believe it is highly unlikely that a holder of the Warrants would pay an exercise price in cash to receive one Ordinary Share underlying the Warrant when the holder could instead choose the zero cash exercise option and pay no cash to receive more Ordinary Shares than they would receive if they paid the exercise price. As a result, we will likely not receive any additional funds and do not expect to receive any additional funds upon the exercise of the Warrants. Please see the section of this prospectus entitled “Description of the Securities we are Offering” for further information.
As an example, for each Unit that an investor purchases in this offering at the offering price of $0.75 per Unit, the investor will receive one Ordinary Share and one Warrant to purchase one Ordinary Share at an exercise price of $0.75 per Ordinary Share. Giving effect solely to the adjustment on the first Reset Date and not giving effect to the zero cash exercise option, on the first Reset Date, the Warrants purchased by the investors will become exercisable for a maximum of 15,238,095 Ordinary Shares at an exercise price of $0.525 per Ordinary Share. If such Warrant is then exercised at such time based on the zero cash exercise option, the Warrants would be exercisable into 30,476,190 Ordinary Shares. If the Warrants remain outstanding as of the second Reset Date, giving effect solely to the potential adjustment on the second Reset Date and not giving effect to the zero cash exercise option, on the second Reset Date, the Warrants will become exercisable for a maximum of 21,333,333 Ordinary Shares at an exercise price of $0.375 per Ordinary Share. If such Warrants are then exercised at such time based on the zero cash exercise option, the Warrants would be exercisable into 42,666,666 Ordinary Shares. Accordingly, if all of the Warrants offered to investors in this offering are exercised on a zero cash basis, a maximum of 42,666,666 shares could be issued upon such zero cash exercise, without payment to the Company of any additional cash. In addition, we have granted the Underwriter (as defined below) an option exercisable within 15 days after the closing of this offering to purchase from us up to 1,599,999 additional Units, which includes up to 1,599,999 additional Ordinary Shares or Pre-Funded Warrants each to purchase one Ordinary Share, and/or up to 1,599,999 Warrants each to purchase one Ordinary Share, or any combination thereof, to cover over-allotments, if any. If the Underwriter’s over-allotment option for Warrants is exercised in full to purchase 1,599,999 Warrants and all such Warrants are exercised on a zero cash basis, a maximum of 6,400,000 shares could be issued upon such zero cash exercise without payment to the Company of any additional cash. If all of the Warrants offered in this offering, including those subject to the Underwriter’s over-allotment option for Warrants, are exercised on a zero cash basis, a maximum of 49,066,666 shares could be issued upon such zero cash exercise without payment to the Company of any additional cash. For the avoidance of doubt, the lower that the stock price of our Ordinary Shares is on the First Reset Date and Second Reset Date, as applicable, the more shares that will be issuable pursuant to the Warrants as a result of the each reset, subject to the floor price of 20% of the Nasdaq Minimum Price on the date preceding execution of the underwriting agreement, which will not be more than the per unit offering price as it relates to the First Reset and the floor price of 20% of the Nasdaq Minimum Price on the date preceding execution of the underwriting agreement as it relates to the Second Reset.
We are also offering to each purchaser whose purchase of Units would otherwise result in the purchaser’s, together with its affiliates, beneficial ownership exceeding 4.99% (or, at the election of the purchaser, up to 9.99%) of our outstanding Ordinary Shares immediately following the consummation of this offering, the opportunity to purchase Units consisting of one pre-funded warrant in lieu of Ordinary Shares (each, a “Pre-funded Warrant”) and one Warrant. Each Pre-funded Warrant will be exercisable for one Ordinary Share. Subject to limited exceptions, a holder of Pre-funded Warrants will not have the right to exercise any portion of its Pre-funded Warrants if the holder, together with its affiliates, would beneficially own in excess of 4.99% (or, at the election of the holder, up to 9.99%) of the number of Ordinary Shares outstanding immediately after giving effect to such exercise. The purchase price of each Unit including a Pre-funded Warrant will be equal to the price per Unit including one Ordinary Share, minus $0.0001, and the exercise price of each Pre-funded Warrant will be $0.0001 per Ordinary Share. The Pre-funded Warrants will be immediately exercisable (subject to the beneficial ownership cap) and may be exercised at any time until all of the Pre-funded Warrants are exercised in full. For each Unit including a Pre-funded Warrant we sell, the number of Units including one Ordinary Share that we are offering will be decreased on a one-for-one basis. The Ordinary Shares and Pre-funded Warrants, if any, can each be purchased in this offering only with the accompanying Warrant as part of a Unit, but the components of the Units will immediately separate upon issuance. See “Description of the Securities We Are Offering” in this prospectus for more information.
We are also registering the Ordinary Shares issuable from time to time upon exercise of the Warrants and/or the Pre-funded Warrants included in the Units offered hereby.
The actual public offering price per Unit will be determined at the time of pricing, based upon a number of factors, including our history and our prospects, the industry in which we operate, our past and present operating results and the general condition of the securities markets at the time of this offering, and may be at a discount to the current market price of our Ordinary Shares. Therefore, the assumed public offering price used in this prospectus may not be indicative of the final offering price.
There is no established trading market for the Warrants or Pre-funded Warrants and we do not expect an active trading market to develop. We do not intend to list the Warrants or Pre-funded Warrants on any securities exchange or other trading market. Without an active trading market, the liquidity of the Warrants and Pre-funded Warrants will be limited.
Our Ordinary Shares are currently traded on the Nasdaq Capital Market (“Nasdaq”) under the symbol “BHAT.” The closing price of our Ordinary Shares on the Nasdaq on February 6, 2026 was $0.75 per Ordinary Share.
Corporate Structure
Blue Hat is not an operating company but a Cayman Islands holding company with operations primarily conducted by Blue Hat’s operating subsidiaries in China, such corporate structure involves unique risks to investors, which, if happens, may result in a material change in our operations and/or a material change in the value of the securities we are registering for sale, including that it may cause the value of our securities to significantly decline or become worthless. Chinese regulatory authorities could disallow this structure, which may cause the incapability to continue operation without changing the corporate structure or switching the business focus. This may in turn cause the value of the securities to significantly decline or even become worthless. According to the Foreign Investment Law in China, the State Council shall promulgate or approve a list of special administrative measures for market access of foreign investments, or the Negative List. The Foreign Investment Law grants national treatment to foreign-invested entities, except for those foreign-invested entities that operate in industries specified as either “restricted” or “prohibited” from foreign investment in the Negative List. The Foreign Investment Law provides that foreign-invested entities operating in “restricted” or “prohibited” industries will require market entry clearance and other permissions or approvals from relevant PRC government authorities. On September 6, 2024, the National Development and Reform Commission of China (“NDRC”) and the Ministry of Commerce (“MOFCOM”) jointly issued the Special Administrative Measures for Foreign Investment Access (Negative List) (2024 Edition), effective November 1, 2024. As a company operating its business in gold and diamond trading and supply chain, which is not included in the 2024 Negative List, Blue Hat believes its business is not subject to any ownership restrictions. However, since the Negative List has been adjusted and updated frequently in the recent years, we cannot assure you that the aforementioned business segments will continuously be beyond the “prohibited” category, which would likely result in a material change in our operations or in the value of our securities, if that happens, it could cause the value of our securities to significantly decline or become worthless. The PRC government has also established a foreign investment information reporting system, according to which foreign investors or foreign-invested enterprises shall submit investment information to the competent department for commerce concerned through the enterprise registration system and the enterprise credit information publicity system, and a security review system under which the security review shall be conducted for foreign investment affecting or likely affecting the state security.
Cash Transfer among the Company and its Subsidiaries and Dividends Payment
For the six months ended June 30, 2025, Blue Hat provided a loan of $3,639,366.08, to Golden Alpha Strategy Limited, Blue Hat provided a loan of $688,142.87, to Blue Hat Interactive Entertainment Technology Limited (“Blue Hat Limited”), a wholly owned subsidiary of Blue Hat. Blue Hat Limited then transferred $185,714.29 to Fujian Blue Hat Group Co, Ltd (“Fujian Blue Hat”). For the fiscal year ended December 31, 2024, Blue Hat provided a loan of $2,800,000, to Blue Hat Limited, and Blue Hat Limited then transferred $2,800,000 to Fujian Blue Hat. Other than the transfers mentioned above, as of the date of this prospectus, Blue Hat has not made any other transfers, dividends or distributions between the holding company, any of its subsidiaries or to investors. We do not have any current intentions to distribute further earnings.
If we determine to pay dividends on any of our Ordinary Shares in the future, as a holding company, we will be dependent on receipt of funds from our subsidiaries by way of dividend payments. Current PRC regulations permit our PRC subsidiaries to pay dividends to their respective shareholders only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of each of their registered capitals. These reserves are not distributable. In addition, PRC Subsidiaries cannot distribute dividends until previous years’ loss has been offset.
The Company currently does not have any cash management policies that dictate how funds are transferred. For the foreseeable future, we intend to use the earnings for the development of the customer capacity. As a result, Blue Hat currently does not have a plan to declare dividends to its shareholders in the foreseeable future.
Doing Business in China
Increasing the registered capital in a mainland China subsidiary of Blue Hat requires the filing with the State Administration for Market Regulation (“SAMR”) or its local bureau, while a shareholder loan requires a filing with the State Administration of Foreign Exchange or its local bureau. Foreign direct investment and loans must be approved by and/or registered in accordance with the Foreign Exchange Administration Regulations promulgated in 1996, as amended in 2008. The total amount of loans we can make to our subsidiaries in mainland China cannot exceed statutory limit which is the difference between the amount of total investment as approved by the Ministry of Commerce or its local counterpart and the amount of registered capital or a multiple (currently set as 2.5 times) of its net worth of our subsidiaries in mainland China. PRC Laws currently permit the payment of dividends only out of accumulated profits, as determined in accordance with PRC accounting standards and PRC Laws, after set aside, at a minimum, 10% of their net income after taxes, based on PRC accounting standards, each year as statutory surplus reserves until the cumulative amount of such reserves reaches 50% of their registered capital, such reserves may not be distributed as cash dividends. PRC Laws and regulations allow an offshore holding company to provide funding to mainland China subsidiaries only through loans or capital contributions, subject to the filing or approval of government authorities and limits on the amount of capital contributions and loans.
Blue Hat’s PRC Subsidiaries face various legal and operational risks and uncertainties related to doing business in China. For Example, Blue Hat’s PRC Subsidiaries face risks associated with regulatory approvals on offshore offerings, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy. These risks could result in a material adverse change in Blue Hat’s business operations and the value of Blue Hat Ordinary Shares, significantly limit or hinder Blue Hat’s ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. For a detailed description of risks related to doing business in China, see “Risk Factors — Risk Factors Relating to Doing Business in China” included elsewhere in this prospectus.
As Blue Hat, through the subsidiaries, operates business, and has most of the assets and executive officers in China, all our senior employees reside within China for a significant portion of the time and most are PRC residents. It may be difficult for Blue Hat’s shareholders to effect foreign service of process upon Blue Hat or those executives or officers inside China. Apart from that, there is uncertainty as to whether the courts in China would recognize or enforce judgments of United States courts, as the United States and China do not have a treaty or other arrangements providing for reciprocal recognition and enforcement of judgments of courts of the United States in civil and commercial matters. Please see ”Risk Factors —You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the prospectus based on foreign laws” included elsewhere in this prospectus.
On February 17, 2023, the China Securities Regulatory Commission (the “CSRC”) released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”) with five interpretive guidelines (together with the New Overseas Listing Rules, collectively, the “New Overseas Listing Rules”), which came into effect on March 31, 2023. The New Overseas Listing Rules apply to overseas securities offerings and/or listings conducted by (i) companies incorporated in the PRC, or PRC domestic companies, directly and (ii) companies incorporated overseas with operations primarily in the PRC and valued on the basis of interests in PRC domestic companies, or indirect offerings. Under the New Overseas Listing Rules, a filing-based regulatory system applies to “indirect overseas offerings and listings” of companies in mainland China, which refers to securities offerings and listings in an overseas market made under the name of an offshore entity but based on the underlying equity, assets, earnings or other similar rights of a company in mainland China that operates its main business in mainland China. The New Overseas Listing Rules state that, any post-listing follow-on offering by an issuer in an overseas market, including issuance of shares, convertible notes, exchangeable notes and preferred shares, shall be subject to filing requirement within three business days after the completion of the offering. Additionally, if we do not obtain the permissions and approvals of the filing procedure for any subsequent offering in a timely manner under PRC laws and regulations, we may be subject to investigations by competent PRC regulators, fines or penalties, ordered to suspend our relevant operations and rectify any non-compliance, prohibited from engaging in relevant business or conducting any offering, and these risks could result in a material adverse change in our operations, limit our ability to continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. Based on our understanding of the rules, we are required to submit the filing report to the CSRC within three business days upon the completion of this offering pursuant to this prospectus. It is uncertain whether such filing can be completed or how long it will take to complete such filing. Any delay in completing such filing procedures might affect the other filing procedures with respect to other applicable circumstances, under the New Overseas Listing Rules in the future, such as the secondary listing, primary listing, spin-off listing and making overseas offering and listing anew after being delisted from an overseas exchange, which might affect our future public market financings and capital market transactions. To date, there are uncertainties in the interpretation and enforcement of these new laws and guidelines, which could materially and adversely impact our business and financial outlook and may impact our ability to accept foreign investments, or continue to list on a U.S. or other foreign exchange.
According to Article 7 of the Measures of Cybersecurity Review (“the New CAC Measures”) which was promulgated by the Cyber Administration of China, together with 12 other departments on December 28, 2021 and entered into force and effect on February 15, 2022, a network platform operator that holds personal information of more than one million users shall report to Cybersecurity Review Office for cybersecurity review when it seeks to list its securities overseas. During such reviews, the network platform operator may be required to take measures to prevent and mitigate risk, and such measures could cause disruptions to our operations. Cybersecurity review could also result in negative publicity with respect to the network platform operator and diversion of its managerial and financial resources, which could materially and adversely affect its business, financial conditions, and results of operations. The New CAC Measures do not apply to the Company or any of its subsidiaries as of the date of this prospectus, as neither Blue Hat nor any of its subsidiaries is critical information infrastructure operators purchasing network products and services or online platform operators carrying out data processing activities that affect or may affect national security. In addition, Blue Hat holds less than 1 million users’ personal information. Therefore, we believe we are not subject to the cybersecurity review under the New CAC Measures. As of the date of this prospectus, we have not been involved in any investigations on cybersecurity review initiated by the CAC, and we have not received any warning, sanction or penalty in such respect. We believe that we are compliant with the regulations or policies that have been issued by the CAC as of the date of this prospectus. As of the date of this prospectus, for entities that have been listed overseas before the implementation of the New CAC Measures and intend to issue additional shares rather than doing a public listing, the New CAC Measures do not clearly stipulate that such entities or their subsidiaries, as network platform operators, shall report to Cybersecurity Review Office for cybersecurity review. The New CAC Measures remain unclear on whether such requirements will be applicable to companies which are already listed in the United States, such as us. It also remains uncertain whether any future regulatory changes would impose additional restrictions on companies like us. The aforementioned policies and any related implementation rules to be enacted may subject us to additional compliance requirements in the future. As these opinions were recently issued, official guidance and interpretation of the opinions remain unclear in several respects at this time. Therefore, we cannot assure you that we will remain fully compliant with all new regulatory requirements of these opinions or any future implementation rules on a timely basis, or at all. Please see “Risk Factor - Compliance with China’s new Data Security Law, Measures on Cybersecurity Review (revised draft for public consultation), Personal Information Protection Law (second draft for consultation), regulations and guidelines relating to the multi-level protection scheme and any other future laws and regulations may entail significant expenses and could materially affect our business” and “Risk Factor - Recent greater oversight by the CAC over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our offering” included elsewhere in this prospectus for more details.
In addition, since 2021, the PRC government has strengthened its anti-monopoly supervision, mainly in three aspects: (1) establishing the National Anti-Monopoly Bureau; (2) revising and promulgating anti-monopoly laws and regulations, including: the Anti-Monopoly Law (draft Amendment published on October 23, 2021 for public opinions), the anti-monopoly guidelines for various industries, and the detailed Rules for the Implementation of the Fair Competition Review System; and (3) expanding the anti-monopoly law enforcement targeting Internet companies and large enterprises. As of the date of this prospectus, the PRC government’s recent statements and regulatory actions related to anti-monopoly concerns have not impacted our ability to conduct business, accept foreign investments, or list on a U.S. or other foreign exchange because neither the Company nor its PRC Subsidiaries engage in monopolistic behaviors that are subject to these statements or regulatory actions.
Permissions and Approvals
As of the date of this prospectus, except for business license, foreign investment information report to the commerce administrative authority and foreign exchange registration or filing, our consolidated subsidiaries are not required to obtain any other licenses and permits from the PRC government authorities. Our holding company, and our Chinese subsidiaries have obtained all the licenses and permits that are requisite for the business operations in China. However, given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by government authorities, we may be required to obtain certain licenses, permits, filings, permissions or approvals for the functions and services that we provided in the future, or to offer securities, in China.
If we, or our subsidiaries (i) do not receive or maintain such permissions or approvals, should the approval be required in the future by the PRC government, (ii) inadvertently conclude that such permissions or approvals are not required, or (iii) applicable laws, regulations, or interpretations change and we are required to obtain such permissions or approvals in the future, our operations and financial conditions could be materially adversely affected, our ability to offer securities to investors could be significantly limited or completely hindered and our securities may substantially decline in value or be worthless. As of the date of this prospectus, based on Company’s management’s understanding of the current PRC laws and regulations, we will not be required to submit an application to the CSRC for the approval under the M&A Rules for our offshore offerings. However, there remains some uncertainty as to how the M&A Rules will be interpreted or implemented in the context of an overseas offering, and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. These regulatory agencies may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operations in China, delay or restrict the repatriation of the proceeds into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations, as well as the trading price of our securities. The CSRC, the Cyberspace Administration of China or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, to halt any securities offering we may undertake in the future. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and delivery may not occur. In addition, if the CSRC, the Cyberspace Administration of China or other regulatory PRC agencies later promulgate new rules requiring that we obtain more approvals in the future, we may be unable to obtain such approvals or a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding such an approval requirement could have a material adverse effect on the trading price of our securities. These legal and operational risks and uncertainties associated with being based in China may materially and adversely change our operations, affect the value of our ordinary shares, significantly limit or completely hinder our ability to offer or continue to offer securities to investors could cause the value of our securities to significantly decline or be worthless.
PCAOB and the Holding Foreign Companies Accountable Act
Blue Hat also may face risks related to certain PCAOB determinations, which may cause Blue Hat’s securities to be delisted from a U.S. stock exchange or prohibited from being traded over-the-counter in the future under the Holding Foreign Companies Accountable Act (the “HFCAA”), if the PCAOB has determined it is unable to inspect or investigate Blue Hat’s auditor completely for two consecutive years. The delisting or the cessation of trading of Blue Hat’s securities, or the threat of their being delisted or prohibited from being traded, may materially and adversely affect the value of your investment. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act and on December 29, 2022, the Consolidated Appropriations Act, 2023 (the “CAA”) was signed into law,
which officially reduced the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two, thus, would reduce the time before an applicable issuer’s securities may be prohibited from trading or delisted. Currently, with the Statement of Protocol (the “Protocol”) among the China Securities Regulatory Commission (the “CSRC”), the Ministry of Finance of the People’s Republic of China (“the MOF”) and the PCAOB, the PCAOB determined that it was able to inspect and investigate completely PCAOB-registered accounting firms headquartered in mainland China and Hong Kong, However, at any time when the PCAOB encounter impediments to inspections and investigations in mainland China or Hong Kong as a result of positions taken by any authority in either jurisdiction, including by the CSRC or the MOF, the PCAOB may make contrary determinations under the HFCAA. Therefore, whether the PCAOB will continue to conduct inspections and investigations completely to its satisfaction of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of Blue Hat’s, and Blue Hat’s auditor’s, control, including positions taken by authorities of the PRC. See “Risk Factors — The Holding Foreign Companies Accountable Act, or the HFCAA, and the related regulations continue to evolve. Further implementations and interpretations of or amendments to the HFCAA or the related regulations, or a PCAOB determination of its lack of sufficient access to inspect our auditor, might pose regulatory risks to and impose restrictions on us because of our operations in mainland China” included elsewhere in this prospectus for more details.
We are a “foreign private issuer” as defined under the federal securities laws and, as such, are subject to reduced public company reporting requirements. See “Prospectus Summary - Implications of Being a Foreign Private Issuer” for additional information.
Investing in our securities being offered pursuant to this prospectus involves a high degree of risk. You should carefully read and consider the risk factors beginning on page 13 of this prospectus, as well as those included in the periodic and other reports we file with the Securities and Exchange Commission before you make your investment decision.
Neither the U.S. Securities and Exchange Commission nor any state securities commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The offering is being underwritten on a firm commitment basis. We have engaged Maxim Group LLC as our underwriter (“Maxim” or the “Underwriter”). The Underwriter is obligated to take and pay for all of the Units if any such Units are taken. We have granted the Underwriter an option exercisable within 15 days after the closing of the offering, to purchase up to 1,599,999 additional Units, which includes up to 1,599,999 additional Ordinary Shares or Pre-Funded Warrants each to purchase one Ordinary Share, and/or up to 1,599,999 Warrants each to purchase one Ordinary Share, or any combination thereof, to cover over-allotments, representing 15% of the total securities sold in this offering, which may be exercised in portion or in full as determined by the Underwriter, solely to cover the over-allotment. If the Underwriter exercises all or part of this option, it will purchase securities covered by the option at the public offering price that appears on the cover page of this prospectus, less underwriting discounts and commissions. We have agreed to pay the Underwriter the underwriter fees set forth in the table below.
| Per Unit Consisting of One Common Share and One Warrant | Per Unit Consisting of One Pre-funded Warrant and One Warrant | Total without Over-Allotment Option(3) | Total with Over-Allotment Option | |||||||||||||
| Public offering price(1) | $ | $ | ||||||||||||||
| Underwriting discounts and commissions(2) | $ | $ | ||||||||||||||
| Proceeds, before expenses, to us(3) | $ | $ | ||||||||||||||
| (1) | Offering price per Unit is assumed to be US$0.75, which is reference reported sale price of our Ordinary Share, as reported on the Nasdaq Capital Market on February 6, 2026. |
| (2) | The Underwriter’s discount shall equal 7.0% of the gross proceeds of the securities sold by us in this offering. We have also agreed to reimburse the Underwriter for certain expenses. We refer you to the section entitled “Underwriting” of this prospectus for additional information regarding total compensation and other items of value payable to the Underwriter. | |
| (3) | We have granted the Underwriter an option exercisable within 15 days of the date of this prospectus to purchase from us up to 1,599,999 additional Units, which includes up to 1,599,999 additional Ordinary Shares or Pre-Funded Warrants each to purchase one Ordinary Share, and/or up to 1,599,999 Warrants each to purchase one Ordinary Share, or any combination thereof, to cover over-allotments, if any. We have also agreed to reimburse the Underwriter of up to a maximum of $100,000, in the event of a closing of this event, or, of $50,000 in the event that there is not a closing, for out-of-pocket accountable expenses, including legal fees, cost and expenses incurred by the Underwriter in connection with the performance of their services. The total amount of expenses related to this offering is set forth in the section titled “Expenses” on page 101. |
If we complete this offering, net proceeds will be delivered to us on the closing date. We expect to deliver the securities against payment in U.S. dollars in New York, NY to investors on or about February 13, 2026, subject to satisfaction of certain customary closing conditions.
Sole Underwriter
Maxim Group LLC
The date of this prospectus is [ ], 2026
TABLE OF CONTENTS
You should rely only on the information contained in this prospectus or in any free writing prospectus we may authorize to be delivered to you. We have not, and the Underwriter has not, authorized any other person to provide you with additional, different or inconsistent information. If anyone provides you with additional, different or inconsistent information, you should not rely on it. We may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission (the “SEC” or the “Commission”), is effective. We are not, and the Underwriter is not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information appearing in this prospectus is accurate as of any date other than the date on the front cover of this prospectus unless otherwise specified herein. Our business, financial condition, results of operations and prospects may have changed since that date. Information contained on our website does not constitute part of this prospectus.
The market data and other statistical information used throughout this prospectus has been compiled from publicly available information and industry publications. These sources generally state that the information they provide is believed to be reliable however, it is subject to subjective assessments and changes and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any market research and statistical survey. Therefore, the accuracy and completeness of the information are not guaranteed and estimates and beliefs based on such data may not be reliable. In addition, such market data and statistical information may be different from other sources and may not reflect all or even a comprehensive set of the actual events and transactions occurring in the market. Although we are responsible for all of the disclosures contained in this prospectus and we believe that such market data and statistical information is reliable, we have not independently verified its accuracy or completeness. In addition, some data is also based on our good faith estimates and our management’s understanding of industry conditions. Such data involve risks and uncertainties and are subject to change based on various factors, including those discussed under the headings “Forward-Looking Statements” and “Risk Factors” in this prospectus.
i
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements made under “Our Business and “Use of Proceeds” and elsewhere in this prospectus, including in our FY24 Annual Report, or incorporated by reference herein constitute forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” “intends” or “continue,” or the negative of these terms or other comparable terminology.
These forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, statements that contain projections of results of operations or of financial condition, expected capital needs and expenses, statements relating to the research, development, completion and use of our product candidates, and all statements (other than statements of historical facts) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future.
Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. We have based these forward-looking statements on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.
These forward-looking statements include, but are not limited to, statements about:
| ● | our future business development, results of operations and financial condition; |
| ● | expected changes in our net revenues and certain cost or expense items; |
| ● | our ability to attract and retain customers; and |
| ● | trends and competition in the spatial-temporal big-data processing and interactive location-based services market. |
These statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in this in greater detail under the heading “Risk Factors” and elsewhere in this prospectus and the documents incorporated herein by reference. You should not rely upon forward-looking statements as predictions of future events.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this prospectus.
ii
The following are abbreviations and definitions of certain terms used in this document:
| ● | “BH Technology” refers to Blue Hat Technology Ltd. (USA) which was established in USA on July 21, 2023. | |
| ● | “Blue Hat”, the “Company”, “we”, “our” and “us” are to Blue Hat Interactive Entertainment Technology, a Cayman Islands exempted company; | |
| ● | “Blue Hat BVI” refers to Brilliant Hat Limited, a holding company holding all of the outstanding equity of Blue Hat Interactive Entertainment Technology Limited (“Blue Hat HK”) which was established under the laws of the British Virgin Islands in Hong Kong on June 26, 2018. | |
| ● | “Blue Hat Fujian” refers to Fujian Blue Hat Interactive Entertainment Technology Ltd., which was considered a variable interest enterprise, or the VIE, for accounting purposes. On June 8, 2023, the VIE was abolished, and Blue Hat Fujian was deconsolidated. | |
| ● | “Blue Hat HK” refers to Blue Hat Interactive Entertainment Technology Ltd. which was established in Hong Kong on June 26, 2018. | |
| ● | “Blue Hat Hunan” refers to Hunan Engaomei Animation Culture Development Co. Ltd., a PRC limited liability company incorporated on October 19, 2017. | |
| ● | “Blue Hat Pingxiang” refers to Pingxiang Blue Hat Technology Co. Ltd., a PRC limited liability company incorporated on September 10, 2018, divested due to the abolition of the VIE on June 8, 2023 | |
| ● | “Blue Hat WFOE” refers to Xiamen Duwei Consulting Management Co. Ltd., a PRC limited liability company incorporated on October 19, 2017, and its subsidiaries. | |
| ● | “Board” refers to the board of directors of the Company. | |
| ● | “China” or the “PRC” are to the People’s Republic of China, including Taiwan, Hong Kong and Macau. | |
| ● | “Fresh Joy” refers to Fresh Joy Entertainment Ltd, a holding company 100% owned by Blue Hat Interactive Entertainment Technology Limited. Divested due to the abolition of the VIE on June 8, 2023. | |
| ● | “Fujian Blue Hat” refers to Fujian Blue Hat Group CO. Ltd which was established under the laws of the PRC on August 23, 2021, and its subsidiaries. | |
| ● | “FY24 Annual Report” refers to the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2024, which was filed with SEC on April 30, 2025. | |
| ● | “Golden Alpha” refers to Golden Alpha Strategy Limited which was established in Hong Kong on April 18, 2023. | |
| ● | “Golden Strategy” refers to Golden Strategy Ltd which was established under the laws of the British Virgin Islands in Hong Kong on April 3, 2023. | |
| ● | “PRC Subsidiaries” refers to the operating companies of Blue Hat, which includes Blue Hat WFOE, and Fujian Blue Hat and Golden Alpha. | |
| ● | “RMB” and “Renminbi” refer to the legal currency of China; and | |
| ● | “US$,” “U.S. dollars,” “$,” and “dollars” refer to the legal currency of the United States. |
iii
This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before deciding to invest in our ordinary shares. You should read the entire prospectus, including the information incorporated by reference herein, carefully, including the section titled “Risk Factors” included in this prospectus and our consolidated financial statements and related notes incorporated by reference herein before making an investment decision. Some of the statements in this summary constitute forward-looking statements. See the section titled “Special Note Regarding Forward-Looking Statements.” Certain figures included in this section have been rounded for ease of presentation and, as a result, percentages may not sum to 100%.
Business Overview
Blue Hat is a holding company incorporated in the Cayman Islands and is not a Chinese operating company. As an investor to us, you will only hold equity interest of us and will never directly hold equity interests in our Chinese operating entities. Through the operations of our subsidiaries, Blue Hat primarily operates a gold and diamond trading and supply chain business. Our business model encompasses physical gold trading, diamond trading, gold derivatives trading, and the development of AI-enabled trading platforms. In August 2024, we completed our first major gold acquisition of 1,000 kilograms for approximately $64.56 million from Macau Rongxin Precious Metals Technology Co., Ltd., marking our entry into large-scale gold trading. During the first half of 2025, the Company completed its strategic transition from diamond trading to gold trading as its primary business focus. The Company’s diamond trading operations, which generated $13.08 million in revenue during the first half of 2024, were discontinued in 2025 to allow the Company to concentrate resources on the more capital-intensive gold trading and supply chain business. For the year ended December 31, 2024, our diamond trading operation generated $18.72 million in revenue and for the six months ended June 30, 2025, our gold trading operation generated $13.33 million in revenue, respectively.
Prior to our strategic shift, we were an advanced high-tech solutions provider focusing on the production, development, and operation of augmented reality (AR) interactive entertainment games and toys. Impacted by the pandemic, we underwent a restructuring of our company’s operations in 2023, and successfully shifted our business focus towards commodity trading, including chemicals, jewelry, and precious metals such as gold.
On April 17, 2025, Golden Alpha Strategy Sdn. Bhd (“Golden Alpha Malaysia”), a wholly owned subsidiary of the Company, is incorporated in Malaysia, currently Golden Alpha Malaysia does not have any operations as of the date of this prospectus.
The chart below summarizes our corporate legal structure and identifies our subsidiaries:
1
Key Business Operations
Our operations are supported by key licenses and strategic partnerships. Our Hong Kong subsidiary, Golden Alpha Strategy Ltd., holds a Category A Registration for dealing in precious metals from the Hong Kong Customs and Excise Department.
We create value by providing capital, technology, and connections across the gold supply chain. Our target customers include gold refineries, wholesalers, and retailers. We aim to address industry challenges such as fragmented markets, limited financing channels, and operational inefficiencies through our AI-enabled trading platforms and supply chain solutions. Our management team believes the gold industry is transitioning from rapid growth to high-quality development, presenting strategic opportunities for market consolidation and technological innovation.
In addition to our gold trading operations, we maintain a robust diamond trading business that began in the third quarter of 2023. Our diamond trading operations have quickly grown to become a significant revenue contributor, generating $18.72 million in revenue for the year ended December 31, 2024. We maintain relationships with diamond suppliers and have established sales channels to jewelry manufacturers and retailers. Unlike our gold business which is affected by macroeconomic factors like central bank policy and inflation expectations, our diamond trading business is more closely tied to consumer luxury spending and jewelry industry trends.
The growth of our business is driven by several key market factors. We are seeing increased institutional demand, particularly from central banks expanding their gold reserves. The gold market is also transitioning from a fragmented structure to a more consolidated one, creating opportunities for well-positioned companies. Additionally, there is rising demand for efficient trading solutions powered by advanced technology.
Looking ahead, we plan to expand our business beyond physical gold trading into derivatives trading. This expansion includes the development of sophisticated online trading platforms and enhancement of our AI-enabled services. Geographically, we aim to extend our presence into European and North American markets. Unlike traditional retail-focused precious metals businesses, our operations are not significantly affected by seasonal factors as gold trading occurs continuously throughout the year in both institutional and retail markets.
Our Products and Services
As of the date of this prospectus, our business focuses primarily on gold and diamond trading and related services.
In the third quarter of 2023, we expanded into the diamond trading business, which has become a significant revenue contributor. For the year ended December 31, 2024, our diamond trading operations generated $18.72 million in revenue with a gross profit margin of 8.26%. For the six months ended June 30, 2025, our gold trading operations generated $13.33 million in revenue, with total gross margin increased to 36.54%. We source and supply diamonds to wholesalers and retailers in the jewelry industry.
In August 2024, we acquired 1,000 kilograms of gold at a price of approximately $64.56 per gram. With the rise in international gold prices, the value of our gold holdings has seen significant appreciation, reaching approximately $3,000 per ounce by March 2025. In August 2025, we acquired 500 kilograms of gold at $100.92 per gram. November 2025, we acquired 200 kilograms of gold at $120.94 per gram. These acquisitions have not only strengthened our financial position but also provided a solid foundation for our planned expansion in the gold industry chain.
In addition, we are developing:
| ● | Gold Supply Chain Services: We provide financing, logistics, and connection services to participants across the gold supply chain, from refineries to wholesalers and retailers. |
2
| ● | Intelligent Trading Platforms: We are developing AI-enabled platforms to enhance the efficiency and transparency of gold trading. |
Prior to our business transition in 2022-2023, the Company’s product portfolio included interactive educational materials, mobile games, toys with mobile game features, and immersive educational courses, as well as Internet Data Center services. We have since divested these previous business lines to focus on our gold trading and supply chain operations. After our completion of the strategic transition to shift the business focus from diamond trading to gold trading, Company will further capitalize on structural opportunities in the gold industry, including increased institutional demand, market consolidation trends, and the development of AI-enabled trading platforms.
Summary of Operation Results
Total revenues were US$13.33 million and US$18.72 million for the six months ended June 30, 2025 and for the year ended December 31, 2024. Gross profit was US$4.87 million and US$1.55 million for the six months ended June 30, 2025 and for the year ended December 31, 2024. Total gross margin increased to 36.54% and 8.26% for the six months ended June 30, 2025 and for the year ended December 31, 2024.
Total operating expenses were US$0.82 million and US$4.46 million for the six months ended June 30, 2025 and for the year ended December 31, 2024. Net loss was US$0.86 million and US$9.52 million for the six months ended June 30, 2025 and for the year ended December 31, 2024.
As of June 30, 2025, Blue Hat had cash and cash equivalents of US$1.07 million, working capital of US$78.88 million and total shareholders’ equity (excluding the non-controlling interest) of US$81.47 million, compared to cash and cash equivalents of US$15,770, working capital of US$29.42 million and total shareholders’ equity (excluding the non-controlling interest) of US$32.14 million, respectively, as of December 31, 2024.
Technology and Intellectual Property
We are now adapting and applying these technological capabilities to enhance our gold trading business and empower industry participants with AI technology, including providing efficient marketing content creation services for jewelers and data analysis services for gold derivatives traders.
Cash Transfers with Subsidiaries
Blue Hat and its subsidiaries usually operate independently and transfer funds through loans and intercompany transactions. We raised capital for a total amount of $25.182 million from 2020 to 2024 through various financings. For the previous three years, Blue Hat HK, our wholly-owned Hong Kong intermediary holding subsidiary, passed the funds from the investors in these financings to Blue Hat WOFE and other subsidiaries, through intercompany transactions.
Certain Operational Risks Related to Doing Business in China
Permissions and Approvals
The table below lists all the permissions and approvals the Company and its subsidiaries have obtained as of the date of the prospectus. In the view of the management team of the Company, the Company and its subsidiaries have obtained all the permissions and approvals the Company and its subsidiaries are required to hold to operate business:
3
| No. | Name of the Company | License No. | License/Permission | Established Date | Validity |
| 1 | Blue Hat Interactive Entertainment Technology | WC-338512 | Business License | 6/13/2018 | Long-term |
| 2 | Brilliant Hat Limited | 1983687 | Business License | 6/26/2018 | Long-term |
| 3 | Golden Strategy Ltd | 2121323 | Business License | 4/3/2023 | Long-term |
| 4 | Blue Hat Interactive Entertainment Technology Limited | 2714615 | Business License | 6/26/2018 | Long-term |
| 5 | Golden Alpha Strategy Limited | 3271611 | Business License | 4/18/2023 | Long-term |
| 6 | BLUE HAT TECHNOLOGY LLC | 937615 | Business License | 7/21/2023 | Long-term |
| 7 | Fujian Blue Hat Group Co., Ltd. | 91350100MA8TTRRQ4A | Business License Record Registration Form for Foreign |
8/23/2021 | 8/22/2051 |
| 8 | Xiamen Shengruihao Technology Co., Ltd | 91350200MA8TGQ815M | Business License | 6/30/2021 | 6/29/2071 |
| 9 | Xiamen Duwei Consulting Management Co., Ltd. | 91350200MA31XW6W0Q | Business License Record Registration Form for Foreign |
7/26/2018 | 7/25/2048 |
| 10 | Xiamen Bluehat Research Institution of Education Co., Ltd. | 91350200MA8RFNMY91 | Business License | 2/20/2021 | 2/19/2071 |
| 11 | Hunan Engaomei Animation Culture Development Co., Ltd. | 91430111MA4M6YX69X | Business License | 10/19/2017 | 10/18/2067 |
| 12 | Fujian Youth Hand in Hand Educational Technology Co., Ltd | 91350200MA2YKHW78G | Business License | 9/18/2017 | 9/17/2067 |
| 13 | Fuzhou Qiande Educational Technology Co., Ltd | 91350102MA8RQTEH5R | Business License | 3/24/2021 | Long-term |
| 14 | Chongqing Duwei Chuangda Electronic Technology Co., Ltd | 91500103MACMEAMG3Y | Business License | 6/13/2023 | Long-term |
| 15 | Guangzhou Huangxin Enterprise Management Co., Ltd. | 91440106MACPKAYJXM | Business License Record Registration Form for Foreign |
7/5/2023 | Long-term |
| 16 | Fuzhou Blue Financial Investment Co.,Ltd | 91350111MADKTE9B27 | Business License | 5/8/2024 | Long-term |
| 17 | Fuzhou Po Teishin Supply Chain Co., Ltd | 91350111MADP37HFX2 | Business License | 6/11/2024 | Long-term |
| 18 | Golden Alpha Strategy Limited | A-B-24-05-07315 | Certificate of Registration for Category A Registrant | 05/24/2024 | Long-term |
4
PRC Legal Regulations
New Overseas Listing Rules came into effect on March 31, 2023. The New Overseas Listing Rules apply to overseas securities offerings and/or listings conducted by (i) companies incorporated in the PRC, or PRC domestic companies, directly and (ii) companies incorporated overseas with operations primarily in the PRC and valued on the basis of interests in PRC domestic companies, or indirect offerings. Under the New Overseas Listing Rules, a filing-based regulatory system applies to “indirect overseas offerings and listings” of companies in mainland China, which refers to securities offerings and listings in an overseas market made under the name of an offshore entity but based on the underlying equity, assets, earnings or other similar rights of a company in mainland China that operates its main business in mainland China. The New Overseas Listing Rules state that, any post-listing follow-on offering by an issuer in an overseas market, including issuance of shares, convertible notes, exchangeable notes and preferred shares, shall be subject to filing requirement within three business days after the completion of the offering. Additionally, if we do not obtain the permissions and approvals of the filing procedure for any subsequent offering in a timely manner under PRC laws and regulations, we may be subject to investigations by competent PRC regulators, fines or penalties, ordered to suspend our relevant operations and rectify any non-compliance, prohibited from engaging in relevant business or conducting any offering, and these risks could result in a material adverse change in our operations, limit our ability to continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. Based on our understanding of the rules, we are required to submit the filing report to the CSRC within three business days upon the completion of this offering pursuant to this prospectus. It is uncertain whether such filing can be completed or how long it will take to complete such filing. Any delay in completing such filing procedures might affect the other filing procedures with respect to other applicable circumstances, under the New Overseas Listing Rules in the future, such as the secondary listing, primary listing, spin-off listing and making overseas offering and listing anew after being delisted from an overseas exchange, which might affect our future public market financings and capital market transactions. To date, there are uncertainties in the interpretation and enforcement of these new laws and guidelines, which could materially and adversely impact our business and financial outlook and may impact our ability to accept foreign investments, or continue to list on a U.S. or other foreign exchange.
According to Article 7 of the New CAC Measures, which was promulgated by the Cyber Administration of China, together with 12 other departments on December 28, 2021 and entered into force and effect on February 15, 2022, a network platform operator that holds personal information of more than one million users shall report to Cybersecurity Review Office for cybersecurity review when it seeks to list its securities overseas. During such reviews, the network platform operator may be required to take measures to prevent and mitigate risk, and such measures could cause disruptions to our operations. Cybersecurity review could also result in negative publicity with respect to the network platform operator and diversion of its managerial and financial resources, which could materially and adversely affect its business, financial conditions, and results of operations. The New CAC Measures do not apply to the Company or any of its subsidiaries as of the date of this prospectus, as neither Blue Hat nor any of its subsidiaries is critical information infrastructure operators purchasing network products and services or online platform operators carrying out data processing activities that affect or may affect national security. In addition, Blue Hat holds less than 1 million users’ personal information. Therefore, we believe we are not subject to the cybersecurity review under the New CAC Measures. As of the date of this prospectus, we have not been involved in any investigations on cybersecurity review initiated by the CAC, and we have not received any warning, sanction or penalty in such respect. We believe that we are compliant with the regulations or policies that have been issued by the CAC as of the date of this prospectus. As of the date of this prospectus, for entities that have been listed overseas before the implementation of the New CAC Measures and intend to issue additional shares rather than doing a public listing, the New CAC Measures do not clearly stipulate that such entities or their subsidiaries, as network platform operators, shall report to Cybersecurity Review Office for cybersecurity review. The New CAC Measures remain unclear on whether such requirements will be applicable to companies which are already listed in the United States, such as us. It also remains uncertain whether any future regulatory changes would impose additional restrictions on companies like us. The aforementioned policies and any related implementation rules to be enacted may subject us to additional compliance requirements in the future. As these opinions were recently issued, official guidance and interpretation of the opinions remain unclear in several respects at this time. Therefore, we cannot assure you that we will remain fully compliant with all new regulatory requirements of these opinions or any future implementation rules on a timely basis, or at all.
For a more detailed discussions related the PRC legal regulations, please see “Regulations” included elsewhere in this prospectus for more details.
5
Corporate Information
Our principal executive offices are located at 7th Floor, Building C, No. 1010 Anling Road Huli District, Xiamen, China 361009. The Company’s Transfer Agent is VStock Transfer, LLC, with a mailing address of 18 Lafayette Place, Woodmere, NY 11598. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. Our agent for service of process in the United States is Puglisi & Associates, 850 Library Avenue, Suite 204, Newark, Delaware 19711.
Risk Factors Summary
The following summary highlights some of the principal risks that could adversely affect our business, financial condition or results of operations. This summary is not complete and the risks summarized below are not the only risks we face. These risks are discussed more fully further below in this section entitled “Risk Factors.” These risks include, but are not limited to, the following:
| ● | Our recent transition to the gold and diamond trading business presents operational and financial risks. | |
| ● | We operate in the highly competitive gold and diamond trading markets where established competitors may outperform us. | |
| ● | We will need to expand our organization, and we may experience difficulties in realizing or managing this growth. | |
| ● | Failure to adequately contribute to employee benefits plans required by PRC regulations. | |
| ● | Gold price volatility may adversely impact our trading operations, inventory valuations, and financial performance. | |
| ● | Diamond price volatility and changing consumer preferences may adversely impact our diamond trading operations, inventory valuations, and financial performance. | |
| ● | Inflationary pressures on operational costs may adversely affect our gold trading margins and profitability. | |
| ● | Evolving regulatory requirements for gold trading and cross-border transactions may increase compliance costs and restrict our operations. | |
| ● | Our gold and diamond trading operations depend on reliable supply chains and accurate market assessments, which involve risks beyond our control.. | |
| ● | The storage and transportation of our physical gold and diamond holdings present significant security and insurance challenges. | |
| ● | The market for high value commodities is inherently unpredictable. | |
| ● | Liquidity constraints in the gold and diamond markets could impair our trading operations. | |
| ● | We may not be able to consolidate the financial results of some of our affiliated companies or such consolidation could materially adversely affect our operating results and financial condition. | |
| ● | Our current corporate structure and business operations may be affected by the Foreign Investment Law. |
| ● | Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets. |
6
| ● | Changes in China’s economic, political or legal system or social conditions or government policies could have a material adverse effect on our business and operations. | |
| ● | The economy of China had experienced unprecedented growth. This growth has slowed in the recent years, and if the growth of the economy continues to slow or if the economy contracts, our financial condition may be materially and adversely affected. | |
| ● | A severe or prolonged downturn in the Chinese and/or global economy could materially and adversely affect our business, financial condition and operating results. | |
| ● | Compliance with China’s new Data Security Law, Measures on Cybersecurity Review (revised draft for public consultation), Personal Information Protection Law (second draft for consultation), regulations and guidelines relating to the multi-level protection scheme and any other future laws and regulations may entail significant expenses and could materially affect our business. | |
| ● | Recent greater oversight by the CAC over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business. | |
| ● | You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in the annual report based on foreign laws. | |
| ● | We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business. | |
| ● | Fluctuations in exchange rates could have a material and adverse effect on our operations. | |
| ● | Governmental control of currency conversion may limit our ability to utilize our net revenues effectively. | |
| ● | PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us. | |
| ● | Failure to comply with PRC regulations regarding the registration requirements for employee equity incentive plans may subject our PRC citizen employees or us to fines and other legal or administrative sanctions. | |
| ● | PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay us from using the proceeds of offerings from the U.S. to make loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business. |
| ● | We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies. | |
| ● | Our use of third parties manufacturers to produce our products presents risks to our business. | |
| ● | The Holding Foreign Companies Accountable Act, or the HFCAA, and the related regulations continue to evolve. Further implementations and interpretations of or amendments to the HFCAA or the related regulations, or a PCAOB determination of its lack of sufficient access to inspect our auditor, might pose regulatory risks to and impose restrictions on us because of our operations in mainland China. |
7
| ● | An active trading market for our ordinary shares may not be sustained. | |
| ● | Our ordinary shares are considered to be penny stock. | |
| ● | Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud. | |
| ● | We have identified material weaknesses in our internal control over financial reporting. | |
| ● | Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain. | |
| ● | Securities analysts may not publish favorable research or reports about our business or may publish no information at all, which could cause our stock price or trading volume to decline. | |
| ● | Recently introduced economic substance legislation of the Cayman Islands may impact us and our operations. | |
| ● | You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law. | |
| ● | Certain judgments obtained against us by our shareholders may not be enforceable. | |
| ● | We have in the past and may in the future rely in part on equity issuances, which will not require shareholder approval, to fund our growth, and such equity issuances could dilute your ownership interests and may depress the market price of our Ordinary Shares. | |
| ● | The market price of our Ordinary Shares has been and may in the future be subject to significant fluctuations. | |
| ● | We may experience rapid and substantial share price volatility unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Ordinary Shares. | |
| ● | The sale or availability for sale of substantial amounts of our Ordinary Shares could adversely affect their market price. | |
| ● | As a result of the price resets and subsequent share adjustments in the Warrants and/or if the Warrants are exercised by way of a zero cash exercise, shareholders are likely to suffer substantial dilution and see a significant decrease in the value of their Ordinary Shares. | |
| ● | Nasdaq may halt trading in our Ordinary Shares on Nasdaq or delist our Ordinary Shares for public interest concerns as a result of this offering. | |
| ● | We will likely not receive any additional funds upon the exercise of the Warrants. | |
| ● | Since we have broad discretion in how we use the proceeds from this offering, we may use the proceeds in ways with which you disagree. | |
| ● | The public offering price in this offering will be set by our Board and does not necessarily indicate the actual or market value of our Ordinary Shares. | |
| ● | There is no public market for the Warrants or Pre-funded Warrants in this offering. | |
| ● | The amendment to the Nasdaq’s continued listing requirements could result in our inability to maintain our listing. |
Implications of Being a Foreign Private Issuer
Our status as a foreign private issuer exempts us from compliance with certain laws and regulations of the SEC and certain regulations of the NASDAQ. Consequently, we are not subject to all of the disclosure requirements applicable to U.S. public companies. For example, we are exempt from certain rules under the U.S. Securities and Exchange Act of 1934, as amended (“Exchange Act”), that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, our executive officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies. Accordingly, there may be less publicly available information concerning our company than there is for U.S. public companies.
8
In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are non-accelerated filers are required to file their annual report on Form 10-K within 90 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation FD (Fair Disclosure) of the Exchange Act, aimed at preventing issuers from making selective disclosures of material information.
We may take advantage of these exemptions until such time as we no longer qualify as a foreign private issuer. In order to maintain our current status as a foreign private issuer, either a majority of our outstanding voting securities must be directly or indirectly held of record by non-residents of the United States, or, if a majority of our outstanding voting securities are directly or indirectly held of record by residents of the United States, a majority of our executive officers or directors may not be United States citizens or residents, more than 50% of our assets cannot be located in the United States and our business must be administered principally outside the United States.
We have taken advantage of certain of these reduced reporting and other requirements in this prospectus. Accordingly, the information contained herein may be different from the information you receive from other public companies in the United States in which you may hold equity securities.
9
| Issuer | Blue Hat Interactive Entertainment Technology | |
| Securities offered by us |
10,666,666 Units, at an assumed public offering price of $0.75 per Unit, which is based on the closing price of our Ordinary Shares on Nasdaq on February 6, 2026. The actual public offering price per Unit will be determined between the investors in the offering, along with consultation with the Underwriter, and may be at a discount to the current market price of our Ordinary Shares. Therefore, the assumed public offering price used throughout this prospectus may not be indicative of the final public offering price.
Each Unit consists of one Ordinary Share and one Warrant. We will not issue any fractional Warrants in this offering and will round down the number of Warrants any purchaser of Units would otherwise receive to the nearest whole number.
We are also offering to each purchaser whose purchase of Units would otherwise result in the purchaser’s, together with its affiliates, beneficial ownership exceeding 4.99% (or, at the election of the purchaser, up to 9.99%) of our outstanding Ordinary Shares immediately following the consummation of this offering, the opportunity to purchase Units consisting of one Pre-funded Warrant and one Warrant. Each Pre-funded Warrant will be exercisable for one Ordinary Share. Subject to limited exceptions, a holder of Pre-funded Warrants will not have the right to exercise any portion of its Pre-funded Warrants if the holder, together with its affiliates, would beneficially own in excess of 4.99% (or, at the election of the holder, up to 9.99%) of the number of Ordinary Shares outstanding immediately after giving effect to such exercise. The purchase price of each Unit including a Pre-funded Warrant will be equal to the price per Unit including one Ordinary Share, minus $0.0001, and the exercise price of each Pre-funded Warrant will be $0.0001 per Ordinary Share. The Pre-funded Warrants will be immediately exercisable (subject to the beneficial ownership cap) and may be exercised at any time until all of the Pre-funded Warrants are exercised in full. For each Unit including a Pre-funded Warrant we sell, the number of Units including one Ordinary Share that we are offering will be decreased on a one-for-one basis. The Ordinary Shares and Pre-funded Warrants, if any, can each be purchased in this offering only with the accompanying Warrant as part of a Unit, but the components of the Units will immediately separate upon issuance. See “Description of the Securities We Are Offering” in this prospectus for more information.
In addition, we have granted the Underwriter an option exercisable within 15 days of the closing of this offering to purchase from us up to 1,599,999 additional Units, which includes up to 1,599,999 additional Ordinary Shares or Pre-Funded Warrants each to purchase one Ordinary Share, and/or up to 1,599,999 Warrants each to purchase one Ordinary Share, or any combination thereof, to cover over-allotments, if any. If the Underwriter’s over-allotment option for Warrants is exercised in full to purchase 1,599,999 Warrants and all such Warrants are exercised on a zero cash basis, a maximum of 6,400,000 Ordinary Shares could be issued upon such zero cash exercise without payment to the Company of any additional cash. If all of the Warrants offered in this offering, including those subject to the Underwriter’s over-allotment option for Warrants, are exercised on a zero cash basis, a maximum of 49,066,666 Ordinary Shares could be issued upon such zero cash exercise without payment to the Company of any additional cash.
This prospectus also relates to the offering of the Ordinary Shares issuable upon exercise of the Warrants and Pre-funded Warrants. |
10
| Description of the Warrants |
Each Warrant will have an exercise price of $0.75 per share (100% of the public offering price of each Unit sold in this offering), will be exercisable upon issuance and will expire one (1) year from issuance. Each Warrant is exercisable for one Ordinary Share, subject to adjustment in the event of stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting our Ordinary Shares as described herein. This prospectus also relates to the offering of the Ordinary Shares issuable upon exercise of the Warrants.
The exercise price for the Warrants will be adjusted downward on each of the 2nd and 5th trading day following the issuance date (each, a “Reset Date”) to the price that is equal to 70% and 50%, respectively of the initial exercise price, respectively (the “Basis Price”). If the exercise price is so adjusted on a Reset Date, the number of Ordinary Shares underlying the Warrants will also be proportionally increased on such Reset Date so that the applicable Reset Price multiplied by the increased number of Ordinary Shares equal the aggregate proceeds that would have resulted from the full exercise of the Warrants immediately prior to the applicable Reset Date. The Warrants also contain certain mechanisms for cashless exercise, including zero cash exercise pursuant to which holders of Warrants have the option, upon exercise and for no additional cash consideration, to receive an aggregate number of Ordinary Shares equal to the product of (x) the aggregate number of Ordinary Shares that would be issuable upon a cash exercise of the Warrant and (y) 2.
Accordingly, we believe it is highly unlikely that a holder of the Warrants would pay an exercise price in cash to receive additional Ordinary Share underlying the Warrants when the holder could instead choose the zero cash exercise option and pay no cash to receive more Ordinary Shares than they would receive if they did pay an exercise price. As a result, we will likely not receive any additional funds and do not expect to receive any additional funds upon the exercise of the Warrants.
As an example, for each Unit that an investor purchases in this offering at the offering price of $0.75 per Unit, the investor will receive one Ordinary Share and one Warrant each to purchase one Ordinary Share at an initial exercise price of $0.75 per Ordinary Share. Giving effect solely to the adjustment on the first Reset Date and not giving effect to the zero cash exercise option, on the first Reset Date, the Warrants purchased by the investors will become exercisable for a maximum of 15,238,095 Ordinary Shares at an exercise price of $0.525 per Ordinary Share If such Warrants are then exercised at such time based on the zero cash exercise option, the Warrants would be exercisable into 30,476,190 Ordinary Shares. If the Warrants remain outstanding as of the second Reset Date, giving effect solely to the potential adjustment on the second Reset Date and not giving effect to the zero cash exercise option, on the second Reset Date, the Warrants will become exercisable for a maximum of 21,333,333 Ordinary Shares at an exercise price of $0.375 per Ordinary Share. If such Warrants are then exercised at such time based on the zero cash exercise option, the Warrants would be exercisable into 42,666,666 Ordinary Shares. Accordingly, if all of the Warrants offered to investors in this offering are exercised on a zero cash basis, a maximum of 42,666,666 Ordinary Shares could be issued upon such zero cash exercise, without payment to the Company of any additional cash. For the avoidance of doubt, the lower the closing price of our Ordinary Shares on the Nasdaq Capital Market immediately prior to the effectiveness of the registration statement of which this prospectus forms a part (which will be no more than the public offering price per Unit in this offering), the more shares that will be issuable pursuant to the Warrants as a result of each reset (subject to the restriction that in no event shall the exercise price of the Warrants be reduced on such reset dates below a floor price of $0.15 per share, which is 20% of the Nasdaq Minimum Price, at an assumed offering price of $0.75 per share, which is the closing price of the Ordinary shares as of February 6, 2026).
For the avoidance of doubt, the lower that the stock price of our Ordinary Shares is on the First Reset Date and Second Reset Date, as applicable, the more shares that will be issuable pursuant to the Warrants as a result of the each reset, subject to the floor price of 20% of the Nasdaq Minimum Price on the date preceding execution of the underwriting agreement, which will not be more than the per unit offering price as it relates to the First Reset and the floor price of 20% of the Nasdaq Minimum Price on the date preceding execution of the underwriting agreement as it relates to the Second Reset.
For more information regarding the Warrants, you should carefully read the section titled “Description of the Securities We Are Offering” in this prospectus. | |
| Ordinary Shares outstanding immediately prior to this offering | 36,926,284 Ordinary Shares |
11
| Ordinary Shares to be outstanding immediately after this offering1 |
Assuming no exercise of the Over-Allotment Option and no issuance of Pre-funded Warrants: (i) 47,592,950 Ordinary Shares, assuming and no exercise of the Warrants; or, (ii) at the assumed public offering price of $0.75 per Unit, if all of the Warrants offered to investors, in this offering are exercised on a zero cash basis after the second Reset Date, 90,259,616 Ordinary Shares.
Assuming full exercise of the Over-Allotment Option and no issuance of Pre-funded Warrants (i) 49,192,949 Ordinary Shares, assuming no exercise of the Warrants; or (ii) at the assumed public offering price of $0.75 per Unit, if the Underwriter exercises the over-allotment in full and all of the Warrants offered to investors upon the exercise of the Underwriter’s over-allotment option are exercised on a zero cash basis, an aggregate of 49,066,666 Ordinary Shares could be issued upon such zero cash exercise without payment to the Company of any additional cash and a total of 98,259,615 Ordinary Shares would be outstanding. | |
| Use of proceeds |
We estimate that the net proceeds from this offering will be approximately $7.7 million (or $8.9 million if the Underwriter exercises the Over-Allotment Options to purchase additional Units in full), after deducting the Underwriter’s fees, reimbursement of the Underwriter’s expenses, and the estimated offering expenses payable by us, assuming no issuance of Pre-funded Warrants and no exercise of the Warrants issued in this offering.
We anticipate using the net proceeds of this offering primarily for the working capital and other general corporate purposes. See “Use of Proceeds” on page 39 for additional information.
| |
| The foregoing represents our current intentions with respect to the use of the net proceeds of this offering based upon our present plans and business conditions, but our management will have significant flexibility and discretion in applying the net proceeds. The occurrence of unforeseen events or changed business conditions could result in the application of the net proceeds of this offering in a manner other than as described above. | ||
| Dividend policy | We have not previously declared, or paid cash dividends and we have no plan to declare or pay any dividends in the near future on our shares. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business. See “Dividend Policy” on page 83 for additional information. | |
| Lock-up | Each of our executive officers, directors, and any other holder(s) of five percent (5.0%) or more of the Ordinary Shares of the Company as of the date this prospectus is effective has agreed that they will not offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any securities of the Company without the Underwriter’s prior written consent, during the six months period from the closing of the offering, and we have agreed to similar restrictions on the issuance, sale, disposal and registration (subject to certain exceptions) of our securities for six months following the closing of this offering, subject to certain exemptions. | |
| Listing | Our Ordinary Shares are listed on Nasdaq under the symbol “BHAT”. There is no established public trading market for the Warrants or the Pre-funded Warrants and we do not expect such market to develop. We do not intend to list the Warrants or Pre-funded Warrants on any securities exchange or other trading market. The Transfer Agent and Registrar for the Company’s Ordinary Shares is VStock Transfer, LLC, with an address at 18 Lafayette Place, Woodmere, NY 11598. | |
| Risk factors | An investment in our securities involves substantial risks. You should be aware that Nasdaq may halt trading in our Ordinary Shares and/or delist our Ordinary Shares for public interest concerns. See “Risk Factors — Nasdaq may halt trading in our Ordinary Shares on Nasdaq or delist our Ordinary Shares for public interest concerns as a result of this offering.” You should read this prospectus carefully, including the section entitled “Risk Factors” and the financial statements and the related notes to those statements included elsewhere in this prospectus before investing in our securities. | |
| (1) | Based on 36,926,284 Ordinary Shares issued and outstanding as of February 6, 2026. |
12
An investment in our Ordinary Shares involves a high degree of risk. We operate in a dynamic and rapidly changing industry that involves numerous risks and uncertainties. You should carefully consider the risks and uncertainties described below. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition or results of operations could be materially and adversely affected by any of the following risks or additional risks and uncertainties that are currently immaterial or unknown. If any of these risks actually occur, our business, financial condition, operating results or cash flows could be materially adversely affected. This could cause the trading price of the Ordinary Shares to decline, and you may lose all or part of your investment.
Risks Related to Our Business
Our recent transition to the gold and diamond trading business presents operational and financial risks.
In 2023 to 2024, we strategically shifted our business model to focus on gold and diamond trading and supply chain operations, which represents a significant departure from our previous business. While we have completed our first major gold acquisition and established a significant diamond and gold trading operation that generated $18.72 million and $13.33 million in revenue for the year ended December 31, 2024, and for the six months ended June 30, 2025, respectively, we have limited operating history in these specific sectors. Our success depends on our ability to effectively execute our new business model, manage price volatility in both gold and diamond markets, establish reliable supply chains, and develop our AI-enabled trading platforms. Our management team’s experience in these industries is developing, and we face competition from established gold and diamond trading companies with longer track records. If we cannot effectively implement our strategic plans and generate revenues that exceed expenses on a consistent basis in these new business areas, our financial condition and prospects will be materially adversely affected.
We operate in the highly competitive gold and diamond trading markets where established competitors may outperform us.
The gold and diamond trading and supply chain industries are characterized by intense competition from well-established firms with significant resources. Our competitors in the gold trading sector include major financial institutions, large commodity trading houses, and specialized precious metals dealers, many of which have decades of experience, substantial financial resources, established client relationships, and sophisticated risk management systems. In the diamond trading sector, we compete with established diamond wholesalers, jewelry manufacturers, and specialized diamond traders with deep industry relationships and access to premium diamond sources. In the Shenzhen Shuibei market, where we are developing our presence, we face competition from thousands of established gold and jewelry trading entities generating over RMB 1 trillion in annual transaction volume. These competitors may have advantages in sourcing gold and diamonds at favorable prices, accessing financing on better terms, utilizing advanced trading technologies, and managing market volatility. Our inability to compete effectively could result in lower trading volumes, reduced profit margins, and limitations on our ability to develop our gold and diamond supply chain businesses, which would adversely affect our financial performance.
Our business depends in large part on the success of our vendors and outsourcers, and our brand and reputation may be harmed by actions taken by third parties that are outside of our control. In addition, any material failure, inadequacy, or interruption resulting from such vendors or outsourcings could harm our ability to effectively operate our business.
We rely on vendors and outsourcing relationships with third parties for services and systems including manufacturing, transportation and logistics. Any shortcoming of a vendor or outsourcer, particularly an issue affecting the quality of these services or systems, may be attributed by customers to us, thus damaging our reputation and brand value, and potentially affecting our results of operations. In addition, problems with transitioning these services and systems to or operating failures with these vendors and outsourcers could cause delays in product sales, and reduce efficiency of our operations, and significant capital investments could be required to remediate the problem.
13
Our future success depends on our ability to retain key executives and to attract, retain and motivate qualified personnel.
We are highly dependent on the principal members of our executive team listed in the section entitled “Management” located elsewhere in this prospectus, the loss of whose services may adversely impact the achievement of our objectives. Recruiting and retaining other qualified employees for our business, including scientific and technical personnel, will also be critical to our success. Competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous companies for individuals with similar skill sets. The inability to recruit or loss of the services of any executive or key employee could adversely affect our business.
We will need to expand our organization, and we may experience difficulties in realizing or managing this growth, which could disrupt our operations.
As of December 31, 2025, we had 15 employees, all of which were full-time employees. As our company matures, we expect to expand our employee base to increase our sales and marketing department. Future growth would impose significant additional responsibilities on our management, including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and contractors. Also, our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to realizing or managing these growth activities. We may not be able to realize such growth or expansion at all. We may not be able to effectively manage the expansion of our operations, even if we realize such expansion which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Future growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of our existing or future product candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and grow revenue could be reduced, and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize our product candidates, if approved, and compete effectively will depend, in part, on our ability to effectively realize and manage future growth.
Failure to make adequate contributions to various employee benefits plans as required by PRC regulations may subject us to penalties.
Companies operating in China are required to participate in various government sponsored employee benefit 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 employees up to a maximum amount specified by the local government from time to time at locations where they operate their businesses. The requirement of employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. If we fail to make contributions to various employee benefit plans and to comply with applicable PRC labor-related laws in the future, we may be subject to late payment penalties. We may be required to make up the contributions for these plans as well as to pay late fees and fines. If we are subject to late fees or fines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.
Gold price volatility may adversely impact our trading operations, inventory valuations, and financial performance.
The price of gold is subject to significant volatility driven by multiple factors outside our control, including global economic conditions, geopolitical events, central bank policies, currency fluctuations, interest rates, and market speculation. In the first quarter of 2025, gold prices experienced substantial volatility, reaching over $3,000 per ounce. While we may benefit from rising gold prices as evidenced by the appreciation of our 1-ton gold holdings acquired at approximately $66.49 million, a significant decline in gold prices could adversely affect the value of our inventory and trading positions.
Our trading strategies and hedging activities may not effectively mitigate price risk exposure. Rapid and unexpected price movements may cause trading losses despite our risk management practices. Additionally, gold price volatility affects financing costs associated with our gold positions and may impact the collateral requirements for our trading activities. Sustained periods of high volatility may also reduce overall trading volumes and liquidity in the markets we operate in, potentially limiting our ability to execute transactions at favorable prices.
14
The price volatility of gold also complicates our inventory valuation, potentially resulting in mark-to-market losses even when physical gold is retained, which could significantly impact our quarterly financial results and increase earnings volatility.
Diamond price volatility and changing consumer preferences may adversely impact our diamond trading operations, inventory valuations, and financial performance.
Diamond prices are subject to significant volatility driven by multiple factors outside our control, including global economic conditions, consumer demand for luxury goods, production levels from major diamond producers, marketing campaigns by industry participants, and evolving consumer preferences in jewelry design. Unlike gold, which has more standardized pricing mechanisms, diamond pricing is more subjective and depends on factors such as cut, clarity, color, and carat weight, making inventory valuation more complex and potentially subject to greater fluctuations.
Our diamond trading strategies may not effectively mitigate price risk exposure. Rapid and unexpected price movements may cause trading losses despite our risk management practices. Additionally, changes in consumer preferences, such as shifting attitudes toward natural versus lab-grown diamonds or changing jewelry styles, could reduce demand for certain diamond categories in our inventory, potentially resulting in mark-to-market losses.
The diamond industry also faces increasing scrutiny regarding ethical sourcing and sustainability practices. Failure to comply with evolving standards and regulations concerning conflict-free and responsibly sourced diamonds could result in reputational damage, regulatory penalties, and loss of market access, which would negatively impact our diamond trading operations and financial results.
Inflationary pressures on operational costs may adversely affect our gold trading margins and profitability.
Our gold trading and supply chain operations are exposed to inflationary pressures affecting various aspects of our business. Rising costs for secure transportation, storage facilities, insurance premiums, compliance systems, and technology infrastructure directly impact our operational expenses. Additionally, higher energy costs affect the expenses of gold refining operations in our supply chain, potentially narrowing trading spreads.
Labor costs represent another significant input vulnerable to inflation, particularly for specialized roles in gold trading, risk management, and technological development. As we expand our AI-enabled trading platforms and blockchain initiatives, competition for technical talent may further drive up compensation costs.
While gold is traditionally viewed as an inflation hedge, the relationship between gold prices and inflation is complex and does not necessarily translate to improved margins for gold trading operations. If our operational costs increase at a faster rate than our ability to adjust trading spreads or if market competition prevents us from passing increased costs to customers, our profitability could be materially reduced.
Furthermore, the high-inflation environment contributes to central bank policy responses such as interest rate adjustments, which directly impact gold carrying costs and market dynamics. These factors could collectively pressure our operating margins and adversely affect our financial performance.
Evolving regulatory requirements for gold trading and cross-border transactions may increase compliance costs and restrict our operations.
The gold industry is subject to extensive and evolving regulations designed to prevent money laundering, terrorist financing, and trade in conflict gold. As we expand our gold trading operations, we must comply with regulations including know-your-customer (KYC) requirements, anti-money laundering (AML) rules, responsible sourcing standards, and international frameworks such as the LBMA Good Delivery Rules and the OECD Due Diligence Guidance.
15
Our Hong Kong subsidiary, Golden Alpha Strategy Ltd., holds a Category A Registration for dealing in precious metals from the Hong Kong Customs and Excise Department, which requires ongoing compliance. Failure to maintain this registration or comply with applicable regulations could result in penalties, reputational damage, or loss of our ability to conduct business. As we expand into new markets, including European and North American regions as outlined in our business strategy, we will face additional regulatory regimes with potentially conflicting requirements.
Regulatory compliance requires substantial resources and expertise. Changes in regulations, particularly those governing cross-border gold transfers, could restrict our ability to move gold between jurisdictions or increase our operational costs. Additionally, our planned gold RWA (Real World Assets) tokenization project with Axis Capital Group will subject us to blockchain-related regulations, which are rapidly evolving across different jurisdictions. Non-compliance with applicable regulations could result in significant fines, criminal penalties, and reputational damage that could materially impact our business operations and financial results.
Our gold and diamond trading operations depend on reliable supply chains and accurate market assessments, which involve risks beyond our control.
Our ability to conduct our gold and diamond trading businesses depends on reliable sources of physical goods. Currently, we rely on a limited number of suppliers and partners, including Macau Rongxin Precious Metals Technology Co., Ltd. for large-scale gold acquisitions and various diamond suppliers for our diamond trading operations. This concentration of suppliers creates risk if any key relationship is disrupted. Supply disruptions can occur due to mining production issues, refinery or cutting capacity constraints, transportation difficulties, geopolitical events affecting major producing regions, or regulatory changes affecting our suppliers. Our business success also depends on accurately forecasting market trends and managing inventory levels appropriately. If we misjudge market demand or fail to adjust our positions in response to changing market conditions, we may experience trading losses or opportunity costs. Holding excess inventory during price declines could result in significant losses, while insufficient inventory during price increases or high demand periods could result in missed profit opportunities and damage to client relationships. For our diamond operations specifically, we face additional challenges in authenticating, grading, and pricing diamonds, which require specialized expertise and equipment. Errors in assessment of diamond quality or authenticity could result in significant financial losses or reputational damage.
Additionally, both the global gold and diamond supply chains face ongoing challenges including sustainability concerns, increased regulatory scrutiny, and potential disruptions from climate change impacts on mining regions. Any of these factors could materially impact our ability to source goods at competitive prices and execute our business strategy effectively.
The storage and transportation of our physical gold and diamond holdings present significant security and insurance challenges.
As of the date of this prospectus, we maintain a total of 1,700 kilogram of physical gold holdings valued at approximately $142.96 million, as well as a diamond inventory that supports our diamond trading operations. These valuable physical assets require sophisticated security measures and comprehensive insurance coverage. Despite our security protocols, our gold and diamond holdings could be vulnerable to theft, fraud, or other loss events that could result in significant financial losses. The transportation of gold and diamonds between locations presents additional security risks, as these high-value items must be moved between suppliers, storage facilities, buyers, and in the case of diamonds, cutting and polishing facilities. Any security breach during transportation could result in substantial losses that may not be fully covered by insurance. Additionally, insurance for high-value gold and diamond holdings can be costly, and policy limits, exclusions, or deductibles may leave us with significant uninsured exposure. Our insurance premiums may increase significantly following any security incident or loss claim, or as the value and volume of our holdings increase. In some cases, full insurance coverage for certain risks may become unavailable or economically impractical. If we experience significant losses related to theft, damage, or disappearance of our gold or diamond inventory, our financial condition and results of operations would be materially adversely affected.
The market for high value commodities is inherently unpredictable.
Gold and other high value commodities are purchased and sold based on prevailing market prices. Therefore, our inventories are subject to market-value changes driven by the commodities markets. We may periodically enter into futures contracts to hedge our exposure against market-price changes. Factors that may impact commodities prices include the policies of the U.S. Federal Reserve, inflation rates, global economic uncertainty and governmental and supplies. If there are significant shifts in the commodity markets that we are not properly hedged against, our business could suffer adverse consequences. Substantial changes in prices could affect our ability to continue purchasing sufficient volumes of inventory to support our business, which could negatively affect our profitability.
16
Liquidity constraints in the gold and diamond markets could impair our trading operations.
While gold is generally considered a highly liquid asset, certain market conditions can significantly reduce liquidity, potentially impacting our ability to execute trades at desired prices or in necessary volumes. Diamond markets typically have even lower liquidity than gold markets, with longer transaction cycles and more challenging price discovery mechanisms, which could further impair our ability to quickly adjust positions in response to market changes.
During periods of market stress or volatility, bid-ask spreads may widen considerably in both markets, execution times may increase, and counterparties may become unwilling to transact in size. These liquidity constraints could force us to execute trades at unfavorable prices or prevent us from exiting positions when desired.
Our trading operations in specialized markets like the Shenzhen Shuibei gold and jewelry market may face additional liquidity challenges due to local market dynamics, regulatory changes, or economic conditions affecting China specifically.
Furthermore, our planned development of AI-enabled trading platforms and blockchain-based gold tokenization projects introduces additional complexities related to liquidity management across traditional and emerging trading venues. If liquidity constraints prevent us from effectively managing our trading positions or force us to hold positions longer than anticipated, our financial results could be materially adversely affected.
Risks Relating to Our Corporate Structure
Our current corporate structure and business operations may be affected by the newly enacted Foreign Investment Law.
On March 15, 2019, the National People’s Congress, or the NPC, approved the Foreign Investment Law, which took effect on January 1, 2020. Since it is relatively new, uncertainties exist in relation to its interpretation and its implementation rules that are yet to be issued. The Foreign Investment Law does not explicitly classify whether variable interest entities that are controlled through contractual arrangements would be deemed as foreign-invested enterprises if they are ultimately “controlled” by foreign investors. However, it has a catch-all provision under definition of “foreign investment” that includes investments made by foreign investors in China through other means as provided by laws, administrative regulations or the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions of the State Council to provide for contractual arrangements as a form of foreign investment. On June 8, 2023, Blue Hat terminated its contractual arrangements with its VIEs, therefore, the Company currently does not have VIE structures. However, if we later determine to establish any such structure, there can be no assurance that such contractual arrangements will not be deemed as foreign investment in the future.
On September 6, 2024, the National Development and Reform Commission of China (“NDRC”) and the Ministry of Commerce (“MOFCOM”) jointly issued the Special Administrative Measures for Foreign Investment Access (Negative List) (2024 Edition) (the “2024 Negative List”), effective November 1, 2024. Industries listed in the 2024 Negative List are subject to special management measures. For example, establishment of wholly foreign-owned enterprises is generally allowed in industries outside of the 2024 Negative List. Also, foreign investors are not allowed to invest in industries that are expressly prohibited in the 2024 Negative List. As a company operating its business in in gold and diamond trading business, which are not included in the 2024 Negative List, the Company believes its business is not subject to any ownership restrictions. However, since the Negative List has been adjusted and updated almost on an annual basis in the recent years, we cannot assure you that the aforementioned business segments will continuously be beyond the “prohibited” category, which would likely result in a material change in our operations or in the value of our securities, if that happens, it could cause the value of our securities to significantly decline or become worthless.
Furthermore, if future laws, administrative regulations or provisions mandate further actions to be taken by companies with respect to existing contractual arrangements, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure and business operations.
17
Risks Related to Doing Business in China
Changes in China’s economic, political or legal system or social conditions or government policies could have a material adverse effect on our business and operations.
Our business operations conducted through our PRC operating entities may be adversely affected by the current and future political environment in the PRC. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. The Chinese government exerts substantial influence and control over the manner in which we must conduct our business activities. Our ability to operate in China may be adversely affected by changes in Chinese laws and regulations. Under the current government leadership, the government of the PRC has been pursuing reform policies which have adversely affected China-based operating companies whose securities are listed in the United States, with significant policies changes being made from time to time without notice. There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our business, or the enforcement and performance of our contractual arrangements with borrowers in the event of the imposition of statutory liens, death, bankruptcy or criminal proceedings. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value. Only after 1979 did the Chinese government begin to promulgate a comprehensive system of laws that regulate economic affairs in general, deal with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade, as well as encourage foreign investment in China. The overall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. Also, because these laws and regulations are relatively new, and because of the limited volume of published cases and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. In addition, there have been constant changes and amendments of laws and regulations over the past 30 years in order to keep up with the rapidly changing society and economy in China. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. These uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights or tort claims. In addition, the regulatory uncertainties may be exploited through unmerited or frivolous legal actions or threats in attempts to extract payments or benefits from us. Consequently, we cannot predict the future direction of Chinese legislative activities with respect to either businesses with foreign investment or the effectiveness on enforcement of laws and regulations in China. The uncertainties, including new laws and regulations and changes of existing laws, as well as judicial interpretation by inexperienced officials in the agencies and courts in certain areas, may cause possible problems to foreign investors. Although the PRC government has been pursuing economic reform policies for more than two decades, the PRC government continues to exercise significant control over economic growth in the PRC through the allocation of resources, controlling payments of foreign currency, setting monetary policy and imposing policies that impact particular industries in different ways. We cannot assure you that the PRC government will continue to pursue policies favoring a market oriented economy or that existing policies will not be significantly altered, especially in the event of a change in leadership, social or political disruption, or other circumstances affecting political, economic and social life in the PRC. Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have a retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention.
Accordingly, given the PRC government’s significant oversight and discretion over the conduct of our operating subsidiaries’ business, it may intervene or influence the operations of our PRC subsidiaries at any time and to exert forces over an offering of securities conducted overseas and/or foreign investment in China-based issuers, which may cause us to make material changes to the operations of our PRC subsidiaries and 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 be worthless.
18
The economy of China had experienced unprecedented growth. This growth has slowed in the recent years, and if the growth of the economy continues to slow or if the economy contracts, our financial condition may be materially and adversely affected.
The rapid growth of the Chinese economy had historically resulted in widespread growth opportunities for industries across China. However, the growth has been uneven, both geographically and among various sectors of the economy, and growth has slowed in the recent years. As a result of the global financial crisis and the inability of enterprises to gain comparable access to the same amounts of capital available in past years, there may be an adverse effect on the business climate and growth of private enterprises in China. Any adverse changes in economic conditions in China, in the policies of the Chinese government or in the laws and regulations in China could have a material adverse effect on the overall economic growth of China. Such developments could adversely affect our business and operating results, lead to a reduction in demand for our services and adversely affect our competitive position. An economic slowdown could have an adverse effect on our sales and may increase our costs. Further, if economic growth continues to slow, and if, in conjunction, inflation continues unchecked, our costs would be likely to increase, and there can be no assurance that we would be able to increase our prices to an extent that would offset the increase in our expenses.
The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations. In addition, in the past the Chinese government has implemented certain measures, including interest rate adjustment, to control the pace of economic growth. These measures may cause decreased economic activity in China, which may adversely affect our business and operating results.
In addition, a tightened labor markets in our geographic region may result in fewer qualified applicants for job openings in our facilities. Further, higher wages, related labor costs and other increasing cost trends may negatively impact our results.
Compliance with China’s new Data Security Law, Measures on Cybersecurity Review (revised draft for public consultation), Personal Information Protection Law (second draft for consultation), regulations and guidelines relating to the multi-level protection scheme and any other future laws and regulations may entail significant expenses and could materially affect our business.
We may become subject to evolving PRC laws regarding privacy, data security, cybersecurity, and data protection. The scope, interpretation, and enforcement of these laws are often uncertain and may vary across jurisdictions.
We collect and maintain information about our operations, customers, and employees. Protecting this data is critical to our business and required by law. As regulatory focus on data protection intensifies globally, our compliance costs may increase. Any failure to manage these risks or comply with applicable regulations could result in penalties, business disruption, license revocation, and reputational damage that materially impacts our operations and financial results.
Recently, regulatory authorities in China have enhanced data protection and cybersecurity regulatory requirements, many of which are subject to change and uncertain interpretation. These laws continue to develop, and the PRC government may adopt further rules, restrictions and clarifications in the future. Moreover, different PRC regulatory bodies, including the Standing Committee of the National People’s Congress (or the “SCNPC”), the MIIT, the Cyberspace Administration of China (or the “CAC”), the Ministry of Public Security (or the “MPS”) and the State Administration for Market Regulation (or the “SAMR”), have enforced data privacy and protections laws and regulations with varying standards and applications. The following are non-exhaustive examples of certain recent PRC regulatory activities in this area:
On June 10, 2021, the Standing Committee of the National People’s Congress of China promulgated the PRC Data Security Law, which became effective in September 2021. The PRC Data Security Law provides for data security and privacy obligations on entities and individuals carrying out data processing activities introduces a “data classification and hierarchical protection system” based on the importance of data, and imposes export restrictions on certain data and information.
19
On August 20, 2021, the Standing Committee of the National People’s Congress of China issued the PRC Personal Information Protection Law, which took effective in November 2021 and integrates the scattered rules with respect to personal information rights and privacy protection. The PRC Personal Information Protection Law aims at protecting personal information rights and interests, regulating the processing of personal information, and promoting the reasonable use of personal information.
On December 28, 2021, the CAC and several other administrations jointly promulgated the Review Measures, which became effective on February 15, 2022. According to the Review Measures, an issuer who is a network platform operator holding personal information of more than one million shall file for a cybersecurity review with respect to its proposed listing on a foreign stock exchange, and the relevant PRC governmental authorities may initiate cybersecurity review if such governmental authorities determine that the issuer’s data processing activities affect or may affect national security. However, the Review Measures provides no further explanation on the determination of “affects or may affect national security.” As of the date of this prospectus, we have not been involved in any cybersecurity-related investigation or received any cybersecurity-related warning from the PRC government authorities.
It remains uncertain as to how the existing regulatory measures will be interpreted or implemented in the future, and whether the PRC authorities may adopt new laws or regulations which may impose additional restrictions on companies like us. If the PRC government authorities stipulate new rules which mandate China-based companies listed on a U.S. stock exchange, such as us, to conduct cybersecurity review or obtain additional approvals, we face uncertainties as to whether such clearance or approvals can be timely obtained, or at all. If we are not able to comply
with the cybersecurity and data privacy requirements, we may be subject to government enforcement actions, fines, penalties, or suspension of operations, which could materially and adversely affect our business and results of operations.
On February 22, 2023, CAC issued the Measures for the Standard Contract for Cross-Border Transfer of Personal Information. If our PRC operating entities fail to comply with such measures, they may face legal liability under the PRC Personal Information Protection Law, including fines of up to RMB50 million or 5% of annual revenues and may be ordered to suspend related activities or have business licenses revoked.
On March 22, 2024, CAC issued the Provisions on Regulating and Promoting Cross-Border Data Flows with immediate effect. Failure to comply with the relevant laws and regulations in relation to cross-border transfer of personal information may subject us and our PRC operating entities to legal liabilities and may materially and adversely affect our business, financial condition and results of operations.
Many data privacy laws in China are relatively new with evolving interpretations. The Cybersecurity Review Measures and Draft Regulations on Network Data Security create uncertainty for U.S.-listed companies like us. If these regulations require additional cybersecurity reviews or specific compliance actions, we may face challenges completing these procedures in a timely manner, potentially subjecting us to enforcement actions, penalties, operational disruptions, or app removal. Compliance with existing and future PRC cybersecurity regulations may increase our expenses and damage our reputation if not managed properly. Given the evolving regulatory landscape, we cannot guarantee full compliance at all times or that our current protection systems will be deemed sufficient. Non-compliance could result in warnings, fines, investigations, license revocations, website closures, app removals, securities price drops, or even criminal liability.
To the knowledge of the management, as of the date of this prospectus, (i) the Company is not a critical information infrastructure operator that procure internet products and services or a network platform operator engaging in data processing activities; and (ii) the Company’s business does not subject to the industry that affect or may affect national security which is required to receive the cybersecurity review under the regulation. Therefore, the Company believes it is not required to pass cybersecurity review of CAC; on the basis that the Administration Provisions and Measures have not yet come into effect, we and our PRC subsidiaries (1) are not required to obtain permissions or approvals from the PRC authorities to issue our Ordinary Shares to foreign investors, (2) are not subject to permission requirements of the CSRC, the CAC or other PRC authorities that are required to approve of our PRC subsidiaries’ operations, and (3) have not received or were denied such permissions or approvals by the PRC authorities. However, the revised draft of the Measures for Cybersecurity Review 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. 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.
20
Recent greater oversight by the CAC over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our offering.
On December 28, 2021, the CAC and other relevant PRC governmental authorities jointly promulgated the Cybersecurity Review Measures, which took effect on February 15, 2022. The Cybersecurity Review Measures provide that, net platform operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review by the Cybersecurity Review Office of the PRC. According to the Cybersecurity Review Measures, a cybersecurity review assesses potential national security risks that may be brought about by any procurement, data processing, or overseas listing. The Cybersecurity Review Measures require that an online platform operator which possesses the personal information of at least one million users must apply for a cybersecurity review by the CAC if it intends to be listed in foreign countries.
On November 14, 2021, the CAC published the Security Administration Draft, which provides that data processing operators engaging in data processing activities that affect or may affect national security must be subject to network data security review by the relevant Cyberspace Administration of the PRC. According to the Security Administration Draft, data processing operators who possess personal data of at least one million users or collect data that affects or may affect national security must be subject to network data security review by the relevant Cyberspace Administration of the PRC. The deadline for public comments on the Security Administration Draft was December 13, 2021.
As of the date of this report, we have not received any notice from any authorities requiring our PRC subsidiaries, to go through cybersecurity review or network data security review by the CAC. When the Cybersecurity Review Measures become effective, and if the Security Administration Draft is enacted as proposed, we believe that the operations of our PRC subsidiaries and our listing will not be affected and that we will not be subject to cybersecurity review by the CAC, given that our PRC subsidiaries possess personal data of fewer than one million individual clients and do not collect data that affects or may affect national security in their business operations as of the date of this prospectus and do not anticipate that they will be collecting over one million users’ personal information or data that affects or may affect national security in the near future. There remains uncertainty, however, as to how the Cybersecurity Review Measures and the Security Administration Draft will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures and the Security Administration Draft. If any such new laws, regulations, rules, or implementation and interpretation come into effect, we will take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on us. We cannot guarantee, however, that we will not be subject to cybersecurity review and network data security review in the future. During such reviews, we may be required to suspend our operation or experience other disruptions to our operations. Cybersecurity review and network data security review could also result in negative publicity with respect to our Company and diversion of our managerial and financial resources, which could materially and adversely affect our business, financial conditions, and results of operations.
Adverse regulatory developments in China may subject us to additional regulatory review, and additional disclosure requirements and regulatory scrutiny to be adopted by the SEC in response to risks related to recent regulatory developments in China may impose additional compliance requirements for companies like us with significant China-based operations, all of which could increase our compliance costs, subject us to additional disclosure requirements. In addition, uncertainties with respect to the PRC legal system could adversely affect us.
We conduct all of our business through our subsidiaries in mainland China. Our operations in mainland China are governed by PRC laws and regulations. Our PRC subsidiaries are generally subject to laws and regulations applicable to foreign investments in mainland China and, in particular, laws and regulations applicable to wholly foreign-owned enterprises. Unlike the legal system in the United States the PRC legal system is based on statutes, therefore, prior court decisions may be cited for reference but have limited precedential value.
The recent regulatory developments in China, in particular with respect to restrictions on China-based companies raising capital offshore, may lead to additional regulatory review in China over our financing and capital raising activities in the United States. In addition, we may be subject to industry-wide regulations that may be adopted by the relevant PRC authorities, which may have the effect of limiting our service offerings, restricting the scope of our operations in China, or causing the suspension or termination of our business operations in China entirely, all of which will materially and adversely affect our business, financial condition and results of operations. We may have to adjust, modify, or completely change our business operations in response to adverse regulatory changes or policy developments, and we cannot assure you that any remedial action adopted by us can be completed in a timely, cost-efficient, or liability-free manner or at all.
21
On February 17, 2023, the China Securities Regulatory Commission (“CSRC”) promulgated the Provisional Measures on the Administration of Overseas Securities Offering and Listing by Domestic Companies (“Provisional Measures”), effective March 31, 2023. These Provisional Measures require domestic companies seeking to offer or list securities overseas, both directly and indirectly, to fulfill filing procedures with the CSRC. Indirect offering or listing refers to offerings made under the name of an overseas entity by a Chinese entity which has its main business activities in China. Under these Provisional Measures, Chinese entities must comply with state security regulations and not divulge state secrets. The relevant Chinese entity of an overseas listing PRC Company shall file with CSRC within three business days of completing any issuance of new securities overseas. Additionally, issuers must report to the CSRC within three business days after certain events, including change of control, investigation by overseas regulators, change of listing status, delisting, or material business changes.
On February 17, 2023, the CSRC also issued a Notice and held a press conference clarifying that companies in mainland China listed overseas before March 31, 2023 are not required to file immediately, but should complete filing for future capital raising activities. As an issuer listed before the effective date, we are not required to complete filing for prior offshore offerings. As of this prospectus, we and our PRC operating entities have not been required to obtain permission from or complete filing with CSRC prior to the offering. However, this offering is expected to be subject to the filing requirement after its closing.
Failure to complete filing procedures as required under the Provisional Measures would subject us to sanctions by the CSRC or other PRC regulatory authorities, including fines and penalties on our PRC operating entities’ operations, which could materially affect our business, financial condition and results of operations. If a Chinese entity violates these measures, it and its controlling shareholders, actual controllers, directors, supervisors, and senior executives may face administrative penalties such as warnings and fines up to RMB10 million, with directly responsible persons facing fines between RMB500,000 and RMB5 million. If the controlling shareholder or actual controller organizes the breach, they will be fined between RMB1 million and RMB10 million.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in China against us or our management named in this prospectus based on foreign laws.
We are a holding company incorporated under the laws of the Cayman Islands. We conduct substantially all of our operations in China and substantially all of our assets are located in China. In addition, all our senior employees reside within China for a significant portion of time and most are PRC residents. As a result, it may be difficult for our shareholders to effect service of process upon us or those persons inside mainland China. All or a substantial portion of the assets are also located in mainland China. As a result, it may be difficult to effect service of process within the United States upon these persons. There is uncertainty as to whether the courts of the Cayman Islands, and mainland China would recognize or enforce judgments of United States courts obtained against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in the Cayman Islands or mainland China against us or such persons predicated upon the securities laws of the United States or any of our state. In addition, China does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States, the Cayman Islands and many other countries and regions. Therefore, recognition and enforcement in China of judgments of a court in any of these non-PRC jurisdictions in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.
We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.
We are a Cayman Islands holding company and we rely principally on dividends and other distributions on equity from our PRC subsidiaries for our cash requirements, including for services of any debt we may incur. Our PRC subsidiaries’ ability to distribute dividends is based upon its distributable earnings. Current PRC regulations permit our PRC subsidiaries to pay dividends to its respective shareholders only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of our PRC subsidiaries, pre-existing VIEs and their subsidiaries are required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Our PRC subsidiaries as FIEs are also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at its discretion. These reserves are not distributable as cash dividends. If our PRC subsidiaries incurs debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Any limitation on the ability of our PRC subsidiaries to distribute dividends or other payments to their respective shareholders could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business.
22
In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated.
Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment.
The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions in China and by China’s foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. On November 30, 2015, the Executive Board of the International Monetary Fund (IMF) completed the regular five-year review of the basket of currencies that make up the Special Drawing Right, or the SDR, and decided that with effect from October 1, 2016, Renminbi is determined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the U.S. dollar, the Euro, the Japanese yen and the British pound. In the fourth quarter of 2016, the Renminbi depreciated significantly in the backdrop of a surging U.S. dollar and persistent capital outflows of China. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi internationalization, the PRC government may in the future announce further changes to the exchange rate system, and we cannot assure you that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.
Significant revaluation of the Renminbi may have a material and adverse effect on your investment. For example, to the extent that we need to convert U.S. dollars from our initial public 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 ordinary shares 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, appreciation or depreciation in the value of the Renminbi relative to U.S. dollars would affect our financial results reported in U.S. dollar terms regardless of any underlying change in our business or results of operations.
Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited, and we may not be able to adequately hedge our exposure, or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency.
Governmental control of currency conversion may limit our ability to utilize our net revenues effectively and affect the value of your investment.
The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in Renminbi. Under our current corporate structure, our Cayman Islands holding company primarily relies on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of the SAFE by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of our PRC subsidiaries in China may be used to pay dividends to our company. However, approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result, we need to obtain SAFE approval to use cash generated from the operations of our PRC subsidiaries to pay off their respective debt in a currency other than Renminbi owed to entities outside China, or to make other capital expenditure payments outside China in a currency other than Renminbi. The PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders.
23
Certain PRC regulations may make it more difficult for us to pursue growth through acquisitions.
Among other things, the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. Such regulation requires, among other things, that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor acquires control of a PRC domestic enterprise or a foreign company with substantial PRC operations, if certain thresholds under the Provisions on Thresholds for Prior Notification of Concentrations of Undertakings, issued by the State Council in 2008, are triggered. Moreover, the Anti-Monopoly Law promulgated by the Standing Committee of the NPC which became effective in 2008 requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds must be cleared by the MOFCOM before they can be completed. In addition, PRC national security review rules which became effective in September 2011 require acquisitions by foreign investors of PRC companies engaged in military related or certain other industries that are crucial to national security be subject to security review before consummation of any such acquisition. We may pursue potential strategic acquisitions that are complementary to our business and operations. Complying with the requirements of these regulations to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval or clearance from the MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.
Recent statements by the Chinese government indicate an intent to exert more oversight and more control over offerings conducted overseas and/or foreign investment in China-based issuers. Any such actions by the Chinese government could significantly limit or completely hinder our ability to conduct our business, accept foreign investments, or list on a U.S. or other foreign exchange, including our ability to offer or continue to offer its securities to investors and cause the value of the securities being registered hereby to significantly decline or become worthless.
The Chinese government recently has published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could require us to seek permission from Chinese authorities to continue to operate our business, which may adversely affect our business, financial condition and results of operations. Furthermore, recent statements made by the Chinese government have indicated an intent to increase the government’s oversight and control over offerings of companies with significant operations in China that are to be conducted in foreign markets, as well as foreign investment in China-based issuers like us. Any such action, once taken by the Chinese government, could significantly limit or completely hinder our ability to offer or continue to offer its securities to investors, and could cause the value of such securities to significantly decline or become worthless.
On February 24, 2023, the CSRC, the Ministry of Finance, the National Administration of State Secrets Protection and the National Archives Administration jointly issued the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality and Archives Provisions”), which took effect from March 31, 2023. The Confidentiality and Archives Provisions specify that during the overseas securities offering and listing activities of domestic companies, domestic companies and securities companies and securities service institutions that provide relevant securities business shall, by strictly abiding by the relevant laws and regulations of the PRC and this Confidentiality and Archives Provisions, institute a sound confidentiality and archives administration systems, take necessary measures to fulfill confidentiality and archives administration obligations, and shall not divulge any national secrets, work secrets of governmental agencies and harm national and public interests. Confidentiality and Archives Provisions provides that it is applicable to initial public offerings as well as other types of securities listing of PRC domestic enterprises, and any future issuance of securities and listing activities after the initial listing. Working papers generated in the PRC by securities companies and securities service providers that provide relevant securities services for overseas issuance and listing of securities by domestic companies shall be kept in the PRC. Confidentiality and Archives Provisions provide no explicit definition of working papers. In practice, the securities companies’ working papers usually refer to various important information and work records related to the securities business obtained and prepared by the securities companies and securities service providers and their representatives in the whole process of the securities businesses, such as due diligence work. Without the approval of relevant competent authorities, such as CSRC, MOF PRC National Administration of State Secrets Protection, and National Archives Administration of China, depending on the nature and transmission method of secrets, it shall not be transferred overseas. Where documents or materials need to be transferred outside of the PRC, it shall be subject to the approval procedures in accordance with relevant PRC regulations. The relevant competent authorities,
24
such as, CSRC, MOF, PRC National Administration of State Secrets Protection, and National Archives Administration of China will regulate, supervise and inspect pursuant to their respective statutory mandates over matters of Confidentiality and Archives Administration concerning overseas offering and listing by domestic companies. As Confidentiality and Archives Administration is newly promulgated, there is substantial uncertainty regarding their specific requirements. We believe our operations and future offerings will not involve in national secrets, work secrets of governmental agencies and undermine national and public interests, but there is no assurance that we will be able to meet all applicable regulatory requirements and guidelines. If we fail to comply with related laws and regulation, we may be subject to fine, confiscation, blocking transmission or criminal offense, which may in turn negatively affect our business operations, hinder our ability to offer or continue to offer securities to investors, or cause the value of such securities to significantly decline or be worthless.
Restrictions contained in Chinese law on the ability of overseas securities regulators to collect information in China may deny investors in our Company the benefits of U.S. securities regulation.
China has often restricted U.S. regulators’ access to information and limited regulators’ ability to investigate or pursue remedies with respect to China-based issuers, generally citing to state secrecy and national security laws, blocking statutes, or other laws or regulations. In addition, according to Article 177 of the PRC Securities Law (“Article 177”), which became effective in March 2020, no overseas securities regulator can directly conduct investigations or evidence collection activities within the PRC and no entity or individual in China may provide documents and information relating to securities business activities to overseas regulators without Chinese government approval. The SEC, U.S. Department of Justice, and other U.S. authorities face substantial challenges in bringing and enforcing actions against China-based issuers and their officers and directors. As a result, investors in our Company may not benefit from a regulatory environment that fosters effective enforcement of U.S. federal securities laws.
As Article 177 and the PRC Securities Law are newly promulgated, there are uncertainties as to the procedures and requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC. If the U.S. securities regulatory agencies are unable to conduct such investigations, there exists a risk that they may determine to suspend or de-register our registration with the SEC and may also delist our securities from Nasdaq Capital Market or other applicable trading market within the US.
PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.
In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, or SAFE Circular 37, to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents’ Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles, or SAFE Circular 75, which ceased to be effective upon the promulgation of SAFE Circular 37. SAFE Circular 37 requires PRC residents (including PRC individuals and PRC corporate entities) to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in Circular 37 as a “special purpose vehicle”, or SPV. The term “control” under Circular 37 is broadly defined as the operation rights, beneficiary rights or decision-making rights acquired by the PRC residents in the offshore SPVs by such means as acquisition, trust, proxy, voting rights, repurchase, convertible notes or other arrangements. Failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for foreign exchange evasion. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions or share transfers that we make in the future if our shares are issued to PRC residents.
25
Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore SPVs will be required to register such investments with the SAFE or its local branches. In addition, any PRC resident who is a direct or indirect shareholder of an SPV is required to update its filed registration with the local branch of SAFE with respect to that SPV, to reflect any material change. Moreover, any subsidiaries of such SPV in China is required to urge the PRC resident shareholders to update their registration with the local branch of SAFE. If any PRC shareholder of such SPV fails to make the required registration or to update the previously filed registration, the subsidiaries of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contributions into its subsidiaries in China. On February 13, 2015, the SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13, which became effective on June 1, 2015. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound overseas direct investments, including those required under SAFE Circular 37, will be filed with qualified banks instead of the SAFE. The qualified banks will directly examine the applications and accept registrations under the supervision of the SAFE.
In practice, different local SAFE branches may have different views and procedures on the application and implementation of SAFE regulations, and there remains uncertainty with respect to its implementation. We cannot assure you that all of our shareholders that may be subject to SAFE regulations have completed all necessary registrations with the local SAFE branch or qualified banks as required by SAFE Circular 37, and we cannot assure you that these individuals may continue to make required filings or updates in a timely manner, or at all. We can provide no assurance that we are or will in the future continue to be informed of identities of all PRC residents holding direct or indirect interest in our company. Any failure or inability by such individuals to comply with the SAFE regulations may subject us to fines or legal sanctions, such as restrictions on our cross-border investment activities or our PRC subsidiaries’ ability to distribute dividends to, or obtain foreign exchange-denominated loans from, our company or prevent us from making distributions or paying dividends. As a result, our business operations and our ability to make distributions to you could be materially and adversely affected.
Furthermore, as these foreign exchange regulations are still relatively new and their interpretation and implementation have been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition and results of operations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.
Failure to comply with PRC regulations regarding the registration requirements for employee equity incentive plans may subject our PRC citizen employees or us to fines and other legal or administrative sanctions.
On March 28, 2007, the SAFE promulgated the Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding Plan or Share Option Plan of Overseas-Listed Company, which were superseded by Notice from SAFE regarding Issues related to Domestic Individual Participating Offshore Public Company Equity Incentive Plan promulgated on February 15, 2012 (“SAFE #7”), or the Share Option Rule. Under the Share Option Rule, PRC citizens who are granted stock options or other employee equity incentive awards by an overseas publicly-listed company are required, through a PRC agent who may be a PRC subsidiary of such overseas publicly-listed company, to register with the SAFE and complete certain other procedures related to the share options or other employee equity incentive plans. We and our PRC citizen employees who are granted share options or other equity incentive awards under our 2010 Long-Term Incentive Plan, or PRC optionees, are subject to the Share Option Rule. If we or our PRC optionees fail to comply with these regulations, we or our PRC optionees may be subject to fines and legal sanctions.
26
PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay us from using the proceeds of offerings in the U.S. to make loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.
Any funds the Company transfer to our PRC subsidiaries, either as a shareholder loan or as an increase in registered capital, are subject to approval by or registration with relevant governmental authorities in China. According to the relevant PRC regulations on foreign-invested enterprises, or FIEs, in China, capital contributions to our PRC subsidiaries are subject to the approval of or filing with the Ministry of Commerce, or MOFCOM or its local branches and registration with a local bank authorized by SAFE. In addition, (i) a foreign loan of less one year duration procured by our PRC subsidiaries is required to be registered with SAFE or its local branches and (ii) a foreign loan of one year duration or more procured by our PRC subsidiaries is required to be applied to the NDRC in advance for undergoing recordation registration formalities. Any medium or long-term loan to be provided by us to our PRC operating subsidiaries, must be registered with the NDRC and the SAFE or its local branches. The Company may not be able to complete such registrations on a timely basis, with respect to future capital contributions or foreign loans by us to our PRC Subsidiaries. If the Company fail to complete such registrations, our ability to use the proceeds of this offering and to capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.
On March 30, 2015, the SAFE promulgated the Circular on Reforming the Management Approach Regarding the Foreign Exchange Capital Settlement of Foreign-Invested Enterprises, or SAFE Circular 19, which took effect as of June 1, 2015. SAFE Circular 19 launched a nationwide reform of the administration of the settlement of the foreign exchange capitals of FIEs and allows FIEs to settle their foreign exchange capital at their discretion, but continues to prohibit FIEs from using the Renminbi fund converted from their foreign exchange capital for expenditure beyond their business scopes, providing entrusted loans or repaying loans between nonfinancial enterprises. The SAFE issued the Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or SAFE Circular 16, effective in June 2016. Pursuant to SAFE Circular 16, enterprises registered in China may also convert their foreign debts from foreign currency to Renminbi on a self-discretionary basis. SAFE Circular 16 provides an integrated standard for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) on a self-discretionary basis which applies to all enterprises registered in China. SAFE Circular 16 reiterates the principle that Renminbi converted from foreign currency-denominated capital of a company may not be directly or indirectly used for purposes beyond its business scope or prohibited by PRC laws or regulations, while such converted Renminbi shall not be provided as loans to its non-affiliated entities. As this circular is relatively new, there remains uncertainty as to its interpretation and application and any other future foreign exchange related rules. Violations of these Circulars could result in severe monetary or other penalties. SAFE Circular 19 and SAFE Circular 16 may significantly limit our ability to use Renminbi converted from the net proceeds of this offering to fund our PRC operating subsidiaries, to invest in or acquire any other PRC companies through our PRC Subsidiaries, which may adversely affect our business, financial condition and results of operations.
We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
On February 3, 2015, the SAT issued the Announcement of the State Administration of Taxation on Several Issues Relating to Enterprise Income Tax on Transfers of Assets between Non-resident Enterprises, or SAT Bulletin 7, which was partially abolished on December 29, 2017. SAT Bulletin 7 extends its tax jurisdiction to transactions involving transfer of taxable assets through the offshore transfer of a foreign intermediate holding company. In addition, SAT Bulletin 7 has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. SAT Bulletin 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets.
On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, or SAT Bulletin 37, which was partially revised. SAT Bulletin 37 came into effect on December 1, 2017. The SAT Bulletin 37 further clarifies the practice and procedure of withholding of non-resident enterprise income tax.
27
We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries and investments. Our company may be subject to filing obligations or taxed if our company is transferor in such transactions, and may be subject to withholding obligations if our company is transferee in such transactions, under SAT Bulletin 7 and/or SAT Bulletin 37. For transfer of shares in our company by investors who are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist in the filing under SAT Bulletin 7 and/or SAT Bulletin 37. As a result, we may be required to expend valuable resources to comply with SAT Bulletin 7 and/or SAT Bulletin 37 or to request the relevant transferors from whom we purchase taxable assets to comply with these circulars, or to establish that our company should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.
Our dependence on a limited number of customers could adversely affect our business and results of operations.
One or a few customers have in the past, and may in the future, represent a substantial portion of our total revenues in any one year or over a period of several years. For example, for the year ended December 31, 2024, four customers accounted for 29.7%, 26.0%, 23.6% and 20.8% of the Company’s total revenues. Therefore, the loss of business from any one of such customers could have a material adverse effect on our business or results of operations. In addition, a default or delay in payment on a significant scale by a customer could materially adversely affect our business, results of operations, cash flows and financial condition.
The Holding Foreign Companies Accountable Act, or the HFCAA, and the related regulations continue to evolve. Further implementations and interpretations of or amendments to the HFCAA or the related regulations, or a PCAOB determination of its lack of sufficient access to inspect our auditor, might pose regulatory risks to and impose restrictions on us because of our operations in mainland China.
On April 21, 2020, SEC released a joint statement highlighting the risks associated with investing in companies based in or have substantial operations in emerging markets including China. The joint statement emphasized the risks associated with lack of access for the PCAOB to inspect auditors and audit work papers in China and higher risks of fraud in emerging markets. On May 18, 2020, Nasdaq filed three proposals with the SEC to (i) apply minimum offering size requirement for companies primarily operating in “Restrictive Market”, (ii) adopt a new requirement relating to the qualification of management or board of director for Restrictive Market companies, and (iii) apply additional and more stringent criteria to an applicant or listed company based on the qualifications of the Company’s auditors.
On May 20, 2020, the U.S. Senate passed the Holding Foreign Companies Accountable Act (the “HFCAA”) requiring a foreign company to certify it is not owned or controlled by a foreign government if the PCAOB is unable to audit specified reports because the Company uses a foreign auditor not subject to PCAOB inspection. If the PCAOB is unable to inspect the Company’s auditors for three consecutive years, the issuer’s securities are prohibited to trade on a national securities exchange or in the over the counter trading market in the U.S. On December 18, 2020, the HFCAA was signed into law. The HFCAA has since then been subject to amendments by the U.S. Congress and interpretations and rulemaking by the SEC.
On June 22, 2021, the U.S. Senate passed a bill which, if passed by the U.S. House of Representatives and signed into law, would reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCA Act from three years to two, under this proposal, if the auditor is not subject to PCAOB inspections for two consecutive years, it will trigger the prohibition on trading, thus posing more risks on potential delisting as well as the price of Company’s ordinary shares especially on foreign companies. On December 29, 2022, the Accelerating Holding Foreign Companies Accountable Act, as part of the Consolidated Appropriations Act 2023, was signed into law, which officially reduce the number of years that the auditor is not subject to inspection to two consecutive years.
On December 16, 2021, PCAOB announced the PCAOB HFCAA determinations relating to the PCAOB’s inability to inspect or investigate completely registered public accounting firms headquartered in mainland China of the PRC or Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in the PRC or Hong Kong. The inability of the PCAOB to conduct inspections of auditors in China made it more difficult to evaluate the effectiveness of these accounting firms’ audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections, which could cause existing and potential investors in issuers operating in China to lose confidence in such issuers’ procedures and reported financial information and the quality of financial statements.
28
Our previous auditor, Audit Alliance LLP, and our current auditor, Onestop Assurance PAC, the independent registered public accounting firms that issue the audit reports included elsewhere in this prospectus, as auditors of companies that are traded publicly in the United States and a firm registered with the PCAOB, are both subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess our auditor’s compliance with the applicable professional standards. Both our previous and current auditor are headquartered in Singapore, and are subject to inspection by the PCAOB on a regular basis.
On August 26, 2022, the PCAOB announced and signed a Statement of Protocol (the “Protocol”) with the China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China (together, the “PRC Authorities”). The Protocol provides the PCAOB with: (1) sole discretion to select the firms, audit engagements and potential violations it inspects and investigates, without any involvement of Chinese authorities; (2) procedures for PCAOB inspectors and investigators to view complete audit work papers with all information included and for the PCAOB to retain information as needed; (3) direct access to interview and take testimony from all personnel associated with the audits the PCAOB inspects or investigates.
On December 15, 2022, the PCAOB announced in its 2022 HFCAA Determination Report (the “2022 Report”) its determination that the PCAOB was able to secure complete access to inspect and investigate audit firms in the People’s Republic of China (PRC), and the PCAOB Board voted to vacate previous determinations to the contrary. According to the 2022 Report, this determination was reached after the PCAOB had thoroughly tested compliance with every aspect of the Protocol necessary to determine complete access, including on-site inspections and investigations in a manner fully consistent with the PCAOB’s methodology and approach in the U.S. and globally. According to the 2022 Report, the PRC Authorities had fully assisted and cooperated with the PCAOB in carrying out the inspections and investigations according to the Protocol, and have agreed to continue to assist the PCAOB’s investigations and inspections in the future. As required by the HFCAA, if in the future the PCAOB determines it no longer can inspect or investigate completely because of a position taken by any foreign authority, including but is not limited to mainland China relevant authority, the PCAOB will act expeditiously to consider whether it should issue a new determination.
Further developments related to the HFCAA could add uncertainties to our offerings. We cannot assure you what further actions the SEC, the PCAOB or the stock exchanges will take to address these issues and what impact such actions will have on U.S. companies that have significant operations in the PRC and have securities listed on a U.S. stock exchange (including a national securities exchange or over-the-counter stock market). In addition, any additional actions, proceedings, or new rules resulting from these efforts to increase U.S. regulatory access to audit information could create uncertainty for investors, the market price of our ordinary shares could be adversely affected, and we could be delisted if we and our auditor are unable to meet the PCAOB inspection requirement. Such a delisting would substantially impair your ability to sell or purchase our ordinary shares when you wish to do so, and would have a negative impact on the price of our ordinary shares.
Additional factors outside of our control related to doing business in China could negatively affect our business.
Additional factors that could negatively affect our business include a potential significant revaluation of the Renminbi, which may result in an increase in the cost of producing products in China, labor shortages and increases in labor costs in China as well as difficulties in moving products manufactured in China out of the country, whether due to port congestion, labor disputes, slowdowns, product regulations and/or inspections or other factors. Prolonged disputes or slowdowns can negatively impact both the time and cost of transporting goods. Natural disasters or health pandemics impacting China can also have a significant negative impact on our business. Further, the imposition of trade sanctions or other regulations against products imported by us from, or the loss of “normal trade relations” status with, China, could significantly increase our cost of products exported outside of China and harm our business.
Risks Related to our Ordinary Shares
An active trading market for our ordinary shares may not be sustained.
Our ordinary shares have been listed on Nasdaq only since July 26, 2019, and we cannot assure you that an active trading market for our ordinary shares will be sustained or maintained. The lack of an active trading market may impair the value of your shares and your ability to sell your shares at the time you wish to sell them. An inactive trading market may also impair our ability to raise capital by selling shares of our ordinary shares and enter into strategic partnerships or acquire other complementary products, technologies or businesses by using shares of our ordinary shares as consideration. In addition, if we fail to satisfy exchange continued listing standards, we could be de-listed, which would have a negative effect on the price of our ordinary shares.
29
We expect that the price of our ordinary shares will fluctuate substantially and you may not be able to sell your shares at or above the price you purchased the shares at.
The market price of our ordinary shares is likely to be highly volatile and may fluctuate substantially due to many factors, including:
| ● | the volume and timing of sales of our products; | |
| ● | the introduction of new products or product enhancements by us or others in our industry; | |
| ● | disputes or other developments with respect to our or others’ intellectual property rights; | |
| ● | our ability to develop, obtain regulatory clearance or approval for, and market new and enhanced products on a timely basis; | |
| ● | product liability claims or other litigation; | |
| ● | quarterly variations in our results of operations or those of others in our industry; | |
| ● | media exposure of our products or of those of others in our industry; | |
| ● | changes in governmental regulations or in reimbursement; | |
| ● | changes in earnings estimates or recommendations by securities analysts; and | |
| ● | general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors. |
In recent years, the stock markets generally have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may significantly affect the market price of our ordinary shares, regardless of our actual operating performance.
In addition, in the past, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Securities litigation brought against us following volatility in our stock price, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our financial condition and operating results and divert management’s attention and resources from our business.
Our ordinary shares are considered to be penny stock. Trading in penny stocks has certain restrictions and these restrictions could negatively affect the price and liquidity of our ordinary shares.
Our ordinary shares trade below $5.00 per share. The SEC has adopted regulations which generally define a “penny stock” to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. As a result, our ordinary shares may be considered “penny stock”. A penny stock is subject to rules that impose additional sales practice requirements on broker/dealers who sell securities to persons other than established Members and accredited investors. For transactions covered by these rules, the broker/dealer must make a special suitability determination for the purchase of these securities. In addition, a broker/dealer must receive the purchaser’s written consent to the transaction prior to the purchase and must also provide certain written disclosures to the purchaser. Consequently, the “penny stock” rules may restrict the ability of broker/dealers to sell our ordinary shares, and may negatively affect the ability of holders of shares of our ordinary shares to resell them. These disclosures require you to acknowledge that you understand the risks associated with buying penny stocks and that you can absorb the loss of your entire investment. Penny stocks generally do not have a very high trading volume. Consequently, the price of the stock is often volatile and you may not be able to buy or sell the stock when you want to.
30
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We are subject to the periodic reporting requirements of the Exchange Act. We designed our disclosure controls and procedures to provide reasonable assurance that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
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. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.
We have identified material weaknesses in our internal control over financial reporting. If we fail to implement and maintain an effective system of internal control, we may be unable to accurately report our operating results, meet our reporting obligations or prevent fraud.
Prior to our initial public offering, we were a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules promulgated by the Securities and Exchange Commission, our management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2023. In preparing our consolidated financial statements for the years ended December 31, 2023 and December 31, 2022, three material weaknesses were identified in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board of the United States, and other significant deficiencies. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The three material weaknesses identified are as follows: (i) no sufficient personnel with appropriate levels of accounting knowledge and experience to address complex U.S. GAAP accounting issues and to prepare and review financial statements and related disclosures under U.S. GAAP; (ii) ineffective oversight of our financial reporting and internal control by those charged with governance; and (iii) inadequate design of internal control over the preparation of the financial statements being audited. These material weaknesses remained as of December 31, 2024. As a result of inherent limitations, our internal control over financial reporting may not prevent or detect misstatements, errors or omissions.
We are a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F. As we ceased to be an “emerging growth company” as such term is defined under the Jumpstart Our Business Startups Act, or JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.
During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Generally, if we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements, errors or omissions in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limits our access to capital markets, and harm our results of operations. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions.
31
Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.
We have never declared or paid cash dividends. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. As a result, capital appreciation, if any, of our ordinary shares will be your sole source of gain for the foreseeable future.
Securities analysts may not publish favorable research or reports about our business or may publish no information at all, which could cause our stock price or trading volume to decline.
The trading market for our ordinary shares is influenced to some extent by the research and reports that industry or financial analysts publish about us and our business. We do not control these analysts. As a newly public company, we may be slow to attract research coverage and the analysts who publish information about our ordinary shares will have had relatively little experience with us or our industry, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. If any of the analysts who cover us provides inaccurate or unfavorable research or issue an adverse opinion regarding our stock price, our stock price could decline. If one or more of these analysts cease coverage of us or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline and result in the loss of all or a part of your investment in us.
Recently introduced economic substance legislation of the Cayman Islands may impact us and our operations.
The Cayman Islands, together with several other non-European Union jurisdictions, have recently introduced legislation aimed at addressing concerns raised by the Council of the European Union as to offshore structures engaged in certain activities which attract profits without real economic activity. With effect from January 1, 2019, the International Tax Co-operation (Economic Substance) Act, 2018 (the “Substance Law”), and issued Regulations and Guidance Notes came into force in the Cayman Islands introducing certain economic substance requirements for “relevant entities” which are engaged in certain “relevant activities,” which in the case of exempted companies incorporated before January 1, 2019, will apply in respect of financial years commencing July 1, 2019 and onwards. A “relevant entity” includes an exempted company incorporated in the Cayman Islands; however, it does not include an entity that is tax resident outside the Cayman Islands. Accordingly, for so long as we are a tax resident outside the Cayman Islands, we are not required to satisfy the economic substance test. Although it is presently anticipated that the Substance Law will have little material impact on us and our operations, as the legislation is new and remains subject to further clarification and interpretation it is not currently possible to ascertain the precise impact of these legislative changes on us and our operations.
You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.
We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our third amended and restated memorandum and articles of association, the Companies Act (as amended) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by our minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common laws of the Cayman Islands are derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands have a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.
Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporate records or to obtain copies of lists of shareholders of these companies. Under our third amended and restated memorandum and articles of association, our directors have discretion to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
32
Certain corporate governance practices in the Cayman Islands, where the Company is registered, differ significantly from requirements for companies incorporated in other jurisdictions such as the United States. Currently, we do not plan to rely on home country practice with respect to any corporate governance matter. To the extent we choose to follow home country practice with respect to corporate governance matters, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.
As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.
We qualify as a foreign private issuer and, as a result, we are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that permit less detailed and less frequent reporting than that of a U.S. domestic public company.
We report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K upon the occurrence of specified significant events. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules thereunder. Therefore, our shareholders may not know on a timely basis when our officers, directors and principal shareholders purchase or sell our ordinary shares. In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers also are exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.
If we lose our status as a foreign private issuer, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and Nasdaq rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time consuming and costly. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain and maintain directors’ and officers’ liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors.
As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards.
As a foreign private issuer, we are permitted to take advantage of certain provisions in the Nasdaq rules that allow us to follow our home country law for certain governance matters. Certain corporate governance practices in our home country, the Cayman Islands, may differ significantly from corporate governance listing standards. Currently, we do not plan to rely on home country practice with respect to our corporate governance. However, if we choose to follow home country practice in the future, our shareholders may be afforded less protection than they would otherwise enjoy under the Nasdaq corporate governance listing standards applicable to U.S. domestic issuers.
33
There can be no assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ordinary shares.
A non-U.S. corporation will be a PFIC for any taxable year if either (1) at least 75% of its gross income for such year consists of certain types of “passive” income; or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income (the “asset test”). Based on our current and expected income and assets (taking into account the expected cash proceeds from this offering and our market capitalization), we do not presently expect to be a PFIC for the current taxable year or the foreseeable future. However, no assurance can be given in this regard because the determination of whether we are or will become a PFIC is a fact-intensive inquiry made on an annual basis that depends, in part, upon the composition of our income and assets. In addition, there can be no assurance that the Internal Revenue Service, or IRS, will agree with our conclusion or that the IRS would not successfully challenge our position. Fluctuations in the market price of our ordinary shares may cause us to become a PFIC for the current or subsequent taxable years because the value of our assets for the purpose of the asset test may be determined by reference to the market price of our ordinary shares. The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets and the cash raised in this offering. If we were to be or become a PFIC for any taxable year during which a U.S. Holder holds our ordinary shares, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. See “Taxation - Material U.S. Federal Income Tax Considerations for U.S. Holders - Passive Foreign Investment Company Consequences.”
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter. We would lose our foreign private issuer status if, for example, more than 50% of our ordinary shares are directly or indirectly held by residents of the United States and we fail to meet additional requirements necessary to maintain our foreign private issuer status. If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the Nasdaq rules. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we will not incur as a foreign private issuer, and accounting, reporting and other expenses in order to maintain a listing on a U.S. securities exchange.
Risks Related to this Offering
We have in the past and may in the future rely in part on equity issuances, which will not require shareholder approval, to fund our growth, and such equity issuances could dilute your ownership interests and may depress the market price of our Ordinary Shares.
We may issue additional Ordinary Shares or other equity securities of equal or senior rank in the future in connection with, among other things, future gold purchase or repayment of outstanding indebtedness, without shareholder approval, in a number of circumstances.
As part of our business strategy, we have in the past and may in the future rely in part on issuances of equity, and warrants, which may carry voting rights and may be convertible or exercisable into Ordinary Shares, to fund the growth of our business. We may issue such securities in private placements, including to related parties, or in registered offerings.
Our issuance of additional Ordinary Shares, including pursuant to the conversion of convertible securities or exercise of warrants, or other equity securities of equal or senior rank, or with voting rights, may have the following effects:
34
| ● | Our existing shareholders’ proportionate ownership interest in us will decrease; |
| ● | the amount of cash available for dividends payable per Ordinary Share may decrease; |
| ● | the relative voting strength of each previously outstanding Ordinary Share may be diminished; and |
| ● | the market price of our Ordinary Shares may decline. |
The market price of our Ordinary Shares has been and may in the future be subject to significant fluctuations.
The market price of our Ordinary Shares has been and may in the future be subject to significant fluctuations as a result of many factors, some of which are beyond our control. Among the factors that could in the future affect our share price are:
| ● | variations in our results of operations; |
| ● | changes in market valuations of similar companies and stock market price and volume fluctuations generally; |
| ● | changes in earnings estimates or the publication of research reports by analysts; |
| ● | speculation in the press or investment community about our business or the shipping industry generally; |
| ● | strategic actions by us or our competitors such as acquisitions or restructurings; |
| ● | the thin trading market for our Ordinary Shares, which makes it somewhat illiquid; |
| ● | regulatory developments; |
| ● | additions or departures of key personnel; |
| ● | general market conditions; and |
| ● | domestic and international economic, market and currency factors unrelated to our performance. |
The stock markets in general have experienced extreme volatility that has sometimes been unrelated to the operating performance of individual companies. These broad market fluctuations may adversely affect the trading price of our Ordinary Shares.
We may experience rapid and substantial share price volatility unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Ordinary Shares.
As a relatively small-capitalization company with relatively small public float, we may experience greater share price volatility, extreme price run-ups or rapid price declines, larger spreads in bid and ask prices, lower trading volume and less liquidity than large-capitalization companies. Such volatility, including any share price run-up, may be unrelated to our actual or expected operating performance, financial condition or prospects, making it difficult for prospective investors to assess the rapidly changing value of our Ordinary Shares. In addition, holders of our Ordinary Shares may experience losses, which may be material, if the price of our Ordinary Shares declines after this offering or if such investors purchase our Ordinary Shares prior to any price decline.
35
Furthermore, if the trading volumes of our Ordinary Shares are low, investors buying or selling in relatively small quantities may be able to easily influence the price of our Ordinary Shares. Such low volume of trades could also cause the price of our Ordinary Shares to fluctuate greatly, with large percentage changes in share price occurring in any trading day session. Holders of our Ordinary Shares may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our Ordinary Shares. As a result of this volatility, investors may experience losses on their investment in our Ordinary Shares. A decline in the market price of our Ordinary Shares also could adversely affect our ability to issue additional Ordinary Shares or other securities and our ability to obtain additional financing in the future. Also see “—The market price of our Ordinary Shares has been and may in the future be subject to significant fluctuations” above.
The sale or availability for sale of substantial amounts of our Ordinary Shares could adversely affect their market price.
We, our directors and executive officers have agreed with the Underwriter, subject to certain exceptions, not to sell, transfer or otherwise dispose of any Ordinary Shares for a period ending six (6) months from the closing of this offering. See “Underwriting”. Ordinary Shares subject to these lock-up agreements will become eligible for sale in the public market upon expiration of these lock-up agreements, subject to limitations imposed by Rule 144 under the Securities Act. If our shareholders sell substantial amounts of our Ordinary Shares in the public market, the market price of our Ordinary Shares could fall. Moreover, the perceived risk of this potential dilution could cause shareholders to attempt to sell their Ordinary Shares and investors to short our Ordinary Shares. These sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
In addition, sales of substantial amounts of our Ordinary Shares in the public market after the completion of this offering, or the perception that these sales could occur, could adversely affect the market price of our Ordinary Shares and could materially impair our ability to raise capital through equity offerings in the future. The Ordinary Shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, and shares held by our existing shareholders may also be sold in the public market in the future subject to the restrictions in Rule 144 and Rule 701 under the Securities Act and the applicable lock-up agreements, if any. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our Ordinary Shares. See “Underwriting” for a more detailed description of the restrictions on selling our securities after this offering.
As a result of the price resets and subsequent share adjustments in the Warrants and/or if the Warrants are exercised by way of a zero cash exercise, shareholders are likely to suffer substantial dilution and see a significant decrease in the value of their Ordinary Shares.
The Warrants include exercise price reset provisions and a zero cash exercise option, both of which will result in the issuance of a significantly higher number of shares upon exercise. Specifically, the Warrants will be immediately exercisable and may be exercisable until the one (1) year anniversary of the date of issuance at an exercise price equal to per unit purchase price (the “Initial Exercise Price”). In addition, subject to certain conditions, the exercise price for the Warrants will be adjusted downward on each of the 2nd and 5th trading day following the closing of this offering to the price that is equal to 70%, and 50%, respectively, of the Initial Exercise Price, and the number of Ordinary Shares underlying the Warrants will be proportionally increased, so that the applicable Reset Price multiplied by the increased number of Ordinary Shares equal the aggregate proceeds that would have resulted from the full exercise of the Warrants immediately prior to the applicable Reset Date. The Warrants also contain certain mechanisms for cashless exercise, including a zero cash exercise option pursuant to which holders of the Warrants have the option, upon exercise and for no additional cash consideration, to receive an aggregate number of Ordinary Shares equal to the product of (x) the aggregate number of Ordinary Shares that would be issuable upon a cash exercise of the Warrant and (y) 2.
As an example, for each Unit that an investor purchases in this offering at the offering price of $0.75 per Unit, the investor will receive one Ordinary Share and one Warrant each to purchase one Ordinary Share at an exercise price of $0.75 per Ordinary Share. Giving effect solely to the adjustment on the first Reset Date and not giving effect to the zero cash exercise option, on the first Reset Date, the Warrants purchased by the investors will become exercisable for a maximum of 15,238,095 Ordinary Shares at an exercise price of $0.525 per Ordinary Share. If such Warrants are then exercised at such time based on the zero cash exercise option, the Warrants would be exercisable into 30,476,190 Ordinary Shares. If the Warrants remain outstanding as of the second Reset Date,
36
giving effect solely to the potential adjustment on the second Reset Date and not giving effect to the zero cash exercise option, on the second Reset Date, the Warrants will become exercisable for a maximum of 21,333,333 Ordinary Shares at an exercise price of $0.375 per Ordinary Share. If such Warrants are then exercised at such time based on the zero cash exercise option, the Warrants would be exercisable into 42,666,666 Ordinary Shares. Accordingly, if all of the Warrants offered to investors in this offering are exercised on a zero cash basis, a maximum of 42,666,666 Ordinary Shares could be issued upon such zero cash exercise, without payment to the Company of any additional cash. In addition, we have granted the Underwriter an option exercisable within 15 days of the closing of this offering to purchase from us up to 1,599,999 additional Units, which includes up to 1,599,999 additional Ordinary Shares or Pre-Funded Warrants each to purchase one Ordinary Share, and/or up to 1,599,999 Warrants each to purchase one Ordinary Share, to cover over-allotments, if any. If the Underwriter’s over-allotment option for Warrants is exercised in full to purchase 1,599,999 Warrants and all such Warrants are exercised on a zero cash basis, a maximum of 6,400,000 Ordinary Shares could be issued upon such zero cash exercise without payment to the Company of any additional cash. If all of the Warrants offered to investors in this offering, including those subject to the Underwriter’s over-allotment option for Warrants, are exercised on a zero cash basis, a maximum of 49,066,666 Ordinary Shares could be issued upon such zero cash exercise without payment to the Company of any additional cash.
As a result of the terms of the Warrant, it is likely that our stock price will be reduced considerably because of each of the resets. Accordingly, shareholders are likely to suffer substantial dilution and see a significant decrease in the value of their Ordinary Shares as a result of this transaction.
Nasdaq may halt trading in our Ordinary Shares on Nasdaq or delist our Ordinary Shares for public interest concerns as a result of this offering.
Because of the highly dilutive nature of this offering, Nasdaq may halt trading in our Ordinary Shares on Nasdaq or delist our Ordinary Shares for public interest concerns or because our Ordinary Shares continue to trade below Nasdaq’s minimum bid price as a result of this offering, even if we are otherwise able to regain compliance for continued listing on Nasdaq. A number of Nasdaq-listed companies have filed public disclosures regarding the receipt of notification letters indicating that Nasdaq made the determination to halt and/or delist such companies as a result of public interest concerns arising from the issuance of warrants with similar terms to, and similar potential dilutive impact as, the Warrants in this offering. Additionally, warrants with similar terms issued by other Nasdaq-listed companies have caused such Nasdaq-listed companies’ stock prices to drop below Nasdaq’s minimum bid price or made it more difficult for these companies to cause their stock prices to regain compliance with Nasdaq’s minimum bid price. Therefore, even if we consummate this offering at a price above Nasdaq’s minimum bid price, there can be no assurance that our Ordinary Shares will not again drop below such price, which may cause Nasdaq to delist our Ordinary Shares.
If Nasdaq delists our securities from trading on its exchange for failure to meet its listing standards, and we are not able to list such securities on another national securities exchange, then our Ordinary Shares could be quoted on an over-the-counter market. If this were to occur, we and our shareholders could face significant material adverse consequences, including:
| ● | a limited availability of market quotations for our securities; |
| ● | reduced liquidity for our securities; |
| ● | a determination that the Ordinary Shares are a “penny stock,” which will require brokers trading the Ordinary Shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our Ordinary Shares; |
| ● | a limited amount of news and analyst coverage; and |
| ● | a decreased ability for us to issue additional securities or obtain additional financing in the future. |
We will likely not receive any additional funds upon the exercise of the Warrants.
The Warrants may be exercised by way of a zero cash exercise, in which case the holder would not pay a cash purchase price upon exercise, but instead would receive upon such exercise the number of Ordinary Shares equal to the product of (x) the aggregate number of Ordinary Shares that would be issuable upon a cash exercise of the Warrant and (y) 2. Accordingly, it is highly unlikely that a holder of the Warrants would wish to pay an exercise price in cash to receive additional Ordinary Share underlying the Warrants when they could instead choose the zero cash exercise option and pay no cash to receive up to 42,666,666 Ordinary Shares following the second Reset Date. As a result, we will likely not receive any additional funds and do not expect to receive any additional funds upon the exercise of the Warrants.
37
Since we have broad discretion in how we use the proceeds from this offering, we may use the proceeds in ways with which you disagree.
Our management will have significant flexibility in applying the net proceeds of this offering. You will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that the net proceeds will be invested in a way that does not yield a favorable, or any, return for us. The failure of our management to use such funds effectively could have a material adverse effect on our business, prospects, financial condition, operating results and cash flow.
The public offering price in this offering will be set by our Board and does not necessarily indicate the actual or market value of our Ordinary Shares.
Our Board, or a committee designated by the Board, will approve the public offering price and other terms of this offering after considering, among other things: the current market price of our Ordinary Shares; trading prices of our Ordinary Shares over time; the volatility of our Ordinary Shares; our current financial condition and the prospects for our future cash flows; the availability of and likely cost of capital of other potential sources of capital; the characteristics of interested investors and market and economic conditions at the time of the offering. The public offering price is not intended to bear any relationship to the book value of our assets or our past operations, cash flows, losses, financial condition, net worth or any other established criteria used to value securities. The public offering price may not be indicative of the fair value of our Ordinary Shares.
There is no public market for the Warrants or Pre-funded Warrants in this offering.
There is no established public trading market for the Warrants and Pre-funded Warrants, and we do not expect a market to develop. In addition, we do not intend to apply for listing of the Warrants and Pre-funded Warrants on any securities exchange or recognized trading system. Without an active market, the liquidity of the Warrants and Pre-funded Warrants will be limited.
The amendment to the Nasdaq’s continued listing requirements could result in our inability to maintain our listing.
On September 3, 2025, Nasdaq proposed to introduce an accelerated process for suspending and delisting companies with a listings deficiency that also have a market value listed securities below $5.0 million. Nasdaq proposes further enhancing investor protections by providing for suspension from Nasdaq trading and immediate delisting (rather than providing a compliance period) of any company that becomes non-compliant with a numeric listing requirement, including the bid price, market value of public float, equity, income and total assets/revenue requirements, and that has a market value of listed securities of less than $5 million. To effect this change, Nasdaq proposes to modify Listing Rule 5810(c)(1) to add an additional type of a deficiency that results in immediate delisting and suspension from trading of the company’s securities. Specifically, Listing Rule 5810(c)(1) will provide that staff’s delisting notice will inform the company that its securities are immediately subject to suspension and delisting when a company is non-compliant with one or more of the listing requirements contained in Rule 5450 or Rule 5550 and the company’s Market Value of Listed Securities has failed to maintain a value of at least $5 million for a period of 10 consecutive business days. Listing Rule 5810(c)(2)(A)(i) currently identifies all quantitative deficiencies from standards that do not provide a compliance period as deficiencies for which a company may submit a plan of compliance for staff review. Nasdaq proposes to modify Listing Rule 5810(c)(2)(A)(i) to provide that the company may not submit such a plan when the company’s Market Value of Listed Securities had been less than $5 million for a period of 10 consecutive business days. Further, Listing Rule 5810(c)(3) currently identifies deficiencies for which the rules provide a specified cure or compliance period. Nasdaq proposes to modify Listing Rule 5810(c)(3) to provide that a company will not be entitled to such cure or compliance period if the company’s Market Value of Listed Securities has failed to maintain a value of at least $5 million for a period of 10 consecutive business days. Finally, Nasdaq proposes to modify Listing Rule 5810(c)(1) to provide that staff’s delisting notice in these circumstances will inform the company that its securities are immediately subject to suspension from trading on Nasdaq. Nasdaq believes that it is not appropriate for such a company to continue trading on Nasdaq during the pendency of the Hearings Panel review process. Instead, Nasdaq proposes to amend Rule 5815 to remove the stay provision in these situations so that the company’s securities will be suspended from trading on Nasdaq during the pendency of the Hearings Panel’s review. In addition, Nasdaq also proposed to adopt additional initial listing criteria for companies primarily operating in China, including a minimum $25 million IPO proceeds requirement (“Strengthened PRC Listing Threshold”).
38
The proposed accelerated process for suspending and delisting companies with a listings deficiency that also have a market value listed securities below $5.0 million, if implemented, may put immense pressure on our Company We may have to monitor the market value of our listed securities closely and take actions timely, such as issuing additional securities and raising additional capital to regain and/or maintain compliance. Any such risk of losing our listing status quickly may harm investors’ confidence, our liquidity and limit our access to additional funding.
Even if we currently meet the revised listing requirements, we may be unable to continue to satisfy the newly revised listing requirements and applicable rules on the Nasdaq Capital Market, which could materially and adversely affect the liquidity, visibility, and overall marketability of our Ordinary Shares. In addition, the Strengthened PRC Listing Threshold may be part of a broader trend of heightened regulatory scrutiny and stricter supervisions for companies with principal operations in China, Hong Kong, and Macau. Currently, it is not clear whether Nasdaq will propose any continue listing rules specifically applicable to companies with principal operations in China, Hong Kong, and Macau, but if that occurs, our ability to conduct future offerings or maintain our listing could be adversely affected if Nasdaq or the SEC implements additional stringent criteria. We may be required to expend significant resources to address any future regulatory changes or concerns, which could divert our management’s attention and resources from our business operations. Any such events could have a material adverse effect on our business, financial condition, and results of operations, and could cause a significant decline in the value of our securities, or our securities could be subject to delisting.
Based upon an assumed offering price of US$0.75 per Unit (the reference reported sale price of our Ordinary Shares, as reported on the Nasdaq Capital Market on February 6, 2026), we estimate that we will receive net proceeds from this offering of approximately US$7.7 million, assuming the sales of all of the securities we are offering, full exercise of the Pre-Funded Warrants, no exercise of the Warrants and no exercise of any portion of the Over-Allotment Option, after deducting the Underwriter’s fees, reimbursement of the Underwriter’s expenses, and the estimated offering expenses payable by us. We plan to use the net proceeds from this offering for the working capital and other general corporate purposes.
This expected use of the net proceeds from this offering represents our intentions based upon our current plans and prevailing business conditions, which could change in the future as our plans and prevailing business conditions evolve. Predicting the cost necessary to develop product candidates can be difficult and the amounts and timing of our actual expenditures may vary significantly depending on numerous factors. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering.
Corporate Structure and History
Blue Hat is a holding company incorporated in the Cayman Islands and are not a Chinese operating company. As a holding company with no material operations of our own, we conduct a substantial majority of our operations through our subsidiaries in the PRC and Hong Kong. We used to have variable interest entities (“VIEs”) through a “VIE structure,” to replicate foreign investment in China-based companies where Chinese law prohibits direct foreign investment. On June 8, 2023, contractual agreements by and among Blue Hat WOFE, Blue Hat Fujian and certain individuals were terminated and therefore Blue Hat Fujian was deconsolidated from the Company. The Company also has deconsolidated Fresh Joy through this termination. As of the date of this prospectus, the Company has no VIEs, and the Company, as a holding company without operations, is conducting business through its wholly owned operating subsidiaries including 1) Blue Hat Fujian; 2) Xiamen Shengruihao Technology Co., Ltd. (“Shengruihao”); 3) Blue Hat WOFE; 4) Xiamen Bluehat Research Institution of Education Co., Ltd. (“Bluehat Research”); 5) Hunan Engaomei Anination Culture Development Co., Ltd. (“Engaomei”); 6) Fujian Youth Hand in Hand Educational Technology Co., Ltd. (“Fujian Youth”); 7) Fuzhou Qiande Educational Technology Co., Ltd. (“Qiande”); 8) Chongqing Duwei Chuanghua Electronic Technology Co., Ltd. (“Duwei Chuanghua”); 9) Golden Alpha Strategy Ltd. (“Golden Alpha”); 10) Guangzhou Huangxin Enterprise Management Co., Ltd. (“Huangxin”); and 11) Blue Hat Technology Ltd. (“BH Technology”). As an investor to us, you will only hold equity interest of us and will never directly hold equity interests in our operating entities, either in PRC or in Hong Kong.
39
Blue Hat was incorporated on June 13, 2018 under the laws of the Cayman Islands, solely for the purpose of holding all of the issued and outstanding shares of Blue Hat BVI, established under the laws of the British Virgin Islands on June 26, 2018, which was incorporated solely for the purpose of holding all of the outstanding equity of Blue Hat HK, which was established in Hong Kong on June 26, 2018, which holds all of the outstanding equity of Blue Hat WFOE, which was established on July 26, 2018 under the laws of the PRC.
Blue Hat WFOE, through our pre-existed variable interest entity, or VIE, Blue Hat Fujian, a PRC company (prior to June 8, 2023), and through its wholly owned subsidiaries, Blue Hat Hunan, a PRC company, engaged in designing, producing, promoting and selling animated toys with mobile games features, original intellectual property and peripheral derivatives features worldwide. Such contractual arrangements were terminated on June 8, 2023 (the “VIE Termination”).
On September 18, 2017, Blue Hat Fujian formed a joint venture with Xiamen Youth Education Development Co., Ltd. and Youying Wang, contributing a 48.5% equity interest in Fujian Youth, a PRC company. On January 22, 2021, Xiamen Youth Education Development Co., Ltd and Youying Wang transferred all their equity interests to Blue Hat WOFE. Therefore, combining Blue Hat Fujian, and Blue Hat WOFE, right now they own all the equity interests of Fujian Youth.
On September 10, 2018, Blue Hat Fujian established its wholly owned subsidiary, Blue Hat Pingxiang, a PRC company. Blue Hat Pingxiang also engaged in designing, producing, promoting and selling interactive toys with mobile games features, original intellectual property and peripheral derivatives features worldwide. As Blue Hat Pingxiang is a wholly owned subsidiary of Blue Hat Fujian, it is no longer a consolidated entity after the VIE Termination.
On November 13, 2018, Blue Hat completed a reorganization of entities under common control of its then existing shareholders, who collectively owned a majority of the equity interests of Blue Hat prior to the reorganization. Blue Hat, Blue Hat BVI, and Blue Hat HK were established as the holding companies of Blue Hat WFOE.
On February 20, 2021, the Company established a wholly owned subsidiary, Bluehat Research. On March, 24, 2021, Qiande was incorporated and was 100% owned by Fujian Youth. On August 23, 2021, Fujian Blue Hat was incorporated and was owned by Blue Hat HK. On September 30, 2022, Fujian Blue Hat acquired 100% of Shengruihao, a PRC company established on June 30, 2021.
On April 3, 2023, Golden Strategy, a BVI company, was incorporated and is wholly owned by the Company. On April 18, 2023, Golden Alpha, a Hong Kong company, was incorporated and is wholly owned by Golden Strategy. Golden Alpha’s main business operation is the international jewelry trading business. On June 13, 2023, Duwei Chuangda was established in Chongqing, China, and is wholly owned by Blue Hat WOFE. On July 5, 2023, Guangzhou Huangxin was established in Guangzhou, China, and is wholly owned by Golden Alpha. Guangzhou Huangxin’s main business operation is the jewelry trading business in mainland China. On July 21, 2023, BH Technology, a wholly owned subsidiary of Golden Strategy, was incorporated in New Hampshire, USA. BH Technology will handle the business operations in the United States in future. On May 2024, Fuzhou Blue Financial Investment Co., Ltd, a subsidiary of Blue Hat Cayman, was established under the laws of PRC, and on June 2024, it established a wholly owned subsidiary Fuzhou Po Teishin Supply Chain Co., Ltd under the laws of PRC.
On April 17, 2025, Golden Alpha Strategy Sdn. Bhd (“Golden Alpha Malaysia”), a wholly owned subsidiary of the Company, is incorporated in Malaysia, currently Golden Alpha Malaysia does not have any operations as of the date of this prospectus.
The chart below summarize our corporate legal structure and identify our subsidiaries:
40
| Name | Background | Ownership | ||
| Brilliant Hat Limited |
● A British Virgin Islands company
|
100% owned by Blue Hat Interactive Entertainment Technology | ||
| Blue Hat Interactive Entertainment Technology Limited |
● A Hong Kong company
|
100% owned by Brilliant Hat Limited | ||
| Xiamen Duwei Consulting Management Co., Ltd. |
● A PRC limited liability company and deemed a wholly foreign owned
enterprise, or WFOE
|
100% owned by Blue Hat Interactive Entertainment Technology Limited | ||
| Hunan Engaomei Animation Culture Development Co., Ltd. |
● A PRC limited liability company
|
100% owned by Xiamen Duwei Consulting Management Co., Ltd. | ||
| Fujian Youth Hand in Hand Educational Technology Co., Ltd |
● A PRC limited liability company
|
100% owned by Xiamen Duwei Consulting Management Co., Ltd. | ||
| Fuzhou Qiande Educational Technology Co., Ltd |
● A PRC limited liability company
|
100% owned by Fujian Youth Hand in Hand Educational Technology Co., Ltd | ||
| Xiamen Bluehat Research Institution of Education Co., Ltd. |
● A PRC limited liability company
|
100% owned by Xiamen Duwei Consulting Management Co., Ltd. From December 31st, 2022. | ||
| Fujian Blue Hat Group Co., Ltd. |
● A PRC limited liability company
|
100% owned by Blue Hat Interactive Entertainment Technology Limited. | ||
| Xiamen Shengruihao Technology Co., Ltd |
● A PRC limited liability company, acquired on September 30, 2022
|
100% owned by Fujian Blue Hat Group Co. Ltd. | ||
| Golden Strategy Ltd. |
● A British Virgin Islands company
|
100% owned by Blue Hat Interactive Entertainment Technology |
41
| Golden Alpha Strategy Ltd. |
● A Hong Kong company
|
100% owned by Golden Strategy Ltd. | ||
| Chongqing Duwei Chuangda Electronic Technology Co., Ltd. |
● A PRC limited liability company
|
100% owned by Xiamen Duwei Consulting Management Co., Ltd. | ||
| Guangzhou Huangxin Enterprise Management Co., Ltd. |
●A PRC limited liability company and deemed a wholly foreign owned
enterprise, or WOFE
|
100% owned by Golden Alpha Strategy Ltd. | ||
| Blue Hat Technology LLC. |
● A US company incorporated in New Hampshire
|
100% owned by Golden Strategy Ltd. | ||
| Fuzhou Blue Financial Investment Co.,Ltd |
● A PRC limited liability company
|
100% owned by Blue Hat Interactive Entertainment Technology Limited. | ||
| Fuzhou Po Teishin Supply Chain Co. |
● A PRC limited liability company
|
100% owned by Fuzhou Blue Financial Investment Co., Ltd. | ||
| Golden Alpha Strategy Sdn. Bhd |
● A Malaysia corporation |
100% owned by Golden Alpha Strategy Ltd. |
Major Events
On May 10, 2022, the shareholders of the Company have authorized and approved a 1-for-10 reverse stock split of the Company’s authorized (issued and unissued) shares of ordinary shares, which was set by the Board to be effective May 27, 2022. On February 28, 2025, the shareholders of the Company have authorized and approved a 1-for-100 reverse stock split of the Company’s authorized (issued and unissued) shares of ordinary shares, which was set by the Board to be effective March 17, 2025 (collectively, the “Reverse Stock Splits”). On July 10, 2025, the shareholders of the Company approved the merger of the Company with Lanjin Technology Co., LTD, and on July 16, 2025, such merger was completed, which the par value of the Company’s ordinary shares was reduced from $1.00 per share to $0.0000001 per share (the “Merger”, collectively with the Reverse Stock Splits, the “Company Events”). These Company Events have been retroactively reflected in Company’s consolidated financial statements included elsewhere in this prospectus.
On June 8, 2023, due to legal restrictions on foreign ownership and investment in, certain areas of operation in China, including interactive, entertainment and toys, the Company decided to terminate and stop the production, development and operation of business of AR interactive entertainment games and toy previously managed through contractual arrangements with certain PRC domestic companies. Such contractual arrangements consisted of a series of agreements, along with shareholders’ powers of attorney and irrevocable commitment letters. All contractual agreements by and among Blue Hat WOFE, Blue Hat Fujian and certain individuals were terminated and therefore Blue Hat Fujian is no longer a VIE of Blue Hat and was hereby deconsolidated. The Company also deconsolidated Fresh Joy through this termination. As of the date of this prospectus, the Company has no VIEs, and the Company, as a holding company without operations, is conducting business through its wholly owned operating subsidiaries.
In March 2024, the Company announced a strategic shift to become an AI-driven financial services enterprise, focusing on the development of gold trading and commodity-related businesses.
42
On June 5, 2024, Golden Alpha Strategy Ltd., a wholly-owned Hong Kong subsidiary of the Company, was granted Category A Registration for dealing in precious metals from the Hong Kong Customs and Excise Department.
On June 12, 2024, the Company entered into a framework cooperation agreement with Sichuan Jinyinghe Industrial Co., Ltd. to jointly establish a gold supply chain company to develop business in the Shenzhen Shuibei market, one of China’s largest gold trading centers with annual transaction volumes exceeding RMB 1 trillion.
On August 28, 2024, the Company entered into a purchase agreement with Macau Rongxin Precious Metals Technology Co., Ltd. for the purchase of 1,000 kilograms (approximately 2,204.62 pounds) of gold for a total purchase price of approximately $64.56 million, following the framework agreement signed on October 26, 2023. This marks the Company’s entry into large-scale gold trading.
On January 5, 2025, January 7, 2025 and January 11, 2025, the Company entered into certain securities purchase agreements (collectively, the “Purchase Agreements”) with several institutional purchasers (the “Purchasers”), with each Purchase Agreement by and between the Company and the purchaser identified on each signature page thereto, pursuant to which the Company agreed to issue and sell, in three registered direct offerings (collectively, the “Registered Direct Offerings”), 552,000, 559,500, and 779,898 Ordinary Shares, at a purchase price of $8 per share, $7 per share and $5.5 per share, respectively. On each of the date aforementioned, the Company also entered into certain placement agency agreements with Maxim Group LLC as the exclusive placement agent in each of the Registered Direct Offering.
The Registered Direct Offerings closed on January 7, 2025, January 9, 2025 and January 14, 2025, respectively. The Company received an aggregate of approximately $12.6 million in gross proceeds from the Registered Direct Offerings, before deducting placement agent fees and estimated offering expenses. The Company intends to use the net proceeds from the Registered Direct Offerings for working capital and general corporate purposes.
On September 26, 2025, Blue Hat completed the issuance of a total of 29,682,353 Ordinary Shares at the average closing price of the Ordinary Shares in the past 30 trading days immediately before August 28, 2025, which is $1.7 per share, to certain designees of City Fields Enterprises Limited (the “Seller”), pursuant to that certain Gold Purchase Agreement dated August 8, 2025 and the supplementary agreements dated August 28, 2025 by and between the Company and the Seller, which the Company shall pay $50,460,000 purchase price in the form of Ordinary Shares to purchase 500 kilogram gold.
On October 28, 2025, the Board approved and adopted the Company’s 2025 Equity Incentive Plan, which became effective immediately
At the end of November 2025, Blue Hat and Global Prima Trade Limited (the “Seller”) entered into that certain Gold Purchase Agreement and the supplementary agreement (collectively the “Agreements”), pursuant to which, the Company shall pay an aggregated purchase price of $24,188,000 in the form of Ordinary Shares to purchase 200 kilogram gold. Total number of Ordinary Shares issued in connection herewith is 19,506,452 shares, at the average closing price of the Ordinary Shares in the past 10 calendar days immediately before November 25, 2025, which is $1.24 per share. As of the date of this prospectus, the issuance has not been processed.
Permissions and Approvals
The table below lists all the permissions and approvals the Company and its subsidiaries have obtained as of the date of the prospectus:
43
| No. | Name of the Company | License No. | License/Permission | Established Date | Validity |
| 1 | Blue Hat Interactive Entertainment Technology | WC-338512 | Business License | 6/13/2018 | Long-term |
| 2 | Brilliant Hat Limited | 1983687 | Business License | 6/26/2018 | Long-term |
| 3 | Golden Strategy Ltd | 2121323 | Business License | 4/3/2023 | Long-term |
| 4 | Blue Hat Interactive Entertainment Technology Limited | 2714615 | Business License | 6/26/2018 | Long-term |
| 5 | Golden Alpha Strategy Limited | 3271611 | Business License | 4/18/2023 | Long-term |
| 6 | BLUE HAT TECHNOLOGY LLC | 937615 | Business License | 7/21/2023 | Long-term |
| 7 | Fujian Blue Hat Group Co., Ltd. | 91350100MA8TTRRQ4A | Business License Record Registration Form for Foreign |
8/23/2021 | 8/22/2051 |
| 8 | Xiamen Shengruihao Technology Co., Ltd | 91350200MA8TGQ815M | Business License | 6/30/2021 | 6/29/2071 |
| 9 | Xiamen Duwei Consulting Management Co., Ltd. | 91350200MA31XW6W0Q | Business License Record Registration Form for Foreign |
7/26/2018 | 7/25/2048 |
| 10 | Xiamen Bluehat Research Institution of Education Co., Ltd. | 91350200MA8RFNMY91 | Business License | 2/20/2021 | 2/19/2071 |
| 11 | Hunan Engaomei Animation Culture Development Co., Ltd. | 91430111MA4M6YX69X | Business License | 10/19/2017 | 10/18/2067 |
| 12 | Fujian Youth Hand in Hand Educational Technology Co., Ltd | 91350200MA2YKHW78G | Business License | 9/18/2017 | 9/17/2067 |
| 13 | Fuzhou Qiande Educational Technology Co., Ltd | 91350102MA8RQTEH5R | Business License | 3/24/2021 | Long-term |
| 14 | Chongqing Duwei Chuangda Electronic Technology Co., Ltd | 91500103MACMEAMG3Y | Business License | 6/13/2023 | Long-term |
| 15 | Guangzhou Huangxin Enterprise Management Co., Ltd. | 91440106MACPKAYJXM | Business License Record Registration Form for Foreign |
7/5/2023 | Long-term |
| 16 | Fuzhou Blue Financial Investment Co.,Ltd | 91350111MADKTE9B27 | Business License | 5/8/2024 | Long-term |
| 17 | Fuzhou Po Teishin Supply Chain Co., Ltd | 91350111MADP37HFX2 | Business License | 6/11/2024 | Long-term |
| 18 | Golden Alpha Strategy Limited | A-B-24-05-07315 | Certificate of Registration for Category A Registrant | 05/24/2024 | Long-term |
44
In the view of the management team of the Company, the Company and its subsidiaries have obtained all the permissions and approvals the Company and its subsidiaries are required to hold to operate business. The Company and its subsidiaries have never been denied any applications concerning any permissions or approvals. If the Company or its subsidiaries do not receive or maintain such permissions or approvals, or mistakenly conclude that such permissions or approvals are not required, our business may be adversely affected. In the scenario when the Company is denied such permissions, the Company would be required to either avoid such field of business, or to collaborate with parties that can obtain such permissions. Currently the PRC legal system is under constant development and applicable laws, regulations, or interpretations are subject to substantial uncertainties. If relevant rules suddenly change, we will have to obtain such permissions or approvals, which may be costly, and may temporarily halt our operation of business, negatively affecting our revenues and our securities’ value.
Our Business Operations
We create value by providing capital, technology, and connections across the gold supply chain. Our target customers include gold refineries, wholesalers, and retailers. We aim to address industry challenges such as fragmented markets, limited financing channels, and operational inefficiencies through our AI-enabled trading platforms and supply chain solutions. Our management team believes the gold industry is transitioning from rapid growth to high-quality development, presenting strategic opportunities for market consolidation and technological innovation.
Our operations are supported by key licenses and strategic partnerships. Our Hong Kong subsidiary, Golden Alpha Strategy Ltd., holds a Category A Registration for dealing in precious metals from the Hong Kong Customs and Excise Department.
In addition to our gold trading operations, we maintain a robust diamond trading business that began in the third quarter of 2023. Our diamond trading operations have quickly grown to become a significant revenue contributor, generating $18.72 million in revenue for the year ended December 31, 2024. We maintain relationships with diamond suppliers and have established sales channels to jewelry manufacturers and retailers. Unlike our gold business which is affected by macroeconomic factors like central bank policy and inflation expectations, our diamond trading business is more closely tied to consumer luxury spending and jewelry industry trends.
The growth of our business is driven by several key market factors. We are seeing increased institutional demand, particularly from central banks expanding their gold reserves. The gold market is also transitioning from a fragmented structure to a more consolidated one, creating opportunities for well-positioned companies. Additionally, there is rising demand for efficient trading solutions powered by advanced technology.
Looking ahead, we plan to expand our business beyond physical gold trading into derivatives trading. This expansion includes the development of sophisticated online trading platforms and enhancement of our AI-enabled services. Geographically, we aim to extend our presence into European and North American markets. Unlike traditional retail-focused precious metals businesses, our operations are not significantly affected by seasonal factors as gold trading occurs continuously throughout the year in both institutional and retail markets.
Our Products and Services
As of the date of this prospectus, our business focuses primarily on gold and diamond trading and related services.
In the third quarter of 2023, we expanded into the diamond trading business, which has become a significant revenue contributor. For the year ended December 31, 2024, our diamond trading operations generated $18.72 million in revenue with a gross profit margin of 8.26%. For the six months ended June 30, 2025, our gold trading operations generated $13.33 million in revenue, with total gross margin increased to 36.54%. We source and supply diamonds to wholesalers and retailers in the jewelry industry.
In August 2024, we acquired 1,000 kilograms of gold at a price of approximately $64.56 per gram. With the rise in international gold prices, the value of our gold holdings has seen significant appreciation, reaching approximately $3,000 per ounce by March 2025. This acquisition has not only strengthened our financial position but also provided a solid foundation for our planned expansion in the gold industry chain.
45
In addition, we are developing:
| ● | Gold Supply Chain Services: We provide financing, logistics, and connection services to participants across the gold supply chain, from refineries to wholesalers and retailers. | |
| ● | Intelligent Trading Platforms: We are developing AI-enabled platforms to enhance the efficiency and transparency of gold trading. |
Prior to our business transition in 2022-2023, the Company’s product portfolio included interactive educational materials, mobile games, toys with mobile game features, and immersive educational courses, as well as Internet Data Center services. We have since divested these previous business lines to focus on our gold trading and supply chain operations.
Technology and Intellectual Property
While our business focus has shifted to gold trading, we continue to leverage our technological capabilities to enhance our current operations. We are applying artificial intelligence and blockchain technologies to develop innovative solutions for the gold industry, including intelligent gold supply chain systems and gold derivatives trading platforms.
We are now adapting and applying these technological capabilities to enhance our gold trading business and empower industry participants with AI technology, including providing efficient marketing content creation services for jewelers and data analysis services for gold derivatives traders.
Sales and Marketing
Our customers include:
| ● | Gold Refineries: We provide financing and logistics services to gold refineries. |
| ● | Gold Wholesalers: We supply gold products and trading solutions to wholesale distributors. |
| ● | Gold Retailers: We offer inventory management and marketing services to gold retailers. |
| ● | Diamond Wholesalers and Retailers: We supply high-quality diamonds to jewelry manufacturers, wholesalers, and retailers, capitalizing on our expertise in precious commodity trading. |
We believe several key factors influence our market opportunity:
| ● | Institutional Demand: Central banks worldwide, including China’s central bank, have been increasing their gold reserves for three consecutive years, driving demand for gold as a safe-haven asset. |
| ● | Diamond Market Dynamics: The diamond industry continues to present attractive opportunities as consumer demand for luxury goods recovers post-pandemic. While our gold business benefits from central bank purchases and safe-haven investment demand, our diamond business serves different market segments, providing portfolio diversification and multiple revenue streams across the precious commodities space. |
| ● | Market Consolidation: The gold industry is transitioning from a fragmented structure to a more consolidated one, creating opportunities for well-positioned companies. |
| ● | Technological Innovation: There is increasing demand for efficient trading solutions powered by advanced technology. |
Our business is not significantly affected by seasonal factors as gold trading occurs year-round in both institutional and retail markets.
46
Competition
We compete with existing gold and diamond trading companies around the world, and we may also face competition from new and emerging companies. Our principal competitors are those companies that provide precious metals and gemstone materials to the market, including established gold and diamond traders, jewelry manufacturers, and financial institutions providing precious commodity-related services.
The principal competitive factors in our market include:
| ● | Financial resources and access to capital; | |
| ● | Trading capabilities and platform sophistic; | |
| ● | Industry relationships and supply chain integration; | |
| ● | Regulatory compliance and licenses； | |
| ● | Technological innovation and data analytics capabilities |
We believe our competitive advantages include our strategic partnerships, our technology-driven approach, and our focus on addressing key industry challenges through innovative solutions.
Future Growth Strategy
We are executing a multi-faceted growth strategy:
1. Increasing gold reserves: We plan to strategically increase our gold holdings through partnerships with international suppliers.
2. Optimizing supply chain operations: We aim to enhance the efficiency of the gold supply chain through the development of intelligent platforms and regional expansion.
3. Promoting technological innovation: We are accelerating the development of blockchain-based trading platforms to enable the digitization and global circulation of gold assets.
4. Geographic expansion: We intend to extend our market presence beyond China into European, North American, and Middle Eastern markets.
Cash Transfers with Subsidiaries
Blue Hat Cayman and its subsidiaries usually operate independently and transfer funds through loans and intercompany transactions. We raised capital for a total amount of $25.182 million from 2020 to 2024 through various financings. For the previous three years, Blue Hat HK, our wholly-owned Hong Kong intermediary holding subsidiary, passed the funds from the investors in these financings to Blue Hat WOFE and other subsidiaries, through intercompany transactions.
The tables below show the cash transfer between the Company and its subsidiaries for the six months ended June 30, 2025 and for the fiscal years ended December 31, 2024, 2023 and 2022.
| For the six months ended June 30, 2025 | ||||||||||
| Transfer from | Transfer to | Approximate value ($) | Note | |||||||
| Blue Hat Interactive Entertainment Technology | Golden Alpha Strategy Limited | 3,639,366.08 | Loan | |||||||
| Blue Hat Interactive Entertainment Technology | Blue Hat Interactive Entertainment Technology Limited | 688,142.87 | Loan | |||||||
| Blue Hat Interactive Entertainment Technology Limited | Fujian Blue Hat Group Co, Ltd | 185,714.29 | Investment | |||||||
47
| For the year ended December 31, 2024 | ||||||||||
| Transfer from | Transfer to | Approximate value ($) | Note | |||||||
| Blue Hat Interactive Entertainment Technology | Blue Hat Interactive Entertainment Technology Limited | 2,800,000.00 | Loan | |||||||
| Blue Hat Interactive Entertainment Technology Limited | Fujian Blue Hat Group Co, Ltd | 2,800,000.00 | Investment | |||||||
| For the year ended December 31, 2023 | ||||||||||
| Transfer from | Transfer to | Approximate value ($) | Note | |||||||
| Blue Hat Interactive Entertainment Technology | Blue Hat Interactive Entertainment Technology Limited | 2,800,000.00 | Loan | |||||||
| Blue Hat Interactive Entertainment Technology Limited | Fujian Blue Hat Group Co, Ltd | 2,800,000.00 | Investment | |||||||
| For the year ended December 31, 2022 | |||||||||||||
| No. | Transfer from | Transfer to | Approximate value ($) | Note | |||||||||
| 1 | Blue Hat Interactive Entertainment Technology | Blue Hat Interactive Entertainment Technology Limited | 1,768,000.00 | Loan | |||||||||
| 2 | Blue Hat Interactive Entertainment Technology Limited | Fujian Blue Hat Group Co, Ltd | 1,768,000.00 | Investment | |||||||||
As of the date of this prospectus, the Company has not distributed any dividends to the investors, nor does the Company intend to distribute any dividends in any form in the near future. The Company currently intends to retain the earnings to re-invest into the daily operations.
Risk Management and Strategy
Interest Rate Risk
We are exposed to interest rate risk while we have short-term bank loans outstanding. Although interest rates for our short-term loans are typically fixed for the terms of the loans, the terms are typically twelve months and interest rates are subject to change upon renewal.
Credit Risk
Credit risk is controlled by the application of credit approvals, limits and monitoring procedures. We manage credit risk through in-house research and analysis of the Chinese economy and the underlying obligors and transaction structures. We identify credit risk collectively based on industry, geography and customer type. In measuring the credit risk of our sales to our customers, we mainly reflect the “probability of default” by the customer on its contractual obligations and consider the current financial position of the customer and the current and likely future exposures to the customer.
Liquidity Risk
We are also exposed to liquidity risk which is risk that it we will be unable to provide sufficient capital resources and liquidity to meet our commitments and business needs. Liquidity risk is controlled by the application of financial position analysis and monitoring procedures. When necessary, we will turn to other financial institutions and related parties to obtain short-term funding to cover any liquidity shortage.
48
Foreign Exchange Risk
While our reporting currency is the U.S. dollar, almost all of our consolidated revenues and consolidated costs and expenses are denominated in RMB. All of our assets are denominated in RMB. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between the U.S. dollar and RMB. If the RMB depreciates against the U.S. dollar, the value of our RMB revenues, earnings and assets as expressed in our U.S. dollar financial statements will decline. We have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.
Risks related to cyberattack and data leakage
We have implemented certain cybersecurity risk assessment strategy to ensure effectiveness in cybersecurity management, strategy and governance and reporting cybersecurity risks, which includes:
| ● | Identification and Reporting: We have implemented a cross-functional approach to assessing, identifying and managing material cybersecurity threats and incidents. | |
| ● | Technical Safeguards: We implement technical safeguards that are designed to protect our information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, and access controls, which are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence. | |
| ● | Third-Party Risk Management: We maintain a risk-based approach to identifying and overseeing material cybersecurity threats presented by third parties, including vendors, service providers, and other external users of our systems, as well as the systems of third parties that could adversely impact our business in the event of a material cybersecurity incident affecting those third-party systems, including any outside auditors or consultants who advise on our cybersecurity systems. | |
| ● | Periodic Assessments: We conduct periodic assessments and testing of our policies, standards, processes, and practices in a manner intended to address cybersecurity threats and events. |
As of the date of this prospectus, we have not experienced any material cybersecurity incidents or identified any material cybersecurity threats that have affected or are reasonably likely to materially affect us, our business strategy, results of operations or financial condition.
Property, Plant and Equipment
Our principal executive office is located at 7th Floor, Building C, No. 1010 Anling Road, Huli District, Xiamen, China 361009, where we lease 7,668 square feet of office space. We lease this space under a lease that has been externed till January 8, 2028. The monthly rent of this property is around $9,480. We also lease 1,157 square feet of office space located at Room A206, Floor 3, Building 1, Shaoyuanli, North Baima Road, Gulou District, Fuzhou, Fujian, China under a lease that terminates on April 30, 2026.
We believe that our facilities are adequate to meet our needs for the immediate future, and that, should it be needed, suitable additional space will be available on commercially reasonable terms to accommodate any such expansion of our operations.
49
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis (this “MD&A”) provides information concerning our financial condition and results of operations for the year ended December 31, 2024, 2023 and 2022 and for the six months ended June 30, 2025 and 2024 and should be read in conjunction with our audited consolidated financial statements and the related notes included in this prospectus. All terms used herein and not otherwise defined shall have the meanings ascribed to them in the prospectus.
The following discussion contains forward-looking statements that reflect our plans, estimates, beliefs, and expectations about our future performance and other developments. The forward-looking statements are dependent upon various assumptions and are subject to numerous risks and uncertainties, many of which are outside our control. Our actual results and actual developments could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed elsewhere in our prospectus, particularly in, “Risk Factors,” and in the “Cautionary Note Regarding Forward-Looking Statements” set forth herein. In light of these assumptions and these risks and uncertainties, we caution you not to rely on these forward looking statements.
Overview
We used to be a producer, developer and operator of AR interactive entertainment games and toys in China, including interactive educational materials, mobile games, toys with mobile game features, and Immersive Education Classes. Beginning from the fourth quarter of 2022, we strategically expanded into commodity trading, initially focusing on chemical products (e.g., ethanol) through the first half of 2023. In Q3 2023, we pivoted to bulk loose diamond trading as our primary commodity offering. In the second half of 2024, we prioritized gold as our core bulk commodity trading focus and completed the acquisition of 1 ton of physical gold for approximately $64.56 million from Macau Rongxin Precious Metals Technology Co., Ltd. This strategic acquisition represents a significant milestone in our business transformation and marks our entry into large-scale gold trading. Due to the impact of the environment and the adjustment of the corporate business structure, the Company discontinued its information services business, gaming sales and commodity trading business in 2023, which decreased revenue by $54.96 million during the year end of 2023. While our gold inventory remained unsold as of December 31, 2024, we have seen significant appreciation in its value as gold prices reached over $3,000 per ounce by March 2025, which represents an unrealized gain of approximately $25 million compared to our acquisition price. We anticipate this new vertical to drive substantial revenue growth in 2025 through structured physical gold trading and derivative financing arrangements.
Our revenue is primarily from sales of our gold and diamonds. Since 2024, our total revenues decreased by $54.96 million (or 74.59%), reaching $18.72 million for the year ended December 31, 2024 as compared to $73.69 million for the year ended December 31, 2023. It was mainly due to the impact of the environment and the adjustment of the corporate business structure in the current period, as the Company discontinued its information services business, gaming sales and commodity trading business during the year. As a result, revenue decreased by $54.96 million.
Key Factors that Affect Operating Results
Our ability to expand our portfolio of products and business
We intend to pursue strategic acquisitions and investments in selective technologies and businesses that will enhance our technology capabilities, expand our offerings and increase our market penetration. We believe our strategic acquisition and investment strategy is critical for us to accelerate our growth and strengthen our competitive position. Our ability to identify and execute strategic acquisitions and investments will have an effect on our operating results.
Our Inventory Management Capability
If we misjudge product demand and fail to manage inventory levels effectively, it could significantly impact business operations. Maintaining appropriate inventory is crucial. To enhance our operational efficiency, we need to develop an intelligent inventory management system based on accurate market forecasts and close tracking of downstream customers.
50
Gold Price Volatility and Market Timing
Our gold trading business is directly impacted by fluctuations in global gold prices. In 2024-2025, gold prices have demonstrated significant volatility and upward momentum, reaching historical highs above $3,000 per ounce. This price volatility represents both opportunity and risk - while our 1-ton gold acquisition has appreciated significantly in value since purchase, the timing of our sales and additional acquisitions will materially impact our financial performance. Our ability to effectively analyze market trends, manage gold inventory positions, and execute strategic trades in favorable price environments will be critical to our success in this sector.
Our Inventory Security Management Capability
We maintain a substantial inventory to meet customer delivery demands. Any loss of this inventory due to theft could negatively affect our operations. We need to establish a more comprehensive set of security measures to protect inventory, including deploying appropriate security personnel and purchasing corresponding property insurance.
PRC Economy
Although the PRC economy has maintained growth momentum in recent years, the pace has moderated with annual GDP growth rates fluctuating as follows: -2.3% in 2020 (pandemic shock), 8.1% in 2021 (post-lockdown rebound), 3.0% in 2022, 5.2% in 2023, and 5.0% in 2024. While the 2024 growth rate aligned with government targets and outperformed major developed economies (e.g., U.S. 2.4%, EU 1.1%), structural challenges persist: weak consumer demand (retail sales up 3.5%, real disposable income growth slowing to 5.1%), persistent deflationary pressures (CPI +0.2%, PPI -2.2%), and geopolitical trade uncertainties threaten to exacerbate industrial overcapacity and suppress discretionary spending.
A further uncertainty in overall economic growth, an economic downturn, a recession or other adverse economic development in the PRC may materially reduce the purchasing power of Chinese consumers and thus lead to decreased demand for our products. Such a decrease in demand may have a materially adverse effect on our business.
Impact of Foreign Currency Fluctuation
See “Risk Factors-Risks Related to Doing Business in China-Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment” for more details.
Recent Developments
In late 2019, the “COVID-19” virus began spreading in Wuhan, China. By March 11, 2020, the World Health Organization (WHO) declared COVID-19 a pandemic, prompting many countries worldwide to close their borders and implement measures such as stay-at-home orders and population quarantines. Our company and all our operations are based in China. Throughout 2021, many metropolitan areas in China experienced multiple resurgences of COVID-19. It wasn’t until December 2022 that China gradually lifted its quarantine policies. Despite the end of the quarantine in 2022, our original gaming and toy businesses were adversely affected, resulting in significant declines in revenue and profits. Consequently, we began restructuring our business towards commodity trading at the end of 2022 and formally shifted our focus to this sector in 2023.
On August 8, 2022, Blue Hat Cayman transferred all the equity interests of Fresh Joy to Fujian Lanyun Canghai Technology Co., Ltd., a wholly-owned subsidiary of Blue Hat Fujian. On June 8, 2023, contractual agreements between Blue Hat WOFE, Blue Hat Fujian, and certain individuals were terminated, thereby discontinuing the VIE structure for Blue Hat Fujian. Subsequently, the financial statements of Blue Hat Fujian and its subsidiaries were no longer consolidated. Blue Hat Fujian transferred all the equity interests of Hunan Engaomei Animation Culture Development Co., Ltd. (“Blue Hat Hunan”) and Fujian Youth it owned to Blue Hat WOFE. Blue Hat Hunan and Fujian Youth are now wholly-owned subsidiaries of Blue Hat WOFE.
51
In September 2022, the Company acquired 100% of the equity shares of Xiamen Shengruihao Technology Co., Ltd., which mainly provides product supply chain services and comprehensive enterprise services. During April to July 2023, the Company established several subsidiaries, including Golden Strategy Ltd. (“Golden Strategy”), a BVI company, Golden Alpha Strategy Ltd., a Hong Kong company, and Guangzhou Huangxin Enterprise Management Co., Ltd., which are primarily engaged in bulk jewelry trading-related businesses.
We underwent a restructuring of our company’s operations in 2023. By dismantling the VIE structure and divesting from unprofitable segments, starting from the fourth quarter of 2022, we shifted our business focus towards commodity trading, including chemicals, jewelry, and precious metals such as gold. We, through the operations of our subsidiaries, primarily operate a gold trading and supply chain business. Our business model encompasses physical gold trading, gold derivatives trading, and the development of AI-enabled trading platforms.
Results of Operations
Comparison of Years Ended December 31, 2024 and December 31, 2023
| For the Years ended December 31, | ||||||||||||||||
| Percentage | ||||||||||||||||
| 2024 | 2023 | Change | Change | |||||||||||||
| Revenues | $ | 18,724,190 | $ | 73,686,733 | $ | (54,962,543 | ) | (74.59 | )% | |||||||
| Cost of revenues | (17,178,241 | ) | (72,532,882 | ) | 55,354,641 | (76.32 | )% | |||||||||
| Gross profit | 1,545,949 | 1,153,851 | 392,098 | 33.98 | % | |||||||||||
| Selling expenses | — | (7,677 | ) | 7,677 | (100.00 | )% | ||||||||||
| Research and development | (3,168,397 | ) | (2,570,158 | ) | (598,239 | ) | 23.28 | % | ||||||||
| General and administrative expenses | (2,834,635 | ) | (13,766,487 | ) | 10,931,852 | (79.41 | )% | |||||||||
| Impairment Loss | — | (13,693,305 | ) | 13,693,305 | (100.00 | )% | ||||||||||
| Total operating expenses | (6,003,032 | ) | (30,037,627 | ) | 24,034,595 | (80.01 | )% | |||||||||
| Loss from operations | (4,457,083 | ) | (28,883,776 | ) | 24,426,693 | (84.57 | )% | |||||||||
| Other expense, net | (5,067,700 | ) | (217,870 | ) | (4,849,830 | ) | 2226.02 | % | ||||||||
| Provision for income taxes | — | (6,081 | ) | 6,081 | (100.00 | )% | ||||||||||
| Gain on disposal of discontinued operations | — | 7,389,310 | (7,389,310 | ) | (100.00 | )% | ||||||||||
| Net loss | (9,524,783 | ) | (21,718,417 | ) | 12,193,634 | (56.14 | )% | |||||||||
Revenues
Our revenues are derived from sales of diamonds trading, glycol trading and information services. Total revenues decreased by $54,962,543, or 74.59%, to $18,724,190 for the year ended December 31, 2024 as compared to $73,686,733 for the year ended December 31, 2023. The overall decrease is mainly due to the impact of the environment and the adjustment of the corporate business structure in the current period, as the Company discontinued its information services business, gaming sales and commodity trading business during the year.
Our revenue from each of our revenue categories is as follows:
| For the Year | For the Year | |||||||||||||||
| ended | ended | |||||||||||||||
| December 31, | December 31, | Change | ||||||||||||||
| 2024 | 2023 | Change | (%) | |||||||||||||
| Revenues | ||||||||||||||||
| Diamond trading | $ | 18,724,190 | $ | 15,152,777 | 3,571,413 | 23.57 | % | |||||||||
| Information service | — | 415,955 | (415,955 | ) | (100.00 | )% | ||||||||||
| Commodity Trading | — | 58,118,001 | (58,118,001 | ) | (100.00 | )% | ||||||||||
| Total revenues | $ | 18,724,190 | $ | 73,686,733 | (54,962,543 | ) | (74.59 | )% | ||||||||
52
Information service
Revenue from information service decreased by $0.42 million or 100.00% from $0.42 million for the year ended December 31, 2023 to nil for the year ended December 31, 2024. The decrease is mainly due to the impact of the environment and the adjustment of the corporate business structure in the current period, as the Company discontinued its information service during the year.
Commodity Trading
Commodity Trading business decreased by $58.12 million from $58.12 million for the year ended December 31, 2023 to nil for the year ended December 31, 2024. The decrease is mainly due to the impact of the environment and the adjustment of the corporate business structure in the current period, as the Company discontinued its commodity trading business during the year.
Diamonds Trading
Diamonds Trading business increased from $15.15 million for the year ended December 31, 2023 to $18.72 million for the year ended December 31, 2024. This is a new business we started during the third quarter of 2023.
Gold Trading
While our 1-ton gold acquisition ($64.56 million) represents a significant asset on our balance sheet, we did not generate revenue from gold trading during the year ended December 31, 2024, as we strategically held our position to benefit from price appreciation. As gold prices reached over $3,000 per ounce by March 2025, our gold holdings have appreciated by approximately $25 million in value. We expect to begin monetizing this position through strategic sales and various financing arrangements in 2025, which we anticipate will contribute significantly to our revenue going forward.
Cost of Revenues
Total cost of revenues decreased by $55.35 million, or 76.32%, to $17.18 million for the year ended December 31, 2024 as compared to $72.53 million for the year ended December 31, 2023. The decrease in cost of revenues is a direct result of our decrease of revenues.
Our cost of revenues from each of our revenue categories is as follows:
| For the Year ended December 31, | For the Year ended December 31, | Change | ||||||||||||||
| 2024 | 2023 | Change | (%) | |||||||||||||
| Cost of revenues | ||||||||||||||||
| Information service | — | 549,242 | (549,242 | ) | (100.00 | )% | ||||||||||
| Diamond trading | 17,178,241 | 13,901,688 | 3,276,553 | 23.57 | % | |||||||||||
| Commodity Trading | — | 58,081,952 | (58,081,952 | ) | (100.00 | )% | ||||||||||
| Total cost of revenues | $ | 17,178,241 | $ | 72,532,882 | $ | (55,354,641 | ) | (76.32 | )% | |||||||
Our cost of revenues from information service decreased by $0.55 million or 100.00% for the year ended December 31, 2024 as compared with the year ended December 31, 2023. The decrease is mainly due to the impact of the environment and the adjustment of the corporate business structure in the current period, as the Company discontinued its information service during the year.
53
Commodity trading business decreased by $58.08 million for the year ended December 31, 2024 from $58.08 million for the year ended December 31, 2023 to nil for the year ended December 31, 2024. The decrease is mainly due to the impact of the environment and the adjustment of the corporate business structure in the current period, as the Company discontinued its commodity trading business during the year.
Diamonds trading business increased by $3.28 million to $17.18 million for the year ended December 31, 2024. This is a new business we started during the third quarter of 2023.
Gross Profit
Our gross profit from each of our revenue categories is as follows:
| For the Year ended December 31, | For the Year ended December 31, | Change | ||||||||||||||
| 2024 | 2023 | Change | (%) | |||||||||||||
| Information Service | ||||||||||||||||
| Gross profit | $ | — | $ | (133,287 | ) | $ | 133,287 | (100.00 | )% | |||||||
| Gross margin | — | (32.04 | )% | 32.04 | % | |||||||||||
| Diamond Trading | ||||||||||||||||
| Gross profit | $ | 1,545,949 | $ | 1,251,089 | $ | 294,860 | 23.57 | % | ||||||||
| Gross margin | 8.26 | % | 8.26 | % | — | |||||||||||
| Commodity Trading | ||||||||||||||||
| Gross profit | $ | — | $ | 36,049 | (36,049 | ) | (100.00 | )% | ||||||||
| Gross margin | — | 0.06 | % | (0.06 | )% | |||||||||||
| Total | ||||||||||||||||
| Gross profit | $ | 1,545,949 | $ | 1,153,851 | $ | 392,098 | 33.98 | % | ||||||||
| Gross margin | 8.26 | % | 1.57 | % | 6.69 | % | ||||||||||
Our overall gross profit increased by $392,098, or 33.98%, to $1.55 million for the year ended December 31, 2024 from $1.15 million for the year ended December 31, 2023, which the gross profit percentage were 8.26% and 1.57% , respectively.
Gross profit percentage for information service was nil and (32.04)% for the year ended December 31, 2024 and 2023, respectively. Due to the impact of the environment and the adjustment of the corporate business structure in the current period, as the Company discontinued its information service during the year.
Gross profit percentage for commodity trading business was nil and 0.06% for the year ended December 31, 2024 and 2023, respectively. Due to the impact of the environment and the adjustment of the corporate business structure in the current period, as the Company discontinued its commodity trading business during the year.
Gross profit percentage for diamonds trading business was 8.26% and 8.26% for the year ended December 31, 2024 and 2023, respectively. This is a new business we started during the third quarter of 2023.
Operating Expenses
Total operating expenses decreased by $24.03 million or 80.01% from $30.04 million for the year ended December 31, 2023 to $6.00 million for the year ended December 31, 2024. The decrease is mainly attributable to a $10.93 million increase in general and administrative (“G&A”) expenses, and an $0.60 million increase in research and development (“R&D”) expenses for the year ended December 31, 2024 as compared to the year ended December 31, 2023. The impairment loss was decreased by $13.66 million for the year ended December 31, 2024 from $13.66 million for the year ended December 31, 2023.
54
The $10.93 million decrease in G&A expenses is mainly attributable to the decrease in consulting fee and bad debt expense to G&A expense.
The $0.60 million increase in research and development (“R&D”) expenses is mainly attributable to the increase in technical service fee.
The $13.69 million decrease in impairment loss is attributable to the intangible asset impairment loss and inventory impairment loss in 2023.
Other expense, net
Total other expense, net increased by $4.85 million or 2226.02% from $0.22 million for the year ended December 31, 2023 to $5.07 million for the year ended December 31, 2024. The increase in total other expense, net was due to increase of $1.69 million in loss on investment write-off. It was due to the Company invest Xiamen Blue Wave Technology Co., Ltd. has been deregistered on July 9, 2024 and increased foreign Currency Charges.
Income tax expense
Our income tax expense amounted to nil and $6,081 for the year ended December 31, 2024 and 2023, respectively.
Net loss from continue operation
Our net loss decreased by 67.28% or $19.58 million from net loss of $29.11 million for the year ended December 31, 2023 to a net loss of $9.52 million for the year ended December 31, 2024. The decrease in net loss is mainly attributable to the significant decrease of operating expenses in the year ended December 31, 2024 as compared with the year 2023.
Gain (loss) on disposal of discontinued operations
Gain on disposal of discontinued operation was nil and $7.39 million for the years ended December 31, 2024 and 2023, which was related to the dissolution and deregistration of Fujian Xinyou Technology Co., Ltd (“Xinyou Technology”), Fresh Joy Entertainment Limited (“Fresh Joy”), Hong Kong Xinyou Entertainment Company (“Xinyou Entertainment”), Fujian Roar Game Technology Co., Ltd (“Fujian Roar Game”) Fuzhou Csfctech Co., Ltd (“Fuzhou CSFC”) and Fuzhou UC71 Co., Ltd (“Fuzhou UC71”) on June 8, 2023.
Results of Operations
Comparison of Years Ended December 31, 2023 and December 31, 2022
| For the Years ended December 31, | ||||||||||||||||
| Percentage | ||||||||||||||||
| 2023 | 2022 | Change | Change | |||||||||||||
| Revenues | $ | 73,686,733 | $ | 2,195,954 | $ | 71,490,779 | 3,255.57 | % | ||||||||
| Cost of revenues | (72,532,882 | ) | (958,438 | ) | (71,574,444 | ) | 7,467.82 | % | ||||||||
| Gross profit | 1,153,851 | 1,237,516 | (83,665 | ) | (6.76 | )% | ||||||||||
| Selling expenses | (7,677 | ) | (159,937 | ) | 152,260 | (95.20 | )% | |||||||||
| Research and development | (2,570,158 | ) | (2,734,982 | ) | 164,824 | (6.03 | )% | |||||||||
| General and administrative expenses | (13,766,487 | ) | (6,224,674 | ) | (7,541,813 | ) | 121.16 | % | ||||||||
| Impairment Loss | (13,693,305 | ) | (33,397 | ) | (13,659,908 | ) | 40,901.60 | % | ||||||||
| Loss from operations | (28,883,776 | ) | (7,915,474 | ) | (20,968,302 | ) | 264.9012 | % | ||||||||
| Other expense, net | (217,870 | ) | (109,692 | ) | (108,178 | ) | 98.62 | % | ||||||||
| Provision for income taxes | (6,081 | ) | (1,097,888 | ) | 1,091,807 | (99.45 | )% | |||||||||
| Income from discontinued operations | — | (282,027 | ) | 282,027 | (100.00 | )% | ||||||||||
| Gain on disposal of discontinued operations | 7,389,310 | 7,389,310 | — | |||||||||||||
| Net loss | (21,718,417 | ) | (9,405,081 | ) | (12, 313,336 | ) | 130.92 | % | ||||||||
55
Revenues
Our revenues are derived from sales of diamonds trading, glycol trading and information services. Total revenues increased by $71,490,779, or 3,255.57%, to $73,686,733 for the year ended December 31, 2023 as compared to $2,195,954 for the year ended December 31, 2022. The overall increase is mainly due to expand the business on diamonds trading and commodity trading in 2023. There are new revenues in the diamonds sales, which are $15,152,777 for the year ended December 31, 2023.
Our revenue from each of our revenue categories is as follows:
| For the Year | For the Year | |||||||||||||||
| ended | ended | |||||||||||||||
| December 31, | December 31, | Change | ||||||||||||||
| 2023 | 2022 | Change | (%) | |||||||||||||
| Revenues | ||||||||||||||||
| Diamond trading | $ | 15,152,777 | $ | — | 15,152,777 | — | ||||||||||
| Interactive toys - animation series | — | 6,903 | (6,903 | ) | (100.00 | )% | ||||||||||
| Interactive toys - game series | — | 155,559 | (155,559 | ) | (100.00 | )% | ||||||||||
| Information service | 415,955 | 884,329 | (468,374 | ) | (52.96 | )% | ||||||||||
| Commodity Trading | 58,118,001 | 1,149,163 | 56,968,838 | 4957.42 | % | |||||||||||
| Total revenues | $ | 73,686,733 | $ | 2,195,954 | 71,490,779 | 3255.57 | % | |||||||||
Interactive Toys - Game Series and Animation Series
Revenues from sales of interactive toys – game series and animation series decreased by $162,462 or 100% from $162,462 for the year ended December 31, 2022 to nil for the year ended December 31, 2023.
Information service
Revenue from information service decreased by $0.47 million or 52.96% from $0.75 million for the year ended December 31, 2022 to $0.42 million for the year ended December 31, 2023.
Commodity Trading
Commodity Trading business increased by $56.97 million from $1.15 million for the year ended December 31, 2022 to $58.12 million for the year ended December 31, 2023. The Company changes the business model to sell the bulk by itself.
Diamonds Trading
Diamonds Trading business increased from nil for the year ended December 31, 2022 to $15.15 million for the year ended December 31, 2023. This is a new business we started during the third quarter this year which did not exist last year.
Cost of Revenues
Total cost of revenues increased by $71.57 million, or 7467.82%, to $72.53 million for the year ended December 31, 2023 as compared to $0.96 million for the year ended December 31, 2022. The increase in cost of revenues is a direct result of our increase of revenues.
56
Our cost of revenues from each of our revenue categories is as follows:
| For the Year ended December 31, | For the Year ended December 31, | Change | ||||||||||||||
| 2023 | 2022 | Change | (%) | |||||||||||||
| Cost of revenues | ||||||||||||||||
| Interactive toys - animation series | $ | — | $ | 3,420 | $ | (3,420 | ) | (100.00 | )% | |||||||
| Interactive toys - game series | — | 78,118 | (78,118 | ) | (100.00 | )% | ||||||||||
| Information service | 549,242 | 826,096 | (276,854 | ) | (33.51 | )% | ||||||||||
| Diamond trading | 13,901,688 | — | 13,901,688 | — | ||||||||||||
| Commodity Trading | 58,081,952 | 50,804 | 58,031,148 | 114225.55 | % | |||||||||||
| Total cost of revenues | $ | 72,532,882 | $ | 958,438 | $ | 71,574,444 | 7467.82 | % | ||||||||
Our cost of revenues from interactive toys - game series and animation series decreased by $81,538 or 100% from $81,538 million for the year ended December 31, 2022 to nil for the year ended December 31, 2023.
Commodity trading business increased by $58.03 million for the year ended December 31, 2023 from $50,804 for the year ended December 31, 2022 to $58.08 million for the year ended December 31, 2023. It was due to the company started to sell the bulk by itself.
Diamonds trading business increased by $13.90 million to $13.90 million for the year ended December 31, 2023. This is a new business we started during the third quarter this year which did not exist last year.
Our cost of revenues from information service decreased by $0.28 million or 33.51% for the year ended December 31, 2023 as compared with the year ended December 31, 2022.
Gross Profit
Our gross profit from each of our revenue categories is as follows:
| For the Year ended December 31, | For the Year ended December 31, | Change | ||||||||||||||
| 2023 | 2022 | Change | (%) | |||||||||||||
| Interactive toys - animation series | ||||||||||||||||
| Gross profit | $ | — | $ | 3,483 | $ | (3,483 | ) | (100.00 | )% | |||||||
| Gross margin | — | 50.46 | % | (50.46 | )% | |||||||||||
| Interactive toys - game series | ||||||||||||||||
| Gross profit | $ | — | $ | 77,441 | $ | (77,441 | ) | (100.00 | )% | |||||||
| Gross margin | — | 49.78 | % | (49.78 | )% | |||||||||||
| Information Service | ||||||||||||||||
| Gross profit | $ | (133,287 | ) | $ | 58,233 | $ | (191,520 | ) | (328.89 | )% | ||||||
| Gross margin | (32.04 | )% | 6.58 | % | (38.62 | )% | ||||||||||
| Diamond Trading | ||||||||||||||||
| Gross profit | $ | 1,251,089 | $ | — | $ | (1,251,089 | ) | — | ||||||||
| Gross margin | 8.26 | % | — | 8.26 | % | |||||||||||
| Commodity Trading | ||||||||||||||||
| Gross profit | $ | 36,049 | $ | 1,098,359 | (1,062,310 | ) | (96.72 | )% | ||||||||
| Gross margin | 0.06 | % | 95.58 | (95.52 | ) | |||||||||||
| Total | ||||||||||||||||
| Gross profit | $ | 1,153,851 | $ | 1,237,516 | $ | (83,665 | ) | (6.76 | )% | |||||||
| Gross margin | 1.57 | % | 56.35 | % | (54.78 | )% | ||||||||||
57
Our overall gross profit decreased by $83,665, or 54.78%, to $1.15 million for the year ended December 31, 2023 from $1.24 million for the year ended December 31, 2022, which the gross profit percentage were 1.57% and 56.35% , respectively.
Gross profit percentage for our interactive toys - animation series and game series was 50.46% and 49.78% for the year ended December 31, 2022. Since this series of products is mainly sold offline by distributors, COVID -19 led to a decline in sales in 2022. In 2023, the interactive toys - animation series and game series revenue was nil.
Gross profit percentage for information service was (32.04)% and 6.58% for the year ended December 31, 2023 and 2022, respectively. The decrease was the result of higher cost of revenue from information service.
Gross profit percentage for commodity trading business was 0.06% and 95.58% for the year ended December 31, 2023 and 2022, respectively. It was because the Company started to sell the bulk by itself.
Gross profit percentage for diamonds trading business was 8.26% and nil for the year ended December 31, 2023 and 2022, respectively. This is a new business we started during the third quarter this year which did not exist last year.
For the year ended December 31,2023, there are one new kind of revenues. The gross profit of diamonds trading is $1.25 million with the profit margin of8.26%.
Operating Expenses
Total operating expenses increased by $20.88 million or 228.17% from $9.15 million for the year ended December 31, 2022 to $30.04 million for the year ended December 31, 2023. The increase is mainly attributable to a $7.54 million increase in general and administrative (“G&A”) expenses, and a $ 0.16 million decrease in research and development (“R&D”) expenses for the year ended December 31, 2023 as compared to the year ended December 31, 2022. The impairment loss was increased by $13.66 million for the year ended December 31, 2023 from $33,397 for the year ended December 31, 2022.
The $7.54 million decrease in G&A expenses is mainly attributable to the increase in consulting fee and bad debt expense to G&A expense.
The $13.66 million increase in impairment loss is attributable to the increase intangible asset impairment loss and inventory impairment loss.
Other expense, net
Total other expense, net increased by $108,178 or 98.62% from $109,692 for the year ended December 31, 2022 to $217,870 for the year ended December 31, 2023. The increase in total other expense, net was due to increase of $88,175 in interest expense and an increase of $46,761 in other finance expenses, which was mainly the result of interest from termination of time deposit.
Income tax expense
Our income tax expense amounted to $6,081 and $1,097,888 for the year ended December 31, 2023 and 2022, respectively. The $1,091,807 decrease is due to the low gross margins of commodity trading, which commodity trading belongs to the tax incentives and exemptions of regions and companies.
Net loss from continue operation
Our net loss increased by 219.06% or $ 19.98 million from net loss of $9.12 million for the year ended December 31, 2022 to a net loss of $29.11 million for the year ended December 31, 2023. The increase in net loss is mainly attributable to the significant decrease of income from operations in the year ended December 31, 2023 as compared with the year 2022.
58
Gain (loss) on disposal of discontinued operations
Gain on disposal of discontinued operation was $7.39 million for the years ended December 31, 2023, which was related to the dissolution and deregistration of Fujian Xinyou Technology Co., Ltd (“Xinyou Technology”), Fresh Joy Entertainment Limited (“Fresh Joy”), Hong Kong Xinyou Entertainment Company (“Xinyou Entertainment”), Fujian Roar Game Technology Co., Ltd (“Fujian Roar Game”) Fuzhou Csfctech Co., Ltd (“Fuzhou CSFC”) and Fuzhou UC71 Co., Ltd (“Fuzhou UC71”) on June 8, 2023.
Liquidity and capital resources
In assessing our liquidity, we monitor and analyze our cash on-hand and our operating expenditure commitments. Our liquidity needs meet our working capital requirements and operating expenses obligations. To date, we have financed our operations primarily through cash flows from operations and short-term borrowing from banks.
As of December 31, 2024, our working capital was $29.42 million and cash equivalents amounted to $14,300. Our current assets were $70.06 million and our current liabilities were $40.65 million with shareholders’ equity of $32.14 million as of December 31, 2024. We generated net loss of $9.52 million and $21.72 million from our operations for the year ended December 31, 2024 and 2023 respectively. We believe our revenues and operations will continue to grow and our current working capital is sufficient to support our operations for the next twelve months.
As of December 31, 2023, the following were outstanding balances on our short-term bank loans:
| Interest | December 31, | |||||||||||||
| Bank Name | Maturities | Rate | Collateral/Guarantee | 2023 | ||||||||||
| Xiamen Rural Commercial Bank | February 2023 | 6.58 | % | Guarantee by 14 property rights | 273,713 | |||||||||
As of December 31, 2024, the following were outstanding balances on our short-term bank loans:
| Interest | December 31, | |||||||||||||
| Bank Name | Maturities | Rate | Collateral/Guarantee | 2024 | ||||||||||
| Xiamen Rural Commercial Bank | January 2025 | 6.58 | % | Guarantee by 14 property rights | 146,341 | |||||||||
The short term loan with Xiamen Rural Commercial bank which should be repaid in 2023 was overdue. The loan will repayment in January 2025.
Interest expense pertaining to the above short-term and long-term loans for the years ended December 31, 2024, 2023 and 2022 amounted to $33,327, $30,897 and $33,569, respectively.
Current foreign exchange and other regulations in the PRC may restrict our PRC entities, in their ability to transfer their net assets to us and our subsidiaries in the Cayman Islands, British Virgin Islands, and Hong Kong. However, because we have no present plans to declare dividends, these restrictions will likely have no impact on us. Instead, we plan to use our retained earnings to continue to grow our business. These restrictions also have no impact on our ability to meet our cash obligations as all of our current cash obligations are due within the PRC.
59
The following summarizes the key components of our cash flows for the years ended December 31, 2024, 2023 and 2022:
Years Ended December 31 | Years Ended December 31 | Years Ended December 31, | ||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Net cash used in operating activities - continued operation | $ | (884,952 | ) | $ | (9,773,132 | ) | $ | (1,473,267 | ) | |||
| Net cash generated from operating activities - discontinued operation | — | 7,661,561 | 281,780 | |||||||||
| Net cash from investing activities – continued operation | — | (15,380 | ) | 6,336 | ||||||||
| Net cash from investing activities – discontinued operation | — | — | — | |||||||||
| Net cash generated from financing activities – continued operation | 484,860 | 2,305,954 | 2,542,634 | |||||||||
| Net cash used in financing activities – discontinued operation | — | (52,322 | ) | (11,960 | ) | |||||||
| Effect of exchange rate change on cash, cash equivalents and restricted cash | 5,217 | 210,505 | (1,319,437 | ) | ||||||||
| Net change in cash, cash equivalents | $ | (394,875 | ) | $ | 337,186 | $ | 26,086 | |||||
Cash flows from operating activities
Net cash used in operating activities from continued operation was $0.88 million for the year ended December 31, 2024 and was primarily attributable to (i) net loss from continued operation of $9.5 million, (ii) various non-cash items of $3.49 million, such as depreciation of property, plant and equipment, share-based payments, provision for doubtful accounts and loss on investment write-off, (iii) a $15.11 million decrease in account receivables, (iv) $33.84 million increase in account payables, and (v) a $44 increase in customer deposits. This cash outflow was offset by (i) a $0.75 million increase in other payables and accrued liabilities, (ii) a $0.01 million decrease in taxes payable, (iii) a $0.10 million increase in other receivables, (iv) a $2.41 million decrease in prepayments and (v) a $47.01million decrease in inventory.
Net cash used in operating activities from continued operation was $9.77 million for the year ended December 31, 2023 and was primarily attributable to (i) net loss from continued operation of $29.11 million, (ii) various non-cash items of $70.59 million, such as depreciation of property, plant and equipment, amortization of intangible assets, impairment loss, share-based payments, issuance of common stock to pay for goods etc., (iii) a $14.92 million decrease in account receivables, (iv) $0.006 million decrease in account payables, and (v) a $0.02 million decrease in customer deposits. This cash outflow was offset by (i) a $4.99 million decrease in other payables and accrued liabilities, (ii) a $0.04 million decrease in taxes payable, (iii) a $1.21 million decrease in other receivables, (iv) a $0.04 million increase in prepayments and (v) a $30.15 million decrease in inventory.
Net cash used in operating activities from continued operation was $1.47 million for the year ended December 31, 2022 and was primarily attributable to (i) net loss from continued operation of $9.12 million, (ii) various non-cash items of $3.47 million, such as depreciation of property, plant and equipment, amortization of intangible assets, impairment of long term investment, share-based payments, etc., (iii) a $4.76 million increase in account receivables, (iv) $0.02 million decrease in account payables, and (v) a $0.01 million increase in customer deposits. This cash outflow was offset by (i) a $0.09 million increase in other payables and accrued liabilities, (ii) a $0.40 million decrease in taxes payable, (iii) a $0.39 million increase in other receivables, and (iv) a $0.77 million decrease in prepayments.
Cash flows from investing activities
Net cash used in investing activities from continued operation was nil for the year ended December 31, 2024.
Net cash used in investing activities from continued operation was $15,380 for the year ended December 31, 2023.
Net cash used in investing activities from continued operation was $6,336 for the year ended December 31, 2022.
60
Cash flows from financing activities
Net cash used in financing activities from continued operation was $0.48 million for the year ended December 31, 2024 and was primarily attributable to proceeds of $0.07 million from issuance of ordinary shares, $0.06 million in repayment to related party loan, $0.12 million in repayment to short-term loans, change in restricted cash of $1,470 and $0.60 million in proceeds from other payables - related party.
Net cash provided by financing activities from continued operation was $2.31 million for the year ended December 31, 2023 and was primarily attributable to proceeds of $3.00 million from issuance of ordinary shares, $0.45 million in convertible payable, $0.10 million in repayment to related party loan, and $0.14 million in repayment to short-term loans and change in restricted cash of $1,587.
Net cash provided by financing activities from continued operation was $2.54 million for the year ended December 31, 2022 and was primarily attributable to $0.09 million in proceeds of issuance of ordinary shares, $0.91 million in proceeds from related party loan, and $1.55 from proceeds from convertible payable and change in restricted cash $1,129.
Capital Expenditures
In the years ended December 31, 2024, 2023 and 2022, our capital expenditures were mainly used for our working capital requirements such as staff costs, sales and marketing expenses and research and development costs, and costs incurred for the lease of our offices in Xiamen and Fuzhou in China. We have not had any material commitments for capital expenditures for the last three financial years. We plan to continue to make capital expenditures to meet the needs that result from the expected growth of our business.
Results of Operations for the six months ended June 30, 2025 and 2024
Total revenues were US$13.33 million for the First Half of 2025, an increase of US$0.25 million, or 1.90%, compared to US$13.08 million in the prior-year period. It was due to the Company generating revenue from gold trading business in the first half of 2025. The amount of sales revenue for this period remained relatively stable, which is in line with market expectations, and no other anomalies were observed. The Company applied the full amount method for revenue recognition.
Revenues from sales of diamonds trading were nil for the First Half of 2025, compared to US$13.08 million in the prior-year period.
Revenues from sales of gold trading were US$13.33 million for the First Half of 2025, compared to nil in the prior-year period.
Gross profit increased 351.02% to US$4.87 million for the First Half of 2025, from US$1.08 million in the prior-year period.
Total gross margin increased to 36.54% for the First Half of 2025, compared to 8.26% in the prior-year period. This improvement reflects the Company’s transition from diamond trading to gold trading operations, which generate higher margins through multiple revenue streams including supply chain financing services, logistics services, and value-added platform capabilities.
The Company’s 1-ton gold acquisition in August 2024 at approximately $1,990 per ounce has appreciated significantly to over $3,000 per ounce by March 2025, providing enhanced transaction flexibility. Additionally, the gold business targets refineries, wholesalers, and institutional buyers with different margin profiles compared to the retail jewelry market served by the former diamond operations.
Total operating expenses increased by US$3.38 million for the First Half of 2025, from US$2.31 million in the prior-year period, primarily as a result of increased general and administrative expenses in the first half of 2025.
Loss from operations decreased 33.23% to loss from operations of US$0.82 million for the First Half of 2025, from US$1.23 million in the prior-year period.
61
Net loss decreased 33.95% to net loss of US$0.86 million for the First Half of 2025, from US$1.30 million in the prior-year period.
Basic loss per share was US$0.000000018 for the First Half of 2025, compared to US$0.00000022 in the prior-year period.
Balance Sheet Highlights
As of June 30, 2025, Blue Hat had cash and cash equivalents of US$1.07 million, working capital of US$78.88 million and total shareholders’ equity (excluding the non-controlling interest) of US$81.47 million, compared to cash and cash equivalents of US$15,770, working capital of US$29.42 million and total shareholders’ equity (excluding the non-controlling interest) of US$32.14 million, respectively, as of December 31, 2024.
Cash flows from operating activities
Net cash used in operating activities was $10.16 million for the six months ended June 30, 2025 and was primarily attributable to (i) net loss of $0.86 million, (ii) various non-cash items of $39.01 million, such as depreciation of property, plant and equipment, share-based payments, issuance of common stock to pay for goods, provision for doubtful accounts and loss on investment write-off, (iii) a $13.33 million increase in account receivables, (iv) $33.88 million decrease in account payables, (v) a $2.85 million decrease in other payables and accrued liabilities, (vi) a $6.46 million increase in other receivables. This cash outflow was offset by (i) a $8.13million decrease in inventory.
Cash flows from investing activities
Net cash used in investing activities from continued operation was nil for the six months ended June 30, 2025.
Cash flows from financing activities
Net cash provided from financing activities was $11.21 million for the six months ended June 30, 2025 and was primarily attributable to proceeds of $11.56 million from issuance of ordinary shares, $0.22 million in repayment to related party loan and $0.15 million in repayment to short-term loans.
This section sets forth a summary of the material laws and regulations that affect the business and operations our subsidiaries are operating in the PRC. Information contained in this section should not be construed as a comprehensive summary nor detailed analysis of laws and regulations applicable to the business and operations of us.
Legal Regulations on Labor Protection in the PRC
According to the Labor Law of the PRC, or the Labor Law, which was promulgated by the Standing Committee of the NPC on July 5, 1994, came into effect on January 1, 1995, and was most recently amended on December 29, 2018, an employer shall develop and improve its rules and regulations to safeguard the rights of its workers. An employer shall develop and improve its labor safety and health system, stringently implement national protocols and standards on labor safety and health, conduct labor safety and health education for workers, guard against labor accidents and reduce occupational hazards. Labor safety and health facilities must comply with relevant national standards. An employer must provide workers with the necessary labor protection gear that complies with labor safety and health conditions stipulated under national regulations, as well as provide regular health checks for workers that are engaged in operations with occupational hazards. Laborers engaged in special operations shall have received specialized training and have obtained the pertinent qualifications. An employer shall develop a vocational training system. Vocational training funds shall be set aside and used in accordance with national regulations and vocational training for workers shall be carried out systematically based on the actual conditions of the Company.
62
The Labor Contract Law of the PRC, which was promulgated by the SCNPC on June 29, 2007, came into effect on January 1, 2008, and was amended on December 28, 2012 and became effective as of July 1, 2013, and the Implementation Regulations on Labor Contract Law, which was promulgated on September 18, 2008, and became effective since the same day, regulate both parties through a labor contract, namely the employer and the employee, and contain specific provisions involving the terms of the labor contract. It is stipulated under the Labor Contract Law and the Implementation Regulations on Labor Contract Law that a labor contract must be made in writing. An employer and an employee may enter into a fixed-term labor contract, an un-fixed term labor contract, or a labor contract that concludes upon the completion of certain work assignments, after reaching agreement upon due negotiations. An employer may legally terminate a labor contract and dismiss its employees after reaching agreement upon due negotiations with the employee or by fulfilling the statutory conditions. Labor contracts concluded prior to the enactment of the Labor Law and subsisting within the validity period thereof shall continue to be honored. With respect to a circumstance where a labor relationship has already been established but no formal written contract has been made, a written labor contract shall be entered into within one month from the commencement date of the employment.
According to the Interim Regulations on the Collection and Payment of Social Insurance Premiums, the Regulations on Work Injury Insurance, the Regulations on Unemployment Insurance and the Trial Measures on Employee Maternity Insurance of Enterprises, enterprises in the PRC shall provide benefit plans for their employees, which include basic pension insurance, unemployment insurance, maternity insurance, work injury insurance and basic medical insurance. An enterprise must provide social insurance by processing social insurance registration with local social insurance agencies, and shall pay or withhold relevant social insurance premiums for or on behalf of employees. The Law on Social Insurance of the PRC, which was promulgated by the Standing Committee of the National People’s Congress on October 28, 2010, and became effective on July 1, 2011, and was most recently updated on December 29, 2018, has consolidated pertinent provisions for basic pension insurance, unemployment insurance, maternity insurance, work injury insurance and basic medical insurance, and has elaborated in detail the legal obligations and liabilities of employers who do not comply with relevant laws and regulations on social insurance.
According to the Interim Measures for Participation in the Social Insurance System by Foreigners Working within the Territory of China, which was promulgated by the Ministry of Human Resources and Social Security on September 6, 2011, and became effective on October 15, 2011, employers who employ foreigners shall participate in the basic pension insurance, unemployment insurance, basic medical insurance, occupational injury insurance, and maternity leave insurance in accordance with the relevant law, with the social insurance premiums to be contributed respectively by the employers and foreigner employees as required. In accordance with such Interim Measures, the social insurance administrative agencies shall exercise their right to supervise and examine the legal compliance of foreign employees and employers and the employers who do not pay social insurance premiums in conformity with the laws shall be subject to the administrative provisions provided in the Social Insurance Law and the relevant regulations and rules mentioned above.
According to the Regulations on the Administration of Housing Provident Fund, which was promulgated by the State Counsel and became effective on April 3, 1999, and was amended on March 24, 2002 and was partially revised on March 24, 2019 by Decision of the State Council on Revising Some Administrative Regulations (Decree No. 710 of the State Council), housing provident fund contributions by an individual employee and housing provident fund contributions by his or her employer shall belong to the individual employee. Registration by PRC companies at the applicable housing provident fund management center is compulsory and a special housing provident fund account for each of the employees shall be opened at an entrusted bank.
The employer shall timely pay up and deposit housing provident fund contributions in full amount and late or insufficient payments shall be prohibited. The employer shall process housing provident fund payment and deposit registrations with the housing provident fund administration center. With respect to companies who violate the above regulations and fail to process housing provident fund payment and deposit registrations or open housing provident fund accounts for their employees, such companies shall be ordered by the housing provident fund administration center to complete such procedures within a designated period. Those who fail to process their registrations within the designated period shall be subject to a fine ranging from RMB 10,000 to RMB 50,000. When companies breach these regulations and fail to pay up housing provident fund contributions in full amount as due, the housing provident fund administration center shall order such companies to pay up within a designated period, and may further apply to the People’s Court for mandatory enforcement against those who still fail to comply after the expiry of such period.
63
Legal Regulations on Tax in the PRC
Income Tax
In January 2008, the PRC Enterprise Income Tax Law took effect, which was last amended by the Standing Committee of the National People’s Congress on December 29, 2018. The PRC Enterprise Income Tax Law applies a uniform 25 percent enterprise income tax rate to both FIEs and domestic enterprises, except where tax incentives are granted to special industries and projects. The PRC Enterprise Income Tax Law defines “resident enterprise” as an enterprise established outside of the territory of China but with its “de facto management body” within China, which will also be subject to the 25% enterprise income tax rate. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts, and properties of an enterprise. Under the PRC Enterprise Income Tax Law and its implementation regulations, dividends generated from the business of a PRC subsidiary after January 1, 2008, and payable to a foreign investor may be subject to a withholding tax rate of 10 percent if the PRC tax authorities determine that the foreign investor is a Non-resident Enterprise, unless there is a tax treaty with China that provides for a preferential withholding tax rate. Distributions of earnings generated before January 1, 2008, are exempt from PRC withholding tax.
In January 2009, the SAT promulgated the Provisional Measures for the Administration of Withholding of Enterprise Income Tax for Non-resident Enterprises, or the Non-resident Enterprises Measures, which was repealed by Announcement of the State Administration of Taxation on Issues Relating to Withholding at Source of Income Tax of Non-resident Enterprises in December 2017. According to the new announcement, it shall apply to handling of matters relating to withholding at source of income tax of non-resident enterprises pursuant to the provisions of Article 37, Article 39 and Article 40 of the Enterprise Income Tax Law. According to Article 37, Article 39 of the Enterprise Income Tax Law, income tax over non-resident enterprise income pursuant to the provisions of the third paragraph of Article 3 shall be subject to withholding at the source, where the payer shall act as the withholding agent. The tax amount for each payment made or due shall be withheld by the withholding agent from the amount paid or payable. Where a withholding agent fails to withhold tax or perform tax withholding obligations pursuant to the provisions of Article 37, the taxpayer shall pay tax at the place where the income is derived. Where the taxpayer fails to pay tax pursuant to law, the tax authorities may demand payment of the tax amount payable, from a payer of the taxpayer with payable tax amounts from other taxable income items in China.
On April 30, 2009, the MOF and the SAT jointly issued the Circular on Issues Concerning Treatment of Enterprise Income Tax in Enterprise Restructuring Business, or Circular 59, which became effective retroactively as of January 1, 2008 and was partially revised on January 1, 2014. By promulgating and implementing this circular, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a Non-resident Enterprise.
On February 3, 2015, the SAT issued the Announcement of the State Administration of Taxation on Several Issues Relating to Enterprise Income Tax of Transfers of Assets between Non-resident Enterprises, or SAT Bulletin 7, which was partially abolished on December 29, 2017. SAT Bulletin 7 extends its tax jurisdiction to transactions involving transfer of immovable property in China and assets held under the establishment, and placement in China, of a foreign company through the offshore transfer of a foreign intermediate holding company. SAT Bulletin 7 also addresses transfer of the equity interest in a foreign intermediate holding company broadly. In addition, SAT Bulletin 7 introduces safe harbor scenarios applicable to internal group restructurings. However, it also brings challenges to both the foreign transferor and transferee of the Indirect Transfer as they have to assess whether the transaction should be subject to PRC tax and to file or withhold the PRC tax accordingly.
On October 17, 2017, the SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non- resident Enterprise Income Tax at Source, or SAT Bulletin 37, which came into effect on December 1, 2017 and was revised on June 15, 2018. The SAT Bulletin 37 further clarifies the practice and procedure of withholding of non-resident enterprise income tax.
If non-resident investors were involved in our private equity financing, if such transactions were determined by the tax authorities to lack reasonable commercial purpose, we and our non-resident investors may be at risk of being required to file a return and be taxed under SAT Bulletin 7 and we may be required to expend valuable resources to comply with SAT Bulletin 7 or to establish that we should not be held liable for any obligations under SAT Bulletin 7.
64
Value-Added Tax
According to the Temporary Regulations on Value-added Tax, which was most recently amended on November 19, 2017, and the Detailed Implementing Rules of the Temporary Regulations on Value-added Tax, which was amended on October 28, 2011, and became effective on November 1, 2011, all taxpayers selling goods, providing processing, repair or replacement services or importing goods within the PRC shall pay Value-Added Tax. The tax rate of 17 percent shall be levied on general taxpayers selling or importing various goods; the tax rate of 17 percent shall be levied on the taxpayers providing processing, repairing or replacement service; the applicable rate for the export of goods by taxpayers shall be nil, unless otherwise stipulated. On April 4, 2018, the Ministry of Finance and the SAT jointly issued the Notice of Adjustment of Value-added Tax Rates which declared that the VAT tax rate in regard to the sale of goods, provision of processing, repairs and replacement services and importation of goods into China shall be reduced from the previous 17% to 16% from May 1, 2018. The rate of Chinese VAT is 16%, and then changed to 13% and 6% starting in April 2019 of the gross proceeds or at a rate approved by the Chinese local government.
Furthermore, according to the Trial Scheme for the Conversion of Business Tax to Value-added Tax, which was promulgated by the MOF and the SAT, the PRC began to launch taxation reforms in a gradual manner in January 1, 2012, whereby the collection of value-added tax in lieu of business tax items was implemented on a trial basis in regions showing significant radiating effects in economic development and providing outstanding reform examples, beginning with production service industries such as transportation and certain modern service industries.
In accordance with a SAT circular that took effect on May 1, 2016, upon approval of the State Council, the pilot program of the collection of value- added tax in lieu of business tax shall be promoted nationwide in a comprehensive manner starting May 1, 2016, and all taxpayers of business tax engaged in the building industry, the real estate industry, the financial industry and the life service industry shall be included in the scope of the pilot program with regard to payment of value-added tax instead of business tax.
Regulations on Foreign Exchange
Foreign Currency Exchange
Pursuant to the Foreign Currency Administration Rules, as amended, and various regulations issued by SAFE and other relevant PRC government authorities, Renminbi is freely convertible to the extent of current account items, such as trade related receipts and payments, interest and dividends. Capital account items, such as direct equity investments, loans and repatriation of investment, unless expressly exempted by laws and regulations, still require prior approval from SAFE or its provincial branch for conversion of Renminbi into a foreign currency, such as U.S. dollars, and remittance of the foreign currency outside of the PRC. Payments for transactions that take place within the PRC must be made in Renminbi. Foreign currency revenues received by PRC companies may be repatriated into China or retained outside of China in accordance with requirements and terms specified by SAFE.
Dividend Distribution
Wholly foreign-owned enterprises and Sino-foreign equity joint ventures in the PRC may pay dividends only out of their accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. Additionally, these FIEs may not pay dividends unless they set aside at least 10 percent of their respective accumulated profits after tax each year, if any, to fund certain reserve funds, until such time as the accumulative amount of such fund reaches 50 percent of the enterprise’s registered capital. In addition, these companies also may allocate a portion of their after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends.
Regulations on the Filing requirements for mainland China domestic companies listed overseas
On December 24, 2021, the CSRC published the Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Draft Administrative Provisions”) and the Administration Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (the “Draft Filing Measures”). The Draft Administrative Provisions and the Draft Filing Measures lay out requirements for filing and include unified regulation management, strengthening regulatory coordination, and cross-border regulatory cooperation. On February 17, 2023,
65
the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”), which took effect on March 31, 2023. On the same date, the CSRC circulated Supporting Guidance Rules No. 1 through No. 5, Notes on the Trial Measures, Notice on Administration Arrangements for the Filing of Overseas Listings by Domestic Enterprises and relevant CSRC Answers to Reporter Questions, or collectively, the Guidance Rules and Notice, on CSRC’s official website. The Trial Measures, together with the Guidance Rules and Notice reiterate the basic principles of the Draft Administrative Provisions and Draft Filing Measures, and clarified and emphasized several aspects, which include but are not limited to: (1) criteria to determine whether an issuer will be required to go through the filing procedures under the Trial Measures; (2) exemptions from immediate filing requirements for issuers including those that have already been listed in foreign securities markets, including U.S. markets, prior to the effective date of the Trial Measures, but these issuers shall still be subject to filing procedures if they conduct refinancing or are involved in other circumstances that require filing with the CSRC; (3) a negative list of types of issuers banned from listing or offering overseas, such as issuers whose affiliates have been recently convicted of bribery and corruption; (4) issuers’ compliance with web security, data security, and other national security laws and regulations; (5) issuers’ filing and reporting obligations, such as obligation to file with the CSRC after it submits an application for initial public offering to overseas regulators, and obligation after offering or listing overseas to file with the CSRC after it completes subsequent offerings and to report to the CSRC material events including change of control or voluntary or forced delisting of the issuer; and (6) the CSRC’s authority to fine both issuers and their relevant shareholders for failure to comply with the Trial Measures, including failure to comply with filing obligations or committing fraud and misrepresentation. As the Trial Measures are newly issued, there remain uncertainties regarding its interpretation and implementation.
Regulations on Information Security, Censorship and Privacy
The Standing Committee of the National People’s Congress, China’s national legislative body, enacted the Decisions on the Maintenance of Internet Security on December 28, 2000, which was amended in August 2009, that may subject persons to criminal liabilities in China for any attempt, among others things, to use the internet to: (i) gain improper entry to a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak state secrets; (iv) spread false commercial information or (v) infringe upon intellectual property rights. According to the Administration Measures on the Security Protection of Computer Information Network with International Connections issued by the Ministry of Public Security in 1997 and amended by the State Council in 2011, any entity or individual is prohibited from using the internet to leak state secrets or to spread socially destabilizing materials. Pursuant to the Ninth Amendment to the Criminal Law issued by the Standing Committee of the National People’s Congress on August 29, 2015, effective on November 1, 2015, any internet service that fails to fulfill the obligations related to internet information security as required by applicable laws and refuses to take corrective measures, will be subject to criminal liability for (i) any large-scale dissemination of illegal information; (ii) any severe effect due to the leakage of users’ personal information; (iii) any serious loss of evidence of criminal activities; or (iv) other severe situations, and any individual or entity that (i) sells or provides personal information to others unlawfully or (ii) steals or illegally obtains any personal information will be subject to criminal liability in severe situations.
The Cybersecurity Law of the PRC, or the Cybersecurity Law, which was promulgated on November 7, 2016 by the Standing Committee of the National People’s Congress and came into effect on June 1, 2017, provides that network operators shall meet their cyber security obligations and shall take technical measures and other necessary measures to protect the safety and stability of their networks. Under the Cybersecurity Law, network operators are subject to various security protection-related obligations, including: (i) network operators shall comply with certain obligations regarding maintenance of the security of internet systems; (ii) network operators shall verify users’ identities before signing agreements or providing certain services such as information publishing or real-time communication services; (iii) when collecting or using personal information, network operators shall clearly indicate the purposes,
methods and scope of the information collection, the use of information collection, and obtain the consent of those from whom the information is collected; (iv) network operators shall strictly preserve the privacy of user information they collect, and establish and maintain systems to protect user privacy; (v) network operators shall strengthen management of information published by users, and when they discover information prohibited by laws and regulations from publication or dissemination, they shall immediately stop dissemination of that information, including taking measures such as deleting the information, preventing the information from spreading, saving relevant records, and reporting to the relevant governmental agencies.
66
On December 28, 2021, the CAC, the NDRC, the MIIT, and several other PRC governmental authorities jointly issued the Cybersecurity Review Measures, which became effective on February 15, 2022 and replaces its predecessor regulation. Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators that procure internet products and services must be subject to the cybersecurity review if their activities affect or may affect national security. The Cybersecurity Review Measures further stipulates that network platform operators holding over one million users’ personal information must apply with the Cybersecurity Review Office for a cybersecurity review before any listing at a foreign stock exchange. Besides, the Cybersecurity Review Measures also provide that if the relevant authorities consider that certain network products and services and data processing activities affect or may affect national security, the authorities may conduct a cybersecurity review on its own initiative. The Cybersecurity Review Measures also elaborate the factors to be considered when assessing the national security risks of the relevant activities, The cybersecurity review will evaluate, among others, the risk of critical information infrastructure, core data, important data, or a large amount of personal information being affected, controlled or maliciously used by foreign governments and the cyber information security risk in connection with the listing.
On August 20, 2021, the Standing Committee of the National People’s Congress of PRC promulgated the Personal Information Protection Law, which integrates the scattered rules with respect to personal information rights and privacy protection and took effect on November 1, 2021. The Personal Information Protection Law requires, among others, that (i) the processing of personal information should have a clear and reasonable purpose which should be directly related to the processing purpose and should be conducted in a method that has the minimum impact on personal rights and interests, and (ii) the collection of personal information should be limited to the minimum scope as necessary to achieve the processing purpose and avoid the excessive collection of personal information. Personal information processors shall adopt necessary measures to safeguard the security of the personal information they handle. The offending entities could be ordered to correct, or to suspend or terminate the provision of services, and face confiscation of illegal income, fines or other penalties.
Regulations Relating to Foreign Exchange Registration of Overseas Investment by PRC Residents
Circular 37, issued by SAFE and effective on July 4, 2014, regulates foreign exchange matters in relation to the use of SPVs by PRC residents or entities to seek offshore investment and financing and conduct round trip investment in China. Under Circular 37, a SPV refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore investment, using legitimate domestic or offshore assets or interests, while “round trip investment” refers to the direct investment in China by PRC residents or entities through SPVs, namely, establishing FIEs to obtain the ownership, control rights and management rights. Circular 37 requires that, before making contribution into a SPV, PRC residents or entities are required to complete foreign exchange registration with the SAFE or its local branch. SAFE Circular 37 further provides that option or share-based incentive tool holders of a non-listed SPV can exercise the options or share incentive tools to become a shareholder of such non-listed SPV, subject to registration with SAFE or its local branch.
PRC residents or entities who have contributed legitimate domestic or offshore interests or assets to SPVs but have yet to obtain SAFE registration before the implementation of the Circular 37 shall register their ownership interests or control in such SPVs with SAFE or its local branch. An amendment to the registration is required if there is a material change in the registered SPV, such as any change of basic information (including change of such PRC “resident’s name” and operation term), increases or decreases in investment amounts, transfers or exchanges of shares, or mergers or divisions. Failure to comply with the registration procedures set forth in Circular 37, or making misrepresentation on or failure to disclose controllers of a FIE that is established through round-trip investment, may result in restrictions on the foreign exchange activities of the relevant FIEs, including payment of dividends and other distributions, such as proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent or affiliate, and the capital inflow from the offshore parent,
and may also subject relevant PRC residents or entities to penalties under PRC foreign exchange administration regulations. On February 13, 2015, SAFE further promulgated the Circular on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Circular 13, which took effect on June 1, 2015. This SAFE Circular 13 has amended SAFE Circular 37 by requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.
67
On March 30, 2015, the SAFE promulgated Circular 19, which came into effect on June 1, 2015. According to Circular 19, the foreign exchange capital of FIEs shall be subject to the Discretional Foreign Exchange Settlement. The Discretional Foreign Exchange Settlement refers to the foreign exchange capital in the capital account of a FIE for which the rights and interests of monetary contribution has been confirmed by the local foreign exchange bureau (or the book-entry registration of monetary contribution by the banks) can be settled at the banks based on the actual operational needs of the FIE. The proportion of Discretional Foreign Exchange Settlement of the foreign exchange capital of a FIE is temporarily determined to be 100%. The Renminbi converted from the foreign exchange capital will be kept in a designated account and if a FIE needs to make further payment from such account, it still needs to provide supporting documents and go through the review process with the banks.
SAFE issued the Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or Circular 16, on June 9, 2016, which became effective simultaneously. Pursuant to Circular 16, enterprises registered in the PRC may also convert their foreign debts from foreign currency to Renminbi on a discretionary basis. Circular 16 provides an integrated standard for conversion of foreign exchange under capital account items (including foreign currency capital and foreign debts) on a discretionary basis which applies to all enterprises registered in the PRC. Circular 16 reiterates the principle that Renminbi converted from foreign currency-denominated capital of a company may not be directly or indirectly used for purposes beyond its business scope or prohibited by PRC laws or regulations, while such converted Renminbi shall not be provided as loans to its non- affiliated entities. As Circular 16 is newly issued and SAFE has not provided detailed guidelines with respect to its interpretation or implementations, it is uncertain how these rules will be interpreted and implemented.
Regulations on loans to and direct investment in the PRC entities by offshore holding companies
According to the Implementation Rules for the Provisional Regulations on Statistics and Supervision of Foreign Debt promulgated by SAFE on September 24, 1997 and the Interim Provisions on the Management of Foreign Debts promulgated by SAFE, the NDRC and the MOF and effective from March 1, 2003, loans by foreign companies to their subsidiaries in China, which accordingly are FIEs, are considered foreign debt, and such loans must be registered with the local branches of the SAFE. Under the provisions, the total amount of accumulated medium-term and long-term foreign debt and the balance of short-term debt borrowed by a FIE is limited to the difference between the total investment and the registered capital of the foreign- invested enterprise.
On January 12, 2017, the People’s Bank of China promulgated the Circular of the People’s Bank of China on Matters relating to the Macro-prudential Management of Comprehensive Cross-border Financing, or PBOC Circular 9, which took effect on the same date. The PBOC Circular 9 established a capital or net assets-based constraint mechanism for cross-border financing. Under such mechanism, a company may carry out cross-border financing in Renminbi or foreign currencies at their own discretion. The total cross-border financing of a company shall be calculated using a risk-weighted approach and shall not exceed an upper limit. The upper limit is calculated as capital or assets multiplied by a cross-border financing leverage ratio and multiplied by a macro-prudential regulation parameter.
In addition, according to PBOC Circular 9, as of the date of the promulgation of PBOC Circular 9, a transition period of one year is set for foreign- invested enterprises and during such transition period, FIEs may apply either the current cross-border financing management mode, namely the mode provided by Implementation Rules for the Provisional Regulations on Statistics and Supervision of Foreign Debt and the Interim Provisions on the Management of Foreign Debts, or the mode in this PBOC Circular 9 at its sole discretion. After the end of the transition period, the cross-border financing management mode for FIEs will be determined by the People’s Bank of China and SAFE after assessment based on the overall implementation of this PBOC Circular 9.
According to applicable PRC regulations on FIEs, capital contributions from a foreign holding company to its PRC subsidiaries, which are considered FIEs, may only be made when approval by or registration with the MOFCOM or its local counterpart is obtained.
68
Regulations Relating to Foreign Investment
The Foreign Investment Law
On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which took effect on January 1, 2020 and replaced three existing laws on foreign investments in China, namely, the PRC Equity Joint Venture Law, the PRC Cooperative Joint Venture Law and the Wholly Foreign-owned Enterprise Law, together with their implementation rules and ancillary regulations. The Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic invested enterprises in China. The Foreign Investment Law establishes the basic framework for the access to, and the promotion, protection and administration of foreign investments in view of investment protection and fair competition.
According to the Foreign Investment Law, “foreign investment” refers to investment activities directly or indirectly conducted by one or more natural persons, business entities, or otherwise organizations of a foreign country (collectively referred to as “foreign investor”) within China, and the investment activities include the following situations: (i) a foreign investor, individually or collectively with other investors, establishes a foreign-invested enterprise within China; (ii) a foreign investor acquires stock shares, equity shares, shares in assets, or other like rights and interests of an enterprise within China;(iii) a foreign investor, individually or collectively with other investors, invests in a new project within China; and (iv) investments in other means as provided by laws, administrative regulations, or the State Council.
According to the Foreign Investment Law, the State Council will publish or approve to publish the “negative list” for special administrative measures concerning foreign investment. The Foreign Investment Law grants national treatment to foreign-invested entities, or FIEs, except for those FIEs that operate in industries deemed to be either “restricted” or “prohibited” in the “negative list”. The Foreign Investment Law provides that FIEs operating in foreign restricted or prohibited industries will require market entry clearance and other approvals from relevant PRC governmental authorities. If a foreign investor is found to invest in any prohibited industry in the “negative list”, such foreign investor may be required to, among other aspects, cease its investment activities, dispose of its equity interests or assets within a prescribed time limit and have its income confiscated. If the investment activity of a foreign investor is in breach of any special administrative measure for restrictive access provided for in the “negative list”, the relevant competent department shall order the foreign investor to make corrections and take necessary measures to meet the requirements of the special administrative measure for restrictive access.
Besides, the PRC government will establish a foreign investment information reporting system, according to which foreign investors or foreign- invested enterprises shall submit investment information to the competent department for commerce concerned through the enterprise registration system and the enterprise credit information publicity system, and a security review system under which the security review shall be conducted for foreign investment affecting or likely affecting the state security.
Furthermore, the Foreign Investment Law provides that foreign invested enterprises established according to the existing laws regulating foreign investment may maintain their structure and corporate governance within five years after the implementing of the Foreign Investment Law.
In addition, the Foreign Investment Law also provides several protective rules and principles for foreign investors and their investments in the PRC, including, among others, that a foreign investor may freely transfer into or out of China, in Renminbi or a foreign currency, its contributions, profits, capital gains, income from disposition of assets, royalties of intellectual property rights, indemnity or compensation lawfully acquired, and income from liquidation, among others, within China; local governments shall abide by their commitments to the foreign investors; governments at all levels and their departments shall enact local normative documents concerning foreign investment in compliance with laws and regulations and shall not impair legitimate rights and interests, impose additional obligations onto FIEs, set market access restrictions and exit conditions, or intervene with the normal production and operation activities of FIEs; except for special circumstances, in which case statutory procedures shall be followed and fair and reasonable compensation shall be made in a timely manner, expropriation or requisition of the investment of foreign investors is prohibited; and mandatory technology transfer is prohibited.
69
The Guidance Catalogue of Industries for Foreign Investment
Investment activities in the PRC by foreign investors are governed by the Guidance Catalogue of Industries for Foreign Investment, or the Catalogue, which was promulgated and is amended from time to time by the MOFCOM and the NDRC. On December 28, 2020, the National Development and Reform Commission and the Ministry of Commerce publicly released the Directory of Industries to Encourage Foreign Investment (Encouraged Catalogue) (2020 Edition). On December 27, 2021, the National Development and Reform Commission of China (“NDRC”) and the Ministry of Commerce (“MOFCOM”) jointly issued the Special Administrative Measures for Foreign Investment Access (Negative List) (2021 Edition), and the Special Administrative Measures for Foreign Investment Access in Pilot Free Trade Zones (Negative List) (2021 Edition), effective January 1, 2022. Foreign investors are not allowed to invest in industries that are expressly prohibited in the 2021 Negative List. The industries that are not expressly prohibited in the Negative List are still subject to government approvals and certain special requirements. The purpose of the Catalogue is to direct foreign investment into certain priority industry sectors while restricting or prohibiting investment in other sectors. If the investment falls within the “encouraged” category, foreign investment can be conducted through the establishment of a WFOE. If the investment falls within the “restricted” category, foreign investment may be conducted through the establishment of a WFOE if certain requirements are met or in some cases must be conducted through the establishment of a joint venture enterprise, with varying minimum shareholdings for the Chinese party, depending on the particular industry. If the investment falls within the “prohibited” category, foreign investment of any kind is not allowed. Any investment that occurs within an industry not falling into any of three categories is classified as a permitted industry for foreign investment.
Company Law
Pursuant to the PRC Company Law, promulgated by the Standing Committee of the National People’s Congress on December 29, 1993, effective as of July 1, 1994, and as revised on December 25, 1999, August 28, 2004, October 27, 2005, December 28, 2013 and October 26, 2018, the establishment, operation and management of corporate entities in the PRC are governed by the PRC Company Law. The PRC Company Law defines two types of companies: limited liability companies and limited stock companies.
Our PRC operating subsidiary is a limited liability company. Unless otherwise stipulated in the related laws on foreign investment, foreign invested companies are also required to comply with the provisions of the PRC Company Law.
Laws and Regulations on the Protection of Consumer Rights and Interests
Business operators in the business of supplying and selling manufactured goods or services to consumers, shall comply with the Law of the PRC on the Protection of Consumer Rights and Interests (the “Consumer Rights Protection Law”) promulgated by the SCNPC on October 31, 1993, and effective as of January 1, 1994, and revised on August 27, 2009 and October 25, 2013.
According to the Consumer Rights Protection Law, business operators must ensure that the goods or services provided by them meet the requirements for safeguarding personal and property safety. For goods and services that may endanger personal and property safety, consumers should be provided with a true description and an explicit warning, as well as a description and indication of the proper way to use the goods or accept the services and the methods of preventing the occurrence of a hazard. If the goods or services provided by the business operators cause personal injuries to consumers or third parties, the business operators shall compensate the injured parties for their losses.
Contract Law
All of our contracts are subject to the PRC contract law. Under PRC contract law, a natural person, legal person or other legally established organization shall have full capacity of civil right and civil conduct while entering into a contact. Except as otherwise required by other laws and regulations, the formation, validity, performance, modification, assignment, termination, and liability for breach of a contract are stipulated by PRC contract law. A contracting party who failed to perform or failed to fulfill its contractual obligation shall bear the responsibility of a continued duty to perform or to provide remedies and compensation as provided by PRC laws.
70
Laws and Regulations on gold trading business in Hong Kong
The Gold and Securities (Storage and Handling) Ordinance
The Gold and Securities (Storage and Handling) Ordinance (the “Gold Ordinance”) governs the safe and secure storage, transportation, and handling of gold and securities within Hong Kong. The Gold Ordinance requires that all entities engaged in the storage or transportation of gold and securities adhere to stringent security protocols to prevent theft, loss, or damage. It mandates that storage facilities for gold and securities meet specific national standards for safety and security, with access restricted to authorized personnel only. These entities must maintain accurate records of inventory and ensure regular audits to uphold the integrity of stored assets.
In terms of transportation, the Gold Ordinance requires that all shipments of gold and securities be carried out using secure methods, such as armored vehicles, and accompanied by clear documentation tracking the movement of goods. The law also specifies that companies involved in transportation must implement security measures that prevent tampering or theft during transit.
Additionally, the Gold Ordinance establishes that all entities engaged in the storage and handling of gold and securities must be properly licensed and regulated by relevant authorities, ensuring compliance with both local and international industry standards. It further outlines the liability of these entities in the event of loss, theft, or damage to goods during storage or transport, providing a framework for compensation and legal recourse.
The Anti-Money Laundering and Counter-Terrorist Financing Ordinance
The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (the “AMLO”) imposes strict regulations on businesses involved in gold trading to prevent money laundering and the financing of terrorism. Under AMLO, gold traders must conduct thorough customer due diligence before engaging in any transactions, verifying the identity of customers and understanding the nature of their dealings, especially for high-value or cross-border gold transactions. Enhanced due diligence is required for higher-risk clients or transactions. Additionally, businesses are obligated to maintain detailed transaction records for at least five years, ensuring that the origin and movement of funds involved in gold trades can be traced if necessary. In cases where suspicious activities are identified, such as transactions potentially linked to money laundering or terrorist financing, gold traders must file a suspicious transaction report with the joint financial intelligence unit. AMLO also requires businesses to implement robust internal controls and provide regular training to employees on anti-money laundering and counter-terrorist financing practices. For transactions that involve the cross-border movement of gold, additional compliance measures are enforced. Failure to adhere to the AMLO regulations can lead to severe penalties, including significant fines and imprisonment.
The Inland Revenue Ordinance
Based on Inland Revenue Ordinance (“Revenue Ordinance”), there is no Value-Added Tax (“VAT”) or capital gains tax. The absence of VAT means that transactions involving physical gold, such as gold bars or coins, and gold-related financial products like gold ETFs are not subject to additional taxation. Furthermore, the Revenue Ordinance does not impose capital gains tax, so profits from buying and selling gold are not taxed. For companies involved in gold trading, the standard profits tax applies, with a lower rate of 8.25% on profits up to HKD 2 million and a 16.5% rate for profits exceeding that threshold.
The Securities and Futures Ordinance
The Securities and Futures Ordinance (“SFO”) regulates gold-related financial products such as gold futures, gold-backed exchange-traded funds, and gold derivatives. The SFO requires that firms dealing in gold-related products are licensed by the Securities and Futures Commission (“SFC”), which maintains oversight of market conduct, preventing activities such as price manipulation and insider trading. The SFO also mandates disclosure and reporting requirements for firms offering these products, ensuring that investors are informed about the risks involved and the structure of gold-backed exchange-traded funds or futures contracts. Furthermore, the SFO regulates the operation of gold-backed exchange-traded funds, ensuring that they are managed in a transparent manner, with proper disclosures about the gold reserves backing the products.
71
The following table sets forth information regarding our directors and executive officers as of the date of this prospectus. Unless otherwise stated, the business address for our directors and executive officers is that of our principal executive offices at 7th Floor, Building C, No. 1010 Anling Road, Huli District, Xiamen, China 361009.
| Name | Age | Position | ||||
| Xiaodong Chen | 57 | Chief Executive Officer and Director | ||||
| Caifan He | 52 | Chief Financial Officer and Director | ||||
| Jianyong Cai | 63 | Chief Technology Officer and Director | ||||
| Weicheng Pan | 49 | Chief Strategy Officer | ||||
| Qinyi Fu(1) | 39 | Independent Director | ||||
| Jun Ouyang(1)(2)(3) | 42 | Independent Director | ||||
| Huibin Shen(3) | 52 | Independent Director | ||||
| Can Su(1)(2) | 36 | Independent Director | ||||
| Zhiyong Gong | 42 | Independent Director | ||||
(1) Member of audit committee.
(2) Member of remuneration committee.
(3) Member of nomination and governance committee.
Xiaodong Chen has served as chief executive officer of Blue Hat since December 2018, as a member of the board of directors of Blue Hat since its incorporation in June 2018 and as the chairman of the board of directors and general manager of Blue Hat Fujian since August 2015. Mr. Chen is a director of Victory Hat Limited, a shareholder of Blue Hat. From July 1987 to November 1989, Mr. Chen served as an office worker of the Inspection Department of Fuzhou Second People’s Hospital. From December 1989 to June 1995, Mr. Chen served as the manager of Fuzhou Liming Footwear Co., Ltd. From December 1996 to January 2002, Mr. Chen served as a manager of Fuzhou Changdong Trading Co. Ltd. From February 2002 to January 2008, Mr. Chen served as general manager of Huanyu International Co. Ltd. From March 2008 to March 2015, Mr. Chen served as the general manager of Guangzhou Taihao Trading Co., Ltd. From January 2010 to March 2013, Mr. Chen served as the chairman and general manager of Xiamen Blue Hat Culture Communication Ltd. Mr. Chen received his EMBA from Renmin University of China.
Caifan He has served as chief financial officer and a member of the board of directors of Blue Hat since December 2018. Mr. He has served as a director, deputy general manager and financial controller of Blue Hat Fujian since August 2015. Mr. He is a director of Celebrate Hat Limited, a shareholder of Blue Hat. Mr. He served as a middle school teacher in Cangchang Village from July 1994 to December 1996 in Anhua County. From January 1997 to January 2000, Mr. He served as the accountant, accounting supervisor and account manager of Guangzhou Changdong Industrial Co., Ltd. From February 2000 to March 2008, Mr. He served as the finance manager and financial director of Guangzhou Tiandixing Telecommunications Co., Ltd. From March 2008 to January 2012, Mr. He served as the finance manager of Guangzhou Taihao Trading Co., Ltd. From March 2013 to August 2015, Mr. He served as a director and financial controller of Blue Hat (Xiamen) Culture Communication Co., Ltd. Mr. He received a College Diploma in Finance from Hunan University of Finance and Economics.
Jianyong Cai has served as chief technology officer and a member of the board of directors of Blue Hat since December 2018. Mr. Cai has served as a director, deputy general manager and chief engineer of Blue Hat Fujian since January 2010. Mr. Cai taught in the School of Optoelectronics and Information Engineering of Fujian Normal University from August 1983 to June 2002. Since July 2002, Mr. Cai has served as an associate professor at the School of Optoelectronics and Information Engineering at Fujian Normal University, where he mainly works on Data Communication Principles, Communication Network Foundation, Software Engineering and other undergraduate courses as well as Communication Network Theory and Technology, Computer Network Architecture and other postgraduate courses. Mr. Cai received a Bachelor’s Degree in Data Communication Principles, Communication Network Foundation and Software Engineering from University of Science and Technology of China.
72
Weicheng Pan, has served as chief strategy officer since May 2023. He is the founder of Cheng Ji Group of Companies and Jewish Mindset Business School. He has experience in business investment and consultation. From August 2018 to September 2018, Mr. Pan worked as the general consultant of Sen Yue Holdings Limited, a Singapore company, for an investment worthy around US$0.9 million. Starting from November 2019, Mr. Pan has been the independent director of TD Holdings Inc. (Nasdaq ticker: GLG). From October 1, 2020 to January 6, 2022, he had been the Chief Strategy Officer of Future Fintech Group Inc. (Nasdaq ticker: FTFT). He holds a Bachelor’s Degree in Business Administration from Wuhan Science and Technology University.
Qinyi Fu has served as a member of the board of directors of Blue Hat since December 2018. Mr. Fu served as an auditor of Ernst & Young China Certified Public Accountants from October 2010 to January 2012. Mr. Fu served as a senior auditor of Deloitte China Certified Public Accountants from January 2012 to December 2015. Mr. Fu served as a partner of Ruihua Certified Public Accountants from December 2015 to May 2018. Mr. Fu has served as a partner of Dahua Certified Public Accountants since June 2018. Mr. Fu received a Bachelor’s Degree in International Economics and Trade and a Master’s Degree in International Economics from Xiamen University.
Jun Ouyang has served as a member of the board of directors of Blue Hat since December 2018. Mrs. Ouyang served as a professional teacher in the Department of Economic Management of Zhangzhou City College from August 2009 to August 2016. Mrs. Ouyang has been studying for a Ph.D. in Marketing from Xiamen University since September 2016. Mrs. Ouyang received a Bachelor’s Degree in Computer Science and Engineering from Xi’an University of Finance and Economics and a Master’s Degree in Management Science and Engineering from Fuzhou University.
Huibin Shen has served as a member of the board of directors of Blue Hat since December 2018. Mr. Shen has served as the director of the capital market department of Beijing Jingshi Law Firm (Xiamen) since November 2017. Mr. Shen served as vice director of the capital market department of Beijing Dentons Law Offices, LLP (Xiamen) from March 2009 to November 2017. Mr. Shen is also an arbitrator of the Xiamen Arbitration Commission. Mr. Shen received a Bachelor’s Degree in Law from East China University of Political Science and Law and a Master’s Degree in Civic and Commercial Law from China University of Political Science and Law.
Can Su has served as a member of the board of directors of Blue Hat since December 2018. Mr. Su has served as account manager of Xiamen Rural Commercial Financing Guarantee Co., Ltd. since January 2018. Mr. Su served as account manager of Xiamen Rural Commercial Bank Asset Management Co., Ltd. from December 2015 to December 2017. Mr. Su received a Bachelor’s Degree in Logistics Management from Xiamen University Tan Kah Kee College and a MBA from High Point University.
Zhiyong Gong serves as a member of the board of directors of the Company. He has served as a Sales Manager at a foreign-funded consulting and training company, Project Director at a advisory consulting firm, Partner and Chief Business Consultant at Chengji Human Resources Co., Ltd., and currently serves as General Manager and Chief Business Consultant at Zida Investment Consulting Co., Ltd. Mr. Gong excels in enterprise marketing and investment attraction, having organized over 1500 consulting and training sessions domestically and internationally, benefiting more than 3000 companies. He graduated from Nankai University with a major in Business Administration and Marketing.
Family Relationships
Jianyong Cai, our chief technology officer and director, is the brother of Juanjuan Cai, a director and shareholder of Blue Hat Fujian and the wife of Xiaodong Chen, our chief executive officer and director. There are no other family relationships between any of Blue Hat’s executive officers and directors.
73
Employment Agreements, Director Agreements and Indemnification Agreements
In December 2018, we entered into employment agreements with each of Xiaodong Chen, Caifan He and Jianyong Cai, pursuant to which such individuals agreed to serve as our executive officers until December 2023. In May 2023, we entered into an employment agreement with Weicheng Pan, pursuant to which such individual agreed to serve as our Chief Strategy Officer until May 2024. He shall receive an annual salary in the amount of US$20,000, and contingent annual cash or equity bonus at the sole discretion of the Board. In November 2023, we entered into employment agreements with each of Guo Fan and Zhiyong Gong, pursuant to which such individuals agreed to serve as the joint chief executive officer and our Directors until November 2024, respectively. On July 24, 2025, Guo Fan resigned from his positions of the Company. Such agreements will be automatically extended for six-month periods, unless the agreements are terminated in accordance with their terms. We may terminate the employment for cause at any time for certain acts, such as conviction or plea of guilty to a felony or any crime involving moral turpitude, negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. We may also terminate the employment without cause at any time upon 60 days’ advance written notice. Each executive officer may resign at any time upon 60 days’ advance written notice.
Each executive officer has agreed to hold, both during and after the termination or expiration of his employment agreement, in strict confidence and not to use, except as required in the performance of his duties in connection with the employment or pursuant to applicable law, any of our confidential or proprietary information or the confidential or proprietary information of any third party received by us and for which we have confidential obligations. Each executive officer has also agreed to disclose in confidence to us all inventions, designs and trade secrets which he conceives, develops or reduces to practice during his employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents, copyrights and other legal rights for these inventions, designs and trade secrets.
In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his employment and for one year following the last date of employment. Specifically, each executive officer has agreed not to: (i) engage or assist others in engaging in any business or enterprise that is competitive with our business, (ii) solicit, divert or take away the business of our clients, customers or business partners, or (iii) solicit, induce or attempt to induce any employee or independent contractor to terminate his or her employment or engagement with us. The employment agreements also contain other customary terms and provisions.
We have also entered into indemnification agreements with each of our executive officers and directors. Under these agreements, we have agreed to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company.
We have also entered into director agreements with each of our directors which agreements set forth the terms and provisions of their engagement.
Compensation of Director and Executive Officers
We shall pay an aggregate of approximately RMB2,407,826.67 ($337,042) in cash to our directors and executive officers for their services during the year ended December 31, 2025.
We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our director and executive officers. Our subsidiaries are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund.
Equity Awards
We did not grant any equity awards to our executive officers or directors during the fiscal year ended December 31, 2025.
74
Incentive Compensation
The 2020 Equity Incentive Plan was adopted by the shareholders of the Company on December 9, 2020, the maximum number of ordinary shares in respect of which any awards may be granted or paid out thereunder is 6,000,000 ordinary shares of par value of US$0.001 per share). Pursuant to the resolutions of the shareholders of the Company passed on May 10, 2022, every 10 ordinary shares of a par value of US$0.001 each in the authorized share capital of the Company (including issued and unissued share capital) were consolidated into 1 ordinary share of a par value of US$0.01 each. Pursuant to the resolutions of the shareholders of the Company passed on February 28, 2025, every 100 ordinary shares of a par value of US$0.01 each in the authorized share capital of the Company (including issued and unissued share capital) were consolidated into 1 ordinary share of a par value of US$1 each (the “Share Consolidation”). the maximum number of ordinary shares in respect of which any awards may be granted or paid out under the 2020 Plan is 6,000 ordinary shares of par value of US$1 per share and it has been executed in March 2025.
On October 28, 2025, the Board approved and adopted the Company’s 2025 Equity Incentive Plan, which shall become effective immediately. As of the date of this prospectus, no shares of equity awards has been granted by the Company.
2025 Director and Executive Officer Compensation Table
The following table sets forth information regarding the compensation paid to our directors and our executive officers for service on our board of directors or as an executive officer during the year ended December 31, 2025.
| All Other | ||||||||||||
| Name | Fees Earned in Cash | Compensation | Total | |||||||||
| Xiaodong Chen | $ | 99,589 (RMB 709,104 | ) | — | $ | 99,589 (RMB 709,104 | ) | |||||
| Caifan He | $ | 72,118 (RMB 513,504 | ) | — | $ | 72,118 (RMB513,504 | ) | |||||
| Qinyi Fu | $ | 10,000 (RMB 71,203 | ) | — | $ | 10,000 (RMB 71,203 | ) | |||||
| Jun Ouyang | $ | 10,000 (RMB 71,203 | ) | — | $ | 10,000 (RMB 71,203 | ) | |||||
| Huibin Shen | $ | 10,000 (RMB 71,203 | ) | — | $ | 10,000 (RMB 71,203 | ) | |||||
| Can Su | $ | 10,000 (RMB 71,203 | ) | — | $ | 10,000 (RMB 71,203 | ) | |||||
| Weicheng Pan | $ | 20,000 (RMB142,406 | ) | — | $ | 20,000 (RMB142,406 | ) | |||||
Jianyong Cai’s compensation for the year ended December 31, 2025 has not been paid as of the date of this prospectus.
Board Practice
Duties of Directors
Under Cayman Islands law, our board of directors has the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our board of directors include, among others:
| ● | convening shareholders’ annual and extraordinary general meetings and reporting its work to shareholders at such meetings; | |
| ● | declaring dividends and distributions; | |
| ● | appointing officers and determining the term of office of the officers; | |
| ● | exercising the borrowing powers of our company and mortgaging the property of our company; and | |
| ● | approving the transfer of shares in our company, including the registration of such shares in our share register. |
75
Under Cayman Islands law, all of our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly and a duty to act in what they consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our amended and restated memorandum and articles of association, as amended from time to time. Our company has the right to seek damages if a duty owed by any of our directors is breached. You should refer to “Description of Securities” incorporated by reference as Exhibit 2.1 for additional information on the standard of corporate governance under Cayman Islands law.
Composition of our Board of Directors
Our board of directors currently consists of nine directors. Our board of directors has determined that each of Qinyi Fu, Jun Ouyang, Huibin Shen, Zhiyong Gong and Can Su be an “independent director” as defined under the Nasdaq rules. Our board of directors is composed of a majority of independent directors. Pursuant to our Third Amended and Restated Memorandum and Articles of Association, each director will serve until his/her successor is duly elected or appointed or his/her earlier resignation or removal.
Committees of our Board of Directors
Our board of directors has established an audit committee, a remuneration committee and a nomination and governance committee, which have the responsibilities and authority necessary to comply with applicable Nasdaq rules. The audit committee is comprised of Qinyi Fu, Jun Ouyang, and Can Su. The remuneration committee is comprised of Jun Ouyang and Can Su. The nomination and governance committee is comprised of Jun Ouyang and Huibin Shen.
Audit Committee
Qinyi Fu, Jun Ouyang and Can Su serve as members of the audit committee. Qinyi Fu serves as the chair of the audit committee. All of the audit committee members satisfy the independence requirements of the Nasdaq rules and the independence standards of Rule 10A-3 under the Exchange Act. Our board of directors has determined that Qinyi Fu possesses accounting or related financial management experience that qualifies him as an “audit committee financial expert” as defined by the rules and regulations of the SEC and Nasdaq. The audit committee will oversee our accounting and financial reporting processes and the audits of our financial statements. The audit committee is responsible for, among other things:
| ● | appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; | |
| ● | reviewing with the independent auditors any audit problems or difficulties and management’s response; | |
| ● | discussing the annual audited financial statements with management and the independent auditors; | |
| ● | reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures; | |
| ● | reviewing and approving all proposed related party transactions; | |
| ● | meeting separately and periodically with management and the independent auditors; and | |
| ● | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
76
Remuneration Committee
Jun Ouyang and Can Su serve as members of the remuneration committee. Jun Ouyang serves as the chair of the remuneration committee. All of our remuneration committee members satisfy the independence requirements of the Nasdaq rules and the independence standards of Rule 10A-3 under the Exchange Act. The remuneration committee is responsible for overseeing and making recommendations to our board of our directors regarding the salaries and other compensation of our executive officers and general employees and providing assistance and recommendations with respect to our compensation policies and practices.
Nomination and Governance Committee
Jun Ouyang and Huibin Shen serve as members of the nomination and governance committee. Jun Ouyang serves as the chair of the nomination and governance committee. All of the nomination and governance committee members satisfy the independence requirements of the Nasdaq rules and the independence standards of Rule 10A-3 under the Exchange Act. The nomination and governance committee is responsible for identifying and proposing new potential director nominees to the board of directors for consideration and for reviewing our corporate governance policies.
77
The following table sets forth information with respect to the beneficial ownership of our ordinary shares as of this prospectus for:
| ● | each beneficial owner of 5% or more of our outstanding ordinary shares; | |
| ● | each of our directors and executive officers; and | |
| ● | all of our directors and executive officers as a group. |
Beneficial ownership is determined in accordance with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities and include ordinary shares issuable upon the exercise of options that are immediately exercisable or exercisable within 60 days of this prospectus. Percentage ownership calculations are based on 36,926,284 ordinary shares outstanding as of this prospectus.
Except as otherwise indicated, all of the shares reflected in the table are ordinary shares and all persons listed below have sole voting and investment power with respect to the shares beneficially owned by them, subject to applicable community property laws. The information is not necessarily indicative of beneficial ownership for any other purpose.
Except as otherwise indicated in the table below, addresses of our directors, executive officers and named beneficial owners are in care of Blue Hat Interactive Entertainment Technology, 7th Floor, Building C, No. 1010 Anling Road, Huli District, Xiamen, China 361009, and our telephone number is 86-592-228-0081.
| Name of Beneficial Owner | Number of Shares Beneficially Owned | Percentage of Shares Beneficially Owned | ||||||
| 5% or Greater Shareholders : | ||||||||
| Xiaodong Chen(1)(2) | 31,014,043 | 84.00 | % | |||||
| Directors and Executive Officers: | ||||||||
| Xiaodong Chen(1)(2) | 31,014,043 | 84.00 | % | |||||
| Caifan He(3) | 1,005 | * | % | |||||
| Jianyong Cai(4) | 0 | 0 | ||||||
| Weicheng Pan | 0 | 0 | ||||||
| Qinyi Fu | 0 | 0 | ||||||
| Jun Ouyang | 0 | 0 | ||||||
| Huibin Shen | 0 | 0 | ||||||
| Can Su | 0 | 0 | ||||||
| Zhiyong Gong | 0 | 0 | ||||||
| Fan Guo | 0 | 0 | ||||||
| All current directors and executive officers as a group (9 persons) | 31,015,048 | 84.00 | % | |||||
* less than 1%
| (1) | Includes 13,090 ordinary shares held by Victory Hat Limited. The registered address of Victory Hat Limited, a British Virgin Islands company, is Vistra (BVI) Limited of Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands. Xiaodong Chen, our chief executive officer and director, is the owner of Victory Hat Limited and holds the voting and dispositive power over the ordinary shares held by Victory Hat Limited. |
| (2) | Includes an aggregate of 30,975,953 shares of voting rights owned by Xiaodong Chen, pursuant to the Power of Attorneys signed by certain shareholders. |
| (3) | Represents the 1,005 ordinary shares held by Celebrate Hat Limited, a British Virgin Islands company with a registered address at Vistra (BVI) Limited of Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands. Caifan He is the owner of Celebrate Hat Limited and holds the voting and dispositive power over the ordinary shares held by Celebrate Hat Limited. |
| (4) | Jianyong Cai is the brother of Juanjuan Cai, the wife of Xiaodong Chen. |
78
During the last three years, we have engaged in the following transactions with our directors, executive officers or holders of more than 5% of our outstanding share capital and their affiliates, which we refer to as our related parties:
As of and for the years ended December 31, 2024 and 2023
As of December 31, 2024 and December 31, 2023, we owed $770,155 and $831,155, respectively, to Xiaodong Chen, our chief executive officer, director and shareholder, as a result of a loan from Xiaodong Chen.
The loan from Xiaodong Chen of $971 was paid for certain leases on our behalf. These loans are unwritten, interest free and due on demand. $770,155 was for borrowing, the loans are unsecured, interest free and due on 31 January, 2026.
As of December 31, 2024, the Company has a payable to Fan Tao in the amount of $600,885.
As of December 31, 2024 and December 31, 2023, we owed $3,795 and $3,795, respectively, to Beautiful Jade Ltd, our shareholders’ investment company. It was attorney fee.
These amounts are included in the consolidated financial statements as related party payables. See Note 15 of the notes to the consolidated financial statements included elsewhere in this prospectus.
Xiaodong Chen and Juanjuan Cai, a director and shareholder of Blue Hat and the wife of Xiaodong Chen, were, and are, guarantors of certain of our short-term loans.
Jianyong Cai, our chief technology officer and director, is the brother of Juanjuan Cai, the wife of Xiaodong Chen.
Shaohong Chen, the owner of Prosper Hat Limited and Shaohong Holding Limited, is the sister of Xiaodong Chen.
As of and for the six months ended June 30, 2025 and 2024
Other receivables - related party
| June 30, | December 31, | |||||||||||
| Name of Related Party | Relationship - | Nature | 2025 | 2024 | ||||||||
| Blue Hat Fujian | Shareholders’ investment company | Disposal consideration, payment on demand | 1,363,326 | 1,388,643 | ||||||||
| Blue Hat Pingxiang | Shareholders’ investment company | Disposal consideration, payment on demand | 38,656 | 38,496 | ||||||||
| Fujian Blue Hat Interactive Entertainment Technology Co., Ltd. Fuzhou Branch | Shareholders’ investment company | Other receivable, payment on demand | 1,594 | 1,587 | ||||||||
| Fujian Lanyuncanghai Technology Co., Ltd | Shareholders’ investment company | Other receivable, payment on demand | 339,343 | 337,935 | ||||||||
| Total | $ | 1,742,919 | $ | 1,766,661 | ||||||||
Other payables - related party
| June 30, | December 31, | |||||||||||
| Name of Related Party | Relationship - | Nature | 2025 | 2024 | ||||||||
| Tao Fan | The brother of CO-CEO | Loans, payment on demand | 395,379 | 600,885 | ||||||||
| Xiaodong Chen | CEO | Lease and other payable, payment on demand | $ | 976 | $ | 971 | ||||||
| Total | $ | 396,355 | $ | 601,856 | ||||||||
79
Long term loans - related party
| June 30, | December 31, | |||||||||||
| Name of Related Party | Relationship - | Nature | 2025 | 2024 | ||||||||
| Xiaodong Chen | CEO | Borrowing | $ | 770,155 | $ | 770,155 | ||||||
| Beautiful Jade Ltd | Shareholders’ investment company | Attorney fee | 3,795 | 3,795 | ||||||||
| Total | $ | 773,950 | $ | 773,950 | ||||||||
Long term loans from related parties are unsecured and interest free, the payment was due on January 31, 2028.
Policies and Procedures for Related Party Transactions
Our board of directors has created an audit committee which is tasked with review and approval of all related party transactions.
Employment Agreements, Director Agreements and Indemnification Agreements
In December 2018, we entered into employment agreements with each of our executive officers pursuant to which such individuals agreed to serve as our executive officers.
We have also entered into indemnification agreements with each of our executive officers and directors. Under these agreements, we have agreed to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our company.
We have also entered into director agreements with each of our directors which agreements set forth the terms and provisions of their engagement.
80
The following table sets forth our capitalization as of June 30, 2025, presented on:
| ● | an actual basis; and | |
| ● | on an as adjusted basis, to give effect to (i) the issuance of an aggregate of 29,682,353 Ordinary Shares on September 26, 2025; and (ii) the sale of Company’s Units in the aggregate amount of US$8,000,000 at an offering price of US$0.75 per Unit, after deducting the estimated offering expenses payable by us, assuming no issuance of Pre-funded Warrants and no exercise of the Warrants issued in this offering or excise of the Over-Allotment Options. |
You should read this table together with Item 5. Operating and Financial Review and Prospects” of the FY24 Annual Report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and our consolidated financial statements and note included elsewhere in this prospectus.
| As of June 30, 2025 | ||||||||
| (in US$ millions) | Actual | As adjusted | ||||||
| Cash and Cash Equivalents | $ | 1.06 | $ | 8.50 | ||||
| Shareholders’ Equity: | ||||||||
| Ordinary Shares, par value $0.0000001, 5,000,000,000,000,000 Ordinary Shares authorized, 7,243,934 shares issued and outstanding as of June 30, 2025 | 7.24 | 7.24 | ||||||
| Additional paid-in capital | 138.38 | 196.28 | ||||||
| Statutory Reserves | 2.14 | 2.14 | ||||||
| Retained Earnings | -67.20 | -67.20 | ||||||
| Accumulated other comprehensive loss | 0.91 | 0.91 | ||||||
| Total Shareholders’ Equity | 81.47 | 139.37 | ||||||
| Total Capitalization(1) | $ | 82.53 | $ | 147.87 | ||||
Note:
| (1) | Total capitalization equals the sum of cash and cash equivalent and total shareholders’ equity. |
81
If you invest in our ordinary shares, your interest will be diluted to the extent of the difference between the price per share you pay in this offering and the net tangible book value per share of our ordinary shares immediately after this offering. Our net tangible book value of our ordinary shares as of June 30, 2025 was approximately US$81.47 million, or approximately US$11.25 per ordinary share based upon 7,243,934 Ordinary Shares outstanding. Net tangible book value per share is equal to our total tangible assets, less our total liabilities, divided by the total number of ordinary shares outstanding as of June 30, 2025.
After giving effect to (i) the issuance of an aggregate of 29,682,353 Ordinary Shares on September 26, 2025; and (ii) the sale of our Units in the aggregate amount of US$8.00 million at an assumed offering price of US$0.75 per share, and after deducting estimated commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of June 30, 2025 would have been US$139.37 million, or US$19.24 per Ordinary Share. This represents an immediate increase in net tangible book value of US$7.99 per Ordinary Share to our existing shareholders and an immediate dilution in net tangible book value of US$17.73 per Ordinary Share to new investors in this offering.
The following table illustrates this calculation on a per ordinary share basis. The as adjusted information is illustrative only and will adjust based on the actual price to the public, the actual number of Ordinary Shares sold and other terms of the offering determined at the time our Units are sold pursuant to this prospectus, assuming no issuance of Pre-funded Warrants and no exercise of the Warrants issued in this offering or excise of the Over-Allotment Options.
| Assumed public offering price per ordinary share | US$1.51 | |||||
| Net tangible book value per ordinary share as of June 30, 2025 | US$11.25 | |||||
| Increase in net tangible book value per ordinary share attributable to the offering | US$19.24 | |||||
| As adjusted net tangible book value per ordinary share after giving effect to the offering | US$7.99 | |||||
| Dilution per share to new investors participating in the offering | US$(17.73) |
The above discussion and table are based on 7,243,934 Ordinary Shares outstanding as of June 30, 2025.
The foregoing table does not give effect to the exercise of any outstanding options, warrants or vesting of any restricted share units or restricted shares, or conversion of any of our debt securities. To the extent options or warrants are exercised or restricted share units or restricted shares vest, or our debt securities are converted into ordinary shares, there may be further dilution to new investors.
82
Blue Hat has never declared or paid a dividend, and we do not anticipate declaring or paying dividends in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business.
We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China for our cash requirements, including any payment of dividends to our shareholders. PRC, Hong Kong and British Virgin Islands regulations may restrict the ability of our PRC, Hong Kong and British Virgin Islands subsidiaries to pay dividends to us.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of our Ordinary Shares in the public market after this offering, or the possibility of these sales occurring, could adversely affect the prevailing market prices for our Ordinary Shares and could impair our ability to raise equity capital through the sale of our equity securities in the future.
Upon completion of this firm-commitment underwritten offering and at an assumed public offering price of $0.75 per Unit (excluding the exercise of the over-allotment option and assuming no sale of any Units containing a Pre-funded Warrant), based on 36,926,284 Ordinary Shares outstanding as of February 6, 2026, we will have 47,592,950 Ordinary Shares outstanding, assuming no Pre-funded Warrants are sold in this offering, no exercise of the Warrants sold in this offering and no exercise of the over-allotment option. These Ordinary Shares will be freely tradable without restriction or further registration or qualifications under the Securities Act.
We, our directors and executive officers and holders of 5% or more of the total outstanding Ordinary Shares of the Company as of the effective date of this registration statement have agreed not to sell any Ordinary Shares for a period of six (6) months from the date of closing of this offering, subject to certain exceptions or Underwriter’s waiver by written consent. See “Underwriting” for a description of these lock-up provisions.
DESCRIPTION OF SHARES AND CERTAIN CAYMAN ISLANDS CONSIDERATIONS
We are an exempted company incorporated with limited liability under the laws of the Cayman Islands and our affairs are governed by our Third Amended and Restated Memorandum and Articles of Association, the Companies Act (as amended) of the Caymans Islands, which is referred to as the Companies Act below, and common law of the Cayman Islands. Our authorized share capital is US$500,000,000 Ordinary Shares, divided into 5,000,000,000,000,000 Ordinary Shares of US$0.0000001 par value each.
Below include summaries of material provisions of our Third Amended and Restated Memorandum and Articles of Association insofar as they relate to the material terms of our share capital. The summaries do not purport to be complete and are qualified in their entirety by reference to our Third Amended and Restated Memorandum and Articles of Association, which is filed as Exhibit 3.1 of this prospectus.
83
Ordinary Shares
All of our outstanding ordinary shares are fully paid and non-assessable.
Issuance of Shares and Changes to Capital
Our board of directors has general and unconditional authority to allot, grant options over, offer or otherwise deal with or dispose of any unissued shares in our capital without the approval of our shareholders (whether forming part of the original or any increased share capital), either at a premium or at par, with or without preferred, deferred or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise and to such persons, on such terms and conditions, and at such times as the directors may decide, but so that no share shall be issued at a discount, except in accordance with the provisions of the Companies Act. We will not issue bearer shares.
We may, subject to the provisions of the Companies Act, our third amended and restated memorandum and articles of association, the SEC and Nasdaq, from time to time by ordinary resolution: increase our capital by such sum, to be divided into shares of such amounts, as the relevant resolution shall prescribe; consolidate and divide all or any of our share capital into shares of larger amount than our existing shares; convert all or any of its paid up shares into stock and reconvert that stock into paid up shares of any denomination; sub-divide our existing shares, or any of them, into shares of smaller amounts than is fixed pursuant to our third amended and restated memorandum and articles of association; and cancel any shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person, and diminish the amount of our share capital by the amount of the shares so cancelled.
We may also, subject to the provisions of the Companies Act, our third amended and restated memorandum and articles of association, the SEC and Nasdaq: issue shares on terms that they are to be redeemed or are liable to be redeemed; purchase our own shares (including any redeemable shares); and make a payment in respect of the redemption or purchase of our own shares in any manner authorized by the Companies Act, including out of our capital.
Dividends
Subject to the Companies Act, our shareholders may, by ordinary resolution, declare dividends (including interim dividends) to be paid to our shareholders but no dividend shall be declared in excess of the amount recommended by our board of directors. Dividends may be declared and paid out of funds lawfully available to us. Except as otherwise provided by the rights attached to shares, all dividends shall be declared and paid according to the amounts paid up on the shares on which the dividend is paid. All dividends shall be paid in proportion to the number of ordinary shares a shareholder holds during any portion or portions of the period in respect of which the dividend is paid; but, if any share is issued on terms providing that it shall rank for dividend as from a particular date, that share shall rank for dividend accordingly. Our board of directors may also declare and pay dividends out of the share premium account or any other fund or account which can be authorized for this purpose in accordance with the Companies Act.
In addition, our board of directors may resolve to capitalize any undivided profits not required for paying any preferential dividend (whether or not they are available for distribution) or any sum standing to the credit of the share premium account or capital redemption reserve; appropriate the sum resolved to be capitalized to the shareholders who would have been entitled to it if it were distributed by way of dividend and in the same proportions and apply such sum on their behalf either in or towards paying up the amounts, if any, for the time being unpaid on any shares held by them respectively, or in paying up in full unissued shares or debentures of a nominal amount equal to such sum, and allot the shares or debentures credited as fully paid to those shareholders, or as they may direct, in those proportions, or partly in one way and partly in the other; resolve that any shares so allotted to any shareholder in respect of a holding by him/her of any partly-paid shares rank for dividend, so long as such shares remain partly paid, only to the extent that such partly paid shares rank for dividend; make such provision by the issue of fractional certificates or by payment in cash or otherwise as they determine in the case of shares or debentures becoming distributable in fractions; and authorize any person to enter on behalf of all our shareholders concerned in an agreement with us providing for the allotment of them respectively, credited as fully paid, of any shares or debentures to which they may be entitled upon such capitalization, any agreement made under such authority being binding on all such shareholders.
84
Voting and Meetings
As a condition of admission to a shareholders’ meeting, a shareholder must be duly registered as our shareholder at the applicable record date for that meeting and all calls or installments then payable by such shareholder to us in respect of our ordinary shares must have been paid. Subject to any special rights or restrictions as to voting then attached to any shares, at any general meeting every shareholder who is present in person or by proxy (or, in the case of a shareholder being a corporation, by its duly authorized representative not being himself or herself a shareholder entitled to vote) shall have one vote per share.
As a Cayman Islands exempted company, we are not obliged by the Companies Act to call annual general meetings. Our third amended and restated memorandum and articles of association provide that we may, but shall not (unless required by the Companies Act) be obliged to, in each year hold a general meeting as its annual general meeting. Also, the directors may, whenever they think fit, convene an extraordinary general meeting of the Company.
The Companies Act of the Cayman Islands provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our third amended and restated memorandum and articles of association provide that upon the requisition of shareholders representing not less than two-thirds of the voting rights entitled to vote at general meetings, our board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. Our third amended and restated memorandum and articles of association provide no other right to put any proposals before annual general meetings or extraordinary general meetings. Subject to regulatory requirements, our annual general meeting and any extraordinary general meetings must be called by not less than ten (10) clear days’ notice prior to the relevant shareholders meeting and convened by a notice discussed below. Alternatively, upon the prior consent of all holders entitled to attend and vote (with regards to an annual general meeting), and the holders of 95% in par value of the shares entitled to attend and vote (with regard to an extraordinary general meeting), that meeting may be convened by a shorter notice and in a manner deemed appropriate by those holders.
We will give notice of each general meeting of shareholders by publication on our website and in any other manner that we may be required to follow in order to comply with Cayman Islands law, Nasdaq and SEC requirements. The holders of registered shares may be convened for a shareholders’ meeting by means of letters sent to the addresses of those shareholders as registered in our shareholders’ register, or, subject to certain statutory requirements, by electronic means. We will observe the statutory minimum convening notice period for a general meeting of shareholders.
A quorum for a general meeting consists of any one or more persons holding or representing by proxy not less than one-third of our issued voting shares entitled to vote upon the business to be transacted.
A resolution put to the vote of the meeting shall be decided on a poll. An ordinary resolution to be passed by the shareholders requires the affirmative vote of a simple majority of the votes cast by, or on behalf of, the shareholders entitled to vote present in person or by proxy and voting at the meeting. A special resolution requires the affirmative vote of no less than two-thirds of the votes cast by the shareholders entitled to vote who are present in person or by proxy at a general meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed by all the shareholders of our company, as permitted by the Companies Act and our third amended and restated memorandum and articles of association.
85
Transfers of Shares
Subject to any applicable restrictions set forth in our third amended and restated memorandum and articles of association, any of our shareholders may transfer all or a portion of their ordinary shares by an instrument of transfer in the usual or common form or in the form prescribed by Nasdaq or in any other form which our board of directors may approve. Our board of directors may, in its absolute discretion, refuse to register a transfer of any common share that is not a fully paid up share to a person of whom it does not approve, or any common share issued under any share incentive scheme for employees upon which a restriction on transfer imposed thereby still subsists, and it may also, without prejudice to the foregoing generality, refuse to register a transfer of any common share to more than four joint holders or a transfer of any share that is not a fully paid up share on which we have a lien. Our board of directors may also decline to register any transfer of any registered common share unless: a fee of such maximum sum as Nasdaq may determine to be payable or such lesser sum as the board of directors may from time to time require is paid to us in respect thereof; the instrument of transfer is in respect of only one class of shares; the ordinary shares transferred are fully paid and free of any lien; the instrument of transfer is lodged at the registered office or such other place (i.e., our transfer agent) at which the register of shareholders is kept, accompanied by any relevant share certificate(s) and/or such other evidence as the board of directors may reasonably require to show the right of the transferor to make the transfer; and if applicable, the instrument of transfer is duly and properly stamped.
If our board of directors refuse to register a transfer, they are required, within one month after the date on which the instrument of transfer was lodged, to send to each of the transferor and the transferee notice of such refusal.
Liquidation
Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on liquidation applicable to any class or classes of shares (1) if we are wound up and the assets available for distribution among our shareholders are more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed pari passu among our shareholders in proportion to the amount paid up at the commencement of the winding up on the shares held by them, respectively, and (2) if we are wound up and the assets available for distribution among our shareholders as such are insufficient to repay the whole of the paid-up capital, those assets shall be distributed so that, as nearly as may be, the losses shall be borne by our shareholders in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up on the shares held by them, respectively.
If we are wound up, the liquidator may with the sanction of a special resolution and any other sanction required by the Companies Act, divide among our shareholders in specie the whole or any part of our assets and may, for such purpose, value any assets and determine how such division shall be carried out as between the shareholders or different classes of shareholders. The liquidator may also, with the sanction of a special resolution, vest any part of these assets in trustees upon such trusts for the benefit of our shareholders as the liquidator shall think fit, but so that no shareholder will be compelled to accept any assets, shares or other securities upon which there is a liability.
Anti-Takeover Provisions
Some provisions of our third amended and restated memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders.
Inspection of Books and Records
Holders of ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, our board of directors may determine from time to time whether our accounting records and books shall be open to the inspection of our shareholders not members of our board of directors. Such right to receive annual audited financial statements may be satisfied by filing such annual reports as we are required to file with the SEC.
86
Register of Shareholders
Under Cayman Islands law, we must keep a register of shareholders that includes: the names and addresses of the shareholders, a statement of the shares held by each member, and of the amount paid or agreed to be considered as paid, on the shares of each member; the date on which the name of any person was entered on the register as a member; and the date on which any person ceased to be a member.
Exempted Company
We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. An exempted company:
| ● | does not have to file an annual return of its shareholders with the Registrar of Companies; | |
| ● | is not required to open its register of members for inspection; |
| ● | does not have to hold an annual general meeting; | |
| ● | may issue shares with no par value; | |
| ● | may obtain an undertaking against the imposition of any future taxation; | |
| ● | may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; | |
| ● | may register as a limited duration company; and | |
| ● | may register as a segregated portfolio company. |
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the Company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
Preferred Shares
Our board of directors is empowered to designate and issue from time to time one or more classes or series of preferred shares and to fix and determine the relative rights, preferences, designations, qualifications, privileges, options, conversion rights, limitations and other special or relative rights of each such class or series so authorized. Such action could adversely affect the voting power and other rights of the holders of our ordinary shares or could have the effect of discouraging any attempt by a person or group to obtain control of us.
The Cayman Islands Companies Act (as amended) is modeled after the corporate legislation of the United Kingdom but does not follow recent United Kingdom statutory enactments, and differs from laws applicable to United States corporations and their shareholders. For a summary of significant differences between the provisions of the Companies Act (as amended) applicable to us and the laws applicable to companies incorporated in the United States (particularly Delaware) and their shareholders, please refer to “Description of Securities” incorporated by reference as Exhibit 2.1 of this prospectus for additional information on the standard of corporate governance under Cayman Islands law.
87
DESCRIPTION OF THE SECURITIES WE ARE OFFERING
We are offering Units, each Unit consists of one Ordinary Share and one Warrant, at an assumed public offering price of $0.75 per Unit, based upon the closing price of our Ordinary Shares on the Nasdaq Capital Market on February 6, 2026. We will not issue any fractional Warrants in this offering and will round down the number of Warrants any purchaser of Units would otherwise receive to the nearest whole number.
Each Warrant will be immediately exercisable for one Ordinary Share at an assumed exercise price of $0.75 per share (100% of the public offering price of each Unit sold in this offering) and expire one (1) year after the issuance date, with certain exercise price reset mechanism and zero cash exercise option. Please see “Warrant and Pre-funded Warrants” below for more detailed descriptions.
We are also offering to each purchaser whose purchase of Units would otherwise result in the purchaser’s, together with its affiliates, beneficial ownership exceeding 4.99% (or, at the election of the purchaser, up to 9.99%) of our outstanding Ordinary Shares immediately following the consummation of this offering, the opportunity to purchase Units consisting of one Pre-funded Warrant and one Warrant. Each Pre-funded Warrant will be exercisable for one Ordinary Share. Subject to limited exceptions, a holder of Pre-funded Warrants will not have the right to exercise any portion of its Pre-funded Warrants if the holder, together with its affiliates, would beneficially own in excess of 4.99% (or, at the election of the holder, up to 9.99%) of the number of Ordinary Shares outstanding immediately after giving effect to such exercise. The purchase price of each Unit including a Pre-funded Warrant will be equal to the price per Unit including one Ordinary Share, minus $0.01, and the exercise price of each Pre-funded Warrant will be $0.01 per Ordinary Share. The Pre-funded Warrants will be immediately exercisable (subject to the beneficial ownership cap) and may be exercised at any time until all of the Pre-funded Warrants are exercised in full. For each Unit including a Pre-funded Warrant we sell, the number of Units including one Ordinary Share that we are offering will be decreased on a one-for-one basis. The Ordinary Shares and Pre-funded Warrants, if any, can each be purchased in this offering only with the accompanying Warrant as part of a Unit, but the components of the Units will immediately separate upon issuance.
We are also registering the Ordinary Shares issuable from time to time upon exercise of the Warrants and Pre-funded Warrants included in the Units offered hereby. Our Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The Ordinary Shares (or Pre-funded Warrants) and the Class B Warrants comprising our Units are immediately separable and will be issued separately in this offering.
Warrants and Pre-funded Warrants
The following summary of certain terms and provisions of the Warrants and Pre-funded Warrants offered hereby is not complete and is subject to, and qualified in its entirety by, the provisions of the form of Warrant and form of Pre-funded Warrant, which are filed as exhibits to the registration statement of which this prospectus forms a part. Prospective investors should carefully review the terms and provisions set forth in the form of Warrant and form of Pre-funded Warrant. The Warrants and Pre-funded Warrants will be issued in certificated form only.
Exercisability. The Pre-funded Warrants are exercisable at any time after their original issuance until they are exercised in full. The Warrants are immediately exercisable at any time after their issuance and at any time up to the date that is one (1) year after their issuance. Each of the Warrants and the Pre-funded Warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice with payment in full in immediately available funds for the number of Ordinary Shares purchased upon such exercise (except in the case of a cashless exercise or zero cash exercise, as discussed below). We may be required to pay certain amounts as liquidated damages as specified in the Warrants in the event we do not deliver Ordinary Shares upon exercise of the Warrants within the time periods specified in the Warrants. No fractional Ordinary Shares will be issued in connection with the exercise of a Warrant and will round down the number of Ordinary Shares such holder would otherwise receive upon exercise of the Warrants to the nearest whole number.
88
Cashless Exercise and Zero Cash Exercise. The holder may, in its sole discretion, elect to exercise the Pre-funded Warrant through a cashless exercise, in which case the holder would receive upon such exercise the net number of Ordinary Shares determined according to the formula set forth in the Pre-funded Warrant. If a registration statement registering the issuance of the Ordinary Shares underlying the Warrants under the Securities Act is not effective or available, the holder may, in its sole discretion, elect to exercise the Warrant through a cashless exercise, in which case the holder would receive upon such exercise the net number of Ordinary Shares determined according to the formula set forth in the Warrant.
A holder of the Warrant may also provide notice and elect to exercise the Warrant by way of a zero cash exercise option pursuant to which they would receive, for no additional cash consideration, an aggregate number of Ordinary Shares equal to the product of (x) the aggregate number of Ordinary Shares that would be issuable upon a cash exercise of the Warrant and (y) 2.
Exercise Limitation. A holder will not have the right to exercise any portion of the Pre-funded Warrants or Warrants if the holder (together with its affiliates) would beneficially own in excess of 4.99% (or, upon election of the holder prior to the issuance of any warrants, up to 9.99%) of the number of shares of our Ordinary Shares outstanding immediately after giving effect to the exercise, as such percentage ownership is determined in accordance with the terms of the warrants. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, upon at least 61 days’ prior notice from the holder to us with respect to any increase in such percentage.
Exercise Price. The exercise price for the Pre-funded Warrants is $0.0001 per Ordinary Share. Each Warrant offered hereby will have an initial exercise price per Ordinary Share equal to the per Unit purchase price (the “Basis Price”). The exercise price for the Warrants will be adjusted downward (each, a “Reset Price”) on each of the 2nd and 5th trading day (each, a “Reset Date”) following the closing of this offering to the price that is equal to 70% and 50%, respectively, of the Basis Price. If the exercise price is so adjusted on a Reset Date, the number of Ordinary Shares underlying the Warrants will also be proportionally increased on each such Reset Date so that the applicable Reset Price multiplied by the increased number of Ordinary Shares equal the aggregate proceeds that would have resulted from the full exercise of the Warrants immediately prior to the applicable Reset Date. The exercise price and number of Ordinary Shares issuable upon exercise are subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations or similar events affecting our Ordinary Shares. For the avoidance of doubt, the lower that the stock price of our Ordinary Shares is on the First Reset Date and Second Reset Date, as applicable, the more shares that will be issuable pursuant to the Warrants as a result of the each reset, subject to the floor price of 20% of the Nasdaq Minimum Price on the date preceding execution of the underwriting agreement, which will not be more than the per unit offering price as it relates to the First Reset and the floor price of 20% of the Nasdaq Minimum Price on the date preceding execution of the underwriting agreement as it relates to the Second Reset.
Transferability. Subject to applicable laws, the Warrants and Pre-funded Warrants may be offered for sale, sold, transferred or assigned without our consent.
Exchange Listing. We do not intend to list the Warrants or the Pre-funded Warrants offered in this offering on any securities exchange or other trading market. Without an active trading market, the liquidity of these securities will be limited.
Rights as a Shareholder. Except as otherwise provided in the Warrants or the Pre-funded Warrants or by virtue of such holder’s ownership of our Ordinary Shares, the holder of a Warrant or Pre-funded Warrant does not have the rights or privileges of a holder of our Ordinary Shares, including any voting rights, until the issuance of Ordinary Shares upon exercise of the warrant.
Fundamental Transactions. In the event of a fundamental transaction, as described in the Warrants and the Pre-funded Warrants and generally including, with certain exceptions, any reorganization, recapitalization or reclassification of our Ordinary Shares, the sale, transfer or other disposition of all or substantially all of our properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding Ordinary Shares or 50% of the voting power represented by our outstanding Ordinary Shares, the holders of the Warrants and the Pre-funded Warrants will be entitled to receive upon exercise of the warrants the kind and amount of securities, cash or other property that the holders would have received had they exercised the warrants immediately prior to such fundamental transaction.
Governing Law. The Pre-funded Warrants and the Warrants are governed by New York law.
89
The following summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our securities is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our securities, such as the tax consequences under U.S. state and local tax laws or under the tax laws of jurisdictions other than the Cayman Islands, the PRC and the United States.
Material U.S. Federal Income Tax Considerations for U.S. Holders
The following discussion describes the material U.S. federal income tax consequences relating to the purchase, ownership and disposition of our securities by U.S. Holders (as defined below). This discussion applies to U.S. Holders that purchase our securities and hold such securities as capital assets. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, U.S. Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as in effect on the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion does not address all of the U.S. federal income tax consequences that may be relevant to specific U.S. Holders in light of their particular circumstances or to U.S. Holders subject to special treatment under U.S. federal income tax law (such as certain financial institutions, insurance companies, dealers or traders in securities or other persons that generally mark their securities to market for U.S. federal income tax purposes, tax-exempt entities or governmental organizations, retirement plans, regulated investment companies, real estate investment trusts, grantor trusts, brokers, dealers or traders in securities, commodities, currencies or notional principal contracts, certain former citizens or long-term residents of the United States, persons who hold our securities as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or integrated investment, persons that have a “functional currency” other than the U.S. dollar, persons that own directly, indirectly or through attribution 10% or more of the voting power of our ordinary shares, corporations that accumulate earnings to avoid U.S. federal income tax, partnerships and other pass-through entities, and investors in such pass-through entities). This discussion does not address any U.S. state or local or non-U.S. tax consequences or any U.S. federal estate, gift or alternative minimum tax consequences.
As used in this discussion, the term “U.S. Holder” means a beneficial owner of our securities who is, for U.S. federal income tax purposes, (1) an individual who is a citizen or resident of the United States, (2) a corporation (or entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia, (3) an estate the income of which is subject to U.S. federal income tax regardless of its source or (4) a trust (x) with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of its substantial decisions or (y) that has elected under applicable U.S. Treasury regulations to be treated as a domestic trust for U.S. federal income tax purposes.
If an entity treated as a partnership for U.S. federal income tax purposes holds our securities, the U.S. federal income tax consequences relating to an investment in our securities will depend in part upon the status and activities of such entity and the particular partner. Any such entity should consult its own tax advisor regarding the U.S. federal income tax consequences applicable to it and its partners of the purchase, ownership and disposition of our securities.
Persons considering an investment in our securities should consult their own tax advisors as to the particular tax consequences applicable to them relating to the purchase, ownership and disposition of our securities including the applicability of U.S. federal, state and local tax laws and non-U.S. tax laws.
Tax Treatment of the Pre-Funded Warrants
We intend to treat our Pre-funded Warrants as a class of our ordinary shares for U.S. federal income tax purposes. However, our position is not binding on IRS and the IRS may treat the Pre-funded Warrants as warrants to acquire our ordinary shares. Accordingly, you should consult your tax adviser regarding the U.S. federal tax consequences of an investment in the Pre-funded Warrants. The following discussion assumes our Pre-funded Warrants are properly treated as a class of our ordinary shares.
Exercise or Expiration of Pre-Funded Warrants and Warrants
No gain or loss will be realized on the exercise of a Pre-funded Warrant or Warrant. When a Pre-funded Warrant or Warrant is exercised, the U.S. Holder’s cost of the ordinary share acquired thereby will be equal to the U.S. Holder’s adjusted cost basis of the Pre-funded Warrant and Warrant plus the exercise price paid for the ordinary share. The holding period of the ordinary share acquired through the exercise of a Pre-Funded Warrant will include the holding period of the Pre-funded Warrant. However, a U.S. Holder’s holding period for an ordinary share received upon exercise of the Warrant will begin on the date following the date of exercise (or possibly the date of exercise) of the Warrant and will not include the period during which the U.S. Holder held the Warrant.
The expiration of an unexercised Pre-funded Warrant and Warrant will generally give rise to a capital loss equal to the adjusted cost basis to the U.S. Holder of the expired Pre-funded Warrant and Warrant.
90
The tax consequences of a cashless exercise of a Warrant are not clear under current tax law. Subject to the PFIC rules discussed under “— Passive Foreign Investment Company Consequences” below, a cashless exercise may be tax-deferred, either because the exercise is not a gain realization event or because the exercise is treated as a recapitalization for U.S. federal income tax purposes. In either situation, a U.S. Holder’s basis in the ordinary shares received would equal the holder’s basis in the Warrants exercised therefor. If the cashless exercise were treated as not being a gain realization event, a U.S. Holder’s holding period in the ordinary shares would be treated as commencing on the date following the date of exercise (or possibly the date of exercise) of the Warrants. If the cashless exercise were treated as a recapitalization, the holding period of the ordinary shares would include the holding period of the Warrants exercised therefor.
It is also possible that a cashless exercise of a Warrant could be treated in part as a taxable exchange in which gain or loss would be recognized in the manner set forth under “— Sale, Exchange or Other Disposition of Our Ordinary Shares.” In such event, a U.S. Holder could be deemed to have surrendered Warrants having an aggregate fair market value equal to the exercise price for the total number of Warrants to be exercised. Subject to the discussion below under “— Passive Foreign Investment Company Consequences”, the U.S. Holder would recognize capital gain or loss with respect to the Warrants deemed surrendered in an amount generally equal to the difference between (i) the fair market value of the ordinary shares that would have been received in a regular exercise of the Warrants deemed surrendered, net of the aggregate exercise price of such Warrants and (ii) the U.S. Holder’s tax basis in such Warrants. In this case, a U.S. Holder’s aggregate tax basis in the ordinary shares received would equal the sum of (i) such U.S. Holder’s tax basis in the Warrants deemed exercised and (ii) the aggregate exercise price of such Warrants. A U.S. Holder’s holding period for the ordinary shares received in such case generally would commence on the date following the date of exercise (or possibly the date of exercise) of the Warrants and will not include the period during which the U.S. Holder held the Warrants.
Due to the absence of authority on the U.S. federal income tax treatment of a cashless exercise of warrants, including when a U.S. Holder’s holding period would commence with respect to the ordinary share received, there can be no assurance regarding which, if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a court of law. Accordingly, U.S. Holders should consult their tax advisors regarding the tax consequences of a cashless exercise of Warrants.
Possible Effect of the Reset Price
For U.S. federal income tax purposes, U.S. Holders of Warrants may be treated as having received a constructive distribution, resulting in ordinary income to the extent of our current or accumulated earnings and profits as a result of the Reset Price, whether or not the U.S. Holder ever exercises the Warrant. Generally, a U.S. Holder’s tax basis in a Warrant will be increased by the amount of any such constructive distribution. The rules with respect to warrant adjustments are complex and U.S. Holders should consult their own tax advisers regarding the applicability of such rules.
Allocation of Purchase Price and Tax Basis
For United States federal income and other applicable tax purposes, each purchaser of Units in this offering must allocate its purchase price between each component (i.e. the shares of ordinary shares and Warrants) based on the relative fair market value of each at the time of issuance. These allocated amounts will be the U.S. Holder’s tax basis in each component. Because each investor must make its own determination of the relative value of each component of the Units, we urge each investor to consult their tax advisor in connection with this analysis.
Passive Foreign Investment Company Consequences
In general, a corporation organized outside the United States will be treated as a PFIC for any taxable year in which either (1) at least 75% of its gross income is “passive income” (the “PFIC income test”), or (2) on average at least 50% of its assets, determined on a quarterly basis, are assets that produce passive income or are held for the production of passive income (the “PFIC asset test”). Passive income for this purpose generally includes, among other things, dividends, interest, royalties, rents, and gains from the sale or exchange of property that gives rise to passive income. Assets that produce or are held for the production of passive income generally include cash, even if held as working capital or raised in a public offering, marketable securities, and other assets that may produce passive income. Generally, in determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account.
Although PFIC status is determined on an annual basis and generally cannot be determined until the end of a taxable year, based on the nature of our current and expected income and the current and expected value and composition of our assets, we do not presently expect to be a PFIC for our current taxable year or the foreseeable future. However, there can be no assurance given in this regard because the determination of whether we are or will become a PFIC is a fact-intensive inquiry made on an annual basis that depends, in part, upon the composition of our income and assets. In addition, there can be no assurance that the IRS will agree with our conclusion or that the IRS would not successfully challenge our position.
91
If we are a PFIC in any taxable year during which a U.S. Holder owns our ordinary shares, the U.S. Holder could be liable for additional taxes and interest charges under the “PFIC excess distribution regime” upon (1) a distribution paid during a taxable year that is greater than 125% of the average annual distributions paid in the three preceding taxable years, or, if shorter, the U.S. Holder’s holding period for our ordinary shares , and (2) any gain recognized on a sale, exchange or other disposition, including a pledge, of our ordinary shares, whether or not we continue to be a PFIC. Under the PFIC excess distribution regime, the tax on such distribution or gain would be determined by allocating the distribution or gain ratably over the U.S. Holder’s holding period for our ordinary shares. The amount allocated to the current taxable year (i.e., the year in which the distribution occurs or the gain is recognized) and any year prior to the first taxable year in which we are a PFIC will be taxed as ordinary income earned in the current taxable year. The amount allocated to other taxable years will be taxed at the highest marginal rates in effect for individuals or corporations, as applicable, to ordinary income for each such taxable year, and an interest charge, generally applicable to underpayments of tax, will be added to the tax.
If we are a PFIC for any year during which a U.S. Holder holds our ordinary shares, we must generally continue to be treated as a PFIC by that holder for all succeeding years during which the U.S. Holder holds such ordinary shares, unless we cease to meet the requirements for PFIC status and the U.S. Holder makes a “deemed sale” election with respect to our ordinary shares. If the election is made, the U.S. Holder will be deemed to sell our ordinary shares it holds at their fair market value on the last day of the last taxable year in which we qualified as a PFIC, and any gain recognized from such deemed sale would be taxed under the PFIC excess distribution regime. After the deemed sale election, the U.S. Holder’s ordinary shares would not be treated as shares of a PFIC unless we subsequently become a PFIC.
If we are a PFIC for any taxable year during which a U.S. Holder holds our ordinary shares and one of our non-United States subsidiaries is also a PFIC (i.e., a lower-tier PFIC), such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC and would be taxed under the PFIC excess distribution regime on distributions by the lower-tier PFIC and on gain from the disposition of shares of the lower- tier PFIC even though such U.S. Holder would not receive the proceeds of those distributions or dispositions. Any of our non-United States subsidiaries that have elected to be disregarded as entities separate from us or as partnerships for U.S. federal income tax purposes would not be corporations under U.S. federal income tax law and accordingly, cannot be classified as lower-tier PFICs. However, non-United States subsidiaries that have not made the election may be classified as a lower-tier PFIC if we are a PFIC during your holding period and the subsidiary meets the PFIC income test or PFIC asset test. Each U.S. Holder is advised to consult its tax advisors regarding the application of the PFIC rules to any of our non-United States subsidiaries.
If we are a PFIC, a U.S. Holder will not be subject to tax under the PFIC excess distribution regime on distributions or gain recognized on our ordinary shares if a valid “mark-to-market” election is made by the U.S. Holder for our ordinary shares. An electing U.S. Holder generally would take into account as ordinary income each year, the excess of the fair market value of our ordinary shares held at the end of such taxable year over the adjusted tax basis of such ordinary shares. The U.S. Holder would also take into account, as an ordinary loss each year, the excess of the adjusted tax basis of such ordinary shares over their fair market value at the end of the taxable year, but only to the extent of the excess of amounts previously included in income over ordinary losses deducted as a result of the mark-to-market election. The U.S. Holder’s tax basis in our ordinary shares would be adjusted to reflect any income or loss recognized as a result of the mark-to-market election. Any gain from a sale, exchange or other disposition of our ordinary shares in any taxable year in which we are a PFIC would be treated as ordinary income and any loss from such sale, exchange or other disposition would be treated first as ordinary loss (to the extent of any net mark-to-market gains previously included in income) and thereafter as capital loss. If, after having been a PFIC for a taxable year, we cease to be classified as a PFIC because we no longer meet the PFIC income or PFIC asset test, the U.S. Holder would not be required to take into account any latent gain or loss in the manner described above and any gain or loss recognized on the sale or exchange of the ordinary shares would be classified as a capital gain or loss.
A mark-to-market election is available to a U.S. Holder only for “marketable stock.” Generally, stock will be considered marketable stock if it is “regularly traded” on a “qualified exchange” within the meaning of applicable U.S. Treasury regulations. A class of stock is regularly traded during any calendar year during which such class of stock is traded, other than in de minimis quantities, on at least 15 days during each calendar quarter.
92
Our ordinary shares are marketable stock as long as they remain listed on the Nasdaq Capital Market and are regularly traded. A mark-to-market election will not be available for the Pre-Funded Warrants or the Warrants and will not apply to the ordinary shares for any taxable year during which we are not a PFIC, but will remain in effect with respect to any subsequent taxable year in which we become a PFIC. Such election will not apply to any of our non-U.S. subsidiaries. Accordingly, a U.S. Holder may continue to be subject to tax under the PFIC excess distribution regime with respect to the Pre-Funded Warrants and the Warrants and with respect to any lower-tier PFICs notwithstanding the U.S. Holder’s mark-to-market election for the ordinary shares.
The tax consequences that would apply if we are a PFIC would also be different from those described above if a U.S. Holder were able to make a valid qualified electing fund, or “QEF”, election. As we do not expect to provide U.S. Holders with the information necessary for a U.S. Holder to make a QEF election, prospective investors should assume that a QEF election will not be available.
In addition, non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC in the taxable year in which the dividends are paid or in the preceding taxable year. A U.S Holder will generally be required to file IRS Form 8621 if a U.S. Holder holds Units in any year in which we are classified as a PFIC.
The U.S. federal income tax rules relating to PFICs are very complex. U.S. Holders and prospective U.S. investors are strongly urged to consult their own tax advisors with respect to the impact of PFIC status on the purchase, ownership and disposition of our securities, the consequences to them of an investment in a PFIC, any elections available with respect to the ordinary shares and the IRS information reporting obligations with respect to the purchase, ownership and disposition of ordinary shares of a security.
Distributions
Subject to the discussion above under “- Passive Foreign Investment Company Consequences,” a U.S. Holder that receives a distribution with respect to our ordinary shares generally will be required to include the gross amount of such distribution (including any amounts withheld to reflect PRC withholding taxes) in gross income as a dividend when actually or constructively received to the extent of the U.S. Holder’s pro rata share of our current and/or accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent a distribution received by a U.S. Holder is not a dividend because it exceeds the U.S. Holder’s pro rata share of our current and accumulated earnings and profits, it will be treated first as a tax-free return of capital and reduce (but not below zero) the adjusted tax basis of the U.S. Holder’s ordinary shares. To the extent the distribution exceeds the adjusted tax basis of the U.S. Holder’s ordinary shares, the remainder will be taxed as capital gain. Because we may not account for our earnings and profits in accordance with U.S. federal income tax principles, U.S. Holders should expect all distributions to be taxable to them as dividends.
Distributions on our ordinary shares will not be eligible for the “dividends received’’ deduction generally allowed to corporate shareholders with respect to dividends received from U.S. corporations. Dividends paid by a “qualified foreign corporation” to certain non-corporate U.S. Holders are eligible for taxation at a reduced capital gains rate rather than the marginal tax rates generally applicable to ordinary income provided that a holding period requirement (more than 60 days of ownership, without protection from the risk of loss, during the 121- day period beginning 60 days before the ex-dividend date) and certain other requirements are met. A foreign corporation is treated as a qualified foreign corporation with respect to dividends received from that corporation on ordinary shares that are readily tradable on an established securities market in the United States. United States Treasury Department guidance indicates that our ordinary shares (which are listed on the Nasdaq Capital Market) are readily tradable on an established securities market in the United States. Thus, we believe that any dividends we pay on our ordinary shares will be eligible for these reduced tax rates. A qualified foreign corporation also includes a foreign corporation that is eligible for the benefits of certain income tax treaties with the United States. In the event that we were deemed to be a PRC resident enterprise under the EIT Law, although no assurance can be given, we might be eligible for the benefits of the income tax treaty between the United States and the PRC, which is hereinafter referred to as the Treaty, and if we were eligible for such benefits, dividends we pay on our ordinary shares would be eligible for the reduced rates of taxation. Each U.S. Holder is advised to consult its tax advisors regarding the availability of the reduced tax rate on dividends to its particular circumstances.
If we are a PFIC for the taxable year in which the dividend is paid or the preceding taxable year (see discussion above under “- Passive Foreign Investment Company Consequences’’), we will not be treated as a qualified foreign corporation, and therefore the reduced capital gains tax rate described above will not apply.
93
In the event that we were deemed to be a PRC resident enterprise under the EIT Law, a U.S. Holder might be subject to PRC withholding taxes on dividends paid with respect to the ordinary shares. See “PRC” discussion below. In that case, subject to certain conditions and limitations, PRC withholding taxes on dividends would be treated as foreign taxes eligible for credit against a U.S. Holder’s United States federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the ordinary shares will be treated as foreign-source income and will generally constitute passive category income. However, in certain circumstances, if a U.S. Holder has held the ordinary shares for less than a specified minimum period during which such holder is not protected from risk of loss, or the U.S. Holder is obligated to make payments related to the dividends, such U.S. Holder will not be allowed a foreign tax credit for any PRC withholding taxes imposed on dividends paid on the ordinary shares. If a U.S. Holder is eligible for Treaty benefits, any PRC taxes on dividends will not be creditable against a U.S. Holder’s United States federal income tax liability to the extent withheld at a rate exceeding the applicable Treaty rate. The rules governing the foreign tax credit are complex. Each U.S. Holder is advised to consult its tax advisors regarding the availability of the foreign tax credit under its particular circumstances.
The amount of any dividend income paid in Cayman Islands dollars will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of receipt, regardless of whether the payment is in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in respect to the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt.
Sale, Exchange or Other Disposition of Our Ordinary Shares
Subject to the discussion above under “- Passive Foreign Investment Company Consequences,’’ a U.S. Holder generally will recognize capital gain or loss for U.S. federal income tax purposes upon the sale, exchange or other disposition of our ordinary shares in an amount equal to the difference, if any, between the amount realized (i.e., the amount of cash plus the fair market value of any property received) on the sale, exchange or other disposition and such U.S. Holder’s adjusted tax basis in the ordinary shares. Such capital gain or loss generally will be long-term capital gain taxable at a reduced rate for non-corporate U.S. Holders or long-term capital loss if, on the date of sale, exchange or other disposition, the ordinary shares were held by the U.S. Holder for more than one year. Any capital gain of a non-corporate U.S. Holder that is not long-term capital gain is taxed at ordinary income rates. The deductibility of capital losses is subject to limitations. Any gain or loss recognized from the sale or other disposition of our ordinary shares will generally be gain or loss from sources within the United States for U.S. foreign tax credit purposes.
Medicare Tax
Certain U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds generally are subject to a 3.8% tax on all or a portion of their net investment income, which may include their gross dividend income and net gains from the disposition of our ordinary shares. U.S. Holders that are individuals, estates or trusts are encouraged to consult their tax advisors regarding the applicability of this Medicare tax to income and gains with respect to their investment in our ordinary shares.
Information Reporting and Backup Withholding
U.S. Holders may be required to file certain U.S. information reporting returns with the IRS with respect to an investment in our ordinary shares, including, among others, IRS Form 8938 (Statement of Specified Foreign Financial Assets). As described above under “Passive Foreign Investment Company Consequences”, each U.S. Holder who is a shareholder of a PFIC must file an annual report containing certain information. U.S. Holders paying more than $100,000 for our ordinary shares may be required to file IRS Form 926 (Return by a U.S. Transferor of Property to a Foreign Corporation) reporting this payment. Substantial penalties may be imposed upon a U.S. Holder that fails to comply with the required information reporting. U.S. Holders and prospective investors should consult their own tax advisors regarding information reporting requirements relating to a U.S. Holder’s ownership of the ordinary shares.
Dividends on and proceeds from the sale or other disposition of our ordinary shares will be reported to the IRS unless the U.S. Holder establishes a basis for exemption. Backup withholding may apply to amounts subject to reporting if the U.S. Holder (1) fails to provide an accurate U.S. taxpayer identification number or otherwise establish a basis for exemption, or (2) in the case of a dividend payment, fails to report in full dividend and interest income. However, U.S. Holders that are corporations generally are excluded from these information reporting and backup withholding tax rules.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against a U.S. Holder’s U.S. federal income tax liability if the required information is furnished by the U.S. Holder on a timely basis to the IRS.
U.S. Holders and prospective investors should consult their own tax advisors regarding the backup withholding tax and information reporting rules.
94
U.S. HOLDERS AND PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS ABOUT THE TAX CONSEQUENCES TO THEM OF AN INVESTMENT IN OUR SECURITIES IN LIGHT OF THEIR INDIVIDUAL CIRCUMSTANCES.
Cayman Taxation
Holders and prospective investors should consult their professional advisers on the possible tax consequences of buying, holding or selling any ordinary shares under the laws of their country of citizenship, residence or domicile.
The following is a discussion on certain Cayman Islands income tax consequences of an investment in our ordinary shares. The discussion is a general summary of present law, which is subject to prospective and retroactive change. It is not intended as tax advice, does not consider any investor’s particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands law.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands. There are no exchange control regulations or currency restrictions in the Cayman Islands.
We are incorporated under the laws of the Cayman Islands as an exempted company with limited liability and, as such, we have obtained an undertaking from the Governor of the Cayman Islands that no law enacted in the Cayman Islands during the period of 30 years on November 16, 2018 imposing any tax to be levied on profits, income, gains or appreciations shall apply to us or our operations and no such tax or any tax in the nature of estate duty or inheritance tax shall be payable (directly or by way of withholding) on the ordinary shares, debentures or other obligations of ours.
Except for stamp duties which may be applicable on instruments executed in or brought within the jurisdiction of the Cayman Islands, no stamp duty, capital duty, registration or other issue or documentary taxes are payable in the Cayman Islands on the creation, issuance or delivery of the ordinary shares. The Cayman Islands currently have no form of income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax. There are currently no Cayman Islands’ taxes or duties of any nature on gains realized on a sale, exchange, conversion, transfer or redemption of the ordinary shares. Payments of dividends and capital in respect of the ordinary shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of interest and principal or a dividend or capital to any holder of the ordinary shares, nor will gains derived from the disposal of the ordinary shares be subject to Cayman Islands income or corporation tax as the Cayman Islands currently have no form of income or corporation taxes.
PRC
Under the Enterprise Income Tax Law, an enterprise established outside the PRC with a “de facto management body” within the PRC is considered a PRC resident enterprise for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income as well as tax reporting obligations, if the company obtains a “high-tech enterprise” tax status, then its statutory income tax rate will be lowered to 15%. Under the Implementation Rules, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise.
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside China with “de facto management body” within China is considered a resident enterprise. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation issued a circular, known as Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the State Administration of Taxation’s general position on how the “de facto management body” text should be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in China; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in China; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in China; and (iv) at least 50% of voting board members or senior executives habitually reside in China.
95
We are offering 10,666,666 Units, each Unit consisting of one Ordinary Share, or one Pre-Funded Warrant to purchase one Ordinary Share in lieu thereof, and one Warrant, each to purchase one Ordinary Share. The assumed purchase price of each Unit including one Ordinary Share is US$0.75 per Unit, which is the reference reported sale price of our Ordinary Share, as reported on the Nasdaq Capital Market on February 6, 2026. The purchase price of each Unit including a Pre-funded Warrant will be equal to the price per Unit including one Ordinary Share, minus $0.0001, and the exercise price of each Pre-funded Warrant will be $0.0001 per Ordinary Share. The offering is being underwritten on a firm commitment basis. We are registering our Ordinary Shares issuable from time to time upon exercise of the Pre-Funded Warrants and Warrants included in the Units offered hereby. Our Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The Ordinary Shares and/or the Pre-Funded Warrants and Warrants comprising our Units are immediately separable and will be issued separately in this offering.
In connection with this offering, we have entered into an underwriting agreement with Maxim Group LLC (“Maxim” or the “Underwriter”) with respect to the Units in this offering. Under the terms and subject to the conditions contained in the underwriting agreement, the Underwriter has agreed to purchase, and we have agreed to sell to the Underwriter, the number of Units listed next to their name in the following table.
| Underwriter | Number of Units | |||
| Maxim Group LLC | ||||
| Total | ||||
The Underwriter is committed to purchase all of the Units offered by this prospectus if it purchases any Units. The Underwriter is not obligated to purchase securities covered by the underwriter’s over-allotment option to purchase securities as described below. The Underwriter is offering the Units, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, and other conditions contained in the underwriting agreement, such as they receipt by the underwriter of officer’s certificates and legal opinions. The underwriter reserves the right to withdraw, cancel or modify offers to the public and reject orders in whole or in part.
Over-Allotment Option
We have granted the Underwriter an over-allotment option. This option, which is exercisable for up to fifteen (15) days after the closing of this offering, permits the Underwriter to purchase a maximum of 1,599,999 additional Units, which includes up to 1,599,999 additional Ordinary Shares or Pre-funded Warrants each to purchase one Ordinary Shares and/or 1,599,999 additional Warrants, each to purchase one Ordinary Share. The option may be used to purchase such Ordinary Shares or Pre-funded Warrants and Warrants, or any combination thereof, as determined by the Underwriter. If the Underwriter exercises all or part of this option, it will purchase securities covered by the option at the public offering price that appears on the cover page of this prospectus, less underwriting discounts and commissions.
Discounts and Expenses
We have agreed to pay the Underwriter a fee equal to seven percent (7%) of the gross proceeds of this offering. The following table shows the underwriting discounts payable to the Underwriter, assuming an offering price of $0.75 per Unit (the reference reported sale price of our Ordinary Share, as reported on the Nasdaq Capital Market on February 6, 2026):
| Per Unit Consisting of One Common Share and One Warrant | Per Unit Consisting of One Pre-funded Warrant and One Warrant | Total | ||||||||||
| Public offering price(1) | $ | $ | ||||||||||
| Underwriting discounts and commissions(2) | $ | $ | ||||||||||
| Proceeds, before expenses, to us(3) | $ | $ | ||||||||||
96
We have also agreed to reimburse the Underwriter up to a maximum of $100,000 in the event of a closing of this event, or of 50,000 in the event that there is not a closing, for out-of-pocket accountable expenses, including legal fees, cost and expenses incurred by the Underwriter in connection with the performance of their services.
Indemnification
We have agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the placement agency agreement, or to contribute to payments that the Underwriter may be required to make in respect of those liabilities.
Discretionary Accounts
The underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.
Lock-Up Agreements
Each of our directors and executive officers and any other holder(s) of five percent (5%) or more of the outstanding shares of Ordinary Share of the Company as of the effective date of the registration statement related to this offering have agreed to a six (6) months “lock-up” period from the closing of this offering with respect to the Ordinary Shares that they beneficially own. This means that, for a period of six (6) months following the closing of the offering, such persons may not offer, issuer, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any of our securities without the prior written consent of the Underwriter, including the issuance of shares upon the exercise of currently outstanding options approved by the Underwriter. We have also agreed to similar restrictions on the issuance, sale, disposal and registration (subject to certain exceptions) of our securities for six (6) months following the closing of this offering, subject to certain customary exceptions, without the prior written consent of the Underwriter.
The Underwriter has no present intention to waive or shorten the lock-up period; however, the terms of the lock-up agreements may be waived at its discretion. In determining whether to waive the terms of the lock-up agreements, the Underwriter may base its decision on its assessment of the relative strengths of the securities markets and companies similar to ours in general, and the trading pattern of, and demand for, our securities in general.
Right of First Refusal
We have agreed that for a period of six (6) months from the closing of this offering, the Underwriter will have a right of first refusal to act as sole managing underwriter and sole book runner, sole placement agent, or sole sales agent, for any and all future public or private equity, equity-linked or debt (excluding commercial bank debt) offerings for which the Company retains the service of an underwriter, agent, advisor, finder or other person or entity in connection with such offering during such six (6)months period of the Company, or any successor to or any subsidiary of the Company; provided, however, that such right shall be subject to FINRA Rule 5110(f)(2). In addition, we shall not offer to retain any entity or person in connection with any such offering on terms more favorable than terms on which it offers to retain the Underwriter. Such offer shall be made in writing in order to be effective. The Underwriter shall notify the Company within ten (10) business days of its receipt of the written offer contemplated above as to whether or not it agrees to accept such retention. If the Underwriter should decline such retention, the Company shall have no further obligations to Underwriter with respect to the offering for which it has offered to retain Underwriter, except as otherwise provided for herein.
In addition, we have agreed, until the effectiveness of the registration statement in connection with this offering, not to negotiate with any other broker-dealer relating to a possible private and/or public offering of our securities without the written consent of the Underwriter. We further have agreed that if the Company determines that it shall proceed with an alternative offering (registered or unregistered) of its equity securities or reverse merger (“Alternative Transaction”), then Maxim’s exclusivity as set forth in this engagement letter shall still apply, and Maxim shall act as the Company’s exclusive underwriter, agent or advisor with respect to such Alternative Transaction.
97
Other Compensation
Upon the closing of this offering, or if the engagement period as provided in the engagement letter between us and the Underwriter (the “Engagement Letter”) ends prior to a closing of an offering (other than a termination for cause), then if within six (6) months following such time, we complete any financing of equity, equity-linked, convertible or debt or other capital-raising activity with, or receive any proceeds from, any investors that were contacted or introduced by the Underwriter during the period beginning on the date of the Engagement Letter until June 30, 2026, then the Company shall pay to the Underwriter a commission as described in this section, in each case only with respect to the portion of such financing received from such investors.
Certain Relationships
The Underwriter and its affiliates have and may in the future provide, from time to time, investment banking and financial advisory services to us in the ordinary course of business, for which they may receive customary fees and commissions.
Determination of Offering Price
Our Ordinary Shares are currently listed on Nasdaq under the symbol “BHAT.” On February 6, 2026, the reported closing price per Ordinary Share was $0.75. The final public offering price will be determined between us, the Underwriter and the investors in the offering, and may be at a discount to the current market price of our Ordinary Shares. Therefore, the assumed public offering price used throughout this prospectus may not be indicative of the final public offering price.
Stabilization, Short Positions and Penalty Bids
In connection with the offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions, penalty bids and passive market making in accordance with Regulation M under the Exchange Act.
| ● | Stabilizing transactions permit the underwriters to make bids or purchases for the purpose of pegging, fixing or maintaining the price of the Units, so long as stabilizing bids do not exceed a specified maximum. | |
| ● | Over-allotment involves sales by the underwriters of the securities in excess of the number of Units the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of securities over-allotted by the underwriters is not greater than the number of securities that they may purchase in the over-allotment option. In a naked short position, the number of securities involved is greater than the number of securities in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing securities in the open market. | |
| ● | Syndicate covering transactions involve purchases of Units in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of securities to close out the short position, the underwriters will consider, among other things, the price of our securities available for purchase in the open market as compared to the price at which they may purchase securities through the over-allotment option. If the underwriters sell more securities than could be covered by the over-allotment option, a naked short position, the position can only be closed out by buying securities in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the Units in the open market after pricing that could adversely affect investors who purchase in the offering. | |
| ● | Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the Units originally sold by the syndicate member are purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. | |
| ● | In passive market making, market makers in the Units who are the underwriters or prospective underwriter may, subject to limitations, make bids for or purchases of our Units until the time, if any, at which a stabilizing bid is made. |
98
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of the Units or preventing or retarding a decline in the market price of Units. As a result, the price of Units may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the Nasdaq or otherwise, and, if commenced, may be discontinued at any time.
Listing
Our Ordinary Shares are currently listed on the Nasdaq Capital Market under the symbol “BHAT”. We do not intend to list the Pre-Funded Warrants or Warrants on any securities exchange or other trading market.
Affiliations
The Underwriter and its respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The Underwriter and its affiliates may from time to time in the future engage with us and perform services for us or in the ordinary course of their business for which they will receive customary fees and expenses. In the ordinary course of their various business activities, the Underwriter and its respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of us. The Underwriter and its respective affiliates may also make investment recommendations and/or publish or express independent research views in respect of these securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in these securities and instruments.
Electronic Distribution
A prospectus in electronic format may be made available on websites or through other online services maintained by the Underwriter of this offering, or by its affiliates. Other than the prospectus in electronic format, the information on the Underwriter’s website and any information contained in any other website maintained by the Underwriter is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or the Underwriter in its capacity as the Underwriter, and should not be relied upon by investors.
In connection with this offering, the Underwriter or certain securities dealers may distribute prospectuses by electronic means, such as e-mail.
Selling Restrictions
Other than in the United States, no action has been taken by us or the Underwriter that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published, in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to this offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Australia. No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (ASIC), in relation to the offering.
This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the Corporations Act) and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
99
Any offer in Australia of the securities may only be made to persons (the Exempt Investors) who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the securities without disclosure to investors under Chapter 6D of the Corporations Act.
The securities applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring securities must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Brazil. The offer of securities described in this prospectus will not be carried out by means that would constitute a public offering in Brazil under Law No. 6,385, of December 7, 1976, as amended, under the CVM Rule (Instrução) No. 400, of December 29, 2003. The offer and sale of the securities have not been and will not be registered with the Comissão de Valores Móbilearios in Brazil. The securities have not been offered or sold, and will not be offered or sold in Brazil, except in circumstances that do not constitute a public offering or distribution under Brazilian laws and regulations.
Canada. The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31 103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus supplement (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33 105 Underwriting Conflicts (NI 33 105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding conflicts of interest in connection with this offering.
Cayman Islands. No invitation, whether directly or indirectly, may be made to the public in the Cayman Islands to subscribe for our securities.
European Economic Area. In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”) an offer to the public of any securities may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any securities may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
| ● | to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives for any such offer; or |
| ● | in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall result in a requirement for the publication by us or any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive. |
100
For the purposes of this provision, the expression an “offer to the public” in relation to any securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any securities to be offered so as to enable an investor to decide to purchase any securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in the Relevant Member State, and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.
Hong Kong. The contents of this prospectus have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this prospectus, you should obtain independent professional advice. Please note that (i) our shares may not be offered or sold in Hong Kong, by means of this prospectus or any document other than to “professional investors” within the meaning of Part I of Schedule 1 of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) (SFO) and any rules made thereunder, or in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong) (CO) or which do not constitute an offer or invitation to the public for the purpose of the CO or the SFO, and (ii) no advertisement, invitation or document relating to our shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere) which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the SFO and any rules made thereunder.
Israel. This document does not constitute a prospectus under the Israeli Securities Law, 5728-1968, or the Securities Law, and has not been filed with or approved by the Israel Securities Authority. In the State of Israel, this document is being distributed only to, and is directed only at, and any offer of the shares is directed only at, investors listed in the first addendum, or the Addendum, to the Israeli Securities Law, consisting primarily of joint investment in trust funds, provident funds, insurance companies, banks, portfolio managers, investment advisors, members of the Tel Aviv Stock Exchange, underwriters, venture capital funds, entities with equity in excess of NIS 50 million and “qualified individuals”, each as defined in the Addendum (as it may be amended from time to time), collectively referred to as qualified investors (in each case purchasing for their own account or, where permitted under the Addendum, for the accounts of their clients who are investors listed in the Addendum). Qualified investors will be required to submit written confirmation that they fall within the scope of the Addendum, are aware of the meaning of same and agree to it.
The People’s Republic of China. This prospectus may not be circulated or distributed in the PRC and the shares may not be offered or sold, and will not offer or sell to any person for re-offering or resale directly or indirectly to any resident of the PRC except pursuant to applicable laws, rules and regulations of the PRC. For the purpose of this paragraph only, the PRC does not include Taiwan and the special administrative regions of Hong Kong and Macau.
Switzerland. The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (the SIX) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the securities or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, or the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, and the offer of securities has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (CISA). Accordingly, no public distribution, offering or advertising, as defined in CISA, its implementing ordinances and notices, and no distribution to any non-qualified investor, as defined in CISA, its implementing ordinances and notices, shall be undertaken in or from Switzerland, and the investor protection afforded to acquirers of interests in collective investment schemes under CISA does not extend to acquirers of securities.
101
Taiwan. The securities have not been and will not be registered with the Financial Supervisory Commission of Taiwan pursuant to relevant securities laws and regulations and may not be sold, issued or offered within Taiwan through a public offering or in circumstances which constitutes an offer within the meaning of the Securities and Exchange Act of Taiwan that requires a registration or approval of the Financial Supervisory Commission of Taiwan. No person or entity in Taiwan has been authorized to offer, sell, give advice regarding or otherwise intermediate the offering and sale of the securities in Taiwan.
United Kingdom. This prospectus has only been communicated or caused to have been communicated and will only be communicated or caused to be communicated as an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act of 2000, or the FSMA) as received in connection with the issue or sale of our Common Stock in circumstances in which Section 21(1) of the FSMA does not apply to us. All applicable provisions of the FSMA will be complied with in respect to anything done in relation to our Common Stock in, from or otherwise involving the United Kingdom.
Stamp Taxes
If you purchase our securities offered by this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the public offering price listed on the cover page of this prospectus.
The following are the estimated expenses of the issuance and distribution of the securities being registered under the registration statement of which this prospectus forms a part, all of which will be paid by us. With the exception of the SEC registration fee, all amounts are estimates and may change:
| SEC registration fee | $ | 2,541.04 | ||
| FINRA Application Fee | $ | 3,260 | ||
| Legal fees and expenses | $ | 92,000 | ||
| Accounting fees and expenses | $ | 11,000 | ||
| Miscellaneous | $ | 6,000 | ||
| Total | $ | 114,801.04 |
The validity of the debt securities, warrants, subscription rights and units and legal matters as to United States and New York law will be passed upon for us by Pryor Cashman LLP. Campbells will pass upon certain legal matters in connection with the securities offered to the extent governed by the laws of the Cayman Islands law. The underwriter is being represented by Hunter Taubman Fischer & Li LLC with respect to certain matters of U.S. federal securities.
The financial statements as of December 31, 2024 and 2023 and for the years ended on December 31, 2024, 2023 and 2022 included in this prospectus have been so included in reliance on the reports of OneStop Assurance PAC, our current auditor, and Audit Alliance LLP, our previous auditor, each an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
102
SERVICE OF PROCESS AND ENFORCEABILITY OF CIVIL LIABILITIES
We are an exempted company incorporated in the Cayman Islands and all of our assets are located outside of the United States. All of our current operations are conducted in the PRC. In addition, all of our current directors and officers, reside within mainland China. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise, or to effect service of process upon us or those persons inside mainland China. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of the PRC may render you unable to enforce a judgment against our assets or the assets of our directors and officers.
Campbells has informed us that although there is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States (and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments), the courts of the Cayman Islands will, at common law, recognize and enforce a foreign monetary judgment of a foreign court of competent jurisdiction without any re-examination of the merits of the underlying dispute based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the liquidated sum for which such judgment has been given, provided that such judgment (i) is final and conclusive, (ii) is not in the nature of taxes, a fine, or a penalty; and (iii) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands. However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the U.S. courts under civil liability provisions of the U.S. federal securities law if such judgment is determined by the courts of the Cayman Islands to give rise to obligations to make payments that are penal or punitive in nature. A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our director and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.
We have appointed Puglisi & Associates as our agent upon whom process may be served in any action brought against us under the securities laws of the United States. The address of our agent is 850 Library Avenue, Suite 204, Newark, Delaware 19711.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form F-1 under the Securities Act relating to this offering of our Ordinary Shares. This prospectus does not contain all of the information contained in the registration statement. The rules and regulations of the SEC allow us to omit certain information from this prospectus that is included in the registration statement. Statements made in this prospectus concerning the contents of any contract, agreement or other document are summaries of all material information about the documents summarized, but are not complete descriptions of all terms of these documents. If we filed any of these documents as an exhibit to the registration statement, you may read the document itself for a complete description of its terms. Each statement in this prospectus relating to a document filed as an exhibit is qualified in all respects by the filed exhibit.
The SEC maintains an Internet website that contains reports and other information regarding issuers that file electronically with the SEC. Our filings with the SEC are also available to the public through the SEC’s website at http://www.sec.gov.
We are subject to the information reporting requirements of the Exchange Act that are applicable to foreign private issuers, and under those requirements we file reports with the SEC. Those other reports or other information may be inspected without charge at the locations described above. As a foreign private issuer, we will be exempt from the rules under the Exchange Act related to the furnishing and content of proxy statements, and our senior management, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as United States companies whose securities are registered under the Exchange Act. However, we file with the SEC, within 120 days after the end of each fiscal year, or such applicable time as required by the SEC, an annual report on Form 20-F containing financial statements audited by an independent registered public accounting firm.
103
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF
BLUE HAT INTERACTIVE ENTERTAINMENT TECHNOLOGY
AUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022, 2023 AND 2024
UNAUDITED CONDENSED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2025
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Blue Hat Interactive Entertainment Technology
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Blue Hat Interactive Entertainment Technology and its subsidiaries (collectively, the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial positions of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
| /s/ OneStop Assurance PAC | |
| We have served as the Company’s auditors since 2023. | |
| Singapore | |
| April 30, 2025 | |
| PCAOB Register Number 6732 | |
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Blue Hat Interactive Entertainment Technology
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Blue Hat Interactive Entertainment Technology and its subsidiaries (collectively, the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes to the consolidated financial statements and schedule (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial positions of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the three years ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations of appropriately $9.41 million and has negative operating cash flow of appropriately $1.60 million. These conditions indicate that a material uncertainty exists that raise substantial doubt on its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
| /s/ Audit Alliance LLP | |
| We have served as the Company’s auditor since 2021. | |
| Singapore | |
| May 8, 2023 | |
| PCAOB ID#3487 |
F-3
| December 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 14,300 | $ | 407,588 | ||||
| Restricted cash | 1,470 | 1,587 | ||||||
| Inventories | 64,560,000 | 17,545,153 | ||||||
| Accounts receivable, net | — | 15,157,384 | ||||||
| Accounts receivable, related party | — | 9,571 | ||||||
| Other receivables, net | 3,702,861 | 4,182,706 | ||||||
| Other receivables, related party | 1,766,661 | 1,941,723 | ||||||
| Prepayments, net | 19,267 | 36,588 | ||||||
| Total current assets | 70,064,559 | 39,282,300 | ||||||
| Non-current assets: | ||||||||
| Operating lease, right-of-use asset | 1,830,544 | 2,353,083 | ||||||
| Prepayments | — | 2,388,435 | ||||||
| Property, plant and equipment, net | 3,337,333 | 3,544,751 | ||||||
| Intangible assets, net | — | — | ||||||
| Long-term investments | — | 1,694,269 | ||||||
| Total non-current assets | 5,167,877 | 9,980,538 | ||||||
| Total assets | $ | 75,232,436 | $ | 49,262,838 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Short-term loans - banks | $ | 146,341 | $ | 273,713 | ||||
| Taxes payable | 793,492 | 805,577 | ||||||
| Accounts payable | 34,156,360 | 318,729 | ||||||
| Other payables and accrued liabilities | 4,780,965 | 4,027,883 | ||||||
| Other payables - related party | 601,856 | — | ||||||
| Operating lease liabilities - current | 166,122 | 235,470 | ||||||
| Customer deposits | 2,976 | 3,020 | ||||||
| Liability related to discontinued operation | — | — | ||||||
| Total current liabilities | 40,648,112 | 5,664,392 | ||||||
| Non-current liabilities: | ||||||||
| Operating lease liability | 1,667,556 | 2,141,421 | ||||||
| Long-term loans – related party | 773,950 | 834,950 | ||||||
| Total other liabilities | 2,441,506 | 2,976,371 | ||||||
| Total liabilities | 43,089,618 | 8,640,763 | ||||||
| Shareholder’s equity | ||||||||
| Ordinary shares, $1.00 par value, 500,000,000 shares authorized, 584,982 shares issued and outstanding as of December 31, 2024, 583,982 shares issued and outstanding as of December 31, 2023 | 584,982 | 583,982 | ||||||
| Additional paid-in capital | 94,863,300 | 93,828,090 | ||||||
| Statutory reserves | 2,143,252 | 2,143,252 | ||||||
| Retained earnings | (66,356,798 | ) | (56,832,015 | ) | ||||
| Accumulated other comprehensive loss | 908,082 | 898,766 | ||||||
| Total Blue Hat Interactive Entertainment Technology shareholders’ equity | 32,142,818 | 40,622,075 | ||||||
| Non-controlling interests | — | — | ||||||
| Total Equity | 32,142,818 | 40,622,075 | ||||||
| Total liabilities and shareholders’ equity | $ | 75,232,436 | $ | 49,262,838 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
| Year ended | Year ended | Year ended | ||||||||||
| December 31, | December 31, | December 31, | ||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Revenues | $ | 18,724,190 | $ | 73,686,733 | $ | 2,195,954 | ||||||
| Cost of revenue | (17,178,241 | ) | (72,532,882 | ) | (958,438 | ) | ||||||
| Gross profit | 1,545,949 | 1,153,851 | 1,237,516 | |||||||||
| Operating expenses: | ||||||||||||
| Selling | — | (7,677 | ) | (159,937 | ) | |||||||
| Research and development | (3,168,397 | ) | (2,570,158 | ) | (2,734,982 | ) | ||||||
| General and administrative expenses | (2,834,635 | ) | (13,766,487 | ) | (6,224,674 | ) | ||||||
| Impairment loss | — | (13,693,305 | ) | (33,397 | ) | |||||||
| Total operating expenses | (6,003,032 | ) | (30,037,627 | ) | (9,152,990 | ) | ||||||
| Loss from operations | (4,457,083 | ) | (28,883,776 | ) | (7,915,474 | ) | ||||||
| Other income (expense) | ||||||||||||
| Interest income | 18 | 7 | 374 | |||||||||
| Interest expense | (183,956 | ) | (222,057 | ) | (133,882 | ) | ||||||
| Other finance expenses | (3,198,292 | ) | (62,025 | ) | (15,264 | ) | ||||||
| Loss on investment write-off | (1,685,322 | ) | — | — | ||||||||
| Other (expense) income, net | (148 | ) | 66,205 | 39,080 | ||||||||
| Total other expense, net | (5,067,700 | ) | (217,870 | ) | (109,692 | ) | ||||||
| Loss from Continuing Operations before income taxes | (9,524,783 | ) | (29,101,646 | ) | (8,025,166 | ) | ||||||
| Provision for income taxes | — | (6,081 | ) | (1,097,888 | ) | |||||||
| Loss from continuing operations | (9,524,783 | ) | (29,107,727 | ) | (9,123,054 | ) | ||||||
| Discontinued Operations (Note 20) | ||||||||||||
| Gain on disposal of discontinued operations | — | 7,389,310 | — | |||||||||
| Loss from discontinued operations | — | — | (282,027 | ) | ||||||||
| Net Loss | (9,524,783 | ) | (21,718,417 | ) | (9,405,081 | ) | ||||||
| Less: Net loss attributable to non-controlling interest | — | (2,420,399 | ) | (40,025 | ) | |||||||
| Net Loss attributable to Blue Hat Interactive Entertainment Technology | (9,524,783 | ) | (19,298,018 | ) | (9,365,056 | ) | ||||||
| Other comprehensive loss | ||||||||||||
| Net loss from continued operations | (9,524,783 | ) | (29,107,727 | ) | (9,123,054 | ) | ||||||
| Foreign currency translation adjustment continued operation | 9,316 | (199,032 | ) | (1,883,571 | ) | |||||||
| Comprehensive loss - continued operation | $ | (9,515,467 | ) | $ | (29,306,759 | ) | $ | (11,006,625 | ) | |||
| Income (loss) from discontinued operation | — | 7,389,310 | (282,027 | ) | ||||||||
| Foreign currency translation adjustment - discontinued operation | — | 263,285 | 258,828 | |||||||||
| Comprehensive income (Loss) - discontinued operation | $ | — | $ | 7,652,595 | $ | (23,199 | ) | |||||
| Comprehensive loss | $ | (9,515,467 | ) | $ | (21,654,164 | ) | $ | (11,029,824 | ) | |||
| Less: Net loss attributable to non-controlling interest | — | (2,420,399 | ) | (40,025 | ) | |||||||
| Comprehensive loss attributable to Blue Hat Interactive Entertainment shareholders | (9,515,467 | ) | (19,233,765 | ) | (10,989,799 | ) | ||||||
| Weighted average number of ordinary shares | ||||||||||||
| Basic | 584,806 | 297,230 | 76,395 | |||||||||
| Diluted | 597,229 | 309,753 | 85,652 | |||||||||
| Earnings per share | ||||||||||||
| Basic loss per share from continued operation | $ | (16.29 | ) | $ | (97.93 | ) | $ | (119.42 | ) | |||
| Basic earnings per share from discontinued operation | — | 24.86 | (3.69 | ) | ||||||||
| Diluted Earnings per share: | ||||||||||||
| Diluted loss per share from continued operation | $ | (16.29 | ) | $ | (97.93 | ) | $ | (119.42 | ) | |||
| Diluted earnings per share from discontinued operation | — | 24.86 | (3.69 | ) | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CONSOLIDATED STATEMENTS OF EQUITY
| Ordinary shares | Retained earnings | |||||||||||||||||||||||||||||||
| Additional paid - in | Statutory | Accumulated other comprehensive | Non- Controlling | |||||||||||||||||||||||||||||
| Shares | Par value | capital | reserve | Unrestricted | income | interest | Total | |||||||||||||||||||||||||
| BALANCE, December 31, 2022 | 98,947 | $ | 98,947 | $ | 44,145,826 | $ | 2,143,252 | $ | (35,113,598 | ) | $ | 834,513 | $ | 2,420,399 | $ | 14,529,339 | ||||||||||||||||
| Issuance of ordinary shares - cash | 42,834 | 42,834 | 2,955,563 | — | — | — | — | 2,998,397 | ||||||||||||||||||||||||
| Issuance of ordinary shares-conversion of debt | 14,201 | 14,201 | 1,075,621 | — | — | — | — | 1,089,822 | ||||||||||||||||||||||||
| Issuance of common stock to pay for goods | 420,000 | 420,000 | 42,000,000 | — | — | — | — | 42,420,000 | ||||||||||||||||||||||||
| Share based payment service | 8,000 | 8,000 | 3,651,080 | — | — | — | — | 3,659,080 | ||||||||||||||||||||||||
| Net loss from continued operation | — | — | — | — | (29,107,727 | ) | — | — | (29,107,727 | ) | ||||||||||||||||||||||
| Statutory reserves | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Disposition of Discontinue operation | — | — | — | — | 7,389,310 | 263,285 | (2,420,399 | ) | 5,232,196 | |||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | (199,032 | ) | — | (199,032 | ) | ||||||||||||||||||||||
| BALANCE, December 31, 2023 | 583,982 | $ | 583,982 | $ | 93,828,090 | $ | 2,143,252 | $ | (56,832,015 | ) | $ | 898,766 | $ | — | $ | 40,622,075 | ||||||||||||||||
| Issuance of ordinary shares - cash | 1,000 | 1,000 | 69,000 | — | — | — | — | 70,000 | ||||||||||||||||||||||||
| Share based payment service | — | — | 966,210 | — | — | — | — | 966,210 | ||||||||||||||||||||||||
| Net loss from continued operation | — | — | — | — | (9,524,783 | ) | — | — | (9,524,783 | ) | ||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | 9,316 | — | 9,316 | ||||||||||||||||||||||||
| BALANCE, December 31, 2024 | 584,982 | $ | 584,982 | $ | 94,863,300 | $ | 2,143,252 | $ | (66,356,798 | ) | $ | 908,082 | $ | — | $ | 32,142,818 | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
CONSOLIDATED STATEMENTS OF CASH FLOW
| Year ended | Year ended | Year ended | ||||||||||
| December 31, | December 31, | December 31, | ||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net loss | $ | (9,524,783 | ) | $ | (21,718,417 | ) | $ | (9,405,081 | ) | |||
| Net income (loss) from discontinued operation | — | 7,389,310 | (282,027 | ) | ||||||||
| Net loss from continuing operation | (9,524,783 | ) | (29,107,727 | ) | (9,123,054 | ) | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||||
| Depreciation of property, plant and equipment | 208,670 | 260,883 | 185,083 | |||||||||
| Amortization of intangible assets | — | 159,579 | 169,149 | |||||||||
| Impairment of goodwill | — | — | 3,681 | |||||||||
| Impairment of intangible assets | — | 1,075,997 | — | |||||||||
| Impairment of Property, plant and equipment | — | 17,308 | 29,716 | |||||||||
| Impairment of inventory | — | 12,600,000 | ||||||||||
| Interest expenses related to convertible note | — | 146,322 | 100,314 | |||||||||
| Share-based payments | 966,210 | 3,659,080 | 4,043,550 | |||||||||
| Issuance of common stock to pay for goods | — | 42,420,000 | — | |||||||||
| Provision for doubtful accounts | 621,894 | 10,246,270 | (1,060,782 | ) | ||||||||
| Loss on investment write-off | 1,694,269 | — | — | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | 15,114,858 | (14,915,499 | ) | 4,762,503 | ||||||||
| Other receivables | (99,524 | ) | (1,208,861 | ) | 385,779 | |||||||
| Other receivables – related party | 184,633 | — | — | |||||||||
| Inventories | (47,014,847 | ) | (17,545,153 | ) | 116,115 | |||||||
| Prepayments | 2,405,756 | 41,367 | (773,671 | ) | ||||||||
| Operating lease assets | (20,674 | ) | 22,102 | 276 | ||||||||
| Accounts payable | 33,837,633 | (6,260 | ) | (21,891 | ) | |||||||
| Other payables and accrued liabilities | 753,082 | (4,986,175 | ) | 92,607 | ||||||||
| Customer deposits | (44 | ) | (16,609 | ) | 12,549 | |||||||
| Taxes payable | (12,085 | ) | (35,756 | ) | (395,191 | ) | ||||||
| Net cash used in operating activities - continued operation | (884,952 | ) | (9,773,132 | ) | (1,473,267 | ) | ||||||
| Net cash generated from operating activities - discontinued operation | — | 7,661,561 | 281,780 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Purchases of property, plant and equipment | — | — | (3,429 | ) | ||||||||
| Proceeds from disposal of equipment | — | — | 9,760 | |||||||||
| Disposal of a subsidiary | — | (15,380 | ) | — | ||||||||
| Acquisition of subsidiaries, net of cash received | — | — | 5 | |||||||||
| Net cash (used in) generated from investing activities – continued operation | — | (15,380 | ) | 6,336 | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Proceeds from issuance of new shares | 70,000 | 2,998,397 | 88,592 | |||||||||
| Gross proceeds from issuance of convertible note | — | — | 1,550,000 | |||||||||
| Repayment of convertible note | — | (449,999 | ) | — | ||||||||
| Proceeds from other payables - related party | 601,856 | — | 905,171 | |||||||||
| (Repayment) from loan payables - related party | (61,000 | ) | (102,464 | ) | — | |||||||
| Change in restricted cash | (1,470 | ) | (1,587 | ) | (1,129 | ) | ||||||
| Repayments of short-term loans - banks | (124,526 | ) | (138,393 | ) | — | |||||||
| Net cash generated from financing activities – continued operation | 484,860 | 2,305,954 | 2,542,634 | |||||||||
| Net cash used in financing activities – discontinued operation | — | (52,322 | ) | (11,960 | ) | |||||||
| EFFECT OF EXCHANGE RATES ON CASH | 5,217 | 210,505 | (1,319,437 | ) | ||||||||
| NET CHANGES IN CASH AND CASH EQUIVALENTS | (394,875 | ) | 337,186 | 26,086 | ||||||||
| CASH AND CASH EQUIVALENTS, beginning of year | 409,175 | 70,402 | 50,449 | |||||||||
| CASH AND CASH EQUIVALENTS, end of year | $ | 14,300 | $ | 407,588 | $ | 76,535 | ||||||
| Less: cash and cash equivalents from the discontinued operations, end of year | — | — | (7,262 | ) | ||||||||
| CASH AND CASH EQUIVALENT, FROM THE CONTINUING OPERATIONS, end of year | $ | 14,300 | $ | 407,588 | $ | 69,273 | ||||||
F-7
CONSOLIDATED STATEMENTS OF CASH FLOW
| Year ended | Year ended | Year ended | ||||||||||
| December 31, | December 31, | December 31, | ||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||||||
| Cash and cash equivalents | $ | 14,300 | $ | 407,588 | $ | 76,535 | ||||||
| CASH AND CASH EQUIVALENTS, end of year | $ | 14,300 | $ | 407,588 | $ | 76,535 | ||||||
| Provision for doubtful trade receivables | $ | (42,525 | ) | $ | (8,929,110 | ) | $ | (1,035,345 | ) | |||
| Provision for doubtful other receivables | (579,369 | ) | (1,207,145 | ) | (22,869 | ) | ||||||
| Reversal for doubtful prepayments | — | (110,014 | ) | 4,925 | ||||||||
| Allowance for inventory | — | — | (7,492 | ) | ||||||||
| (Reversal)/Provision for doubtful accounts | $ | (621,894 | ) | $ | (10,246,269 | ) | $ | (1,060,781 | ) | |||
| Cash paid for income tax | $ | — | $ | 6,081 | $ | 1,097,888 | ||||||
| Cash paid for interest | $ | 206,625 | $ | 222,057 | $ | 133,882 | ||||||
| SUPPLEMENTAL NON-CASH INVESTING INFORMATION: | ||||||||||||
| Additional of operating lease, right-of-use asset | $ | 1,830,544 | $ | 2,353,083 | $ | 40,596 | ||||||
| SUPPLEMENTAL NON-CASH FINANCING INFORMATION: | ||||||||||||
| Operating lease liabilities | $ | 1,833,678 | $ | 235,470 | $ | 11,261 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-8
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Blue Hat Interactive Entertainment Technology (“Blue Hat Cayman” or the “Company”) is a holding company incorporated on June 13, 2018, under the laws of the Cayman Islands. The Company has no substantive operations other than holding all of the outstanding share capital of Brilliant Hat Limited (“Blue Hat BVI”) established under the laws of the British Virgin Islands on June 26, 2018.
Blue Hat BVI is also a holding company holding all of the outstanding equity of Blue Hat Interactive Entertainment Technology Limited (“Blue Hat HK”) which was established in Hong Kong on June 26, 2018. Blue Hat HK is also a holding company holding all of the outstanding equity of Xiamen Duwei Consulting Management Co., Ltd. (“Blue Hat WFOE”) which was established on July 26, 2018 under the laws of the People’s Republic of China (“PRC” or “China”) and its wholly owned subsidiary, Hunan Engaomei Animation Culture Development Co., Ltd. (“Blue Hat Hunan”) a PRC company, was established and engaged in designing, producing, promoting and selling interactive toys with mobile games features, online interactive educational program, original intellectual property and peripheral derivatives features worldwide.
On November 13, 2018, Blue Hat Cayman completed a reorganization of entities under common control of its then existing shareholders, who collectively owned all of the equity interests of Blue Hat Cayman prior to the reorganization. Blue Hat Cayman, Blue Hat BVI, and Blue Hat HK were established as the holding companies of Blue Hat WFOE.
On August 23, 2021, Fujian Blue Hat Group Co., Ltd (“Blue Hat Group”) which was the subsidiary of Blue Hat HK was established under the laws of the PRC.
On February 2021, the Blue Hat WFOE acquired additional 51.5% of Fujian Youth Hand in Hand Educational Technology Co., Ltd (“Fujian Youth”), and Fujian Youth is owned 48.5% by Blue Hat Fujian. On June 2023, Blue Hat Fujian was disposed, and Fujian Youth is 100% owned by Blue Hat WFOE. On March 24 2021, a wholly owned subsidiary Fuzhou Qiande Educational Technology Co., Ltd (“Qiande”), a PRC company, was established under Fujian Youth.
On February 20, 2021, the Company established its wholly owned subsidiaries, Xiamen Bluehat Research Institution of Education Co., Ltd (“Bluehat Research”). On November 15, 2021, the Company deregistered Shenyang Qimengxing Trading Co., Ltd.
During 2021, the Company disposed Xunpusen (Xiamen) Technology Co., Ltd (“Xunpusen”), and Xiamen Jiuqiao Technology Co., Ltd (“Jiuqiao”).
On October 17, 2021, the Company deregistered Chongqing Lanhui Technology Co. Ltd.
On September 30, 2022, Blue Hat Group acquired 100% of Xiamen Shengruihao (“Shengruihao”) Technology Co., Ltd, a PRC company established on June 30, 2021.
On May 10, 2022, the Company has authorized and approved a 1-for-10 reverse stock split of the Company’s authorized (issued and unissued) shares of ordinary shares, effective May 27, 2022. The reverse stock split would be reflected in December 31, 2023, December 31, 2022, and December 31, 2021 statements of changes in stockholders’ equity, and in per share data for all period presented.
On April 3, 2023, Golden Strategy Ltd (“Golden strategy”) was established under the laws of British Virgin Islands. The Company has no substantive operations other than holding all of the outstanding share capital of Golden Alpha Strategy Limited (“Golden Alpha”) incorporated under the laws of Hong Kong on April 18, 2023 and Blue Hat Technology LLC. (“Blue USA”) incorporated under the laws of United States on July 21, 2023.
F-9
On June 13, 2023, Chongqing Duwei Chuangda Electronic Technology Co., Ltd which was the subsidiary of Blue Hat WFOE was established under the laws of PRC.
On July 5, 2023, Guangzhou Huangxin Enterprise Management Co., Ltd which was the subsidiary of Golden Alpha was established under the laws of PRC.
On May 2024, Fuzhou Blue Financial Investment Co., Ltd which was the subsidiary of Blue Hat Cayman was established under the laws of PRC, and on June 2024, it established a wholly owned subsidiary Fuzhou Po Teishin Supply Chain Co., Ltd under the laws of PRC.
March 17, 2025, the reverse stock split at a ratio of 1-for-100 shares was approved by the Company’s board of directors and its shareholders.
Disposition of interactive toys and mobile game business in PRC
On June 8, 2023, the Company disposed the variable interest entities and their subsidiaries, Fujian Blue Hat Interactive Entertainment Technology Ltd. (“Blue Hat Fujian”). The subsidiaries including Pingxiang Blue Hat Technology Co. Ltd. (“Blue Hat Pingxiang”), Fujian Lanyun Canghai Technology Co., Ltd (“Fujian Lanyun”). The VIEs and subsidiaries mainly operating in interactive toys and mobile game business in PRC, upon the disposition, the assets and liabilities are transferred to Blue Hat WOFE.
On June 8, 2023, he Company also disposed another variable interest entities and their subsidiaries, Fujian Xinyou Technology Co., Ltd (“Xinyou Technology”), Fresh Joy Entertainment Limited (“Fresh Joy”), Hong Kong Xinyou Entertainment Company (“Xinyou Entertainment”), Fujian Roar Game Technology Co., Ltd (“Fujian Roar Game”) Fuzhou Csfctech Co., Ltd (“Fuzhou CSFC”) and Fuzhou UC71 Co., Ltd (“Fuzhou UC71”). The VIEs and subsidiaries mainly operating in interactive toys and mobile game business in PRC.
The accompanying consolidated financial statements reflect the activities of Blue Hat Cayman and each of the following entities:
| Name | Background | Ownership | ||
| Brilliant Hat Limited |
● A British Virgin Islands company
● Incorporated on June 26, 2018
● A holding company |
100% owned by Blue Hat Interactive Entertainment Technology | ||
| Blue Hat Interactive Entertainment Technology Limited |
● A Hong Kong company
● Incorporated on June 26, 2018
● A holding company |
100% owned by Brilliant Hat Limited | ||
| Xiamen Duwei Consulting Management Co., Ltd. |
● A PRC limited liability company and deemed a wholly foreign owned enterprise (“WFOE”).
● Incorporated on July 26, 2018
● Registered capital of $20,000,000
● A holding company. |
100% owned by Blue Hat Interactive Entertainment Technology Limited. | ||
| Fujian Blue Hat Group Co. Ltd. |
● A PRC limited liability company
● Incorporated on August 23, 2021.
● A holding company |
100% owned by Blue Hat Interactive Entertainment Technology Limited. |
F-10
| Fujian Youth Hand in Hand Educational Technology Co., Ltd. |
● A PRC limited liability company, acquired on February 2021.
● Incorporated on September 18, 2017
● Registered capital of $3,106,214 (RMB 20,100,000)
● Educational consulting service and sports related. |
100% owned by Xiamen Duwei Consulting Management Co., Ltd. | ||
| Hunan Engaomei Animation Culture Development Co., Ltd. |
● A PRC limited liability company
● Incorporated on October 19, 2017
● Registered capital of $302,540 (RMB 2,000,000)
● Designing, producing, promoting and selling animated toys with mobile games features, original intellectual property and peripheral derivatives features. |
100% owned by Xiamen Duwei Consulting Management Co., Ltd. | ||
| Xiamen Bluehat Research Institution of Education Co., Ltd |
● A PRC limited liability company
● Incorporated on February 20, 2021
● Information Technology consulting service |
100% owned by Xiamen Duwei Consulting Management Co., Ltd. | ||
|
Fuzhou Qiande Educational Technology Co., Ltd.
|
● A PRC limited liability company
● Incorporated on March 24, 2021
● Information Technology consulting service |
100% owned by
Fujian Youth Hand in
Hand Educational
Technology Co., Ltd. |
| Xiamen Shengruihao Technology Co., Ltd |
● A PRC limited liability company, acquired on September 30, 2022
● Incorporated on June 30, 2021
● Registered capital of $ 4,463,754 (RMB 30,000,000)
● Software development, animation design and web design |
100% owned by Fujian Blue Hat Group Co. Ltd. |
| Golden Strategy Ltd. |
● A British Virgin Islands company
● Incorporated on April 3, 2023
● Registered capital of $50,000
● Gold derivative information service |
100% owned by Blue Hat Interactive Entertainment Technology. |
F-11
| Golden Alpha Strategy Limited |
● A Hong Kong company
● Incorporated on April 18, 2023
● Diamond trading |
100% owned by Golden Strategy Ltd. |
| Chongqing Duwei Chuangda Electronic Technology Co., Ltd. |
● A PRC limited liability company
● Incorporated on June 13, 2023
● Registered capital of $141,189 (RMB1,000,000)
● Technical development and service |
100% owned by Xiamen Duwei Consulting Management Co., Ltd |
| Guangzhou Huangxin Management Co.,Ltd |
● A PRC limited liability company
● Incorporated on July 5, 2023
● Registered capital of $1,000,000
● Supply chain information for diamond trading |
100% owned by Golden Alpha Strategy Limited |
| Blue Hat Technology LLC |
● A U.S.A limited liability company
● Incorporated on July 21, 2023
● Logistic information service |
100% owned by Golden Strategy Ltd. |
| Fuzhou Blue Financial Investment Co., Ltd |
● A PRC limited liability company
● Incorporated on May 8, 2024
● Gold trading and information consulting service |
100% owned by Blue Hat Interactive Entertainment Technology. |
| Fuzhou Po Teshin Supply Chain Co., Ltd |
● A PRC limited liability company
● Incorporated on June 11, 2024
● Gold trading and supply chain management service |
100% owned by Fuzhou Blue Financial Investment Co., Ltd. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for information pursuant to the rules and regulations of the SEC.
Discontinued operations
F-12
On June 8, 2023, the Company disposed the variable interest entities and their subsidiaries, Fujian Blue Hat Interactive Entertainment Technology Ltd. (“Blue Hat Fujian”). The subsidiaries including Pingxiang Blue Hat Technology Co. Ltd. (“Blue Hat Pingxiang”), Fujian Lanyun Canghai Technology Co., Ltd (“Fujian Lanyun”). The VIEs and subsidiaries mainly operate in interactive toys and mobile game business in PRC, upon the disposition, the assets and liabilities are transferred to Blue Hat WOFE.
On June 8, 2023, he Company also disposed another variable interest entities and their subsidiaries, Fujian Xinyou Technology Co., Ltd (“Xinyou Technology”), Fresh Joy Entertainment Limited (“Fresh Joy”), Hong Kong Xinyou Entertainment Company (“Xinyou Entertainment”), Fujian Roar Game Technology Co., Ltd (“Fujian Roar Game”) Fuzhou Csfctech Co., Ltd (“Fuzhou CSFC”) and Fuzhou UC71 Co., Ltd (“Fuzhou UC71”). The VIEs and subsidiaries mainly operate in interactive toys and mobile game business in PRC, the disposition resulting in a gain on disposal of $7,389,310.
Principles of consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries, which include the wholly- foreign owned enterprise (“WFOE”) over which the Company exercises control and, when applicable, entities for which the Company has a controlling financial interest. All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation.
Use of estimates and assumptions
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s consolidated financial statements include the useful lives of plant and equipment and intangible assets, capitalized development costs, impairment of long-lived assets, allowance for doubtful accounts, revenue recognition, allowance for deferred tax assets and uncertain tax position, and inventory allowance. Actual results could differ from these estimates.
Foreign currency translation and transaction
The reporting currency of the Company is the U.S. dollar. The Company in China conducts its businesses in the local currency, Renminbi (RMB), as its functional currency. Assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. The statement of income accounts is translated at the average translation rates and the equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
F-13
Translation adjustments included in accumulated other comprehensive income (loss) amounted to $ 908,296, $898,766 and $834,513 as of December 31, 2024, 2023 and 2022, respectively. The balance sheet amounts, with the exception of shareholders’ equity at December 31, 2024, 2023 and 2022 were translated at 7.19 RMB, 7.08 RMB and 6.96 RMB, respectively. The shareholders’ equity accounts were stated at their historical rate. The average translation rates applied to statement of income accounts for the years ended December 31, 2024, 2023 and 2022 were 7.12 RMB, 7.04 RMB and 6.70 RMB to $1.00, respectively. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet.
Cash and restricted cash
Cash and cash equivalents consist of cash on hand; demand deposits and time deposits placed with banks or other financial institutions and have original maturities of less than three months.
Deposits in banks in the PRC are only insured by the government up to RMB500,000, and are consequently exposed to risk of loss. The Company believes the probability of a bank failure, causing loss to the Company, is remote.
Cash that is restricted as to withdrawal for use or pledged as security is reported separately on the face of the consolidated balance sheets, and is not included in the total cash and cash equivalents in the consolidated statements of cash flows.
Accounts receivable, net
Accounts receivable includes trade accounts due from customers. Accounts are considered overdue after 30 -180 days. In establishing the required allowance for doubtful accounts, management considers historical collection experience, aging of the receivables, the economic environment, industry trend analysis, and the credit history and financial conditions of the customers. Management reviews its receivables on a regular basis to determine if the bad debt allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. As of December 31, 2024 and 2023, allowance for the doubtful accounts was $13,488,433 and $13,658,675, respectively.
Other receivables, net
Other receivables primarily include deposits for business acquisitions, setup of research center, advances to employees, and others. Management regularly reviews the aging of receivables and changes in payment trends and records allowances when management believes collection of amounts due are at risk. Accounts considered uncollectable are written off against allowances after exhaustive efforts at collection are made. As of December 31, 2024 and 2023, allowance for the doubtful accounts was $13,987,956 and $13,481,228, respectively.
Inventories
Inventories are comprised of gold held for resale and are stated at the lower of cost and net realizable value using the weighted average method. Diamonds are based on first-in-first-out (FIFO) costs and Gold is based on weighted average costs (WAC). Due to the Company’s inventory principally consisting of gold, the age of the inventories has limited impact on the estimated market value but subject to the risk of changes in market value. The assessment of the net realizable value of inventories was based on significant estimates and judgements made by management in respect of, amongst others, the economic conditions and the forecast market price of gold. Product obsolescence is closely monitored and reviewed by management on an ongoing basis.
F-14
Prepayments, net
Current
Prepayments are cash deposited or advanced to suppliers for future inventory purchases. This amount is refundable and bears no interest. For any advances to suppliers determined by management that such advances will not be in receipts of inventories or refundable, the Company will recognize an allowance account to reserve such balances. Management reviews its advances to suppliers on a regular basis to determine if the allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. The Company’s management continues to evaluate the reasonableness of the valuation allowance policy and update it if necessary. As of December 31, 2024 and 2023, allowance for the doubtful accounts was $0 Nil and $ 427,541, respectively.
Non-current
Non-current prepayment represents cash deposited or advanced for software development expenditure.
As of December 31, 2024 and 2023, allowance for impairment loss was $ 0Nil and $ 7,824,549 respectively.
Property, plant and equipment, net
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:
| Category | Depreciation method | Estimated useful lives | ||
| Building | Straight-line | 20 years | ||
| Electronic devices | Straight-line | 3 years | ||
| Office equipment, fixtures and furniture | Straight-line | 3 years | ||
| Automobile | Straight-line | 3 years |
The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated statements of income and comprehensive income. Expenditures for maintenance and repairs are charged to earnings as incurred, while additions, renewals which are expected to extend the useful life of assets, are capitalized. The Company also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances warrant revised estimates of useful lives.
Software development costs
The Company follows the provisions of ASC 350-40, “Internal Use Software”, to capitalize certain direct development costs associated with internal- used software. ASC 350-40 provides guidance on capitalization of the costs incurred for computer software developed or obtained for internal use. The Company expenses all costs incurred during the preliminary project stage of its development, and capitalizes costs incurred during the application development stage. Costs incurred relating to upgrades and enhancements to the application are capitalized if it is determined that these upgrades or enhancements add additional functionality to the application. The capitalized development cost is amortized on a straight-line basis over the estimated useful life, which is generally five years. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.
F-15
Research and development
Research and development expenses include salaries and other compensation-related expenses to the Company’s research and product development personnel, as well as office rental, depreciation and related expenses for the Company’s research and product development team. The Company expenses all costs that are incurred in connection with the planning and implementation phases of development, and costs that are associated with maintenance of the existing websites or software for internal use.
Business Combinations
The Company applies the provisions of ASC 805, Business Combination and allocates the fair value of purchases consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of the assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets, including but not limited to future expected cash flows from acquired technology and acquired trademarks and user base from a market participant perspective, useful lives and discount rates.
Impairment for long-lived assets other
Long-lived assets, including property, plant and equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, the Company would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of December 31, 2024, 2023 and 2022, impairment for long-lived assets was $ 0Nil, $1,093,305 and $29,716 respectively.
Long-term investments
Long-term investments include cost method investment and equity method investments.
Entities in which the Company has the ability to exercise significant influence, but does not have a controlling interest, are accounted for using the equity method. Significant influence is generally considered to exist when the Company has voting shares between 20% and 50%, and other factors, such as representation on the Board of Directors, voting rights and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate. Under this method of accounting, the Company records its proportionate share of the net earnings or losses of equity method investees and a corresponding increase or decrease to the investment balances. Dividends received from the equity method investments are recorded as reductions in the cost of such investments.
F-16
The Company accounts for investments with less than 20% of the voting shares and does not have the ability to exercise significant influence over operating and financial policies of the investee using the cost method. The Company records cost method investments at the historical cost in its consolidated financial statements and subsequently records any dividends received from the net accumulated earrings of the investee as income. Dividends received in excess of earnings are considered a return of investment and are recorded as reduction in the cost of the investments.
Long-term investments are evaluated for impairment when facts or circumstances indicate that the fair value of the long-term investments is less than its carrying value. Impairment is recognized when a decline in fair value is determined to be other-than- temporary. The Company reviews several factors to determine whether a loss is other-than-temporary. These factors include, but are not limited to, the: (i) nature of the investment; (ii) cause and duration of the impairment; (iii) extent to which fair value is less than cost; financial condition and near term prospects of the investments; and (v) ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.
During the year, the Company has decided to change its business operations to gold trading, thus as of December 31, 2024, it recorded $ 1.69 million loss on investment which were on software development companies.
Fair value measurement
The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company.
The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels are defined as follow:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.
Our cash and cash equivalents and restricted cash are classified within level 1 of the fair value hierarchy because they are value using quoted market price.
Revenue recognition
The Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC 606). The ASU requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
Commodity Trading
For the sale of third-party products where the Company obtains control of the product before transferring it to the customer, the Company recognizes revenue based on the gross amount billed to customers. The Company considers multiple factors when determining whether it obtains control of third-party products, including evaluating if it can establish the price of the product, retains inventory risk for tangible products or has the responsibility for ensuring acceptability of the product. The company recognize revenue from sale of Glycol when no control obtained throughout the transactions.
F-17
Diamond Trading
Net sales primarily consist of revenue from diamond, gemstone and jewelry retail sales and payment is required with a credit period of 180 days after delivery. Delivery is determined to be the time of pickup for orders picked up in showrooms, and for shipped orders, delivery is deemed upon shipment. A return policy of 2 days from when the item is picked up or ready for shipment is typically provided; no manufacturing warranty is provided on all jewelry, and diamonds/gemstones. Revenue is recognized when customer gains control over the goods, which is upon delivery.
Information service
This is a service which provides products and technical services to customers generating from third-party media channels (such as WeChat official accounts, mini programs, APP, Tik Tok, Toutiao, Quick Worker, etc.), as well as commissioned development services for interactive marketing tools, company then charged according to the information services that contracted with the customers.
The sales revenue of the information service fee is recognized after the customer confirms the service provided is correct. The premise is: the customer has no uncertainty in the acceptance, the sales price is fixed and determinable when contracted, and the retrievability is also reasonably guaranteed.
Sales of interactive toys
The Company recognizes sales of interactive toys revenues upon shipment or upon receipt of products by the customer, depending on the terms, provided that: there are no uncertainties regarding customer acceptance; persuasive evidence of an agreement exists documenting the specific terms of the transaction; the sales price is fixed or determinable; and collectability is reasonably assured. Management assesses the business environment, the customer’s financial condition, historical collection experience, accounts receivable aging, and customer disputes to determine whether collectability is reasonably assured.
The Company routinely enters into arrangements with its customers to provide sales incentives, support customer promotions, and provide allowances for returns and defective merchandise. Such programs are based primarily on customer purchases, customer performance of specified promotional activities, and other specified factors such as sales to consumers. The costs of these programs are recorded as sales adjustments that reduce gross sales in the period the related sale is recognized.
The products sold in the PRC are subject to a Chinese value-added tax (“VAT”). VAT taxes are presented as a reduction of revenue.
F-18
Shipping and handling
Shipping and handling costs amounted to $322, $521 and $4,481 for the years ended December 31, 2024, 2023 and 2022, respectively. Shipping and handling costs are expensed as incurred and included in selling expenses.
Advertising costs
Advertising costs amounted to Nil, Nil and $977,631 for the years ended December 31, 2024, 2023 and 2022, respectively. Advertising costs are expensed as incurred and included in selling expenses.
F-19
Operating leases
A lease for which substantially all the benefits and risks incidental to ownership remain with the lessor is classified by the lessee as an operating lease. All leases of the Company are currently classified as operating leases. The Company records the total expenses on a straight-line basis over the lease term, and the accounting of operating lease in this report has been updated to reflect the adoption of FASB’s new guidance on the recognition and measurement of leases.
Government subsidies
Government subsidies mainly represent amounts granted by local government authorities as an incentive for companies to promote development of the local technology industry. The Company receives government subsidies related to government sponsored projects, and records such government subsidies as a liability when it is received. The Company records government subsidies as other income when there is no further performance obligation.
Total government subsidies amounted to Nil, $70,148 and $19,969 for the years ended December 31, 2024, 2023 and 2022, respectively.
Value added taxes
Revenue represents the invoiced value of service, net of VAT. The VAT is based on gross sales price and VAT rates range up to 13%, depending on the type of service provided. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. Net VAT balance between input VAT and output VAT is recorded in tax payable. All of the VAT returns filed by the Company’s subsidiaries in China have been and remain subject to examination by the tax authorities for five years from the date of filing.
Income taxes
The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. The charge for taxation is based on the results for the fiscal year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred taxes are accounted for using the asset and liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
Comprehensive income
Comprehensive income consists of two components, net income and other comprehensive (loss) income. Other comprehensive (loss) income refers to revenue, expenses, gains and losses that under U.S. GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Other comprehensive (loss) income consists of a foreign currency translation adjustment resulting from the Company not using the U.S. dollar as its functional currencies.
F-20
Earnings per share
The Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share”. ASC 260 requires companies to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average ordinary share outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of the potential ordinary shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential ordinary shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. The dilutive shares were 597,229 and 309,753 for the years ended December 31, 2024 and 2023.
Employee benefits
The full-time employees of the Company are entitled to staff welfare benefits including medical care, housing fund, pension benefits, unemployment insurance and other welfare, which are government mandated defined contribution plans by law. The Company is required to accrue for these benefits based on certain percentages of the employees’ respective salaries, subject to certain ceilings, in accordance with the relevant PRC regulations, and make cash contributions to the state-sponsored plans out of the amounts accrued. Total expenses for the plans were $30,045, $1,014 and $1,599,627 for the years ended December 31, 2024, 2023 and 2022, respectively.
Statutory reserves
Pursuant to the laws applicable to the PRC, PRC entities must make appropriations from after-tax profit to the non-distributable “statutory surplus reserve fund”. Subject to certain cumulative limits, the “statutory surplus reserve fund” requires annual appropriations of 10% of after-tax profit until the aggregated appropriations reach 50% of the registered capital (as determined under accounting principles generally accepted in the PRC (“PRC GAAP”) at each year-end). For foreign invested enterprises and joint ventures in the PRC, annual appropriations should be made to the “reserve fund”. For foreign invested enterprises, the annual appropriation for the “reserve fund” cannot be less than 10% of after-tax profits until the aggregated appropriations reach 50% of the registered capital (as determined under PRC GAAP at each year-end). If the Company has accumulated loss from prior periods, the Company is able to use the current period net income after tax to offset against the accumulate loss.
Recently issued accounting pronouncements
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures.” This ASU expands required public entities’ segment disclosures, including disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items and interim disclosures of a reportable segment’s profit or loss and assets. ASU 2023 07 is applied retrospectively to all periods presented in financial statements, unless it is impracticable. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company adopted this guidance effective July 1, 2024 and the adoption of this ASU is not expected to have a material impact on its financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update are intended to enhance the transparency and decision usefulness of income tax disclosures primarily through changes to the rate reconciliation and income taxes paid information. This update is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the ASU to determine its impact on our consolidated financial statements and related disclosures.
F-21
3. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consist of the following:
| December 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Accounts receivable | $ | 13,488,433 | $ | 28,816,059 | ||||
| Allowance for expected credit loss | (13,488,433 | ) | (13,658,675 | ) | ||||
| Total accounts receivable, net | $ | — | $ | 15,157,384 | ||||
Movements of expected credit loss are as follows:
| Schedule of movements of expected credit loss | ||||||||
| Expected credit loss | ||||||||
| Beginning balance | $ | 13,658,675 | $ | 4,854,638 | ||||
| Addition | 106,595 | 8,929,110 | ||||||
| Write-off | (64,070 | ) | — | |||||
| Exchange rate effect | (212,767 | ) | (125,073 | ) | ||||
| Ending balance | $ | 13,488,433 | $ | 13,658,675 | ||||
4. OTHER RECEIVABLES, NET
Other receivables consist of the following:
| Schedule of other receivables | ||||||||
| December 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Deposit for business acquisitions | $ | 11,960,764 | $ | 12,139,263 | ||||
| Deposit for set-up of research center | 83,468 | 84,714 | ||||||
| Others | 5,646,585 | 5,439,957 | ||||||
| Allowance for expected credit loss | (13,987,956 | ) | (13,481,228 | ) | ||||
| Total other receivables, net | $ | 3,702,861 | $ | 4,182,706 | ||||
In 2022, the Company acquired Fuzhou CSFC subject to customary conditions; it signed a three parties agreement that involves Fuzhou CSFC and Quanzhou Yiang Trading Co., Ltd (“Yiang”), of which Yiang is an independent third party. As of December 31, 2024, the Company paid a refundable deposit of $5,806,404 to Yiang as a guarantee, if the financial performance of Fuzhou CSFC does not meet the agreed terms. Since Fuzhou CSFC was disposed, the agreement party changed from Fuzhou CSFC to Blue Hat WFOE. Due to prolonged aging and lack of recoverability, the company recorded a full allowance of $5,806,404.
The Company signed a non-binding letter of intent to acquire a controlling equity interest of Fuzhou Tornado Network Technology Co., Ltd (“Tornado”), subject to customary conditions. Tornado is a developer and distributor of mobile games in China with an international user base across Mainland China, South Korea, the United Arab Emirates and North America. The acquisition price is expected to be based on the valuation of the acquired entities carried out by a qualified independent third party. The Company signed a three parties’ agreement that involves Tornado and Quanzhou Chengtai Co., Ltd (“Chengtai”), of which Chengtai is an independent third party. As of December 31, 2024 the Company paid a refundable deposit of $ 6,154,360 to Chengtai as a guarantee. There is no assurance that the proposed transaction will be consummated, particularly if the financial performance of Tornado does not meet the agreed terms. Due to prolonged aging and lack of recoverability, the company recorded a full allowance of $6,154,360.
In addition, the Company is aiming to establish a research center with Beijing Zhongrun Minan Intelligence Technology Co., Ltd (“Zhongrun”). The project will develop a training platform and application for kindergarten. As of December 31, 2024, the Company paid $ 83,468 to Zhongrun as a refundable deposit for preliminary costs. Due to prolonged aging and lack of recoverability, the company recorded a full allowance of $83,468.
Movements of allowance for expected credit loss are as follows:
| Schedule of allowance for expected credit loss | ||||||||
| Expected credit loss | ||||||||
| Beginning balance | $ | 13,481,228 | $ | 12,489,219 | ||||
| Addition | 579,369 | 1,207,145 | ||||||
| Exchange rate effect | (72,641 | ) | (215,136 | ) | ||||
| Ending balance | $ | 13,987,956 | $ | 13,481,228 | ||||
F-22
5. INVENTORIES, NET
Inventories, net consist of the following:
| Schedule of inventories, net | December 31, | December 31, | ||||||
| 2024 | 2023 | |||||||
| Gold | 64,560,000 | — | ||||||
| Diamonds | $ | — | $ | 17,178,241 | ||||
| Platinum | — | 366,912 | ||||||
| Total Inventory allowance, net | $ | 64,560,000 | $ | 17,545,153 | ||||
6. PREPAYMENTS, NET
Prepayments, net consist of the following:
| Schedule of prepayments, net | December 31, | December 31, | ||||||
| 2024 | 2023 | |||||||
| Prepayments | $ | 19,267 | $ | 36,588 | ||||
| Prepaid research and development expenses | — | 2,388,435 | ||||||
| Total prepayments, net | $ | 19,267 | $ | 2,425,023 | ||||
| December 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Prepayments - current | $ | 19,267 | $ | 464,129 | ||||
| Prepayments - non-current | — | 10,212,984 | ||||||
| doubtful accounts - current | — | (427,541 | ) | |||||
| Impairment loss | — | (7,824,549 | ) | |||||
| Total prepayments, net | $ | 19,267 | $ | 2,425,023 | ||||
Movements of allowance for doubtful accounts and impairment loss are as follows:
| Schedule of movements of allowance for doubtful accounts and impairment loss | ||||||||
| Beginning balance | $ | 8,252,090 | $ | 8,280,780 | ||||
| (Write-off)/Addition | (8,252,090 | ) | 110,015 | |||||
| Exchange rate effect | — | (138,705 | ) | |||||
| Ending balance | $ | — | $ | 8,252,090 |
7. LEASES
The Company adopted ASU No. 2016-02 and related standards (collectively ASC 842, Leases), which replaced previous lease accounting guidance, on January 1, 2019 using the modified retrospective method of adoption. The Company elected the transition method expedient which allows entities to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of electing this transition method, prior periods have not been restated. In addition, adoption of the new standard resulted in the recording of right of use assets and associated lease liabilities of approximately $1 million each as of January 1, 2019.
F-23
Operating lease expense for the years ended December 31, 2024, 2023 and 2022 was $325,412, $283,342 and $329,595, respectively.
Supplemental balance sheet information related to leases is as follows:
| Schedule of supplemental balance sheet | Location on Face of | December 31, | ||||
| Balance Sheet | 2024 | |||||
| Operating leases: | ||||||
| Operating lease right of use assets | Operating lease, right-of-use assets | $ | 1,830,544 | |||
| Current operating lease liabilities | Operating lease liabilities - current | $ | 166,122 | |||
| Noncurrent operating lease liabilities | Operating lease liabilities | 1,667,556 | ||||
| Total operating lease liabilities | $ | 1,833,678 | ||||
| Weighted average remaining lease term (in years): | ||||||
| Operating leases | 15.42 | |||||
| Weighted discount rate: | ||||||
| Operating leases | 4.17 | % | ||||
Maturities of lease liabilities were as follows:
| Schedule of maturities of lease liabilities | |||||
| For the year ended December 31, | Operating lease | ||||
| 2025 | $ | 240,176 | |||
| 2026 | 233,792 | ||||
| 2027 | 242,892 | ||||
| 2028 | 158,195 | ||||
| Thereafter | 1,406,396 | ||||
| Total | $ | 2,281,451 | |||
| Less: amount representing interest | 447,773 | ||||
| Present value of future minimum lease payments | 1,833,678 | ||||
| Less: Current obligations | 166,122 | ||||
| Long-term obligations | $ | 1,667,556 | |||
As of December 31, 2024 and 2023, the Company has additional operating lease commitments that have not yet commenced of approximately $0 and $0.
8. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consist of the following:
| Schedule of property and equipment | December 31, | December 31, | ||||||
| 2024 | 2023 | |||||||
| Building | $ | 4,322,359 | $ | 4,322,359 | ||||
| Electronic devices | 306,155 | 310,724 | ||||||
| Office equipment, fixtures and furniture | 41,215 | 40,324 | ||||||
| Vehicle | 1,194 | 1,212 | ||||||
| Subtotal | 4,670,923 | 4,674,619 | ||||||
| Less: accumulated depreciation and amortization | (1,288,850 | ) | (1,084,461 | ) | ||||
| Less: impairment | (44,740 | ) | (45,407 | ) | ||||
| Total | $ | 3,337,333 | $ | 3,544,751 | ||||
The depreciation expenses for the years ended December 31, 2024, 2023 and 2022 was $208,670, $260,883 and $185,083, respectively.
F-24
9. INTANGIBLE ASSETS, NET
The Company’s intangible assets with definite useful lives primarily consist of patents and licensed software. The following table summarizes the components of acquired intangible asset balances as of:
| Schedule of intangible asset | December 31, | December 31, | ||||||
| 2024 | 2023 | |||||||
| Patents | $ | — | $ | 1,241,199 | ||||
| Licensed software | — | 16,923,586 | ||||||
| Less: accumulated amortization | — | (3,766,061 | ) | |||||
| Less: impairment | — | (14,398,724 | ) | |||||
| Intangible assets, net | $ | — | $ | — | ||||
Amortization expenses for the years ended December 31, 2024, 2023 and 2022 amounted to $ -Nil, $159,579 and $169,149, respectively. The Company assessed some of the licensed software is unlikely to generate cash flow, as of year ended December 2023, it recorded $14,398,724 impairment loss and it carries no value as of December 2024.
10. LONG-TERM INVESTMENTS
The Company’s long-term investments consist of cost method investment.
Cost method investment
On September 20, 2018, Blue Hat Fujian formed a joint venture with Fujian Jin Ge Tie Ma Information Technology Co., Ltd., contributing a 20.0% equity interest in Xiamen Blue Wave Technology Co. Ltd. (“Xiamen Blue Wave”), a PRC company. The ownership percentage diluted to 15.0% upon other shareholders contributed additional investment into Xiamen Blue Wave in December 2018. As the Company did not have significant influence over the investee, the investment in Xiamen Blue Wave was accounted for using the cost method. As of December 31, 2023 and 2022, the carrying value of cost method investment in Xiamen Blue Wave was $1,694,269 and $1,722,999 respectively.
Long-term investments are evaluated for impairment when facts or circumstances indicate that the fair value of the long-term investments is less than its carrying value. Impairment is recognized when a decline in fair value is determined to be other-than- temporary.
On July 2024, the joint venture was deregistered, as the Company has decided to change its business operations to gold trading, thus as of December 31, 2024, it recorded $ 1.69 million fully loss on investment.
11. CREDIT FACILITIES
Short term loans - banks
Outstanding balances on short-term bank loans consisted of the following:
| Schedule of short-term bank loans | ||||||||||||||||||
| Institute | Interest | Collateral/ December 31, | December 31, | |||||||||||||||
| name | Maturities | rate | Guarantee | 2024 | 2023 | |||||||||||||
| Xiamen Rural Commercial Bank | January 2025 | 6.58 | % | Guarantee by 14 property rights | 146,341 | 273,713 | ||||||||||||
| Total | $ | 146,341 | $ | 273,713 | ||||||||||||||
Interest expense pertaining to the above short-term for the years ended December 31, 2023, 2022 and 2021 amounted to $30,897, $26,530 and $33,569, respectively.
F-25
12. ACCOUNT PAYABLES
Account payables consist of the following:
| Schedule of Account payables | December 31, | December 31, | ||||||
| 2024 | 2023 | |||||||
| Gold | $ | 33,876,967 | $ | — | ||||
| Game equipment | 118,029 | 119,790 | ||||||
| Information Technology service | 161,364 | 198,939 | ||||||
| Total accounts payable | $ | 34,156,360 | $ | 318,729 | ||||
On August 28, 2024, the company signed a tripartite agreement on the transfer of accounts receivable with one supplier and four customers. The accounts receivable has been offset against accounts payable, with an amount of $33.87 million.
13. OTHER PAYABLES AND ACCRUED LIABILITIES
Other payables and accrued liabilities consist of the following:
| Schedule of other payables and accrued liabilities | December 31, | December 31, | ||||||
| 2024 | 2023 | |||||||
| Payables to non-trade vendors and service providers | $ | 3,744,669 | $ | 3,475,685 | ||||
| Salary payables | 948,829 | 473,086 | ||||||
| Interest payable | 33,011 | — | ||||||
| Other miscellaneous payables | 54,456 | 79,112 | ||||||
| Total other payables and accrued liabilities | $ | 4,780,965 | $ | 4,027,883 | ||||
14. CONVERTIBLE NOTES PAYABLE
As of December 31, 2024 and 2023, convertible debt consisted of the following:
| Schedule of convertible debt | December 31, | December 31, | ||||||
| 2024 | 2023 | |||||||
| Beginning | $ | — | $ | 1,393,499 | ||||
| Addition | — | — | ||||||
| Interest expenses | — | 146,322 | ||||||
| Paid for cash | — | (449,999 | ) | |||||
| Conversion | — | (1,089,822 | ) | |||||
| Convertible debt, net | $ | — | $ | — | ||||
Pursuant to this note, the Company, from time to time, offering the Ordinary Shares, par value 0.01, for an aggregate offering price of $1,550,000, issuable upon the conversion of $1,705,000 principal amount of 6% convertible note due January 14, 2024 (the “Note”).
On October 14, 2022, the Company entered into an agreement with Streeterville Capital, LLC (the “Purchaser”). The Purchaser bought the Note which has a principal amount of $1,705,000 and bears an interest rate that equals to 6% per annum, payable after the purchase price date, unless earlier period, or converted.
The Note has a conversion price equal to eighty percent (80%) of the lowest daily VWAP (the dollar volume-weighted average price for ordinary shares on the Nasdaq Capital Market) during the 10 consecutive trading days immediately preceding the conversion date or other date of determination, but not lower than US$0.70 per Ordinary Share or any reset lowest price as applicable (the “Floor Price”). The Note was amended on October 14, 2022 to the effect that the Floor Price is set to $0.70. In the event the Company’s VWAP is lower than the Floor Price, the Company could repay the amount by cash.
The principal and the interest payable under the Note will become due and payable within 15 months after the Maturity Date, unless earlier converted or prepaid by us. At any time from the Maturity Date until the Outstanding Balance has been paid in full, the Purchaser may convert the Note at their option into our Ordinary Shares at the Conversion Price. The Company have the right, but not the obligation, to prepay a portion or all amounts outstanding under the Note prior to the Maturity Date at a cash price equal to 115% of the outstanding Principal balance to be prepaid and plus accrued and unpaid interest, and we provide the holder of the Note not less than ten 10 business days’ prior written notice of our desire to exercise an Optional Prepayment.
F-26
15. RELATED PARTY BALANCES AND TRANSACTIONS
Other receivables - related party
| Schedule of other receivables related party | December 31, | December 31, | ||||||||||
| Name of Related Party | Relationship - | Nature | 2024 | 2023 | ||||||||
| Xiaodong Chen | CEO | $ | — | $ | 3 | |||||||
| Blue Hat Fujian | Shareholders’ investment company | Disposal consideration | 1,388,643 | 1,559,671 | ||||||||
| Blue Hat Pingxiang | Shareholders’ investment company | Disposal consideration | 38,496 | 39,070 | ||||||||
| Fujian Blue Hat Interactive Entertainment Technology Co., Ltd. Fuzhou Branch | Shareholders’ investment company | Other receivable | 1,587 | — | ||||||||
| Fujian Lanyuncanghai Technology Co., Ltd | Shareholders’ investment company | Other receivable | 337,935 | 342,979 | ||||||||
| Total | $ | 1,766,661 | $ | 1,941,723 | ||||||||
Other payables - related party
| Schedule of other payables related party | December 31, | December 31, | ||||||||||
| Name of Related Party | Relationship - | Nature | 2024 | 2023 | ||||||||
| Tao Fan | The brother of COO | loans | 600,885 | — | ||||||||
| Xiaodong Chen | CEO | Lease and other payable | $ | 971 | $ | — | ||||||
| Total | $ | 601,856 | $ | — | ||||||||
Long term loans - related party
| Schedule of long term loan related party | December 31, | December 31, | ||||||||||
| Name of Related Party | Relationship - | Nature | 2024 | 2023 | ||||||||
| Xiaodong Chen | CEO | Borrowing | $ | 770,155 | $ | 831,155 | ||||||
| Bequtiful Jade Ltd | Shareholders’ investment company | Attorney fee | 3,795 | 3,795 | ||||||||
| Total | $ | 773,950 | $ | 834,950 | ||||||||
Long term loans from related parties are unsecured and interest free, the payment was due on January 31, 2026.
F-27
16. Taxes
Income tax
Cayman Islands
Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.
British Virgin Islands
Blue Hat BVI and Golden Strategy are incorporated in the British Virgin Islands and is not subject to tax on income or capital gains under current British Virgin Islands law. In addition, upon payments of dividends by these entities to their shareholders, no British Virgin Islands withholding tax will be imposed.
United States
Blue USA which is a limited liability company that is taxed as a partnership for U.S. federal and certain state and local income tax purposes. Blue USA’s net taxable income or loss and related tax credits, if any, are passed through to its members on a pro-rata basis and included in the member’s tax returns. The income tax burden on the earnings taxed to the non-controlling interest holders is not reported by the Company in its consolidated financial statements under GAAP.
Hong Kong
Blue Hat HK and Golden Alpha are incorporated in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5% in Hong Kong. The Company did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception. Under Hong Kong tax law, Blue Hat HK is exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.
PRC
PRC companies are governed by the income tax laws of the PRC and the income tax provision in respect to operations in the PRC is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Enterprise Income Tax Laws of the PRC (the “EIT Laws”), domestic enterprises and Foreign Investment Enterprises (the “FIE”) are usually subject to a unified 25% enterprise income tax rate while preferential tax rates, tax holidays and even tax exemption may be granted on case- by-case basis. EIT grants preferential tax treatment to certain High and New Technology Enterprises (“HNTEs”). Under this preferential tax treatment, HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for HNTE status every three years.
Tax savings for the years ended December 31, 2024, 2023 and 2022 amounted to $6,837,700, $8,847,998 and $6,402,621, respectively. The Company’s basic and diluted earnings per shares would have been lower by $16.29, $97.93 and $119.42 per share for the years ended December 31, 2024, 2023 and 2022, respectively, without the preferential tax rate reduction.
Significant components of the provision for income taxes are as follows:
| Schedule of provision for income taxes | December 31, | December 31, | ||||||
| 2024 | 2023 | |||||||
| Current | $ | — | $ | 6,081 | ||||
| The provision for income taxes | $ | — | $ | 6,081 | ||||
The following table reconciles China statutory rates to the Company’s effective tax rate:
F-28
| Schedule of effective tax rate | Year ended | Year ended | Year ended | |||||||||
| December 31, | December 31, | December 31, | ||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| China statutory income tax rate | 25.0 | % | 25.0 | % | 25.0 | % | ||||||
| Preferential tax rate reduction | (10.0 | )% | (10.0 | )% | (10.0 | )% | ||||||
| Permanent difference | (15.2 | )% | (15.2 | )% | (15.2 | )% | ||||||
| Effective tax rate | (0.2 | )% | (0.2 | )% | (0.2 | )% | ||||||
As of December 31, 2024, 2023 and 2022, the Company had approximately $27 million, $35 million and $26 million of allowance for doubtful accounts with deferred tax assets of approximately $0, $0 and $0, respectively. The Company estimates there will not be sufficient future income to realize the deferred tax assets as of December 31, 2024 and 2023. Thus, there were no valuation allowances of December 31, 2024 and 2023 in respect to the deferred tax assets on allowance for doubtful accounts.
Uncertain tax positions
The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits and measures the unrecognized benefits associated with the tax positions. As of December 31, 2024, 2023 and 2022, the Company did not have any significant unrecognized uncertain tax positions.
The Company did not incur any interest and penalties tax for the years ended December 31, 2024, 2023 and 2022. The Company does not anticipate any significant increases or decreases in unrecognized tax benefits in the next twelve months from December 31, 2024.
Value added tax
All of the Company’s service revenues that are earned and received in the PRC are subject to a Chinese VAT. The rate of Chinese VAT is 16%, and then changed to 13% and 6% starting in April 2019 of the gross proceeds or at a rate approved by the Chinese local government.
Taxes payable consisted of the following:
| Schedule of taxes payable | December 31, | December 31, | ||||||
| 2024 | 2023 | |||||||
| VAT taxes payable | $ | 435,132 | $ | 441,704 | ||||
| Income taxes payable | 180,315 | 183,171 | ||||||
| Other taxes payable | 178,045 | 180,702 | ||||||
| Totals | $ | 793,492 | $ | 805,577 | ||||
17. CONCENTRATION OF RISK
Credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash (including restricted cash and certificate deposits). As of December 31, 2024, 2023 and 2022, $16,748, $409,175 and $70,402 were deposited with financial institutions located in the PRC, respectively. These balances are not covered by insurance. While management believes that these financial institutions are of high credit quality, it also continually monitors their credit worthiness.
F-29
The Company is also exposed to risk from its accounts receivable and other receivables. These assets are subjected to credit evaluations. An allowance has been made for estimated unrecoverable amounts which have been determined by reference to past default experience and the current economic environment.
A majority of the Company’s expense transactions are denominated in RMB and a significant portion of the Company and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.
Our functional currency is the RMB, and our financial statements are presented in U.S. dollars. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. The change in the value of the RMB relative to the U.S. dollar may affect our financial results reported in the U.S. dollar terms without giving effect to any underlying changes in our business or results of operations. Currently, our assets, liabilities, revenues and costs are denominated in RMB.
To the extent that the Company needs to convert U.S. dollars into RMB for capital expenditures and working capital and other business purposes, appreciation of RMB against U.S. dollar would have an adverse effect on the RMB amount the Company would receive from the conversion. Conversely, if the Company decides to convert RMB into U.S. dollar for the purpose of making payments for dividends, strategic acquisition or investments or other business purposes, appreciation of U.S. dollar against RMB would have a negative effect on the U.S. dollar amount available to the Company.
Customer concentration risk
For the year ended December 31, 2024, four customers accounted for 29.7%, 26.0%, 23.6% and 20.8% of the Company’s total revenues. For the year ended December 31, 2023, two customers accounted for 17.15% and 10.14% of the Company’s total revenues. For the year ended December 31, 2022, five customers accounted for 18.6%, 16.8%, 16.2%, 10.9% and 10.2% of the Company’s total revenues.
As of December 31, 2024, the Company does not have balance in AR. As of December 31, 2023, four customers accounted for 36.2%, 26.9%, 19.0% and 17.3% of the total balance of accounts receivable.
Vendor concentration risk
For the year ended December 31, 2024, one vendor accounted for 100% of the Company’s total purchases. For the year ended December 31, 2023, two vendors accounted for 28.98% and 20% of the Company’s total purchases. For the year ended December 31, 2022, three vendors accounted for 22.67%, 13.82% and 13.09% of the Company’s total purchases.
As of December 31, 2024, one vendor accounted for 99.2% of the total balance of accounts payable. As of December 31, 2023, four vendors accounted for 37.5%, 14.37%, 10.53% and 10.12% of the total balance of accounts payable.
F-30
18. SHAREHOLDERS’ EQUITY
Ordinary shares
Blue Hat Cayman was established under the laws of Cayman Islands on June 13, 2018. The authorized number of ordinary shares is 500,000,000 shares with a par value of $0.01 per ordinary share.
On May 10, 2022, the Company has authorized and approved a 1-for-10 reverse stock split of the Company’s authorized (issued and unissued) shares of ordinary shares, effective May 27, 2022. The reverse stock split would be reflected in December 31, 2023, and December 31, 2022 statements of changes in stockholders’ equity, and in per share data for all period presented.
On June 6, 2022, DTCC is presenting 35,641,462 shares for reverse split and request 3,572,818 shares after reverse split. The additional 8,762 shares requested represents Beneficial/Participant.
Securities Purchase Agreement
In June 2022, the Company entered into an Agreement with Aegis Capital Corp., to engages Aegis act as the Company’s exclusive underwriter and investment banker to consist of a sale of up to $10 million of the Company’s Securities. On July 11, 2022, the company issued 500,000 ordinary shares, par value $0.01 per share in the purchase contracts at a price of $3.60 per share directly to Blackhorse Capital Co., Ltd and Gold Bull Capital Co., Ltd respectively. Under the terms of the securities purchase agreement the Company has agreed that the undersigned, Hudson Bay Master Fund Ltd., entitled to 94,429 ordinary shares of the warrant issued on July 15, 2020, and has exercised 60,845 ordinary shares as of July 26, 2022 on a Cashless basis, with the bid price as of such time of execution of this exercise was $2.65 per share. The Company has agreed that the undersigned, Hudson Bay Master Fund Ltd., entitled to 300,000 ordinary shares of the warrant issued on July 15, 2020, and has exercised 100,933 and 108,714 ordinary shares respectively as of August 2, 2022 and August 4, 2022 on a Cashless basis, with the bid price as of such time of execution of this exercise was $2.51 and $2.24 per share.
On March 2023, the Company entered into an Agreement with F&P Capital Management Company Limited to consist of a sale of 4,000,000 ordinary shares, par value $0.01 at a total consideration of $2,800,000. F&P act as the Company’s party to distribute the shares to individuals: Wei WEN, Youzhi FAN, Ping LIU, Qian WANG, Chengcheng FAN, and Yao CHENG.
On September 2023 afterwards, the Company announced that the securities purchase agreement dated as of July 8, 2020 with Alto Opportunity Master Fund, SPC - Segregated Master Portfolio B and Hudson Bay Master Fund Ltd. was effective. The effectiveness of the 1-for-10 reverse split of the ordinary shares, par value $0.001 per share, the exercise price per share of the common stock shall be adjusted to $0.70, result in an additional warrant amount of $283,425.
On February and March 2024, the Company announced that the securities purchase agreement dated as of July 8, 2020 with Alto Opportunity Master Fund, SPC - Segregated Master Portfolio B and Hudson Bay Master Fund Ltd. was effective. The effectiveness of the 1-for-10 reverse split of the ordinary shares, par value $0.001 per share. The exercise price per share of the common stock shall be adjusted to $0.70, the company issued 25,000 and 75,000 shares at $0.7 per share, respectively.
Consulting Service Agreement
On July 29, 2020, the Company entered into a Consulting Service Agreement (the “Agreement”) with First Trust China Ltd (the “Consultant”), a company incorporated in PRC, pursuant to which Consultant will: (i) assisting the Company in planning and implementing new business plans with the objective of improve Company’s long-term growth potential and delivering values to shareholders; (ii) advising the Company’s board of directors and management on all matters as positioning the Company for its next stage of growth; (iii) identifying prospective joint venture and strategic alliance opportunities for the Company, helping the Company to negotiate agreements and advising the Company on mergers and acquisitions; and (iv) identifying potential merger and acquisition targets for the Company, and provide necessary business analysis, evaluation and due diligence of the targeted companies as requested by the Company, as well as advising the Company on specific merger/acquisition issues. The term of the Agreement is one year. In consideration of the services to be provided by the Consultant to the Company, the Company agrees to pay the Consultant consulting fee totally $360,000 or 500,000 common shares. The Company shall issue a total of 500,000 of the Company Ordinary shares (the “Consultant Shares”) as the payment for the above mentioned consultant fee to the Consultant. For the year ended December 31, 2020,
F-31
the Company recorded stock related compensation of $287,500, based on the stock closing price of $1.15 within ten days of the Agreement date, for the 250,000 shares which were released to the Consultant immediately upon issuance. On September 14, 2021, the Company released the second batch of 250,000 shares to the Consultant and the Company will recognize stock related compensation of $155,825 for the 250,000 shares. On March 30, 2022, the BOD of company announced to issue an aggregate of 5,000,000 and 3,000,000 ordinary shares of the Company, par value 0.001 to Chengguo and Qirui , respectively, according to the Technical Consulting Service Contract between the Company Chengguo and Qirui dated Jan 1, 2021 . According to the Supplementary agreement, Chengguo and Qirui provided service, and the service period for Chengguo was from January 1, 2021 to Dec 31 2023 and the service period for Qirui was from January 1, 2021 to December 31, 2023. Because the first year of agreement was period of investigation, both services started at January 1, 2022 actually as stated in the agreement. It resulted the amortization of additional paid-in capital was 2 years for this agreement. And the shares were issued on April 7, 2022. On May 24, 2022, this Regulation S Certification is being delivered in connection with the issuance contemplated under Technology Development Service Agreement by and between the Company and Fujian Xinwanzhong Network Technology Co., Ltd., pursuant to which the Company will issue an aggregate of 8,000,000 restricted ordinary shares of the Company, par value $0.001 per share. On May 24, 2022, this Regulation S Certification is being delivered in connection with the issuance contemplated under the Consultancy Service Contract by and between Blue Hat Interactive Entertainment Technology, the Company and Shenzhen BAK Battery Co., Ltd., pursuant to which the Company will issue an aggregate of 2,800,000 restricted ordinary shares of the Company, par value $0.001 per share. The agreement has been terminated in 2024. On May 24, 2022, this Regulation S Certification is being delivered in connection with the issuance contemplated under the Technical Consulting Service Contract by and between the Company and Beijing Kehuihua Planning Consulting Co., Ltd., pursuant to which the Company will issue an aggregate of 2,600,000 restricted ordinary shares of the Company, par value $0.001 per share. The agreement has been terminated in 2024. On May 2023 , the Company engaged Dengwei as the non-exclusive advisor to assist the Company in identifying potential business development opportunities, merging and acquisition opportunities and negotiation with identified businesses, under the agreement, the Company issue 500,000 common shares, par value $0.01 per share.
On August 29, 2023, the Company and FirsTrust China Ltd signed a consulting contract to provide the Company with consulting advice on development strategies and business operations for a period of 6 months from August 29 2023 to February 28, 2024, the contractual payment is for a total of 300,000 ordinary shares.
Diamond purchase agreement
On June 28, 2023, the Company has entered into two diamonds purchased agreements with Alpha Infinity Fintech Inc. and Fujian Blue Sea Resting Sun Science and Technology Limited respectively, pursuant to which the Company agreed to purchase the diamonds from and the subscribers have agreed to sell to the Company, a number of diamonds valued at $25,472,904.53 in respect of the Diamonds Purchase with Alpha and $5,607,025.14 in respect of the Diamonds Purchase with Blue Sea, totaling $31,079,929.67 in value. Pursuant to the Alpha Agreement, the consideration for the Diamonds thereunder shall be settled by way of (i) issuance of the Company’s ordinary shares, par value $0.01 per share to Alpha and its designated allottees; and (ii) payment of $1.3 million in cash. Pursuant to the Blue Sea Agreement, the consideration for the Diamonds thereunder shall settled by way of issuance of the Company’s Ordinary Shares to Blue Sea and its designated allottees. Part of the consideration will be in the form of the Company issuing to the subscribers a total of 42,000,000 Ordinary Shares for a purchase price of $0.71 per Purchased Share and a total aggregate consideration of $29,820,000. As the closing price of the Company stock was $1.01 per share on June 28, 2023, the purchased was $42,000,000.
Restricted assets
The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiary. Relevant PRC statutory laws and regulations permit payments of dividends by Blue Hat WFOE and Blue Hat Fujian (collectively “Blue Hat PRC entities”) only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the accompanying consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of Blue Hat PRC entities.
F-32
Blue Hat PRC entities are required to set aside at least 10% of their after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of their registered capital. In addition, Blue Hat PRC entities may allocate a portion of its after- tax profits based on PRC accounting standards to enterprise expansion fund and staff bonus and welfare fund at its discretion. Blue Hat PRC entities may allocate a portion of its after-tax profits based on PRC accounting standards to a discretionary surplus fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by State Administration of Foreign Exchange.
As a result of the foregoing restrictions, Blue Hat PRC entities are restricted in their ability to transfer their assets to the Company. Foreign exchange and other regulation in the PRC may further restrict Blue Hat PRC entities from transferring funds to the Company in the form of dividends, loans and advances. As of December 31, 2024, 2023 and 2022 amounts restricted are the paid-in-capital and statutory reserve of Blue Hat PRC entities, which amounted to $97,432,004, $96,555,324 and $46,388,025, respectively.
Payments-omnibus equity plan
The 2020 Equity Incentive Plan was adopted by the shareholders of the Company on December 9, 2020, the maximum number of ordinary shares in respect of which any awards may be granted or paid out thereunder is 6,000,000 ordinary shares of par value of US$0.001 per share. Pursuant to the resolutions of the shareholders of the Company passed on 10 May 2022, every 10 ordinary shares of a par value of US$0.001 each in the authorized share capital of the Company (including issued and unissued share capital) were consolidated into 1 ordinary share of a par value of US$0.01 each (the “Share Consolidation”). After the Share Consolidation, the maximum number of ordinary shares in respect of which any awards may be granted or paid out under the 2020 Plan is 600,000 ordinary shares of par value of US$0.01 per share.
Statutory reserve
During the years ended December 31, 2024, 2023 and 2022, Blue Hat PRC entities collectively attributed -nil, nil and nil of retained earnings for their statutory reserves, respectively.
Capital contributions
During the year ended December 31, 2024, 2023 and 2022, the Company’s shareholders contributed $876,680, $37,567,299, and $7,908,957 to the Company.
19. IMPAIRMENT LOSS
Movements of impairment loss for goodwill are as follows:
| Schedule of impairment loss | Year ended December 31, 2024 | Year ended December 31, 2023 | Year ended December 31, 2022 | |||||||||
| Acquisition of Shengruihao - goodwill | $ | — | $ | — | $ | 3,681 | ||||||
| Impairment loss | — | — | (3,681 | ) | ||||||||
The Company recorded -nil an nil of impairment loss in fiscal year 2024 and 2023 respectively .
Acquired intangible assets are recognized based on their cost to the Company, which generally includes the transaction costs of the asset acquisition, and no gain or loss is recognized unless the fair value of noncash assets given as consideration differs from the assets’ carrying amounts on the Company’s book. These assets are amortized over their useful lives if the assets are deemed to have a finite life and they are reviewed for impairment by testing for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The fair value of an intangible asset is the amount that would be determined if the entity used the assumptions that market participants would use if they were pricing the intangible asset. The useful life of the Company’s intangible assets is ten years, which is determined by using the time period that an intangible is estimated to contribute directly or indirectly to a Company’s future cash flows. The Company assessed some of the licensed software is unlikely to generate cash flow, as of year ended December 2024 and 2023, it recorded nil and $1,075,997 impairment loss respectively.
F-33
Property plant and equipment are recognized based on their cost to the Company, which generally includes the transaction costs of the asset acquisition. These assets are amortized over their useful lives if the assets are deemed to have a finite life. The useful life of the impaired asset is three years, which is determined by using the time period that an property plant and equipment is estimated to contribute directly or indirectly to a Company’s future cash flows. The Company assessed some of the asset is unlikely to generate cash flow, as of year ended December 2024 and 2023, it recorded nil and $17,308 impairment loss respectively.
On January 25, 2021, Blue Hat Cayman acquired 100% entity interest of Fresh Joy under the Company. Goodwill was formed while acquisition. The Company tests goodwill for impairment for its reporting units on an annual basis, or when events occur or circumstances indicate the fair value of a reporting unit is below its carrying value. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that implied fair value of the goodwill within the reporting unit is less than its carrying value.
The Company uses the discounted cash flow model to estimate fair value, which requires management to make significant estimates and assumptions related to forecasts of future revenue and operating margin. In addition, the discounted cash flow model requires the Company to select an appropriate weighted average cost of capital based on current market conditions as of December 31, 2022. The Company has concluded that goodwill impairment loss is $3,681 as of December 31, 2022.
20. DISCONTINUED OPERATIONS
On June 8, 2023, the Company disposed the variable interest entities and their subsidiaries, Fujian Blue Hat Interactive Entertainment Technology Ltd. (“Blue Hat Fujian”). The subsidiaries including Pingxiang Blue Hat Technology Co. Ltd. (“Blue Hat Pingxiang”), Fujian Lanyun Canghai Technology Co., Ltd (“Fujian Lanyun”). The VIEs and subsidiaries mainly operating in interactive toys and mobile game business in PRC, upon the disposition, the assets and liabilities are transferred to Blue Hat WOFE.
On June 8, 2023, he Company also disposed another variable interest entities and their subsidiaries, Fujian Xinyou Technology Co., Ltd (“Xinyou Technology”), Fresh Joy Entertainment Limited (“Fresh Joy”), Hong Kong Xinyou Entertainment Company (“Xinyou Entertainment”), Fujian Roar Game Technology Co., Ltd (“Fujian Roar Game”) Fuzhou Csfctech Co., Ltd (“Fuzhou CSFC”) and Fuzhou UC71 Co., Ltd (“Fuzhou UC71”). The VIEs and subsidiaries mainly operating in interactive toys and mobile game business in PRC, the disposition resulting in a gain on disposal of $7,389,310.
Loss from discontinued operations for the ended December 31, 2023 was as follows:
| Schedule of loss from discontinued operations | December 31, | |||
| 2023 | ||||
| Revenues | $ | — | ||
| Cost of sales | — | |||
| Gross profit | — | |||
| Operating expenses: | ||||
| General and Administrative | — | |||
| Selling expenses | — | |||
| Research and development | — | |||
| Total | $ | — | ||
| Other income (expense) | ||||
| Interest income | $ | — | ||
| Other (expense) income, net | — | |||
| Other finance expenses | — | |||
| Total | — | |||
| Loss from discontinued operations before income tax | — | |||
| Income tax provision | — | |||
| Loss from discontinued operations before non-controlling interest | $ | — | ||
| Less: Net loss attributable to non-controlling interest | — | |||
| Foreign currency translation | — | |||
| Gain/(Loss) from discontinued operation | $ | 7,389,310 | ||
F-34
21. COMMITMENTS AND CONTINGENCIES
Purchase commitments
The Company has entered into three agreements for game software development and one agreement for community software development. As of December 31, 2024 and 2023, the Company’s commitment under these agreements amounted to $ Nil and $2,388,435. The Company has decided to change the business strategy to gold trading, thus it has suspended all the software business. The projects following did not make any progress since 2023, thus the contracts are terminated and recorded as expensed.
On Aug 26, 2021, the Company entered into a Sanguo game software development with Chengguo with total contract amount $1,263,642. $439,098 was paid to Chengguo when contract was first signed. $252,728 is expected to be paid to the developer when the project completed by 70%, until Dec 31, 2024, the program has completed 70%, but the contract is terminated.
On Sep 14, 2021, the Company entered into a Monopoly game software development with Xiamen Chengguo intelligence technology Co.,Ltd (“Chengguo”) with total contract amount $906,434. $332,394 was paid to Chengguo when contract was first signed. $272,495 is expected to be paid to the developer when the project completed by 80%, until Dec 31, 2024, the program has completed 75%, but the contract is terminated.
On Nov 3, 2021, the Company entered into a box game software development with Fuzhou Qirui software development Co.,Ltd (“Qirui”) with total contract amount $1,280,585. $612,721 was paid to the developer when the contract first signed. $635,351 is expected to be paid to the developer when the project completed by 50%, until Dec 31, 2024 the program has competed by 65%, but the contract is terminated .
On Oct 18, 2022, the Company entered into a platform development with Chengguo aiming to analyze the statistics of commodity and jewelry transactions with total contract amount $1,601,084. $1,004,222 was paid to Chengguo when contract was first signed. $399,565 is expected to be paid to the developer when the project completed by 70%, until Dec 31, 2024, the program has completed 20%, but the contract is terminated.
22. SUBSEQUENT EVENT
On March 2025, the Company has successfully completed the final payment for the gold transaction between its fully owned subsidiary Golden Strategy and a third-party Macau Rongxin Precious Metals Technology Co., Ltd. which was followed by a sales agreement from October 2023. According to the agreement, the transaction was concluded after the company settled the final balance through the issuance of the ordinary shares. The ordinary shares are subject to 3-year lock-up period and do not carry voting rights.
March 17, 2025, the reverse stock split at a ratio of 1-for-100 shares was approved by the Company’s board of directors and its shareholders.
23. SEGMENT INFORMATION AND REVENUE ANALYSIS
The Company follows ASC 280, Segment Reporting, which requires that companies to disclose segment data based on how management makes decision about allocating resources to each segment and evaluating their performances. The Company has three reporting segments. The Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. The Company considers itself to be operating within one reportable segment. The Company’s revenue and net income are substantially derived from diamond trading.
Disaggregated information of revenues by business lines are as follows:
| Schedule of disaggregated information of revenues by business lines | Year ended | Year ended | Year ended | |||||||||
| December 31, | December 31, | December 31, | ||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Diamond trading | $ | 18,724,190 | $ | 15,152,777 | $ | — | ||||||
| Commodity trading | — | 58,118,001 | 1,149,163 | |||||||||
| Information service | — | 415,955 | 884,329 | |||||||||
| Interactive toys - animation series | — | — | 6,903 | |||||||||
| Interactive toys - game series | — | — | 155,559 | |||||||||
| Total revenues | $ | 18,724,190 | $ | 73,686,733 | $ | 2,195,954 | ||||||
F-35
Disaggregated information by business lines are as follows:
Year ended December 31, 2024
| Schedule of disaggregated information by business lines | Diamond Trading | |||
| Revenue | $ | 18,724,190 | ||
| Costs of revenue | (17,178,241 | ) | ||
| Gross Profit | 1,545,949 | |||
| Year ended December 31, 2023 |
| Diamond | Commodity | Information | ||||||||||
| Trading | Trading | service | ||||||||||
| Revenue | $ | 15,152,777 | $ | 58,118,001 | $ | 415,955 | ||||||
| Costs of revenue | (13,901,688 | ) | (58,081,952 | ) | (549,242 | ) | ||||||
| Gross Profit | 1,251,089 | 36,049 | (133,287 | ) | ||||||||
| Year ended December 31, 2022 |
| Interactive toys animation series |
Interactive toys game series |
Commodity Trading | Information Service | |||||||||||||
| Revenue | $ | 6,903 | $ | 155,559 | $ | 1,149,163 | $ | 884,329 | ||||||||
| Costs of revenue | (3,420 | ) | (78,118 | ) | (50,804 | ) | (826,096 | ) | ||||||||
| Gross Profit | $ | 3,483 | $ | 77,441 | $ | 1,098,359 | $ | 58,233 | ||||||||
The Company’s operations are primarily based in the PRC, where the Company derives a substantial portion of their revenues. Management also reviews consolidated financial results by business locations. Disaggregated information of revenues by geographic locations are as follows
| Schedule of disaggregated information of revenues by geographic locations | Year ended December 31, 2024 |
Year ended December 31, 2023 |
Year ended December 31, 2022 | |||||||||
| Domestic PRC revenues | $ | 18,724,190 | $ | 73,686,733 | $ | 2,195,954 | ||||||
| Export revenues | — | — | — | |||||||||
| Total revenues | $ | 18,724,190 | $ | 73,686,733 | $ | 2,195,954 | ||||||
Segment asset
| Schedule of segment asset | December 31, | December 31, | ||||||
| 2024 | 2023 | |||||||
| Diamond trading | $ | 10,672,436 | $ | 33,029,615 | ||||
| Gold | 64,560,000 | — | ||||||
| Commodity trading | — | 114,900 | ||||||
| Information service | — | 2,507,120 | ||||||
| Corporate and Unallocated | — | 13,611,203 | ||||||
| Total | 75,232,436 | 49,262,838 | ||||||
Assets subject to attribution to business segments largely include property, plant and equipment, receivable and right of use assets. All other items are reflected in Corporate and Unallocated.
25. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
The Company performed a test on the restricted net assets of consolidated subsidiary in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08(e)(3), “General Notes to Financial Statements” and concluded that it was applicable for the Company to disclose the financial statements for the parent company.
F-36
The subsidiary did not pay any dividend to the Company for the years presented. For the purpose of presenting parent only financial information, the Company records its investment in its subsidiary under the equity method of accounting. Such investment is presented on the separate condensed balance sheets of the Company as “Investment in subsidiary” and the income of the subsidiary is presented as “share of income of subsidiary”. Certain information and footnote disclosures generally included in financial statements prepared in accordance with U.S. GAAP have been condensed and omitted.
The Company did not have significant capital and other commitments, long-term obligations, or guarantees as of December 31, 2024 and 2023.
PARENT COMPANY BALANCE SHEETS
| Schedule of condensed financial information of the parent company | ||||||||
| December 31, 2024 |
December 31, 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | — | $ | 23,107 | ||||
| Account receivables, net | — | 15,090,224 | ||||||
| Other receivables, net | — | 4,299,894 | ||||||
| Inventories | — | 17,178,241 | ||||||
| Total current assets | — | 36,591,466 | ||||||
| Non-current assets: | ||||||||
| Property, plant and equipment, net | 3,321,582 | 3,526,773 | ||||||
| Investment in subsidiaries | 31,036,848 | 1,961,211 | ||||||
| Total non-current assets | 34,358,430 | 5,487,984 | ||||||
| Total assets | $ | 34,358,430 | $ | 42,079,450 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| LIABILITIES | ||||||||
| Other payables and accrued liabilities | $ | 1,441,662 | $ | 622,425 | ||||
| Other payables - related party | — | — | ||||||
| Short-term loans | — | — | ||||||
| Convertible notes payable | — | — | ||||||
| Total current liabilities | 1,441,662 | 622,425 | ||||||
| Non-current liabilities | 773,950 | 834,950 | ||||||
| Total liabilities | 2,215,612 | 1,457,375 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Ordinary shares, $1.00 par value, 5,000,000 shares authorized, 584,982, 583,982, shares issued and outstanding as of December 31, 2024 and 2023 respectively | 584,982 | 583,982 | ||||||
| Additional paid-in capital | 94,863,300 | 93,828,090 | ||||||
| Statutory reserves | 2,143,252 | 2,143,252 | ||||||
| Retained earnings | (66,356,798 | ) | (56,832,015 | ) | ||||
| Accumulated other comprehensive losses | 908,296 | 898,766 | ||||||
| Total Blue Hat Interactive Entertainment Technology shareholders’ equity | 32,142,818 | 40,622,075 | ||||||
| Non-controlling interest | — | — | ||||||
| Total equity | 32,142,818 | 40,622,075 | ||||||
| Total liabilities and shareholders’ equity | $ | 34,358,430 | $ | 42,079,450 | ||||
F-37
PARENT COMPANY STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
| Year ended December 31, |
Year ended December 31, |
Year ended December 31, | ||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Revenues | 18,724,190 | 15,152,777 | — | |||||||||
| Cost of sales | (17,178,241 | ) | (13,901,688 | ) | — | |||||||
| Gross profit | 1,545,949 | 1,251,089 | — | |||||||||
| Operating expenses: | ||||||||||||
| General and administrative expenses | $ | (1,639,119 | ) | $ | (2,195,689 | ) | $ | (2,621,808 | ) | |||
| Research and development | (797,650 | ) | (2,438,520 | ) | (2,278,990 | |||||||
| Impairment loss | — | (12,600,000 | ) | |||||||||
| Other income (expenses): | ||||||||||||
| (Interest expense)/interest income | — | (146,322 | ) | (100,314 | ) | |||||||
| Other finance expenses | (2,107 | ) | (60,032 | ) | (6,998 | ) | ||||||
| Equity income of subsidiaries and VIEs from continue operation | (8,631,856 | ) | (12,918,251 | ) | (4,114,945 | ) | ||||||
| Equity income of subsidiaries and VIEs from discontinued operation | — | 7,389,310 | (282,027 | ) | ||||||||
| NET (LOSS) INCOME | (9,524,783 | ) | (21,718,417 | ) | (9,405,081 | ) | ||||||
| FOREIGN CURRENCY | ||||||||||||
| Translation adjustment from continued operation | 9,316 | (199,032 | ) | (1,883,571 | ||||||||
| Translation adjustment from discontinued operation | — | 263,285 | 258,828 | |||||||||
| COMPREHENSIVE (LOSS) INCOME | $ | (9,515,467 | ) | $ | (21,654,164 | ) | $ | (11,029,824 | ) | |||
| Less: Comprehensive income attributable to non-controlling interest | — | (2,420,399 | ) | (40,025 | ) | |||||||
| Comprehensive income attributable to | ||||||||||||
| Blue Hat Interactive Entertainment Technology shareholders | $ | (9,515,467 | ) | $ | (19,233,765 | ) | $ | (10,989,799 | ) | |||
F-38
| PARENT COMPANY STATEMENTS OF CASH FLOWS |
| Year ended | Year ended | Year ended | ||||||||||
| December 31, | December 31, | December 31, | ||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net income from continued operation | $ | (9,524,783 | ) | $ | (29,107,727 | ) | $ | (9,123,054 | ) | |||
| Adjustments to reconcile net income to cash used in operating activities: | ||||||||||||
| Impairment loss of inventory | — | 12,600,000 | ||||||||||
| Equity income of subsidiaries and VIEs | 8,631,856 | 12,918,251 | 4,114,945 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Depreciation of property, plant and equipment | 205,190 | 205,190 | 205,259 | |||||||||
| Share based payments | 966,210 | — | — | |||||||||
| Account receivables | (1,545,949 | ) | — | — | ||||||||
| Other receivables | — | (15,865,859 | ) | (3,319,855 | ) | |||||||
| Inventories | — | (17,178,241 | ) | — | ||||||||
| Other payables and accrued liabilities | 819,238 | (7,419,077 | ) | (323,274 | ) | |||||||
| Provision for doubtful accounts | 446,131 | — | — | |||||||||
| Net cash used in operating activities | (2,107 | ) | (43,847,463 | ) | (8,445,980 | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Purchases of property, plant and equipment | — | 7,773,600 | — | |||||||||
| Increase in investment | (30,000 | ) | — | — | ||||||||
| Investment in subsidiary | — | — | (1,767,824 | ) | ||||||||
| Net cash used in investing activities | (30,000 | ) | 7,773,600 | (1,767,824 | ) | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Underwriter’s partial exercise of over-allotment option, net of issuance costs | 70,000 | 37,567,299 | 7,908,956 | |||||||||
| Other payables related party | — | (3,799 | ) | (5,389 | ) | |||||||
| Repayment of short-term loans | — | — | — | |||||||||
| Proceeds from long-term loans - related party | — | — | 914,771 | |||||||||
| Repayment of long-term loans - related party | (61,000 | ) | (79,821 | ) | — | |||||||
| Repayment of convertible payables | — | (1,393,499 | ) | — | ||||||||
| Proceeds from convertible payables | — | — | 1,393,499 | |||||||||
| Net cash used in investing activities | 9,000 | 36,090,179 | 10,211,837 | |||||||||
| EFFECT OF EXCHANGE RATE ON CASH | — | — | — | |||||||||
| NET CHANGES IN CASH AND CASH EQUIVALENTS | (23,107 | ) | 16,316 | (1,967 | ) | |||||||
| CASH AND CASH EQUIVALENTS, Beginning of year | 23,107 | 6,791 | 8,758 | |||||||||
| CASH AND CASH EQUIVALENTS, end of year | $ | — | $ | 23,107 | $ | 6,791 | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||||||
| Cash and cash equivalents | $ | — | $ | 23,107 | $ | 6,791 | ||||||
| Restricted cash | — | — | — | |||||||||
| CASH AND CASH EQUIVALENTS, end of year | $ | — | $ | 23,107 | $ | 6,791 | ||||||
F-39
BLUE HAT INTERACTIVE ENTERTAINMENT TECHNOLOGY AND
SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
| June 30, | December 31, | |||||||
| ASSETS | 2025 | 2024 | ||||||
| (Audited) | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,064,151 | $ | 14,300 | ||||
| Restricted cash | 1,476 | 1,470 | ||||||
| Inventories | 56,429,528 | 64,560,000 | ||||||
| Accounts receivable, net | 13,326,753 | — | ||||||
| Other receivables, net | 9,878,653 | 3,702,861 | ||||||
| Other receivables - related party | 1,742,919 | 1,766,661 | ||||||
| Prepayments, net | 18,246 | 19,267 | ||||||
| Total current assets | 82,461,726 | 70,064,559 | ||||||
| Property and equipment, net | 3,234,186 | 3,337,333 | ||||||
| Other assets: | ||||||||
| Operating lease, right-of-use asset | 1,715,494 | 1,830,544 | ||||||
| Total other assets | 4,949,680 | 5,167,877 | ||||||
| Total assets | $ | 87,411,406 | $ | 75,232,436 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Short-term loans - banks | $ | — | $ | 146,341 | ||||
| Taxes payable | 796,804 | 793,492 | ||||||
| Accounts payable | 280,556 | 34,156,360 | ||||||
| Other payables and accrued liabilities | 1,935,794 | 4,780,965 | ||||||
| Other payables - related party | 396,355 | 601,856 | ||||||
| Operating lease liabilities - current | 167,958 | 166,122 | ||||||
| Customer deposits | 2,988 | 2,976 | ||||||
| Total current liabilities | 3,580,455 | 40,648,112 | ||||||
| Other liabilities: | ||||||||
| Operating lease liability | 1,591,647 | 1,667,556 | ||||||
| Long term payable -related party | 773,950 | 773,950 | ||||||
| Total other liabilities | 2,365,597 | 2,441,506 | ||||||
| Total liabilities | 5,946,052 | 43,089,618 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| Shareholders’ equity | ||||||||
| Ordinary shares, $0.0000001 par value, 5,000,000,000,000,000 shares authorized, 72,439,308,910,000 shares issued and outstanding as of June 30, 2025, and 5,849,828,110,000 shares issued and outstanding as of December 31, 2024* | 7,243,930 | 584,982 | ||||||
| Additional paid-in capital | 138,382,497 | 94,863,300 | ||||||
| Statutory reserves | 2,143,252 | 2,143,252 | ||||||
| Retained earnings | (67,212,720 | ) | (66,356,798 | ) | ||||
| Accumulated other comprehensive income | 908,395 | 908,082 | ||||||
| Total Blue Hat Interactive Entertainment Technology shareholders’ equity | 81,465,354 | 32,142,818 | ||||||
| Total equity | 81,465,354 | 32,142,818 | ||||||
| Total liabilities and shareholders’ equity | $ | 87,411,406 | $ | 75,232,436 | ||||
* The change of the par value to US$0.0000001 par value each, in connection with certain merger of the Company with Lanjin Technology Co., Ltd effective July 16, 2025 is retroactively restated.
F-40
BLUE HAT INTERACTIVE ENTERTAINMENT TECHNOLOGY AND
SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
| For the Six Months Ended June 30, | ||||||||
| 2025 | 2024 | |||||||
| Revenues | $ | 13,326,754 | $ | 13,078,529 | ||||
| Cost of revenue | 8,456,515 | 11,998,711 | ||||||
| Gross profit | 4,870,239 | 1,079,818 | ||||||
| Operating expenses: | ||||||||
| General and administrative | 5,688,833 | 1,966,815 | ||||||
| Research and development | 894 | 340,389 | ||||||
| Total operating expenses | 5,689,727 | 2,307,204 | ||||||
| Loss from operations | (819,488 | ) | (1,227,386 | ) | ||||
| Other income (expense) | ||||||||
| Interest income | 3 | 16 | ||||||
| Interest expense | (30,957 | ) | (66,724 | ) | ||||
| Other finance expenses | (5,548 | ) | (1,615 | ) | ||||
| Other income (expense), net | 68 | (138 | ) | |||||
| Total other expenses, net | (36,434 | ) | (68,461 | ) | ||||
| Loss before income taxes | (855,922 | ) | (1,295,847 | ) | ||||
| Provision for income taxes | — | — | ||||||
| Net Loss | (855,922 | ) | (1,295,847 | ) | ||||
| Other comprehensive loss | ||||||||
| Net loss | (855,922 | ) | (1,295,847 | ) | ||||
| Foreign currency translation adjustment | 313 | (21,943 | ) | |||||
| Comprehensive loss | $ | (855,609 | ) | $ | (1,317,790 | ) | ||
| Weighted average number of ordinary shares | ||||||||
| Basic | 47,856,738,100,000 | 5,846,270,400,000 | ||||||
| Diluted | 47,980,970,550,000 | 5,970,502,850,000 | ||||||
| Losses per share | ||||||||
| Basic loss per share from continued operations | $ | (0.000000018 | ) | $ | (0.00000022 | ) | ||
| Basic loss per share from discontinued operations | — | $ | — | |||||
| Diluted losses per share | ||||||||
| Diluted loss per share from continued operations | $ | (0.000000018 | ) | $ | (0.00000022 | ) | ||
| Diluted loss per share from discontinued operations | — | $ | — | |||||
F-41
UNAUDITED CONSOLIDATED STATEMENTS OF EQUITY
| Ordinary shares | Retained earnings | |||||||||||||||||||||||||||
| Additional paid - in | Statutory | Accumulated other comprehensive | ||||||||||||||||||||||||||
| Shares* | Par value | capital | reserve | Unrestricted | income | Total | ||||||||||||||||||||||
| BALANCE, December 31, 2023 | 5,839,828,110,000 | $ | 583,982 | $ | 93,828,090 | $ | 2,143,252 | $ | (56,832,015 | ) | $ | 898,766 | $ | 40,622,075 | ||||||||||||||
| Issuance of ordinary shares - cash | 10,000,000,000 | 1,000 | 69,000 | — | — | — | 70,000 | |||||||||||||||||||||
| Share based payment service | — | — | 403,340 | — | — | — | 403,340 | |||||||||||||||||||||
| Net loss from continued operation | — | — | — | — | (1,295,847 | ) | — | (1,295,847 | ) | |||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | (21,943 | ) | (21,943 | ) | |||||||||||||||||||
| BALANCE, June 30, 2024 | 5,849,828,110,000 | $ | 584,982 | $ | 94,300,430 | $ | 2,143,252 | $ | (58,127,862 | ) | $ | 876,823 | $ | 39,777,625 | ||||||||||||||
| Ordinary shares | Retained earnings | |||||||||||||||||||||||||||
| Additional paid - in | Statutory | Accumulated other comprehensive | ||||||||||||||||||||||||||
| Shares* | Par value | capital | reserve | Unrestricted | income | Total | ||||||||||||||||||||||
| BALANCE, December 31, 2024 | 5,849,828,110,000 | $ | 584,982 | $ | 94,863,300 | $ | 2,143,252 | $ | (66,356,798 | ) | $ | 908,082 | $ | 32,142,818 | ||||||||||||||
| Issuance of ordinary shares - cash | 18,913,980,000,000 | 1,891,398 | 9,667,005 | — | — | — | 11,558,403 | |||||||||||||||||||||
| Issuance of common stock to pay for goods | 24,618,290,800,000 | 2,461,829 | 31,415,138 | — | — | — | 33,876,967 | |||||||||||||||||||||
| Reverse split senders | 450,000,000 | 45 | (45 | ) | — | — | — | — | ||||||||||||||||||||
| Share based payment service | 23,056,760,000,000 | 2,305,676 | 2,437,099 | — | — | — | 4,742,775 | |||||||||||||||||||||
| Net loss from continued operation | — | — | — | — | (855,922 | ) | — | (855,922 | ) | |||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | 313 | 313 | |||||||||||||||||||||
| BALANCE, June 30, 2025 | 72,439,308,910,000 | $ | 7,243,930 | $ | 138,382,497 | $ | 2,143,252 | $ | (67,212,720 | ) | $ | 908,395 | $ | 81,465,354 | ||||||||||||||
* The change of the par value to US$0.0000001 par value each, in connection with certain merger of the Company with Lanjin Technology Co., Ltd effective July 16, 2025 is retroactively restated.
F-42
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW
| Six months ended | Six months ended June | |||||||
| June 30, | 30, | |||||||
| 2025 | 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (855,922 | ) | $ | (1,295,847 | ) | ||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Depreciation of property, plant and equipment | 103,210 | 104,360 | ||||||
| Share-based payments | 4,742,775 | 403,340 | ||||||
| Issuance of common stock to pay for goods | 33,876,967 | — | ||||||
| Allowance for credit loss | 285,000 | 749,682 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (13,326,754 | ) | (10,187,254 | ) | ||||
| Other receivables | (6,460,792 | ) | (270,081 | ) | ||||
| Other receivables – related party | 23,742 | (23,151 | ) | |||||
| Inventories | 8,130,472 | 12,000,982 | ||||||
| Prepayments | 1,021 | 32,428 | ||||||
| Operating lease assets | 40,977 | 28,244 | ||||||
| Accounts payable | (33,875,802 | ) | 2 | |||||
| Other payables and accrued liabilities | (2,845,171 | ) | 1,035,748 | |||||
| Taxes payable | 3,312 | (5,149 | ) | |||||
| Net cash used in operating activities | (10,156,965 | ) | 2,573,304 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Net cash (used in) generated from investing activities | — | — | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of new shares | 11,558,403 | 70,000 | ||||||
| Proceeds from other payables - related party | 17,379 | 29,393 | ||||||
| Repayment from other payables - related party | (222,880 | ) | (90,500 | ) | ||||
| Repayments of short-term loans - banks | (146,341 | ) | — | |||||
| Net cash generated from financing activities | 11,206,561 | 8,893 | ||||||
| Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash | 261 | (15,992 | ) | |||||
| Net decrease in cash, cash equivalents and restricted cash | 1,049,857 | 2,566,205 | ||||||
| Cash, cash equivalents and restricted cash at beginning of the year | 15,770 | 409,175 | ||||||
| Cash, cash equivalents and restricted cash at end of the year | $ | 1,065,627 | $ | 2,975,380 | ||||
| Reconciliation of cash, cash equivalents and restricted cash | ||||||||
| Cash and cash equivalents | 1,064,151 | 2,973,897 | ||||||
| Restricted cash | 1,476 | 1,483 | ||||||
| Total cash, cash equivalents and restricted cash | 1,065,627 | 2,975,380 | ||||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash and cash equivalents | $ | 1,064,151 | $ | 2,973,897 | ||||
| CASH AND CASH EQUIVALENTS, end of year | $ | 1,064,151 | $ | 2,973,897 | ||||
| Cash paid for income tax | $ | — | $ | 165 | ||||
| Cash paid for interest | $ | 30,957 | $ | 66,724 | ||||
| SUPPLEMENTAL NON-CASH INVESTING INFORMATION: | ||||||||
| Additional of operating lease, right-of-use asset | $ | 1,715,494 | $ | 2,194,374 | ||||
| SUPPLEMENTAL NON-CASH FINANCING INFORMATION: | ||||||||
| Operating lease liabilities | $ | 1,759,605 | $ | 2,246,426 | ||||
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-43
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Blue Hat Interactive Entertainment Technology (“Blue Hat Cayman” or the “Company”) is a holding company incorporated on June 13, 2018, under the laws of the Cayman Islands. The Company has no substantive operations other than holding all of the outstanding share capital of Brilliant Hat Limited (“Blue Hat BVI”) established under the laws of the British Virgin Islands on June 26, 2018.
Blue Hat BVI is also a holding company holding all of the outstanding equity of Blue Hat Interactive Entertainment Technology Limited (“Blue Hat HK”) which was established in Hong Kong on June 26, 2018. Blue Hat HK is also a holding company holding all of the outstanding equity of Xiamen Duwei Consulting Management Co., Ltd. (“Blue Hat WFOE”) which was established on July 26, 2018 under the laws of the People’s Republic of China (“PRC” or “China”) and its wholly owned subsidiary, Hunan Engaomei Animation Culture Development Co., Ltd. (“Blue Hat Hunan”) a PRC company, was established and engaged in designing, producing, promoting and selling interactive toys with mobile games features, online interactive educational program, original intellectual property and peripheral derivatives features worldwide.
On November 13, 2018, Blue Hat Cayman completed a reorganization of entities under common control of its then existing shareholders, who collectively owned all of the equity interests of Blue Hat Cayman prior to the reorganization. Blue Hat Cayman, Blue Hat BVI, and Blue Hat HK were established as the holding companies of Blue Hat WFOE.
On August 23, 2021, Fujian Blue Hat Group Co., Ltd (“Blue Hat Group”) which was the subsidiary of Blue Hat HK was established under the laws of the PRC.
On February 2021, the Blue Hat WFOE acquired additional 51.5% of Fujian Youth Hand in Hand Educational Technology Co., Ltd (“Fujian Youth”), and Fujian Youth is owned 48.5% by Blue Hat Fujian. On June 2023, Blue Hat Fujian was disposed, and Fujian Youth is 100% owned by Blue Hat WFOE. On March 24 2021, a wholly owned subsidiary Fuzhou Qiande Educational Technology Co., Ltd (“Qiande”), a PRC company, was established under Fujian Youth.
On February 20, 2021, the Company established its wholly owned subsidiaries, Xiamen Blue Hat Research Institution of Education Co., Ltd (“Blue Hat Research”). On November 15, 2021, the Company deregistered Shenyang Qimengxing Trading Co., Ltd.
During 2021, the Company disposed Xunpusen (Xiamen) Technology Co., Ltd (“Xunpusen”), and Xiamen Jiuqiao Technology Co., Ltd (“Jiuqiao”).
On October 17, 2021, the Company deregistered Chongqing Lanhui Technology Co. Ltd.
On September 30, 2022, Blue Hat Group acquired 100% of Xiamen Shengruihao (“Shengruihao”) Technology Co., Ltd, a PRC company established on June 30, 2021.
On May 10, 2022, the Company has authorized and approved a 1-for-10 reverse stock split of the Company’s authorized (issued and unissued) shares of ordinary shares, effective May 27, 2022. The reverse stock split would be reflected in December 31, 2023, December 31, 2022, and December 31, 2021 statements of changes in stockholders’ equity, and in per share data for all period presented.
On April 3, 2023, Golden Strategy Ltd (“Golden strategy”) was established under the laws of British Virgin Islands. The Company has no substantive operations other than holding all of the outstanding share capital of Golden Alpha Strategy Limited (“Golden Alpha”) incorporated under the laws of Hong Kong on April 18, 2023 and Blue Hat Technology LLC. (“Blue USA”) incorporated under the laws of United States on July 21, 2023.
On June 13, 2023, Chongqing Duwei Chuangda Electronic Technology Co., Ltd which was the subsidiary of Blue Hat WFOE was established under the laws of PRC.
F-44
On July 5, 2023, Guangzhou Huangxin Enterprise Management Co., Ltd which was the subsidiary of Golden Alpha was established under the laws of PRC.
On May 2024, Fuzhou Blue Financial Investment Co.,Ltd which was the subsidiary of Blue Hat Cayman was established under the laws of PRC, and on June 2024, it established a wholly owned subsidiary Fuzhou Po Teishin Supply Chain Co., Ltd under the laws of PRC.
On February 28, 2025, the shareholders of the Company approved to effect certain reverse stock split at a ratio of 50-1 or 100-1, and on March 3, 2025, the Company’s board of directors elected to conduct a reverse stock split at a ratio of 100-1, effective on March 17, 2025.
As of July 16, 2025, the share capital of the Company is US$500,000,000, divided into 5,000,000,000,000,000 ordinary shares of US$0.0000001 par value each.
The accompanying consolidated financial statements reflect the activities of Blue Hat Cayman and each of the following entities:
| Name | Background | Ownership | ||
| Brilliant Hat Limited |
● A British Virgin Islands company
● Incorporated on June 26, 2018
● A holding company |
100% owned by Blue Hat Interactive Entertainment Technology | ||
| Blue Hat Interactive Entertainment Technology Limited |
● A Hong Kong company
● Incorporated on June 26, 2018
● A holding company |
100% owned by Brilliant Hat Limited | ||
| Xiamen Duwei Consulting Management Co., Ltd. |
● A PRC limited liability company and deemed a wholly foreign owned enterprise (“WFOE”).
● Incorporated on July 26, 2018
● Registered capital of $20,000,000
● A holding company. |
100% owned by Blue Hat Interactive Entertainment Technology Limited. | ||
| Fujian Blue Hat Group Co. Ltd. |
● A PRC limited liability company
● Incorporated on August 23, 2021.
● A holding company |
100% owned by Blue Hat Interactive Entertainment Technology Limited. |
| Fujian Youth Hand in Hand Educational Technology Co., Ltd. |
● A PRC limited liability company, acquired on February 2021.
● Incorporated on September 18, 2017
● Registered capital of $3,106,214 (RMB 20,100,000)
● Educational consulting service and sports related. |
100% owned by Xiamen Duwei Consulting Management Co., Ltd. |
F-45
| Hunan Engaomei Animation Culture Development Co., Ltd. |
● A PRC limited liability company
● Incorporated on October 19, 2017
● Registered capital of $302,540 (RMB 2,000,000)
● Designing, producing, promoting and selling animated toys with mobile games features, original intellectual property and peripheral derivatives features. |
100% owned by Xiamen Duwei Consulting Management Co., Ltd. | ||
| Xiamen Blue Hat Research Institution of Education Co., Ltd |
● A PRC limited liability company
● Incorporated on February 20, 2021
● Information Technology consulting service |
100% owned by Xiamen Duwei Consulting Management Co., Ltd. | ||
|
Fuzhou Qiande Educational Technology Co., Ltd.
|
● A PRC limited liability company
● Incorporated on March 24, 2021
● Information Technology consulting service |
100% owned by
Fujian Youth Hand in
Hand Educational
Technology Co., Ltd. |
| Xiamen Shengruihao Technology Co., Ltd |
● A PRC limited liability company, acquired on September 30, 2022
● Incorporated on June 30, 2021
● Registered capital of $ 4,463,754 (RMB 30,000,000)
● Software development, animation design and web design |
100% owned by Fujian Blue Hat Group Co. Ltd. |
| Golden Strategy Ltd. |
● A British Virgin Islands company
● Incorporated on April 3, 2023
● Registered capital of $50,000
● Gold derivative information service |
100% owned by Blue Hat Interactive Entertainment Technology. |
| Golden Alpha Strategy Limited |
● A Hong Kong company
● Incorporated on April 18, 2023
● Diamond trading |
100% owned by Golden Strategy Ltd. |
| Chongqing Duwei Chuangda Electronic Technology Co., Ltd. |
● A PRC limited liability company
● Incorporated on June 13, 2023
● Registered capital of $141,189 (RMB1,000,000)
● Technical development and service |
100% owned by Xiamen Duwei Consulting Management Co., Ltd |
F-46
| Guangzhou Huangxin Management Co.,Ltd |
● A PRC limited liability company
● Incorporated on July 5, 2023
● Registered capital of $1,000,000
● Supply chain information for diamond trading |
100% owned by Golden Alpha Strategy Limited |
| Blue Hat Technology LLC |
● A U.S.A limited liability company
● Incorporated on July 21, 2023
● Logistic information service |
100% owned by Golden Strategy Ltd. |
| Fuzhou Blue Financial Investment Co., Ltd |
● A PRC limited liability company
● Incorporated on May 8, 2024
● Gold trading and information consulting service |
100% owned by Blue Hat Interactive Entertainment Technology. |
| Fuzhou Po Teshin Supply Chain Co., Ltd |
● A PRC limited liability company
● Incorporated on June 11, 2024
● Gold trading and supply chain management service |
100% owned by Fuzhou Blue Financial Investment Co., Ltd. |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Basis of presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for information pursuant to the rules and regulations of the SEC.
Principles of consolidation
The consolidated financial statements include the financial statements of the Company and its subsidiaries, which include the wholly- foreign owned enterprise (“WFOE”) over which the Company exercises control and, when applicable, entities for which the Company has a controlling financial interest. All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation.
Use of estimates and assumptions
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Significant accounting estimates reflected in the Company’s consolidated financial statements include the useful lives of plant and equipment, leaseing, impairment of long-lived assets, credit loss allowance accounts, revenue recognition, allowance for deferred tax assets and uncertain tax position, and inventory allowance. Actual results could differ from these estimates.
F-47
Foreign currency translation and transaction
The reporting currency of the Company is the U.S. dollar. The Company in China conducts its businesses in the local currency, Renminbi (RMB), as its functional currency. Assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. The statement of income accounts is translated at the average translation rates and the equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
Translation adjustments included in accumulated other comprehensive income amounted to $908,395 and $908,082 as of June 30, 2025 and December 31, 2024, respectively. The balance sheet amounts, with the exception of shareholders’ equity at June 30, 2025 and December 31, 2024 were translated at 7.16 RMB and 7.19 RMB, respectively. The shareholders’ equity accounts were stated at their historical rate. The average translation rates applied to statement of income accounts for six months ended June 30, 2025, and for the years ended December 31, 2024 were 7.18 RMB and 7.12 RMB to $1.00, respectively. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet.
Cash and restricted cash
Cash and cash equivalents consist of cash on hand; demand deposits and time deposits placed with banks or other financial institutions and have original maturities of less than three months.
Deposits in banks in the PRC are only insured by the government up to RMB500,000, and are consequently exposed to risk of loss. The Company believes the probability of a bank failure, causing loss to the Company, is remote.
Cash that is restricted as to withdrawal for use or pledged as security is reported separately on the face of the consolidated balance sheets, and is not included in the total cash and cash equivalents in the consolidated statements of cash flows.
Accounts receivable, net
Accounts receivable includes trade accounts due from customers. Accounts are considered overdue after 30 -180 days. In establishing the required credit loss allowance accounts, management considers historical collection experience, aging of the receivables, the economic environment, industry trend analysis, and the credit history and financial conditions of the customers. Management reviews its receivables on a regular basis to determine if the credit loss allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for credit loss accounts after management has determined that the likelihood of collection is not probable. As of June 30, 2025 and December 31, 2024, allowance for the doubtful accounts was $13,539,876 and $13,488,433, respectively.
Other receivables, net
Other receivables primarily include deposits for business acquisitions, setup of research center, advances to employees, and others. Management regularly reviews the aging of receivables and changes in payment trends and records allowances when management believes collection of amounts due are at risk. Accounts considered uncollectable are written off against allowances after exhaustive efforts at collection are made. As of June 30, 2025 and December 31, 2024, allowance for the doubtful accounts was $13,944,188 and $13,987,956, respectively.
Inventories
Inventories are comprised of gold held for resale and are stated at the lower of cost and net realizable value using the weighted average method. Diamonds are based on first-in-first-out (FIFO) costs and Gold is based on weighted average costs (WAC). Due to the Company’s inventory principally consisting of gold, the age of the inventories has limited impact on the estimated market value but subject to the risk of changes in market value. The assessment of the net realizable value of inventories was based on significant estimates and judgements made by management in respect of, amongst others, the economic conditions and the forecast market price of gold. Product obsolescence is closely monitored and reviewed by management on an ongoing basis.
F-48
Inventory cost includes the purchase price paid in cash and the fair value of equity instruments issued in exchange for inventory acquired. On January 27, 2025, Golden Alpha Strategy Limited (the “Golden Alpha”), a wholly owned subsidiary of the Company, entered into a certain tail fee payment agreement with Rongxin Precious Metal Technology Co., Ltd. Pursuant to the Agreement, Golden Alpha paid off the remaining balance of $33,876,967 in connection with that gold purchase agreement dated August 28, 2024, in the form of ordinary shares of the Company, par value $0.01 per share. The Parties mutually agreed that the Company shall issue a total of 246,182,908 Ordinary Shares at 30% premium of the average closing price of the Ordinary Shares in the past 30 days, which is $0.1376 per share, to the designees of the Seller.
Prepayments, net
Current
Prepayments are cash deposited or advanced to suppliers for future inventory purchases. This amount is refundable and bears no interest. For any advances to suppliers determined by management that such advances will not be in receipts of inventories or refundable, the Company will recognize an allowance account to reserve such balances. Management reviews its advances to suppliers on a regular basis to determine if the allowance is adequate, and adjusts the allowance when necessary. Delinquent account balances are written-off against allowance for credit loss accounts after management has determined that the likelihood of collection is not probable. The Company’s management continues to evaluate the reasonableness of the valuation allowance policy and update it if necessary. As of June 30， 2025 and December 31, 2024, allowance for the credit loss was $ Nil, respectively.
Property, plant and equipment, net
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:
| Category | Depreciation method | Estimated useful lives | ||
| Building | Straight-line | 20 years | ||
| Electronic devices | Straight-line | 3 years | ||
| Office equipment, fixtures and furniture | Straight-line | 3 years | ||
| Automobile | Straight-line | 3 years |
The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated statements of income and comprehensive income. Expenditures for maintenance and repairs are charged to earnings as incurred, while additions, renewals which are expected to extend the useful life of assets, are capitalized. The Company also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances warrant revised estimates of useful lives.
Research and development
Research and development expenses include salaries and other compensation-related expenses to the Company’s research and product development personnel, as well as office rental, depreciation and related expenses for the Company’s research and product development team. The Company expenses all costs that are incurred in connection with the planning and implementation phases of development, and costs that are associated with maintenance of the existing websites or software for internal use.
Business Combinations
The Company applies the provisions of ASC 805, Business Combination and allocates the fair value of purchases consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of the assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets, including but not limited to future expected cash flows from acquired technology and acquired trademarks and user base from a market participant perspective, useful lives and discount rates.
F-49
Impairment for long-lived assets other
Long-lived assets, including property, plant and equipment with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. If an impairment is identified, the Company would reduce the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of June 30, 2025 and December 31, 2024, impairment for long-lived assets was $ Nil, respectively.
Fair value measurement
The accounting standard regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company.
The accounting standards define fair value, establish a three-level valuation hierarchy for disclosures of fair value measurement and enhance disclosure requirements for fair value measures. The three levels are defined as follow:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.
Our cash and cash equivalents and restricted cash are classified within level 1 of the fair value hierarchy because they are value using quoted market price.
Revenue recognition
The Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC 606). The ASU requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
Diamond and gold Trading
Net sales primarily consist of revenue from diamond, gemstone, jewelry and gold retail sales and payment is required with a credit period of 180 days after delivery. Delivery is determined to be the time of pickup for orders picked up in showrooms, and for shipped orders, delivery is deemed upon shipment. A return policy of 2 days from when the item is picked up or ready for shipment is typically provided; no manufacturing warranty is provided on all jewelry, gold and diamonds/gemstones. Revenue is recognized when customer gains control over the goods, which is upon delivery.
The products sold in the PRC are subject to a Chinese value-added tax (“VAT”). VAT taxes are presented as a reduction of revenue.
F-50
Leases
The Company leases premise for offices under non-cancellable operating leases. Leases with rent provisions were recognized on a straight-line basis commencing with the beginning of the lease terms. There were no capital improvement funding and contingent rent in the lease agreements. The Company has no legal or contractual asset retirement obligations at the end of the lease terms.
The operating lease liabilities are recognized upon lease commencement for operating leases based on the present value of lease payments over the lease terms. The operating lease right-of-use assets are initially measured at cost, which comprises the initial amount of the operating lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. As the rate implicit in the lease cannot be readily determined, the incremental borrowing rate at the lease commencement date is used in determining the imputed interest and present value of lease payments. The incremental borrowing rate was determined using a portfolio approach based on the rate of interest that the Company would have to borrow an amount equal to the lease payments on a collateralized basis over a similar term. The Company recognizes the single lease cost on a straight-line basis over the remaining lease terms for operating leases. The Company elected the practical expedient of the short-term lease exemption for contracts with lease terms of 12 months or less.
Value added taxes
Revenue represents the invoiced value of service, net of VAT. The VAT is based on gross sales price and VAT rates range up to 13%, depending on the type of service provided. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. Net VAT balance between input VAT and output VAT is recorded in tax payable. All of the VAT returns filed by the Company’s subsidiaries in China have been and remain subject to examination by the tax authorities for five years from the date of filing.
Income taxes
The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. The charge for taxation is based on the results for the fiscal year as adjusted for items, which are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred taxes are accounted for using the asset and liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax basis used in the computation of assessable tax profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Deferred tax is calculated using tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it is related to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
Comprehensive income
Comprehensive income consists of two components, net income and other comprehensive (loss) income. Other comprehensive (loss) income refers to revenue, expenses, gains and losses that under U.S. GAAP are recorded as an element of shareholders’ equity but are excluded from net income. Other comprehensive (loss) income consists of a foreign currency translation adjustment resulting from the Company not using the U.S. dollar as its functional currencies.
F-51
Losses per share
The Company computes loss per share (“EPS”) in accordance with ASC 260, “Earnings per Share”. ASC 260 requires companies to present basic and diluted EPS. Basic EPS is measured as net loss divided by the weighted average ordinary share outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of the potential ordinary shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential ordinary shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. The dilutive shares were 47,980,970,550,000 and 5,970,502,850,000 for the six months ended June 30, 2025 and 2024.
Employee benefits
The full-time employees of the Company are entitled to staff welfare benefits including medical care, housing fund, pension benefits, unemployment insurance and other welfare, which are government mandated defined contribution plans by law. The Company is required to accrue for these benefits based on certain percentages of the employees’ respective salaries, subject to certain ceilings, in accordance with the relevant PRC regulations, and make cash contributions to the state-sponsored plans out of the amounts accrued. Total expenses for the plans were $8,796 and $8,306 for the six months ended June 30, 2025 and 2024, respectively.
Statutory reserves
Pursuant to the laws applicable to the PRC, PRC entities must make appropriations from after-tax profit to the non-distributable “statutory surplus reserve fund”. Subject to certain cumulative limits, the “statutory surplus reserve fund” requires annual appropriations of 10% of after-tax profit until the aggregated appropriations reach 50% of the registered capital (as determined under accounting principles generally accepted in the PRC (“PRC GAAP”) at each year-end). For foreign invested enterprises and joint ventures in the PRC, annual appropriations should be made to the “reserve fund”. For foreign invested enterprises, the annual appropriation for the “reserve fund” cannot be less than 10% of after-tax profits until the aggregated appropriations reach 50% of the registered capital (as determined under PRC GAAP at each year-end). If the Company has accumulated loss from prior periods, the Company is able to use the current period net income after tax to offset against the accumulate loss.
Segment reporting
The Company uses the management approach in determining its operating segments. The Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. For the purpose of internal reporting and management’s operation review, the Group’s Chief Executive Officer does not segregate the Group’s business by service lines. The Company operates as a single operating and reportable segment, as it offers a unified set of products primarily related to sales diamond and gold. Management has determined that the Company has one operating segment. All of the Company’s long-lived assets are located in the PRC.
Related parties
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other part in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence, such as a family member or relative, shareholder, or are related corporation.
Share-based compensation
The Company awards share options and other equity-based instruments to its employees, directors and consultants (collectively “share-based payments”). Compensation cost related to such awards is measured based on the fair value of the instrument on the grant date. The Company recognizes the compensation cost over the period the employee is required to provide service in exchange for the award, which generally is the vesting period. The amount of cost recognized is adjusted to reflect the expected forfeiture prior to vesting. When no future services are required to be performed by the employee in exchange for an award of equity instruments, and if such award does not contain a performance or market condition, the cost of the award is expensed on the grant date. The Company recognizes compensation cost for an award with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award, provided that the cumulative amount of compensation cost recognized at any date at least equals the portion of the grant-date value of such award that is vested at that date.
F-52
Recently issued accounting pronouncements
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures.” This ASU expands required public entities’ segment disclosures, including disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items and interim disclosures of a reportable segment’s profit or loss and assets. ASU 2023 07 is applied retrospectively to all periods presented in financial statements, unless it is impracticable. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company adopted this guidance effective July 1, 2024 and the adoption of this ASU does not have a material impact on its financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update are intended to enhance the transparency and decision usefulness of income tax disclosures primarily through changes to the rate reconciliation and income taxes paid information. This update is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the ASU to determine its impact on our consolidated financial statements and related disclosures.
3. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consist of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Accounts receivable | $ | 26,866,629 | $ | 13,488,433 | ||||
| Allowance for expected credit loss | (13,539,876 | ) | (13,488,433 | ) | ||||
| Total accounts receivable, net | $ | 13,326,753 | $ | — | ||||
Movements of expected credit loss are as follows:
| Expected credit loss | ||||||||
| Beginning balance | $ | 13,488,433 | $ | 13,658,675 | ||||
| Addition | — | 106,595 | ||||||
| Write-off | — | (64,070 | ) | |||||
| Exchange rate effect | 51,443 | (212,767 | ) | |||||
| Ending balance | $ | 13,539,876 | $ | 13,488,433 | ||||
4. OTHER RECEIVABLES, NET
Other receivables consist of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Deposit for business acquisitions | $ | 12,010,554 | $ | 11,960,764 | ||||
| Deposit for set-up of research center | 83,815 | 83,468 | ||||||
| Receivable from advertising | 3,520,000 | 3,520,000 | ||||||
| Consideration Receivable | 1,175,505 | 1,193,048 | ||||||
| Others | 7,032,967 | 933,537 | ||||||
| Allowance for expected credit loss | (13,944,188 | ) | (13,987,956 | ) | ||||
| Total other receivables, net | $ | 9,878,653 | $ | 3,702,861 | ||||
Others mainly comprise $6,207,929 as of June 30, 2025, held in financing account. The balance represents financing proceeds designated for financing-related expenditures, which are disbursed directly from the financing account. Management expects the balance to be fully utilized by the end of December 2025.
F-53
Allowance for expected credit loss:
In allowance for expected credit loss, on January 2021, the Company acquired Fuzhou CSFCTECH Co., Ltd (“Fuzhou CSFC”) subject to customary conditions; it signed a three parties’ agreement that involves Fuzhou CSFC and Quanzhou Yiang Trading Co., Ltd (“Yiang”), of which Yiang is an independent third party. As of June 30, 2025, the Company paid a refundable deposit of $5,830,575 to Yiang as a guarantee, if the financial performance of Fuzhou CSFC does not meet the agreed terms. Since Fuzhou CSFC was disposed, the agreement party changed from Fuzhou CSFC to Blue Hat WFOE. Due to prolonged aging and lack of recoverability, the company recorded a full allowance of $5,830,575.
The Company signed a non-binding letter of intent to acquire a controlling equity interest of Fuzhou Tornado Network Technology Co., Ltd (“Tornado”), subject to customary conditions. Tornado is a developer and distributor of mobile games in China with an international user base across Mainland China, South Korea, the United Arab Emirates and North America. The acquisition price is expected to be based on the valuation of the acquired entities carried out by a qualified independent third party. The Company signed a three parties’ agreement that involves Tornado and Quanzhou Chengtai Co., Ltd (“Chengtai”), of which Chengtai is an independent third party. As of June 30, 2025 the Company paid a refundable deposit of $6,179,979 to Chengtai as a guarantee. There is no assurance that the proposed transaction will be consummated, particularly if the financial performance of Tornado does not meet the agreed terms. Due to prolonged aging and lack of recoverability, the company recorded a full allowance of $6,179,979.
In addition, the Company is aiming to establish a research center with Beijing Zhongrun Minan Intelligence Technology Co., Ltd (“Zhongrun”). The project will develop a training platform and application for kindergarten. As of June 30, 2025, the Company paid $ 83,815 to Zhongrun as a refundable deposit for preliminary costs. Due to prolonged aging and lack of recoverability, the company recorded a full allowance of $83,815.
In September 2021, Fujian Blue Hat Interactive Entertainment Technology Co., Ltd. entered into a Share Transfer Agreement with Beijing Kehui Hua Planning & Consulting Co., Ltd. Pursuant to the Agreement, the Company disposed of its 60% equity interest in Xunpusen for a total consideration of RMB 8,600,000. Subsequent to this transaction, a remaining receivable of $1,175,505 was recognized, for which the Company has made full allowance.
As of June 30, 2025, other allowance for expected credit loss was $674,314.
Movements of allowance for expected credit loss are as follows:
| Expected credit loss | ||||||||
| Beginning balance | $ | 13,987,956 | $ | 13,481,228 | ||||
| Addition | 285,000 | 579,369 | ||||||
| Write-off | (97,210 | ) | — | |||||
| Exchange rate effect | (231,558 | ) | (72,641 | ) | ||||
| Ending balance | $ | 13,944,188 | $ | 13,987,956 | ||||
5. INVENTORIES, NET
Inventories, net consist of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Gold | $ | 56,429,528 | $ | 64,560,000 | ||||
| Total Inventory allowance, net | $ | 56,429,528 | $ | 64,560,000 | ||||
6. LEASES
The Company adopted ASU No. 2016-02 and related standards (collectively ASC 842, Leases), which replaced previous lease accounting guidance, on January 1, 2019 using the modified retrospective method of adoption. The Company elected the transition method expedient which allows entities to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of electing this transition method, prior periods have not been restated. In addition, adoption of the new standard resulted in the recording of right of use assets and associated lease liabilities of approximately $1 million each as of January 1, 2019.
F-54
Operating lease expense for the six months June 30, 2025 and 2024 was $161,420 and $262,865, respectively.
Supplemental balance sheet information related to leases is as follows:
| Location on Face of | June 30, | |||||
| Balance Sheet | 2025 | |||||
| Operating leases: | ||||||
| Operating lease right of use assets | Operating lease, right-of-use assets | $ | 1,715,494 | |||
| Current operating lease liabilities | Operating lease liabilities - current | $ | 167,958 | |||
| Noncurrent operating lease liabilities | Operating lease liabilities | 1,591,647 | ||||
| Total operating lease liabilities | $ | 1,759,605 | ||||
| Weighted average remaining lease term (in years): | ||||||
| Operating leases | 14.92 | |||||
| Weighted discount rate: | ||||||
| Operating leases | 4.22 | % | ||||
Maturities of lease liabilities were as follows:
| For the six months ended June 30, | Operating lease | |||
| 2026 | $ | 238,794 | ||
| 2027 | 234,765 | |||
| 2028 | 203,385 | |||
| 2029 | 165,003 | |||
| Thereafter | 1,329,237 | |||
| Total | $ | 2,171,184 | ||
| Less: amount representing interest | 411,579 | |||
| Present value of future minimum lease payments | 1,759,605 | |||
| Less: Current obligations | (167,958 | ) | ||
| Long-term obligations | $ | 1,591,647 | ||
7. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consist of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Building | $ | 4,322,359 | $ | 4,322,359 | ||||
| Electronic devices | 307,429 | 306,155 | ||||||
| Office equipment, fixtures and furniture | 41,386 | 41,215 | ||||||
| Vehicle | 1,199 | 1,194 | ||||||
| Subtotal | 4,672,373 | 4,670,923 | ||||||
| Less: accumulated depreciation and amortization | (1,393,261 | ) | (1,288,850 | ) | ||||
| Less: impairment | (44,926 | ) | (44,740 | ) | ||||
| Total | $ | 3,234,186 | $ | 3,337,333 | ||||
The depreciation expenses for the six months ended June 30, 2025 and 2024 was $103,210 and $104,360, respectively.
F-55
8. CREDIT FACILITIES
Short term loans - banks
Outstanding balances on short-term bank loans consisted of the following:
| Institute | Interest | Collateral/ June 30, | December 31, | |||||||||||||||
| name | Maturities | rate | Guarantee | 2025 | 2024 | |||||||||||||
| Xiamen Rural Commercial Bank | January 2025 | 6.58 | % | Guarantee by 14 property rights | — | 146,341 | ||||||||||||
| Total | $ | — | $ | 146,341 | ||||||||||||||
Interest expense pertaining to the above short-term for the six months ended June 30, 2025 and 2024 amounted to $33,033 and $Nil, respectively.
9. ACCOUNT PAYABLES
Account payables consist of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Gold | $ | — | $ | 33,876,967 | ||||
| Game equipment | 118,520 | 118,029 | ||||||
| Information Technology service | 162,036 | 161,364 | ||||||
| Total accounts payable | $ | 280,556 | $ | 34,156,360 | ||||
On August 28, 2024, the company signed a tripartite agreement on the transfer of accounts receivable with one supplier and four customers. The accounts receivable has been offset against accounts payable, with an amount of $33.87 million. On January 27, 2025, Golden Alpha Strategy Limited (the “Golden Alpha”), a wholly owned subsidiary of the Company, entered into a certain tail fee payment agreement (the “Agreement”) with Rongxin Precious Metal Technology Co., Ltd (the “Seller”). Pursuant to the Agreement, Golden Alpha paid off the remaining balance of $33,876,967 in connection with that gold purchase agreement dated August 28, 2024, in the form of Ordinary Shares of the Company. The Parties mutually agreed that the Company shall issue a total of 246,182,908 Ordinary Shares at 30% premium of the average closing price of the Ordinary Shares in the past 30 days from the issuance date, which is $0.1376 per share, to the designees of the Seller.
10. OTHER PAYABLES AND ACCRUED LIABILITIES
Other payables and accrued liabilities consist of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Payables to non-trade vendors and service providers | $ | 1,440,976 | $ | 3,744,669 | ||||
| Salary payables | 401,985 | 948,829 | ||||||
| Interest payable | 38,150 | 33,011 | ||||||
| Other miscellaneous payables | 54,683 | 54,456 | ||||||
| Total other payables and accrued liabilities | $ | 1,935,794 | $ | 4,780,965 | ||||
F-56
11. RELATED PARTY BALANCES AND TRANSACTIONS
Other receivables - related party
| June 30, | December 31, | |||||||||||
| Name of Related Party | Relationship - | Nature | 2025 | 2024 | ||||||||
| Blue Hat Fujian | Shareholders’ investment company | Disposal consideration, payment on demand | 1,363,326 | 1,388,643 | ||||||||
| Blue Hat Pingxiang | Shareholders’ investment company | Disposal consideration, payment on demand | 38,656 | 38,496 | ||||||||
| Fujian Blue Hat Interactive Entertainment Technology Co., Ltd. Fuzhou Branch | Shareholders’ investment company | Other receivable, payment on demand | 1,594 | 1,587 | ||||||||
| Fujian Lanyuncanghai Technology Co., Ltd | Shareholders’ investment company | Other receivable, payment on demand | 339,343 | 337,935 | ||||||||
| Total | $ | 1,742,919 | $ | 1,766,661 | ||||||||
Other payables - related party
| June 30, | December 31, | |||||||||||
| Name of Related Party | Relationship - | Nature | 2025 | 2024 | ||||||||
| Tao Fan | The brother of CO-CEO | Loans, payment on demand | 395,379 | 600,885 | ||||||||
| Xiaodong Chen | CEO | Lease and other payable, payment on demand | $ | 976 | $ | 971 | ||||||
| Total | $ | 396,355 | $ | 601,856 | ||||||||
Long term loans - related party
| June 30, | December 31, | |||||||||||
| Name of Related Party | Relationship - | Nature | 2025 | 2024 | ||||||||
| Xiaodong Chen | CEO | Borrowing | $ | 770,155 | $ | 770,155 | ||||||
| Beautiful Jade Ltd | Shareholders’ investment company | Attorney fee | 3,795 | 3,795 | ||||||||
| Total | $ | 773,950 | $ | 773,950 | ||||||||
Long term loans from related parties are unsecured and interest free, the payment was due on January 31, 2028.
12. Taxes
Income tax
Cayman Islands
Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.
British Virgin Islands
Blue Hat BVI and Golden Strategy are incorporated in the British Virgin Islands and is not subject to tax on income or capital gains under current British Virgin Islands law. In addition, upon payments of dividends by these entities to their shareholders, no British Virgin Islands withholding tax will be imposed.
F-57
United States
Blue USA which is a limited liability company that is taxed as a partnership for U.S. federal and certain state and local income tax purposes. Blue USA’s net taxable income or loss and related tax credits, if any, are passed through to its members on a pro-rata basis and included in the member’s tax returns. The income tax burden on the earnings taxed to the non-controlling interest holders is not reported by the Company in its consolidated financial statements under GAAP.
Hong Kong
Blue Hat HK and Golden Alpha are incorporated in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is 16.5% in Hong Kong. The Company did not make any provisions for Hong Kong profit tax as there were no assessable profits derived from or earned in Hong Kong since inception. Under Hong Kong tax law, Blue Hat HK is exempted from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.
PRC
PRC companies are governed by the income tax laws of the PRC and the income tax provision in respect to operations in the PRC is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Enterprise Income Tax Laws of the PRC (the “EIT Laws”), domestic enterprises and Foreign Investment Enterprises (the “FIE”) are usually subject to a unified 25% enterprise income tax rate while preferential tax rates, tax holidays and even tax exemption may be granted on case- by-case basis. EIT grants preferential tax treatment to certain High and New Technology Enterprises (“HNTEs”). Under this preferential tax treatment, HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for HNTE status every three years.
Significant components of the provision for income taxes are as follows:
| June 30, | June 30, | |||||||
| 2025 | 2024 | |||||||
| Current | $ | — | $ | — | ||||
| The provision for income taxes | $ | — | $ | — |
The following table reconciles China statutory rates to the Company’s effective tax rate:
| Six months ended | Six months ended | |||||||
| June 30, | June 30, | |||||||
| 2025 | 2024 | |||||||
| China statutory income tax rate | 25.0 | % | 25.0 | % | ||||
| Preferential tax rate reduction | (10.0 | )% | (10.0 | )% | ||||
| Permanent difference | (15.0 | )% | (15.0 | )% | ||||
| Effective tax rate | — | — | % | |||||
As of June 30, 2025 and December 31, 2024, the Company had approximately $27 million and $27 million of allowance for credit loss with deferred tax assets of approximately $0 and $0, respectively. The Company estimates there will not be sufficient future income to realize the deferred tax assets as of June 30, 2025 and December 31, 2024. Thus, there were no valuation allowances of June 30, 2025 and December 31, 2024 in respect to the deferred tax assets on allowance for credit loss accounts.
Uncertain tax positions
The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits and measures the unrecognized benefits associated with the tax positions. As of June 30, 2025 and December 31, 2024, the Company did not have any significant unrecognized uncertain tax positions.
F-58
The Company did not incur any interest and penalties tax for the six months ended June 30, 2025 and 2024. The Company does not anticipate any significant increases or decreases in unrecognized tax benefits in the next twelve months from June 30, 2025.
Value added tax
All of the Company’s service revenues that are earned and received in the PRC are subject to a Chinese VAT. The rate of Chinese VAT is 16%, and then changed to 13% and 6% starting in April 2019 of the gross proceeds or at a rate approved by the Chinese local government.
Taxes payable consisted of the following:
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| VAT taxes payable | $ | 436,944 | $ | 435,132 | ||||
| Income taxes payable | 181,066 | 180,315 | ||||||
| Other taxes payable | 178,794 | 178,045 | ||||||
| Totals | $ | 796,804 | $ | 793,492 | ||||
13. CONCENTRATION OF RISK
Credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash (including restricted cash and certificate deposits). As of June 30, 2025 and December 31, 2024, $1.06 million and $15,770 were deposited with financial institutions located in the PRC, respectively. These balances are covered by insurance. While management believes that these financial institutions are of high credit quality, it also continually monitors their credit worthiness.
The Company is also exposed to risk from its accounts receivable and other receivables. These assets are subjected to credit evaluations. An allowance has been made for estimated unrecoverable amounts which have been determined by reference to past default experience and the current economic environment.
A majority of the Company’s expense transactions are denominated in RMB and a significant portion of the Company and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.
Our functional currency is the RMB, and our financial statements are presented in U.S. dollars. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. The change in the value of the RMB relative to the U.S. dollar may affect our financial results reported in the U.S. dollar terms without giving effect to any underlying changes in our business or results of operations. Currently, our assets, liabilities, revenues and costs are denominated in RMB.
To the extent that the Company needs to convert U.S. dollars into RMB for capital expenditures and working capital and other business purposes, appreciation of RMB against U.S. dollar would have an adverse effect on the RMB amount the Company would receive from the conversion. Conversely, if the Company decides to convert RMB into U.S. dollar for the purpose of making payments for dividends, strategic acquisition or investments or other business purposes, appreciation of U.S. dollar against RMB would have a negative effect on the U.S. dollar amount available to the Company.
F-59
Customer concentration risk
For the six months ended June 30, 2025, two customers accounted for 52.8% and 44.7% of the Company’s total revenues. For the six months ended June 30, 2024, four customers accounted for 30.9%, 27.2%, 22.1% and 19.9% of the Company’s total revenues.
As of June 30, 2025, four customers accounted for 29.0%, 28.5%, 24.3% and 15.7% of the total balance of accounts receivable. As of December 31, 2024, the Company does not have balance in AR.
Vendor concentration risk
For the six months ended June 30, 2025, one vendor accounted for 100% of the Company’s total purchases. For the six months ended June 30, 2024, no vendors exceeded 10% of purchases.
As of June 30, 2025, two vendors accounted for 42.2% and 11.4% of the total balance of accounts payable. As of December 31, 2024, one vendor accounted for 99.2% of the total balance of accounts payable.
14. SHAREHOLDERS’ EQUITY
Ordinary shares
Blue Hat Cayman was established under the laws of Cayman Islands on June 13, 2018.
On May 10, 2022, the Company has authorized and approved a 1-for-10 reverse stock split of the Company’s authorized (issued and unissued) shares of ordinary shares, effective May 27, 2022. The reverse stock split would be reflected in December 31, 2023, and December 31, 2022 statements of changes in stockholders’ equity, and in per share data for all period presented.
On June 6, 2022, DTCC is presenting 35,641,462 shares for reverse split and request 3,572,818 shares after reverse split. The additional 8,762 shares requested represent round-up shares at the Beneficial/Participant level.
On February 28, 2025, the shareholders of the Company approved to effect certain reverse stock split at a ratio of 50-1 or 100-1, and on March 3, 2025, the Company’s board of directors elected to conduct a reverse stock split at a ratio of 100-1, effective on March 17, 2025.
As of the date of the press release, the share capital of the Company is US$500,000,000, divided into 5,000,000,000,000,000 ordinary shares of US$0.0000001 par value each.
Securities Purchase Agreement
In June 2022, the Company entered into an Agreement with Aegis Capital Corp., to engages Aegis act as the Company’s exclusive underwriter and investment banker to consist of a sale of up to $10 million of the Company’s Securities. On July 11, 2022, the company issued 500,000 ordinary shares, par value $0.01 per share in the purchase contracts at a price of $3.60 per share directly to Blackhorse Capital Co., Ltd and Gold Bull Capital Co., Ltd respectively. Under the terms of the securities purchase agreement the Company has agreed that the undersigned, Hudson Bay Master Fund Ltd., entitled to 94,429 ordinary shares of the warrant issued on July 15, 2020, and has exercised 60,845 ordinary shares as of July 26, 2022 on a Cashless basis, with the bid price as of such time of execution of this exercise was $2.65 per share. The Company has agreed that the undersigned, Hudson Bay Master Fund Ltd., entitled to 300,000 ordinary shares of the warrant issued on July 15, 2020, and has exercised 100,933 and 108,714 ordinary shares respectively as of August 2, 2022 and August 4, 2022 on a Cashless basis, with the bid price as of such time of execution of this exercise was $2.51 and $2.24 per share.
On March 2023, the Company entered into an Agreement with F&P Capital Management Company Limited to consist of a sale of 4,000,000 Ordinary Shares at a total consideration of $2,800,000. F&P act as the Company’s party to distribute the shares to individuals: Wei WEN, Youzhi FAN, Ping LIU, Qian WANG, Chengcheng FAN, and Yao CHENG.
F-60
On September 2023 afterwards, the Company announced that the securities purchase agreement dated as of July 8, 2020 with Alto Opportunity Master Fund, SPC - Segregated Master Portfolio B and Hudson Bay Master Fund Ltd. was effective. The effectiveness of the 1-for-10 reverse split of the ordinary shares, par value $0.001 per share, the exercise price per share of the common stock shall be adjusted to $0.70, result in an additional warrant amount of $283,425.
On February and March 2024, the Company announced that the securities purchase agreement dated as of July 8, 2020 with Alto Opportunity Master Fund, SPC - Segregated Master Portfolio B and Hudson Bay Master Fund Ltd. was effective. The effectiveness of the 1-for-10 reverse split of the ordinary shares, par value $0.001 per share. The exercise price per share of the common stock shall be adjusted to $0.70, the company issued 25,000 and 75,000 shares at $0.7 per share, respectively.
On January 5, 2025, the Company and Maxim hereby agree that the closing on January 7, 2025 for the sale by the Company of an aggregate of 55,200,000 Ordinary Shares. The purchase price of $0.08 per share, for aggregate net proceeds to the Company of $4,026,880, after deducting fees to the placement agent and other offering expenses payable by the Company.
On January 7, 2025, the Company and Maxim hereby agree that the closing on January 9, 2025 for the sale by the Company of an aggregate of 55,950,000 Ordinary Shares. The purchase price of $0.07 per share, for aggregate net proceeds to the Company of $3,592,345, after deducting fees to the placement agent and other offering expenses payable by the Company.
On January 11, 2025, the Company and Maxim hereby agree that the closing on January 14, 2025 for the sale by the Company of an aggregate of 77,989,800 Ordinary Shares. The purchase price of $0.055 per share, for aggregate net proceeds to the Company of $3,939,178, after deducting fees to the placement agent and other offering expenses payable by the Company.
Consulting Service Agreement
On July 29, 2020, the Company entered into a Consulting Service Agreement (the “Agreement”) with First Trust China Ltd (the “Consultant”), a company incorporated in PRC, pursuant to which Consultant will: (i) assisting the Company in planning and implementing new business plans with the objective of improve Company’s long-term growth potential and delivering values to shareholders; (ii) advising the Company’s board of directors and management on all matters as positioning the Company for its next stage of growth; (iii) identifying prospective joint venture and strategic alliance opportunities for the Company, helping the Company to negotiate agreements and advising the Company on mergers and acquisitions; and (iv) identifying potential merger and acquisition targets for the Company, and provide necessary business analysis, evaluation and due diligence of the targeted companies as requested by the Company, as well as advising the Company on specific merger/acquisition issues. The term of the Agreement is one year. In consideration of the services to be provided by the Consultant to the Company, the Company agrees to pay the Consultant consulting fee totally $360,000 or 500,000 common shares. The Company shall issue a total of 500,000 of the Company Ordinary shares (the “Consultant Shares”) as the payment for the above mentioned consultant fee to the Consultant. For the year ended December 31, 2020, the Company recorded stock related compensation of $287,500, based on the stock closing price of $1.15 within ten days of the Agreement date, for the 250,000 shares which were released to the Consultant immediately upon issuance. On September 14, 2021, the Company released the second batch of 250,000 shares to the Consultant and the Company will recognize stock related compensation of $155,825 for the 250,000 shares. On March 30, 2022, the BOD of company announced to issue an aggregate of 5,000,000 and 3,000,000 ordinary shares of the Company, par value 0.001 to Chengguo and Qirui, respectively, according to the Technical Consulting Service Contract between the Company Chengguo and Qirui dated Jan 1, 2021. According to the Supplementary agreement, Chengguo and Qirui provided service, and the service period for Chengguo was from January 1, 2021 to December 31, 2023 and the service period for Qirui was from January 1, 2021 to December 31, 2023. Because the first year of agreement was period of investigation, both services started on January 1, 2022 actually as stated in the agreement. It resulted the amortization of additional paid-in capital of 2 years for this agreement. And the shares were issued on April 7, 2022. On May 24, 2022, this Regulation S Certification is being delivered in connection with the issuance contemplated under Technology Development Service Agreement by and between the Company and Fujian Xinwanzhong Network Technology Co., Ltd., pursuant to which the Company will issue an aggregate of 8,000,000 restricted ordinary shares of the Company, par value $0.001 per share. The agreement has been terminated in 2024. On May 24, 2022, this Regulation S Certification is being delivered in connection with the issuance contemplated under the Consultancy Service Contract by and between Blue Hat Interactive Entertainment Technology, the Company and Shenzhen BAK Battery Co., Ltd., pursuant to which the Company will issue an aggregate of 2,800,000 restricted ordinary shares of the Company, par value $0.001 per share. On May 24, 2022, this Regulation S Certification is being delivered in connection with the issuance contemplated under the Technical Consulting Service Contract by and between the Company and Beijing Kehuihua Planning Consulting Co., Ltd., pursuant to which the Company will issue an aggregate of 2,600,000 restricted Ordinary Shares. The agreement has been terminated in 2024. On May 2023, the Company engaged Dengwei as the non-exclusive advisor to assist the Company in identifying potential business development opportunities, merging and acquisition opportunities and negotiation with identified businesses, under the agreement, the Company issued 500,000 Ordinary Shares.
F-61
On August 29, 2023, the Company and FirsTrust China Ltd signed a consulting contract to provide the Company with consulting advice on development strategies and business operations for a period of 6 months from August 29, 2023 to February 28, 2024, the contractual payment is for a total of 300,000 ordinary shares.
On September 26, 2023, the Company and Chongqing Paier Qizhi Business Information Consulting Co., Ltd. signed a consulting contract to provide the Company with consulting advice on development strategies and business operations for a period of 24 months from September 26, 2023 to September 26, 2025, the contractual payment is for a total of 2,305,671 Ordinary Shares. The purchase price of $2.06 per share, for aggregate net proceeds to the Company of $4,742,775, after deducting fees to the placement agent and other offering expenses payable by the Company.
Diamond purchase agreement
On June 28, 2023, the Company has entered into two diamonds purchased agreements (such action, the “Dimond Purchase”, the agreement with Alpha (as defined below, the “Alpha Agreement”, the agreement with Blue Sea (as defined below), the Blue Sea Agreement”) with Alpha Infinity Fintech Inc. (“Alpha”) and Fujian Blue Sea Resting Sun Science and Technology Limited (Blue Sea”) respectively (each, a “Subscriber”), pursuant to which the Company agreed to purchase the diamonds from and the Subscribers have agreed to sell to the Company, a number of diamonds valued at $25,472,904.53 in respect of the Diamonds Purchase with Alpha and $5,607,025.14 in respect of the Diamonds Purchase with Blue Sea, totaling $31,079,929.67 in value. Pursuant to the Alpha Agreement, the consideration for the diamonds thereunder shall be settled by way of (i) issuance of the Company’s Ordinary Shares to Alpha and its designated allottees; and (ii) payment of $1.3 million in cash. Pursuant to the Blue Sea Agreement, the consideration for the diamonds thereunder shall settled by way of issuance of the Company’s Ordinary Shares to Blue Sea and its designated allottees. Part of the consideration will be in the form of the Company issuing to the subscribers a total of 42,000,000 Ordinary Shares for a per share price of $0.71 and a total aggregate consideration of $29,820,000. As the closing price of the Company Ordinary Shartes was $1.01 per share on June 28, 2023, the purchase price was $42,000,000.
Gold purchase agreement
On January 27, 2025, Golden Alpha entered into a certain tail fee payment agreement with Rongxin Precious Metal Technology Co., Ltd. Pursuant to the Agreement, Golden Alpha paid off the remaining balance of $33,876,967 in connection with that gold purchase agreement dated August 28, 2024, in the form of ordinary shares of the Company, par value $0.01 per share. The parties mutually agreed that the Company shall issue a total of 246,182,908 Ordinary Shares at 30% premium of the average closing price of the Ordinary Shares in the past 30 days from the issuance date, which is $0.1376 per share, to the designees of the Seller.
Restricted assets
The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiary. Relevant PRC statutory laws and regulations permit payments of dividends by Blue Hat WFOE and Blue Hat Fujian (collectively “Blue Hat PRC entities”) only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. The results of operations reflected in the accompanying consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of Blue Hat PRC entities.
Blue Hat PRC entities are required to set aside at least 10% of their after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of their registered capital. In addition, Blue Hat PRC entities may allocate a portion of its after- tax profits based on PRC accounting standards to enterprise expansion fund and staff bonus and welfare fund at its discretion. Blue Hat PRC entities may allocate a portion of its after-tax profits based on PRC accounting standards to a discretionary surplus fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by State Administration of Foreign Exchange.
As a result of the foregoing restrictions, Blue Hat PRC entities are restricted in their ability to transfer their assets to the Company. Foreign exchange and other regulation in the PRC may further restrict Blue Hat PRC entities from transferring funds to the Company in the form of dividends, loans and advances. As of June 30, 2025 and December 31, 2024, amounts restricted are the paid-in-capital and statutory reserve of Blue Hat PRC entities, which amounted to $147,769,679 and $97,591,534, respectively.
F-62
Payments-omnibus equity plan
The 2020 Equity Incentive Plan was adopted by the shareholders of the Company on December 9, 2020, the maximum number of ordinary shares in respect of which any awards may be granted or paid out thereunder is 6,000,000 ordinary shares of par value of US$0.001 per share. Pursuant to the resolutions of the shareholders of the Company passed on 10 May 2022, every 10 ordinary shares of a par value of US$0.001 each in the authorized share capital of the Company (including issued and unissued share capital) were consolidated into 1 ordinary share of a par value of US$0.01 each (the “Share Consolidation”). After the Share Consolidation, the maximum number of ordinary shares in respect of which any awards may be granted or paid out under the 2020 Plan is 600,000 ordinary shares of par value of US$0.01 per share.
Statutory reserve
During the six months ended June 30, 2025 and 2024, Blue Hat PRC entities collectively attributed nil of retained earnings for their statutory reserves, respectively.
Capital contributions
During the six months ended June 30, 2025 and 2024, the Company’s shareholders contributed $50,178,145 and $473,340 to the Company.
15. SUBSEQUENT EVENT
On February 28, 2025, the shareholders of the Company approved to effect certain reverse stock split at a ratio of 50-1 or 100-1, and on March 3, 2025, the Company’s board of directors elected to conduct a reverse stock split at a ratio of 100-1, effective on March 17, 2025.
On July 10, 2025, the Company held an Extraordinary General Meeting at which shareholders approved a reduction in the par value of the Company’s ordinary shares from $1.00 to $0.0000001 per share, such adjustment of the par value was effective on July 16, 2025 upon completion of the merger of the Company with Lanjin Technology Co., Ltd.
On September 26, 2025, the Company completed the issuance of a total of 29,682,353 Ordinary Shares (the “Securities”) at the average closing price of the Ordinary Shares in the past 30 trading days immediately before August 28, 2025, which is $1.7 per share, to certain designees of City Fields Enterprises Limited (the “City Fields”). The Securities are restricted from trading for three years.
The issuance is pursuant to that certain Gold Purchase Agreement dated August 8, 2025 and the supplementary agreements dated August 28, 2025 by and between the Company and the Seller (collectively the “City Fields Agreements”). Pursuant to the City Fields Agreements, the Company shall pay $50,460,000 purchase price in the form of Ordinary Shares to purchase 500 kilogram gold. According to a power of attorney (the “POA”) between City Fields and Mr. Xiaodong Chen, the Company’s Chief Executive Officer and Chairman of the Board, City Fields irrevocably authorized Mr. Chen to act as sole and exclusive proxy to (i) attend the shareholders’ meeting of the Company; and (ii) exercise the voting rights under the laws and the Amended and Restated Memorandum and Articles of Association of the Company then in effect during the term when the Seller holds the Securities.
On October 28, 2025, the board of directors of the Company approved and adopted the Company’s 2025 Equity Incentive Plan (the “Plan”), which shall become effective immediately.
16. SEGMENT INFORMATION AND REVENUE ANALYSIS
The Company follows ASC 280, Segment Reporting, which requires that companies to disclose segment data based on how management makes decisions about allocating resources to each segment and evaluating their performances. The Company has three reporting segments. The Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. The Company considers itself to be operating within one reportable segment. The Company’s revenue and net income are substantially derived from diamond and gold trading.
F-63
Disaggregated information of revenues by business lines is as follows:
| Six months ended | Six months ended | |||||||
| June 30, | June 30, | |||||||
| 2025 | 2024 | |||||||
| Diamond trading | $ | — | $ | 13,078,529 | ||||
| Gold trading | 13,326,754 | — | ||||||
| Total revenues | $ | 13,326,754 | $ | 13,078,529 | ||||
Disaggregated information by business lines is as follows:
Six months ended June 30, 2025
| Gold Trading | ||||
| Revenue | $ | 13,326,754 | ||
| Costs of revenue | (8,456,515 | ) | ||
| Gross Profit | 4,870,239 | |||
Six months ended June 30, 2024
| Diamond Trading | ||||
| Revenue | $ | 13,078,529 | ||
| Costs of revenue | (11,998,711 | ) | ||
| Gross Profit | 1,079,818 | |||
The Company’s operations are primarily based in the PRC, where the Company derives a substantial portion of their revenues. Management also reviews consolidated financial results by business locations. Disaggregated information of revenues by geographic locations is as follows
| Six months ended June 30, 2025 | Six months ended June 30, 2024 | |||||||
| Domestic PRC revenues | $ | 13,326,754 | $ | 13,078,529 | ||||
| Export revenues | — | — | ||||||
| Total revenues | $ | 13,326,754 | $ | 13,078,529 | ||||
Segment asset
| June 30, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Diamond trading | $ | — | $ | 10,672,436 | ||||
| Gold trading | 87,411,406 | 64,560,000 | ||||||
| Total | 87,411,406 | 75,232,436 | ||||||
Assets subject to attribution to business segments largely include property, plant and equipment, receivable and right of use assets. All other items are reflected in Corporate and Unallocated.
F-64
17. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
The Company performed a test on the restricted net assets of consolidated subsidiary in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08(e)(3), “General Notes to Financial Statements” and concluded that it was applicable for the Company to disclose the financial statements for the parent company.
The subsidiary did not pay any dividend to the Company for the years presented. For the purpose of presenting parent only financial information, the Company records its investment in its subsidiary under the equity method of accounting. Such investment is presented on the separate condensed balance sheets of the Company as “Investment in subsidiary” and the income of the subsidiary is presented as “share of income of subsidiary”. Certain information and footnote disclosures generally included in financial statements prepared in accordance with U.S. GAAP have been condensed and omitted.
The Company did not have significant capital and other commitments, long-term obligations, or guarantees as of June 30, 2025 and December 31, 2024.
PARENT COMPANY BALANCE SHEETS
| Schedule of condensed financial information of the parent company | ||||||||
| June 30, 2025 | December 31, 2024 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 28,643 | $ | — | ||||
| Total current assets | 28,643 | — | ||||||
| Non-current assets: | ||||||||
| Property, plant and equipment, net | 3,218,987 | 3,321,582 | ||||||
| Investment in subsidiaries | 79,908,759 | 31,036,848 | ||||||
| Total non-current assets | 83,127,746 | 34,358,430 | ||||||
| Total assets | $ | 83,156,389 | $ | 34,358,430 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| LIABILITIES | ||||||||
| Other payables and accrued liabilities | $ | 917,085 | $ | 1,441,662 | ||||
| Total current liabilities | 917,085 | 1,441,662 | ||||||
| Non-current liabilities | 773,950 | 773,950 | ||||||
| Total liabilities | 1,691,035 | 2,215,612 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Ordinary shares, $0.0000001 par value, 5,000,000,000,000,000 shares authorized, 72,439,308,910,000 shares issued and outstanding as of June 30, 2025, and 5,849,828,110,000 shares issued and outstanding as of December 31, 2024* | 7,243,930 | 584,982 | ||||||
| Additional paid-in capital | 138,382,497 | 94,863,300 | ||||||
| Statutory reserves | 2,143,252 | 2,143,252 | ||||||
| Retained earnings | (67,212,720 | ) | (66,356,798 | ) | ||||
| Accumulated other comprehensive losses | 908,395 | 908,082 | ||||||
| Total Blue Hat Interactive Entertainment Technology shareholders’ equity | 81,465,354 | 32,142,818 | ||||||
| Total equity | 81,465,354 | 32,142,818 | ||||||
| Total liabilities and shareholders’ equity | $ | 83,156,389 | $ | 34,358,430 | ||||
* The change of the par value to US$0.0000001 par value each, in connection with certain merger of the Company with Lanjin Technology Co., Ltd effective July 16, 2025 is retroactively restated.
F-65
PARENT COMPANY STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
| Six months ended June 30, | Six months ended June 30, | |||||||
| 2025 | 2024 | |||||||
| Revenues | $ | — | $ | 13,078,529 | ||||
| Cost of sales | — | (11,998,711 | ) | |||||
| Gross profit | — | 1,079,818 | ||||||
| Operating expenses: | ||||||||
| General and administrative expenses | (5,318,402 | ) | (1,300,116 | ) | ||||
| Research and development | — | (319,060 | ) | |||||
| Other income (expenses): | ||||||||
| Other finance expenses | (1,140 | ) | (437 | ) | ||||
| Equity income (loss) of subsidiaries | 4,463,620 | (756,052 | ) | |||||
| NET LOSS | (855,922 | ) | (1,295,847 | ) | ||||
| FOREIGN CURRENCY | 313 | (21,943 | ) | |||||
| COMPREHENSIVE LOSS | $ | (855,609 | ) | $ | (1,317,790 | ) | ||
| Less: Comprehensive income attributable to non-controlling interest | — | — | ||||||
| Comprehensive loss attributable to | ||||||||
| Blue Hat Interactive Entertainment Technology shareholders | $ | (855,609 | ) | $ | (1,317,790 | ) | ||
F-66
| PARENT COMPANY STATEMENTS OF CASH FLOWS |
| Six months ended | Six months ended | |||||||
| June 30, | June 30, | |||||||
| 2025 | 2024 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (855,922 | ) | $ | (1,295,847 | ) | ||
| Adjustments to reconcile net income to cash used in operating activities: | ||||||||
| Impairment loss of inventory | ||||||||
| Equity income of subsidiaries | (48,871,911 | ) | (33,204,000 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Depreciation of property, plant and equipment | 102,596 | 102,596 | ||||||
| Share-based payments | 4,742,775 | 403,340 | ||||||
| Issuance of common stock to pay for goods | 33,876,967 | — | ||||||
| Inventories | — | 17,178,241 | ||||||
| Other receivables | — | 19,390,118 | ||||||
| Other payables and accrued liabilities | (524,578 | ) | 260,786 | |||||
| Net cash (used in)/generated from operating activities | (11,530,073 | ) | 2,835,234 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Net cash used in investing activities | — | — | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Underwriter’s partial exercise of over-allotment option, net of issuance costs | 11,558,403 | 70,000 | ||||||
| Repayment of long-term loans - related party | — | (90,500 | ) | |||||
| Net cash generated from/(used in) financing activities | 11,558,403 | (20,500 | ) | |||||
| EFFECT OF EXCHANGE RATE ON CASH | 313 | (21,943 | ) | |||||
| NET CHANGES IN CASH AND CASH EQUIVALENTS | 28,643 | 2,792,791 | ||||||
| CASH AND CASH EQUIVALENTS, beginning of year | — | 23,107 | ||||||
| CASH AND CASH EQUIVALENTS, end of year | $ | 28,643 | $ | 2,815,898 | ||||
F-67
10,666,666 Units, Each Unit Consisting of One Ordinary Share or One Pre-funded Warrant to Purchase One Ordinary Share and One Warrant to Purchase One Ordinary Share
Up to 10,666,666 Ordinary Shares underlying the Pre-Funded Warrants
Up to 42,666,666 Ordinary Shares underlying the Warrants (which includes a zero exercise price option)
Maxim Group LLC
, 2026
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 6. Indemnification of Directors and Officers.
Cayman Islands law does not limit the extent to which a company’s memorandum of association and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime.
Under our memorandum of association and articles of association, we may indemnify our directors, officers and liquidators against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings to which they are party or are threatened to be made a party by reason of their acting as our director, officer or liquidator. To be entitled to indemnification, these persons must have acted honestly and in good faith with a view to the best interest of the company and, in the case of criminal proceedings, they must have had no reasonable cause to believe their conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, or the Securities Act, may be permitted to directors, officers and controlling persons of the Company, the Company has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable.
Item 7. Recent Sales of Unregistered Securities
At the end of September 2025, the Company completed the issuance of a total of 29,682,353 Ordinary Shares at the average closing price of the Ordinary Shares in the past 30 trading days immediately before August 28, 2025, which is $1.70 per share, to certain designees of City Fields Enterprises Limited (the “Seller”).
The issuance is pursuant to that certain Gold Purchase Agreement dated August 8, 2025 and the supplementary agreement dated August 28, 2025 by and between the Company and the Seller (collectively the “Agreements”). Pursuant to the Agreements, the Company shall pay $50,460,000 purchase price in the form of Ordinary Shares to purchase 500 kilogram gold.
At the end of November 2025, the Company and Global Prima Trade Limited (the “Seller”) entered into that certain Gold Purchase Agreement and the supplementary agreement (collectively the “Agreements”). Pursuant to the Agreements, the Company shall pay an aggregated purchase price of $24,188,000 in the form of Ordinary Shares to purchase 200 kilogram gold.
The Company shall issuance a total of 19,506,452 Ordinary Shares at the average closing price of the Ordinary Shares in the past 10 calendar days immediately before November 25, 2025, which is $1.24 per share, to certain designees of the Seller. Such issuance has not been processed.
II-1
Item 8. Exhibits and Financial Statement Schedules
II-2
II-3
Item 9. Undertakings.
The registrant hereby undertakes:
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: | |
| (i) | To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; | |
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and | |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. | |
| (2) | That, for the purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof. | |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. | |
| (4) | To file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A. of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. | |
| (5) | That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: | |
| (i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; | |
| (ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; | |
| (iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and | |
II-4
| (iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. | |
| (6) | That, for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | |
| (7) | Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. | |
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Xiamen, China, on February 6, 2026.
| Blue Hat Interactive Entertainment Technology | ||
| By: | /s/ Xiaodong Chen | |
| Name: Xiaodong Chen | ||
| Title: Chief Executive Officer and Director |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoint Xiaodong Chen as attorneys-in-fact with full power of substitution for him or her in any and all capacities to do any and all acts and all things and to execute any and all instruments which said attorney and agent may deem necessary or desirable to enable the registrant to comply with the Securities Act of 1933, as amended, or the Securities Act, and any rules, regulations and requirements of the U.S. Securities and Exchange Commission thereunder, in connection with the registration under the Securities Act of Ordinary Shares of the registrant, or the Shares, including, without limitation, the power and authority to sign the name of each of the undersigned in the capacities indicated below to the Registration Statement on Form F-1, or the Registration Statement, to be filed with the U.S. Securities and Exchange Commission with respect to such Shares, to any and all amendments or supplements to such Registration Statement, whether such amendments or supplements are filed before or after the effective date of such Registration Statement, to any related Registration Statement filed pursuant to Rule 462(b) under the Securities Act, and to any and all instruments or documents filed as part of or in connection with such Registration Statement or any and all amendments thereto, whether such amendments are filed before or after the effective date of such Registration Statement; and each of the undersigned hereby ratifies and confirms all that such attorney and agent shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Xiaodong Chen | Chief Executive Officer and Director | February 6, 2026 | ||
| Xiaodong Chen | (Principal Executive Officer) | |||
| /s/ Caifan He | Chief Financial Officer and Director | February 6, 2026 | ||
| Caifan He | (Principal Financial and Accounting Officer) | |||
| /s/ Jianyong Cai | Chief Technology Officer and Director | February 6, 2026 | ||
| Jianyong Cai | ||||
| /s/ Qinyi Fu | Director | February 6, 2026 | ||
| Qinyi Fu | ||||
| /s/ Jun Ouyang | Director | February 6, 2026 | ||
| Jun Ouyang | ||||
| /s/ Huibin Shen | Director | February 6, 2026 | ||
| Huibin Shen | ||||
| /s/ Can Su | Director | February 6, 2026 | ||
| Can Su | ||||
| /s/ Zhiyong Gong | Director | February 6, 2026 | ||
| Zhiyong Gong |
II-6
SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant to the Securities Act of 1933, as amended, the undersigned, the duly authorized representative in the United States of Blue Hat Interactive Entertainment Technology, has signed this registration statement or amendment thereto in the City of Newark, State of Delaware on February 6, 2026.
| Puglisi & Associates | ||
| By: | /s/ Donald J. Puglisi | |
| Name: | Donald J. Puglisi | |
| Title: | Managing Partner | |
II-7
Exhibit 1.1
[ ] ORDINARY SHARES,
[ ] PRE-FUNDED WARRANTS and
[ ] Warrants of
BLUE HAT INTERACTIVE ENTERTAINMENT TECHNOLOGY
UNDERWRITING AGREEMENT
__, 2026
Maxim Group LLC
As the Representative of the
Several underwriters, if any, named in Schedule I hereto
c/o Maxim Group LLC
300 Park Avenue, 16th Floor
New York, NY 10022
Ladies and Gentlemen:
The undersigned, Blue Hat Interactive Entertainment Technology, an exempted company incorporated under the laws of the Cayman Islands (the “Company”), hereby confirms its agreement (this “Agreement”) with the several underwriters (such underwriters, including the Representative (as defined below), the “Underwriters” and each an “Underwriter”) named in Schedule I hereto for which Maxim Group LLC is acting as representative to the several Underwriters (the “Representative” and if there are no Underwriters other than the Representative, references to multiple Underwriters shall be disregarded and the term Representative as used herein shall have the same meaning as Underwriter) on the terms and conditions set forth herein.
It is understood that the several Underwriters are to make a public offering of the Public Securities as soon as the Representative deems it advisable to do so. The Public Securities are to be offered to the public at the public offering price set forth in the Prospectus.
It is further understood that you will act as the Representative for the Underwriters in the offering and sale of the Closing Securities and, if any, the Option Securities in accordance with this Agreement.
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set forth in this Section 1.1:
“Action” shall have the meaning ascribed to such term in Section 3.1(k).
“Affiliate” means with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with such Person as such terms are used in and construed under Rule 405 under the Securities Act.
“Applicable Laws” means all United States (federal, state and local) and foreign statutes, rules, regulations, codes, treaties, or guidance applicable to the Company or the Subsidiaries.
“Board of Directors” means the board of directors of the Company.
“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York and the Cayman Islands are authorized or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York and the Cayman Islands generally are open for use by customers on such day.
“Cayman Counsel” means Campbells, with office at 3001-04 & 3010, 30/F Gloucester Tower, The Landmark, 15 Queen’s Road Central, Hong Kong .
“Closing” means the closing of the purchase and sale of the Closing Securities pursuant to Section 2.1.
“Closing Date” means the hour and the date on the Trading Day on which all conditions precedent to (i) the Underwriters’ obligations to pay the Closing Purchase Price and (ii) the Company’s obligations to deliver the Closing Securities, in each case, have been satisfied or waived, but in no event later than 10:00 a.m. (New York City time) on the first (1st) Trading Day following the date hereof (or the second (2nd) Trading Day following the date hereof if this Agreement is signed on a day that is not a Trading Day or after 4:00 p.m. (New York City time) and before midnight (New York City time) on a Trading Day) or at such earlier time as shall be agreed upon by the Representative and the Company.
“Closing Purchase Price” shall have the meaning ascribed to such term in Section 2.1(b), which aggregate purchase price shall be net of the underwriting discounts and commissions.
“Closing Securities” shall have the meaning ascribed to such term in Section 2.1(a)(iii).
“Closing Shares” shall have the meaning ascribed to such term in Section 2.1(a)(i).
“Closing Warrants” shall have the meaning ascribed to such term in Section 2.1(a)(iii) which Closing Warrants shall be exercisable within one year, in the form of Exhibit C attached hereto.
“Combined Purchase Price” shall have the meaning ascribed to such term in Section 2.1(b).
“Commission” means the United States Securities and Exchange Commission.
“Company Auditor” means OneStop Assurance PAC, with office of 10 Anson Road, #06-15 International Plaza, Singapore 079903.
“Company Counsel” means Pryor Cashman LLP, with offices located at 7 Times Square, New York, New York 10036.
“Effective Date” shall have the meaning ascribed to such term in Section 3.1(f).
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Execution Date” shall mean the date on which the parties execute and enter into this Agreement.
“Exempt Issuance” means the issuance of (a) Ordinary Shares or options to employees, officers or directors of the Company pursuant to any share or option plan duly adopted for such purpose by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose for services rendered to the Company before or after the date of this Agreement, (b) Ordinary Shares issued in connection with the transaction consummated under agreements for the Company’s purchase of gold, (c) securities issued upon the exercise or exchange of or conversion of any securities issued hereunder and/or other securities exercisable or exchangeable for or
convertible into Ordinary Shares issued and outstanding on the date of this Agreement, provided that
such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise
price, exchange price or conversion price of such securities (other than in connection with automatic price resets or anti-dilution provisions,
stock splits, adjustments or combinations as set forth in such securities as of the date of this Agreement) or to extend the term of such
securities and (d) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors
of the Company, provided that such securities are issued as “restricted securities” (as defined in Rule 144) and carry no
registration rights that require or permit the filing of any registration statement in connection therewith during the prohibition period
in Section 4.21(a) herein, and provided that any such issuance shall only be to a Person (or to the equity holders of a Person) which
is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the
Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction
in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing
in securities
“FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.
“FINRA” means the Financial Industry Regulatory Authority.
“GAAP” shall have the meaning ascribed to such term in Section 3.1(i).
“Governmental Authority” means any federal, provincial, state, local, foreign or other governmental, quasi-governmental or administrative agency, court or body or any other type of regulatory authority or body, including, without limitation, the Nasdaq Capital Market.
“Indebtedness” shall have the meaning ascribed to such term in Section 3.1(bb).
“Liens” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.
“Lock-Up Agreement” means the lock-up agreements that are executed on the date hereof by each of the Lock-Up Parties, in the form of Exhibit A attached hereto.
“Lock-Up Parties” means the Company’s officers, directors and the shareholders holding 5% or more of the Company’s total Ordinary Shares as of the date when the Registration Statement is declared effective.
“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).
“Offering” shall have the meaning ascribed to such term in Section 2.1(c).
“Option” shall have the meaning ascribed to such term in Section 2.2.
“Option Closing Date” shall have the meaning ascribed to such term in Section 2.2(c).
“Option Closing Purchase Price” shall have the meaning ascribed to such term in Section 2.2(b), which aggregate purchase price shall be net of the underwriting discounts and commissions.
“Option Securities” shall have the meaning ascribed to such term in Section 2.2(a).
“Option Shares” shall have the meaning ascribed to such term in Section 2.2(a)(i).
“Option Warrants” shall have the meaning ascribed to such term in Section 2.2(a)(ii).
“Ordinary Shares” means the ordinary shares of the Company, par value of US$0.0000001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.
“Ordinary Share Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Ordinary Shares, including, without limitation, any debt, preferred shares, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Ordinary Shares.
“HTFL” means Hunter Taubman Fischer & Li LLC, with offices located at 950 Third Avenue, 19th Floor New York, NY 10022.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Pre-Funded Warrants” means, collectively, the pre-funded Ordinary Share purchase warrants delivered to the Underwriters in accordance with Section 2.1(a)(ii), which Pre-Funded Warrants shall be exercisable immediately and shall be exercisable until exercised in full, in the form of Exhibit B attached hereto.
“Pre-Funded Warrant Shares” means the Ordinary Shares issuable upon exercise of the Pre-Funded Warrants.
“Preliminary Prospectus” means any preliminary prospectus relating to the Securities included in the Registration Statement or filed with the Commission pursuant to Rule 424(b).
“Pricing Prospectus” means (i) the Preliminary Prospectus relating to the Securities that was included in the Registration Statement immediately prior to [_:00 p.m.] (New York City time) on the date hereof and (ii) any free writing prospectus (as defined in the Securities Act), taken together.
“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.
“Prospectus” means the final prospectus filed for the Registration Statement.
“Prospectus Supplement” means, if any, any supplement to the Prospectus complying with Rule 424(b) of the Securities Act that is filed with the Commission.
“Public Securities” means, collectively, the Closing Securities and, if any, the Option Securities.
“Registration Statement” means, collectively, the various parts of the registration statement prepared by the Company on Form F-1 (File No. 333-______) with respect to the Securities, each as amended as of the date hereof, including the Prospectus and Prospectus Supplement, if any, the Preliminary Prospectus, if any, and all exhibits filed with or incorporated by reference into such registration statement, and includes any Rule 462(b) Registration Statement.
“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).
“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
“Rule 462(b) Registration Statement” means any registration statement prepared by the Company registering additional Public Securities, which was filed with the Commission on or prior to the date hereof and became automatically effective pursuant to Rule 462(b) promulgated by the Commission pursuant to the Securities Act.
“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(i).
“Securities” means the Closing Securities, the Option Securities and the Warrant Shares.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Share Purchase Price” shall have the meaning ascribed to such term in Section 2.1(b).
“Shares” means, collectively, the Ordinary Shares delivered to the Underwriters in accordance with Section 2.1(a)(i) and Section 2.2(a).
“Subsidiary” means any subsidiary of the Company and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.
“Trading Day” means a day on which the principal Trading Market is open for trading.
“Trading Market” means any of the following markets or exchanges on which the Ordinary Shares are listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQX or OTCQB (or any successors to any of the foregoing).
“Transaction Documents” means this Agreement and all exhibit and schedules hereto, the Warrants, the Lock-Up Agreements, and any other documents or agreements executed in connection with the transactions contemplated hereunder.
“Transfer Agent” means VStock Transfer, LLC, and any successor transfer agent of the Company.
“Warrant Purchase Price” shall have the meaning ascribed to such term in Section 2.1(b).
“Warrant Shares” means the Ordinary Shares issuable upon exercise of the Warrants.
“Warrants” means, collectively, the Closing Warrants, the Option Warrants and Pre-Funded Warrants.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing.
(a) Upon the terms and subject to the conditions set forth herein, the Company agrees to sell in the aggregate [ ] Units, each includes one Ordinary Share, or one Pre-Funded Warrant exercisable for one Ordinary Share, and one warrant exercisable for one Ordinary Share, and each Underwriter agrees to purchase, severally and not jointly, at the Closing, the following securities of the Company on a firm commitment basis:
(i) the number of Ordinary Shares (the “Closing Shares”) set forth opposite the name of such Underwriter on Schedule I hereof; and
(ii) Pre-Funded Warrants to purchase up to the number of Ordinary Shares set forth opposite the name of such Underwriter on Schedule I hereof (the “Pre-Funded Warrants”) which Pre-Funded Warrants shall have an exercise price of $0.0001, subject to adjustment as provided therein;
(iii) warrants to purchase up to the number of Ordinary Shares set forth opposite the name of such Underwriter on Schedule I hereof (the “Closing Warrants” and, collectively with the Closing Shares and Pre-Funded Warrants, the “Closing Securities”), which Closing Warrants shall have an exercise price of $[ ], subject to adjustment as provided therein.
(b) The aggregate purchase price for the Closing Securities shall equal the amount set forth opposite the name of such Underwriter on Schedule I hereto (the “Closing Purchase Price”). The combined purchase price for one Share and one Closing Warrant to purchase one Ordinary Share shall be $[ ] (the “Combined Purchase Price”) which shall be allocated as $______ per Share (the “Share Purchase Price”) and $______ per Closing Warrant (the “Warrant Purchase Price”). The combined purchase price for one Pre-Funded Warrant and one Closing Warrant shall be $[ ], which shall be allocated as $_____ per Pre-Funded Warrant and $______ per Closing Warrant; and
1 Insert the product of (i) the closing price of the ordinary shares on the day of pricing and (ii) 93% (underwriter discount of 7%)
(c) On the Closing Date, each Underwriter shall deliver or cause to be delivered to the Company, via wire transfer, immediately available funds equal to such Underwriter’s Closing Purchase Price and the Company shall deliver to, or as directed by, such Underwriter its respective Closing Securities and the Company shall deliver the other items required pursuant to Section 2.3 deliverable at the Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.3 and 2.4, the Closing shall occur at the offices of HTFL or such other location (or remotely by facsimile or other electronic transmission) as the Company and Representative shall mutually agree. The Public Securities are to be offered initially to the public at the offering price set forth on the cover page of the Prospectus (the “Offering”).
(d) The Company acknowledges and agrees that, with respect to any Notice(s) of Exercise (as defined in the Pre-Funded Warrants) delivered by a Holder (as defined in the Pre-Funded Warrants) on or prior to 12:00 p.m. (New York City time) on the Closing Date, which Notice(s) of Exercise may be delivered at any time after the time of execution of this Agreement, the Company shall deliver the Pre-Funded Warrant Shares subject to such notice(s) to the Holder by 4:00 p.m. (New York City time) on the Closing Date and the Closing Date shall be the Warrant Share Delivery Date (as defined in the Pre-Funded Warrants). The Company acknowledges and agrees that the Holders are third-party beneficiaries of this covenant of the Company.
2.2 Option to Purchase Additional Securities.
(a) For the purposes of covering any over-allotments in connection with the distribution and sale of the Closing Securities, the Representative is hereby granted an option (the “Option”) to purchase, in the aggregate, up to [ ] Ordinary Shares or Pre-Funded Warrants (the “Option Shares”) and/or Closing Warrants to purchase up to [ ] Ordinary Shares (the “Option Warrants” and, collectively with the Option Shares, the “Option Securities”), or any combination thereof.
(b) In connection with an exercise of the Option, (a) the purchase price to be paid for the Option Shares is equal to the product of the Share Purchase Price multiplied by the number of Option Shares to be purchased and (b) the purchase price to be paid for the Option Warrants is equal to the product of the Warrant Purchase Price multiplied by the number of Option Warrants to be purchased (the aggregate purchase price to be paid on an Option Closing Date, the “Option Closing Purchase Price”).
(c) The Option granted pursuant to this Section 2.2 may be exercised by the Representative as to all (at any time) or any part (from time to time) of the Option Securities within 15 days after the Closing Date. An Underwriter will not be under any obligation to purchase any Option Securities prior to the exercise of the Option by the Representative. The Option granted hereby may be exercised by the giving of oral notice to the Company from the Representative, which must be confirmed in writing by overnight mail or electronic transmission setting forth the number of Option Shares and/or Option Warrants to be purchased and the date and time for delivery of and payment for the Option Securities (each, an “Option Closing Date”), which will not be later than one (1) full Business Day after the date of the notice or such other time as shall be agreed upon by the Company and the Representative, at the offices of HTFL or at such other place (including remotely by other electronic transmission) as shall be agreed upon by the Company and the Representative. If such delivery and payment for the Option Securities does not occur on the Closing Date, each Option Closing Date will be as set forth in the notice. Upon exercise of the Option, the Company will become obligated to convey to the Underwriters, and, subject to the terms and conditions set forth herein, the Underwriters will become obligated to purchase, the number of Option Shares and/or Option Warrants specified in such notice. The Representative may cancel the Option at any time prior to the expiration of the Option by written notice to the Company if the Company does not complete the issuance within the one (1) full Business Day after the date of the notice or such other time as shall be agreed upon by the Company and the Representative.
2.3 Deliveries. The Company shall deliver or cause to be delivered to each Underwriter (if applicable) the following:
(i) At the Closing Date, the Closing Shares and, as to each Option Closing Date, if any, the applicable Option Shares, which shares shall be delivered via The Depository Trust Company Deposit or Withdrawal at Custodian system for the accounts of the several Underwriters;
(ii) At the Closing Date, the Pre-Funded Warrants in certificated form registered in the name or names and in such authorized denominations as the applicable Underwriter may request in writing at least one (1) Business Day prior to the Closing Date;
(iii) At the Closing Date, the Closing Warrants and, as to each Option Closing Date, if any, the applicable Option Warrants in certificated form registered in the name or names and in such authorized denominations as the applicable Underwriter may request in writing at least one (1) Business Day prior to the Closing Date and, if any, each Option Closing Date;
(iv) At the Closing Date, a (i) legal opinion of Company Counsel addressed to the Underwriters, including, without limitation, a negative assurance letter, in form and substance satisfactory to the Representative and as to each Option Closing Date, if any, a bring-down opinion from Company Counsel, including, without limitation, a negative assurance letter of Company Counsel, addressed to the Underwriters and in form and substance satisfactory to the Representative, and (ii) legal opinion of Cayman Counsel addressed to the Underwriters, in form and substance reasonably satisfactory to the Representative, and as to each Option Closing Date, if any, a bring-down opinion from Cayman Counsel, addressed to the Underwriters
and in form and substance reasonably satisfactory to the Representative, alternatively, the Cayman Counsel may, at each
future Option Closing Date, furnish the Underwriters with a letter signed by such Cayman Counsel (each, a “Reliance Letter”)
in lieu of such bring-down opinion, as applicable, to the effect that the Underwriters may rely on the legal opinion previously furnished
to the Underwriters of such Cayman Counsel at the Closing Date in form and substance reasonably satisfactory to the Representative, as
applicable, delivered pursuant to this Section 2.3(iv), to the same extent as if it were dated the date of such Reliance Letter (except
that statements in such prior legal opinion shall be deemed to relate to the Registration Statement and the Prospectus as amended or supplemented
to the date of such Reliance Letter).
(v) Contemporaneously herewith, a cold comfort letter, addressed to the Underwriters and in form and substance satisfactory in all respects to the Representative from the Company Auditor dated, respectively, as of the date of this Agreement and a bring-down letter dated as of the Closing Date and each Option Closing Date, if any;
(vi) On the Closing Date and on each Option Closing Date, the duly executed and delivered Officer’s Certificate, in the form satisfactory to the Representative and HTFL addressed to the Representative;
(vii) On the Closing Date and on each Option Closing Date, the duly executed and delivered Secretary’s Certificate, in the form satisfactory to the Representative and HTFL, addressed to the Representative; and
(viii) Contemporaneously herewith, the duly executed and delivered Lock-Up Agreements.
2.4 Closing Conditions. The respective obligations of each Underwriter hereunder in connection with the Closing and each Option Closing Date are subject to the following conditions being met:
(i) the accuracy in all material respects when made and on the date in question (other than representations and warranties of the Company already qualified by materiality, which shall be true and correct in all respects) of the representations and warranties of the Company contained herein (unless as of a specific date therein);
(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the date in question shall have been performed;
(iii) the delivery by the Company of the items set forth in Section 2.3 of this Agreement;
(iv) the Registration Statement shall be effective on the date of this Agreement and at each of the Closing Date and each Option Closing Date, if any, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending or contemplated by the Commission and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of the Representative;
(v) by the Execution Date, if required by FINRA, the Underwriters shall have received clearance from FINRA as to the amount of compensation allowable or payable to the Underwriters as described in the Registration Statement;
(vi) the Closing Shares, the Option Shares and the Warrant Shares have been approved for listing on the Trading Market; and
(vii) prior to and on each of the Closing Date and each Option Closing Date, if any: (i) there shall have been no material adverse change or development involving a prospective material adverse change in the condition or prospects or the business activities, financial or otherwise, of the Company from the latest dates as of which such condition is set forth in the Registration Statement, the Pricing Prospectus and Prospectus; (ii) no action suit or proceeding, at law or in equity, shall have been pending or threatened against the Company or any Affiliate of the Company before or by any court or federal or state commission, board or other administrative agency wherein an unfavorable decision, ruling or finding may materially adversely affect the business, operations, prospects or financial condition or income of the Company, except as set forth in the Registration Statement, Pricing Prospectus and Prospectus; (iii) no stop order shall have been issued under the Securities Act and no proceedings therefor shall have been initiated or threatened by the Commission; and (iv) the Registration Statement and the Prospectus and any amendments or supplements thereto shall contain all material statements which are required to be stated therein in accordance with the Securities Act and the rules and regulations thereunder and shall conform in all material respects to the requirements of the Securities Act and the rules and regulations thereunder, and none of the Registration Statement, Pricing Prospectus, the Prospectus nor any amendment or supplement thereto shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company represents and warrants to the Underwriters as of the Execution Date, as of the Closing Date and as of each Option Closing Date, if any, as follows:
(a) Subsidiaries. All of the direct and indirect Subsidiaries of the Company are set forth in the Registration Statement and Prospectus. The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.
(b) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents to which the Company is a party and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s shareholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which the Company is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by Applicable Law.
(d) No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, anti-dilution or similar adjustments, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any Applicable Law or other restriction of any court or Governmental Authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as would not reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to this Agreement; (ii) the filing with the Commission of the Prospectus, (iii) notification(s) to each applicable Trading Market for the listing of the Shares and Warrant Shares for trading thereon, (iv) such filings as are required to be made under applicable state securities laws; (v) such filings as are required to be made within three working days after the Offering pursuant to rules and regulations of the China Securities Regulatory Commission (collectively, the “Required Approvals”).
(f) Registration Statement. The Company has filed with the Commission the Registration Statement, including any related Prospectus or Prospectuses, for the registration of the Securities under the Securities Act, which Registration Statement has been prepared by the Company in all material respects in conformity with the requirements of the Securities Act and the rules and regulations of the Commission under the Securities Act. The Registration Statement was declared effective by the Commission on _______, 2026 (the “Effective Date”). The Company was at the time of the filing of the Registration Statement eligible to use Form F-1 and is eligible to use Form F-1 on the date hereof and on the Closing Date. The Company has advised the Representative of all further information (financial and other) with respect to the Company required to be set forth therein in the Registration Statement and Prospectus. Any reference in this Agreement to the Registration Statement, the Preliminary Prospectus, the Prospectus or any Prospectus Supplement shall be deemed to refer to and include the documents incorporated by reference therein; and any reference in this Agreement to the terms “amend,” “amendment” or “supplement” with respect to the Registration Statement, the Preliminary Prospectus, the Prospectus or any Prospectus Supplement shall be deemed to refer to and include the filing of any document under the Exchange Act after the date of this Agreement, or the issue date of the Prospectus as the case may be, deemed to be incorporated therein by reference. All references in this Agreement to financial statements and schedules and other information which is “contained,” “included,” “described,” “referenced,” “set forth” or “stated” in the Registration Statement, the Preliminary Prospectus, the Prospectus or any Prospectus Supplement (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is or is deemed to be incorporated by reference in the Registration Statement, the Preliminary Prospectus or the Prospectus, as the case may be. No stop order suspending the effectiveness of the Registration Statement or the use of the Prospectus has been issued, and no proceeding for any such purpose is pending or has been initiated or, to the Company’s knowledge, is threatened by the Commission. For purposes of this Agreement, “free writing prospectus” has the meaning set forth in Rule 405 under the Securities Act. The Company will not, without the prior consent of the Representative, prepare, use or refer to, any free writing prospectus.
(g) Issuance of Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Warrant Shares, when issued in accordance with the terms of the Warrants, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company has reserved from its duly authorized capital stock the maximum number of Ordinary Shares issuable pursuant to this Agreement and the Warrants. No holder of the Securities will be subject to personal liability solely by reason of being such a holder. The Securities are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company. All corporate action required to be taken for the authorization, issuance and sale of the Securities has been duly and validly taken. The Securities conform in all material respects to all statements with respect thereto contained in the Registration Statement, the Pricing Prospectus and the Prospectus.
(h) Capitalization. The capitalization of the Company as of the date hereof remain unchanged as set forth in the Registration Statement. Except as disclosed in the Registration Statement, no Affiliates of the Company, as of the date hereof, beneficially owns any Ordinary Shares. The Company has not issued any shares since its most recently filed registration statement under the Exchange Act. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as set forth in the Registration Statement, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any Ordinary Shares or the capital stock of any Subsidiary, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional Ordinary Shares or Ordinary Share Equivalents or capital stock of any Subsidiary. The issuance and sale of the Securities will not obligate the Company or any Subsidiary to issue Ordinary Shares or other securities to any Person. There are no outstanding securities or instruments of the Company or any Subsidiary with any provision that adjusts the exercise, conversion, exchange or reset price of such security or instrument upon an issuance of securities by the Company or any Subsidiary. There are no outstanding securities or instruments of the Company or any Subsidiary that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to redeem a security of the Company or such Subsidiary. The Company does not have any share appreciation rights or “phantom share” plans or agreements or any similar plan or agreement. All of the issued and outstanding shares of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. The authorized share capital of the Company conforms in all material respects to all statements relating thereto contained in the Registration Statement, the Pricing Prospectus and the Prospectus. The offers and sales of the Company’s securities were at all relevant times either registered under the Securities Act and the applicable state securities or Blue Sky laws or, based in part on the representations and warranties of the purchasers, exempt from such registration requirements. There are no shareholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s shareholders. No further approval or authorization of any shareholder, the Board of Directors, or others is required for the issuance and sale of the Securities.
(i) SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, together with the Registration Statement, Pricing Prospectus and the Prospectus, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates thereof
and the results of operations
and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.
The agreements and documents described in the SEC Reports, the Registration Statement, the Pricing Prospectus and the Prospectus conform
in all material respects to the descriptions thereof contained therein and there are no agreements or other documents required by the
Securities Act or the rules and regulations thereunder to be described in the SEC Reports, Registration Statement, the Pricing Prospectus
and the Prospectus or to be filed with the Commission as exhibits to the Registration Statement, that have not been so described or filed.
Each agreement or other instrument (however characterized or described) to which the Company is a party or by which it is or may be bound
or affected and (i) that is referred to in the SEC Reports, Registration Statement, the Pricing Prospectus and the Prospectus, or (ii)
is material to the Company’s business, has been duly authorized and validly executed by the Company, is in full force and effect
in all material respects and is enforceable against the Company and, to the Company’s knowledge, the other parties thereto, in accordance
with its terms, except (x) as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium
or similar laws affecting creditors’ rights generally, (y) as enforceability of any indemnification or contribution provision may
be limited under the federal and state securities laws, and (z) that the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefore
may be brought. None of such agreements or instruments has been assigned by the Company, and neither the Company nor, to the Company’s
knowledge, any other party is in default thereunder and, to the Company’s knowledge, no event has occurred that, with the lapse
of time or the giving of notice, or both, would constitute a default thereunder, except, in each case, for such default that would not
reasonably be expected to result in a Material Adverse Effect. To the Company’s knowledge, performance by the Company of the material
provisions of such agreements or instruments will not result in a violation of any existing Applicable Law or order or decree of any Governmental
Authority or court, domestic or foreign, having jurisdiction over the Company or any of its assets or businesses, including, without limitation,
those relating to environmental laws and regulations.
(j) Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in a subsequent filing with the Commission, (i) there has been no event, occurrence or development that has had or that would reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its shareholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to any existing Company share option plans and (vi) no officer or director of the Company has resigned from any position with the Company. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement, no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses, prospects, properties, operations, assets or financial condition that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least one (1) Trading Day prior to the date that this representation is made. Unless otherwise disclosed in an SEC Report filed prior to the date hereof, the Company has not: (i) issued any securities or incurred any liability or obligation, directly or indirectly, for borrowed money, or (ii) declared or paid any dividend or made any other distribution on or in respect to its capital stock.
(k) Litigation. Except as disclosed in the Registration Statement, Pricing Prospectus and the Prospectus, there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, Governmental Authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) would, if there were an unfavorable decision, reasonably be expected to result in a Material Adverse Effect. Neither the Company
nor any Subsidiary, nor, to the Company’s knowledge, any director or officer thereof,
is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim
of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation
by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any
stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act.
(l) Labor Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which would reasonably be expected to result in a Material Adverse Effect. To the knowledge of the Company, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters that would reasonably be expected to have a Material Adverse Effect. The Company and its Subsidiaries are in compliance with all Applicable Laws relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company and each of the Subsidiaries (A) are in compliance, in all material respects, with all Applicable Laws (including pursuant to the Occupational Health and Safety Act or its foreign equivalents) relating to the protection of human health and safety in the workplace (“Occupational Laws”); (B) have received all required permits, licenses or other approvals required of it under applicable Occupational Laws to conduct its business as currently conducted, except where the failure to obtain such permits, licenses or other approvals would not reasonably be expected to result in a Material Adverse Effect; and (C) are in compliance, in all material respects, with all terms and conditions of such required permits, licenses or other approvals. No action, proceeding, revocation proceeding, writ, injunction or claim is pending or, to the Company’s knowledge, threatened against the Company or any of its Subsidiaries relating to Occupational Laws, and the Company does not have knowledge of any facts, circumstances or developments relating to its operations or cost accounting practices that would reasonably be expected to form the basis for or give rise to such actions, suits, investigations or proceedings that would, if there were an unfavorable outcome, reasonably be expected to result in a Material Adverse Effect.
(m) Compliance. Neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other material agreement or instrument to which it is a party or by which it or any of its properties is bound, (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.
(n) Environmental Laws. (a) Neither the Company nor any of its Subsidiaries is in violation of any applicable international, national, state or local convention, law, regulation, order, governmental license, convention, treaty (including those promulgated by the International Maritime Organization) or other requirement relating to pollution or protection of human health or safety (as they relate to exposure to Materials of Environmental Concern (as defined below)) or protection of the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or protection of natural resources, including without limitation, conventions, laws or regulations relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum, petroleum products or other hydrocarbons (collectively, “Materials of Environmental Concern”), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern (collectively, “Environmental Laws”),
nor has the Company or any Subsidiary received any written
communication, whether from a Governmental Authority, citizens group, employee or otherwise, that alleges that the Company or any such
Subsidiary is in violation of any Environmental Law or governmental license required pursuant to Environmental Law; except, in each case,
as would not, individually or in the aggregate, have a Material Adverse Effect; (b) there is no claim, action or cause of action filed
with a court or Governmental Authority and no investigation, or other action with respect to which the Company or any Subsidiary has received
written notice alleging potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages,
property damages, personal injuries, attorneys’ fees or penalties arising out of, based on or resulting from the presence, or release
into the environment, of any Material of Environmental Concern at any location owned, leased or operated by the Company or any Subsidiary,
now or in the past, or from any vessel owned, leased or operated by the Company or any Subsidiary, now or in the past (collectively, “Environmental
Claim”), pending or, to the knowledge of the Company, threatened against the Company or any Subsidiary or any person or entity
whose liability for any Environmental Claim the Company or any Subsidiary has retained or assumed either contractually or by operation
of law, except as would not, individually or in the aggregate, have a Material Adverse Effect; (c) to the knowledge of the Company, there
are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release,
emission, discharge, presence or disposal of any Material of Environmental Concern, that reasonably would be expected to result in a violation
of any Environmental Law, require expenditures to be incurred pursuant to Environmental Law, or form the basis of an Environmental Claim
against the Company, any Subsidiary or against any person or entity whose liability for any Environmental Claim the Company or any Subsidiary
has retained or assumed either contractually or by operation of law, except as would not, individually or in the aggregate, have a Material
Adverse Effect (for the avoidance of doubt, the operation of vessels in the ordinary course of business shall not be deemed, by itself,
an action, activity, circumstance or condition set forth in this clause (c)); and (d) none of the Company or any Subsidiary is subject
to any pending proceeding under Environmental Law to which a Governmental Authority is a party and which the Company reasonably believes
is likely to result in monetary sanctions of $100,000 or more. The Company has reasonably concluded that any existing compliance and remediation
costs and liabilities arising under Environmental Laws and resulting from the business, operations or properties of the Company or any
Subsidiary would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, except as set forth
in or contemplated in the Registration Statement and the Prospectus. In the ordinary course of its business, the Company conducts a periodic
review of the effect of Environmental Laws on the business, operations and properties of the Company and the Subsidiaries, in the course
of which it identifies and evaluates associated costs and liabilities (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental Laws or any permit, license or approval, any related constraints
on operating activities and any potential liabilities to third parties). No facts or circumstances have come to the Company’s attention
that could result in costs or liabilities that could be expected, individually or in the aggregate, to have a Material Adverse Effect.
(o) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit. The disclosures in the Registration Statement concerning the effects of Federal, State, local and all foreign regulation on the Company’s business as currently contemplated are correct in all material respects.
(p) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to, or have valid and marketable rights to lease or otherwise use, all real property and all personal property that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP, and the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.
(q) Intellectual Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or required for use in connection with their respective businesses as described in the Registration Statement and the Prospectus and which the failure to do so could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement, except where such action would not reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements included within the SEC Reports, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as would not reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights, except where failure to do so would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(r) Insurance. The Company represents and warrants that, following the Closing, it will commercially reasonable efforts to obtain directors’ and officers’ liability insurance in light of the Company’s business, financial condition and prevailing market practices.
(s) Transactions With Affiliates and Employees. Except as disclosed in the Registration Statement, Pricing Prospectus and the Prospectus, none of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from, any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, shareholder, member or partner, in each case in excess of $120,000 other than for (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including share option agreements under any share option plan of the Company.
(t) Sarbanes-Oxley; Internal Accounting Controls. The Company and the Subsidiaries are in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of the Closing Date. The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the Exchange Act) of the Company and its Subsidiaries that have materially affected, or is reasonably likely to materially affect, the internal control over financial reporting of the Company and its Subsidiaries.
(u) Certain Fees. Except as set forth in the Registration Statement, the Pricing Prospectus and the Prospectus, no brokerage or finder’s fees or commissions are or will be payable by the Company, any Subsidiary or Affiliate of the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. To the Company’s knowledge, there are no other arrangements, agreements or understandings of the Company or, to the Company’s knowledge, any of its shareholders that may affect the Representative’s compensation, as determined by FINRA. The Company has not made any direct or indirect payments (in cash, securities or otherwise) to: (i) any person, as a finder’s fee, consulting fee or otherwise, in consideration of such person raising capital for the Company or introducing to the Company persons who raised or provided capital to the Company (ii) any FINRA member; or (iii) any person or entity that has any direct or indirect affiliation or association with any FINRA Member, within the twelve (12) months prior to the date hereof. None of the net proceeds of the Offering will be paid by the Company to any FINRA Member or its affiliates, except as specifically authorized herein.
(v) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become required to register as an “investment company” under the Investment Company Act of 1940, as amended.
(w) Registration Rights. No Person has any right to cause the Company or any Subsidiary to effect the registration under the Securities Act of any securities of the Company or any Subsidiary.
(x) Listing and Maintenance Requirements. The Ordinary Shares are registered pursuant to Section 12(b) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Ordinary Shares under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Ordinary Shares are or have been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements. The Ordinary Shares are currently eligible for electronic transfer through the Depository Trust Company or another established clearing corporation and the Company is current in payment of the fees to the Depository Trust Company (or such other established clearing corporation) in connection with such electronic transfer.
(y) Intentionally Omitted.
(z) Disclosure; 10b-5. The Registration Statement (and any further documents to be filed with the Commission) contains all exhibits and schedules as required by the Securities Act. Each of the Registration Statement and any post-effective amendment thereto, if any, at the time it became effective, complied in all material respects with the Securities Act and the Exchange Act and the applicable rules and regulations under the Securities Act and did not and, as amended or supplemented, if applicable, will not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Registration Statement, Pricing Prospectus and the Prospectus, each as of its respective date, comply in all material respects with the Securities Act and the Exchange Act and the applicable rules and regulations. Each of the Registration Statement, Pricing Prospectus and the Prospectus, as amended or supplemented, did not and will not contain as of the date thereof any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The SEC Reports, when they were filed with the Commission, conformed in all material respects to the requirements of the Exchange Act and the applicable rules and regulations, and none of such documents, when they were filed with the Commission,
contained any untrue statement
of a material fact or omitted to state a material fact necessary to make the statements therein (with respect to the SEC Reports incorporated
by reference in the Registration Statement, Pricing Prospectus or Prospectus), in light of the circumstances under which they were made
not misleading; and any further documents so filed and incorporated by reference in the Registration Statement, Pricing Prospectus or
Prospectus, when such documents are filed with the Commission, will conform in all material respects to the requirements of the Exchange
Act and the applicable rules and regulations, as applicable, and will not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements therein, in light of the circumstances under which they were made not misleading. No
post-effective amendment to the Registration Statement reflecting any facts or events arising after the date thereof which represent,
individually or in the aggregate, a fundamental change in the information set forth therein is required to be filed with the Commission.
There are no documents required to be filed with the Commission in connection with the transaction contemplated hereby that (x) have not
been filed as required pursuant to the Securities Act or (y) will not be filed within the requisite time period. There are no contracts
or other documents required to be described in the Pricing Prospectus, Prospectus, or to be filed as exhibits or schedules to the Registration
Statement, which have not been described or filed as required. The press releases disseminated by the Company during the twelve months
preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they
were made and when made, not misleading.
(aa) No Integrated Offering. Neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.
(bb) Solvency. Based on the consolidated financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability thereof and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. The Registration Statement sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $100,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $100,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness that would reasonably be expected to result in a Material Adverse Effect.
(cc) Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim. The provisions for taxes payable, if any, shown on the financial statements filed with or as part of the Registration Statement are sufficient for all accrued and unpaid taxes, whether or not disputed, and for all periods to and including the dates of such consolidated financial statements. The term “taxes” mean all federal, state, local, foreign, and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments, or charges of any kind whatsoever, together with any interest and any penalties, additions to tax, or additional amounts with respect thereto. The term “returns” means all returns, declarations, reports, statements, and other documents required to be filed in respect to taxes.
(dd) Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of Applicable Law, or (iv) violated in any material respect any provision of the FCPA or any foreign equivalent.
(ee) Accountants. The Company’s accounting firm is set forth in the Pricing Prospectus and Prospectus. To the knowledge and belief of the Company, such accounting firm (i) is an independent registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial statements to be included in the Company’s Annual Report for the fiscal year ended December 31, 2025.
(ff) Intentionally Omitted.
(gg) Share Option Plans. Except as set forth on Schedule 3.1(gg), the Company has no outstanding share options granted under any equity incentive plan or otherwise as compensation to its directors and officers.
(hh) Office of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department.
(ii) U.S. Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon the Representative’s request.
(jj) Bank Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the issued and outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
(kk) Money Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no Action or Proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.
(ll) D&O Questionnaires. To the Company’s knowledge, all information contained in the questionnaires completed by each of the Company’s directors and officers prior to the Offering and in the Lock-Up Agreement provided to the Underwriters is true and correct in all respects and the Company has not become aware of any information which would cause the information disclosed in such questionnaires become inaccurate and incorrect.
(mm) FINRA Affiliation. No officer, director or any beneficial owner of 5% or more of the Company’s unregistered securities has any direct or indirect affiliation or association with any FINRA member (as determined in accordance with the rules and regulations of FINRA) that is participating in the Offering. The Company will advise the Representative and HTFL if it learns that any officer, director or owner of 5% or more of the Company’s issued and outstanding Ordinary Shares or Ordinary Share Equivalents is or becomes an affiliate or associated person of a FINRA member firm.
(nn) Officers’ Certificate. Any certificate signed by any duly authorized officer of the Company and delivered to the Representative or HTFL shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby.
(oo) Board of Directors. The Board of Directors is comprised of the persons set forth under the heading of the Prospectus captioned “Management.” The qualifications of the persons serving as board members and the overall composition of the Board of Directors comply with the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder applicable to the Company and the rules of the Trading Market. In addition, at least a majority of the persons serving on the Board of Directors qualify as “independent” as defined under the rules of the Trading Market.
(pp) Cybersecurity. To the Company’s knowledge, there has been no material security breach or other compromise of or relating to any of the Company’s or any Subsidiary’s information technology and computer systems, networks, hardware, software, data (including the data of their respective customers, employees, suppliers, vendors and any third party data maintained by them or on their behalf), equipment or technology (collectively, “IT Systems and Data”) and (y) the Company and the Subsidiaries have not been notified of, and have no knowledge of any event or condition that would reasonably be expected to result in, any material security breach or other compromise to its IT Systems and Data; (ii) the Company and the Subsidiaries are presently in compliance with all applicable laws or statutes and all judgments, orders, rules and regulations of any court or arbitrator or governmental or regulatory authority, internal policies and contractual obligations relating to the privacy and security of IT Systems and Data and to the protection of such IT Systems and Data from unauthorized use, access, misappropriation or modification, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; (iii) the Company and the Subsidiaries have implemented and maintained commercially reasonable safeguards for companies similarly situated to maintain and protect its material confidential information and the integrity, continuous operation, redundancy and security of all IT Systems and Data; and (iv) the Company and the Subsidiaries have implemented commercially reasonable backup and disaster recovery technology consistent with industry standards and practices for companies similarly situated.
(qq) Compliance with Data Privacy Laws. (i) The Company and the Subsidiaries are, and at all times during the last three (3) years were, in compliance in all material respects with all applicable state, federal and foreign data privacy and security laws and regulations, including, without limitation, the European Union General Data Protection Regulation (“GDPR”) (EU 2016/679) (collectively, “Privacy Laws”); (ii) the Company and the Subsidiaries have in place, comply with, and take appropriate steps reasonably designed to ensure compliance in all material respects with their policies and procedures relating to data privacy and security and the collection, storage, use, disclosure, handling and analysis of Personal Data (as defined below) (the “Policies”); (iii) the Company provides accurate notice of its applicable Policies to its customers,
employees, third party vendors and representatives as required by
the Privacy Laws; and (iv) applicable Policies provide accurate and sufficient notice of the Company’s then-current privacy practices
relating to its subject matter, and do not contain any material omissions of the Company’s then-current privacy practices, as required
by Privacy Laws. “Personal Data” means (i) a natural person’s name, street address, telephone number, email address,
photograph, social security number, bank information, or customer or account number; (ii) any information which would qualify as “personally
identifying information” under the Federal Trade Commission Act, as amended; (iii) “personal data” as defined by GDPR;
and (iv) any other piece of information that allows the identification of such natural person, or his or her family, or permits the collection
or analysis of any identifiable data related to an identified person’s health or sexual orientation. (i) None of such disclosures
made or contained in any of the Policies have been inaccurate, misleading, or deceptive in violation of any Privacy Laws and (ii) the
execution, delivery and performance of the Transaction Documents will not result in a breach of any Privacy Laws or Policies, except,
in each case, as would not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor the Subsidiaries (i)
to the knowledge of the Company, has received written notice of any actual or potential liability of the Company or the Subsidiaries under,
or actual or potential violation by the Company or the Subsidiaries of, any of the Privacy Laws; (ii) is currently conducting or paying
for, in whole or in part, any investigation, remediation or other corrective action pursuant to any regulatory request or demand pursuant
to any Privacy Law; or (iii) is a party to any order, decree, or agreement by or with any court or arbitrator or governmental or regulatory
authority that imposed any obligation or liability under any Privacy Law, except, in each case, as would not reasonably be expected to
result in a Material Adverse Effect.
(rr) Foreign Private Issuer. The Company is a “foreign private issuer” as defined in Rule 405 promulgated under the Securities Act.
(ss) Consent to Jurisdiction. The Company has the power to submit, and pursuant to this Agreement has legally, validly, effectively and irrevocably submitted, to the jurisdiction of any federal or state court in the State of New York, County of New York, and has the power to designate, appoint and empower, and pursuant to this Agreement has legally, validly and effectively designated, appointed and empowered, an agent for service of process in any suit or proceeding based on or arising under this Agreement in any federal or state court in the State of New York.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Amendments to Registration Statement. The Company has delivered, or will as promptly as practicable deliver, to the Underwriters complete conformed copies of the Registration Statement and of each consent and certificate of experts, as applicable, filed as a part thereof, and conformed copies of the Registration Statement (without exhibits), the Pricing Prospectus and the Prospectus, as amended or supplemented, in such quantities and at such places as an Underwriter reasonably requests. Neither the Company nor any of its directors and officers has distributed and none of them will distribute, prior to the Closing Date, any offering material in connection with the offering and sale of the Securities other than the Pricing Prospectus, the Prospectus, the Registration Statement, and copies of the documents incorporated by reference therein. The Company shall not file any such amendment or supplement to which the Representative shall reasonably object in writing.
4.2 Federal Securities Laws.
(a) Compliance. During the time when a Prospectus is required to be delivered under the Securities Act, the Company will use its best efforts to comply with all requirements imposed upon it by the Securities Act and the rules and regulations thereunder and the Exchange Act and the rules and regulations thereunder, as from time to time in force, so far as necessary to permit the continuance of sales of or dealings in the Securities in accordance with the provisions hereof and the Prospectus. If at any time when a Prospectus relating to the Securities is required to be delivered under the Securities Act, any event shall have occurred as a result of which, in the opinion of counsel for the Company or counsel for the Underwriters, the Prospectus, as then amended or supplemented, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Securities Act, the Company will notify the Underwriters promptly and prepare and file with the Commission, subject to Section 4.1 hereof, an appropriate amendment or supplement in accordance with Section 10 of the Securities Act.
(b) Filing of Final Prospectus. The Company will file the Prospectus (in form and substance satisfactory to the Representative) with the Commission pursuant to the requirements of Rule 424.
(c) Exchange Act Registration. For a period of three years from the Execution Date, the Company will use its best efforts to maintain the registration of the Ordinary Shares under the Exchange Act. The Company will not deregister the Ordinary Shares under the Exchange Act without the prior written consent of the Representative.
(d) Free Writing Prospectuses. The Company represents and agrees that it has not made and will not make any offer relating to the Securities that would constitute an issuer free writing prospectus, as defined in Rule 433 of the rules and regulations under the Securities Act, without the prior written consent of the Representative. Any such free writing prospectus consented to by the Representative is herein referred to as a “Permitted Free Writing Prospectus.” The Company represents that it will treat each Permitted Free Writing Prospectus as an “issuer free writing prospectus” as defined in rule and regulations under the Securities Act, and has complied and will comply with the applicable requirements of Rule 433 of the Securities Act, including timely Commission filing where required, legending and record keeping.
4.3 Delivery to the Underwriters of Prospectuses. The Company will deliver to the Underwriters, without charge, from time to time during the period when the Prospectus is required to be delivered under the Securities Act or the Exchange Act such number of copies of each Prospectus as the Underwriters may reasonably request and, if requested, as soon as the Registration Statement or any amendment or supplement thereto becomes effective, deliver to the Representative two original executed Registration Statements, including exhibits, and all post-effective amendments thereto and copies of all exhibits filed therewith or incorporated therein by reference and all original executed consents of certified experts.
4.4 Effectiveness and Events Requiring Notice to the Underwriters. The Company will use its best efforts to cause the Registration Statement to remain effective with a current prospectus until the later of nine (9) months from the Execution Date and the date on which the Warrants are no longer outstanding, and will notify the Underwriters and holders of the Warrants immediately and confirm the notice in writing: (i) of the effectiveness of the Registration Statement and any amendment thereto; (ii) of the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceeding for that purpose; (iii) of the issuance by any state securities commission of any proceedings for the suspension of the qualification of the Securities for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose; (iv) of the mailing and delivery to the Commission for filing of any amendment or supplement to the Registration Statement or Prospectus; (v) of the receipt of any comments or request for any additional information from the Commission; and (vi) of the happening of any event during the period described in this Section 4.4 that, in the judgment of the Company, makes any statement of a material fact made in the Registration Statement or the Prospectus untrue or that requires the making of any changes in the Registration Statement or the Prospectus in order to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Commission or any state securities commission shall enter a stop order or suspend such qualification at any time, the Company will make every reasonable effort to obtain promptly the lifting of such order.
4.5 Intentionally Omitted.
4.6 Expenses of the Offering.
(a) General Expenses Related to the Offering. The Company hereby agrees to pay on each of the Closing Date and each Option Closing Date, if any, to the extent not paid at the Closing Date, all expenses incident to the performance of the obligations of the Company under this Agreement, including, but not limited to: (a) all filing fees and communication expenses relating to the registration of the Public Shares to be sold in the Offering (including the Option Shares) with the Commission; (b) all FINRA Public Offering Filing System fees associated with the review of the Offering by FINRA; all fees and expenses relating to the listing of such Closing Shares and Option Shares on the Trading Market and such other stock exchanges as the Company and the Representative together determine; (c) all fees, expenses and disbursements relating to the registration or qualification of such Public Shares under the “blue sky” securities laws of such states and other foreign jurisdictions as the Representative may reasonably designate (including, without limitation, all filing and registration fees, and the fees and expenses of Blue Sky counsel, if applicable); (d) the costs of all mailing and printing of the Registration Statements, Prospectuses and all amendments, supplements and exhibits thereto and as many preliminary and final Prospectuses as the Representative may reasonably deem necessary; (e) the costs and expenses of the Company’s public relations firm; (f) the costs of preparing, printing and delivering the Public Shares; (g) fees and expenses of the Transfer Agent for the Public Shares (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company); (h) share transfer and/or stamp taxes, if any, payable upon the transfer of securities from the Company to the Underwriters; (i) the fees and expenses of the Company’s accountants; (j) the fees and expenses of the Company’s legal counsel and other agents and representatives; (k) all fees, expenses and disbursements relating to background checks of the Company’s officers and directors; (l) the fees and expenses for the Underwriters’ use of i-Deal’s book-building, prospectus tracking and compliance software (or other similar software) for the Offering; and (m) the fees and expenses for the Underwriters’ “road show” expenses for the Offering. The Underwriters may also deduct from the net proceeds of the Offering payable to the Company on the Closing Date, or each Option Closing Date, if any, the expenses set forth herein to be paid by the Company to the Underwriters.
(b) Expenses of the Representative. The Company further agrees that, in addition to the expenses payable pursuant to Section 4.6(a) (other than the costs set forth in Sections 4.6(a)(l) and 4.6(a)(m), which shall be subject to the cap set forth later in this sentence), on the Closing Date it will reimburse the Representative up to an aggregate of $100,000 for its legal fees, costs and expenses related to the Offering, or an aggregate of $50,000 in the event that there is not a Closing, by deduction from the proceeds of the Offering contemplated herein.
4.7 Application of Net Proceeds. The Company will apply the net proceeds from the Offering received by it in a manner consistent with the application described under the caption “Use of Proceeds” in the Prospectus.
4.8 Delivery of Earnings Statements to Security Holders. The Company will make generally available to its security holders as soon as practicable, but not later than the first day of the fifteenth full calendar month following the Execution Date, an earnings statement (which need not be certified by independent public or independent certified public accountants unless required by the Securities Act or the Rules and Regulations under the Securities Act, but which shall satisfy the provisions of Rule 158(a) under Section 11(a) of the Securities Act) covering a period of at least twelve consecutive months beginning after the Execution Date.
4.9 Stabilization. Neither the Company, nor, to its knowledge, any of its employees, directors or shareholders (without the consent of the Representative) has taken or will take, directly or indirectly, any action designed to or that has constituted or that might reasonably be expected to cause or result in, under the Exchange Act, or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities.
4.10 Internal Controls. Except as disclosed in the Registration Statement, the Company will maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary in order to permit preparation of financial statements in accordance with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
4.11 Accountants. The Company shall continue to retain a nationally recognized independent certified public accounting firm for a period of at least three years after the Execution Date. The Underwriters acknowledge that the Company Auditor is acceptable to the Underwriters.
4.12 FINRA. The Company shall advise the Underwriters (who shall make an appropriate filing with FINRA) if it is aware that any 5% or greater shareholder of the Company becomes an affiliate or associated person of an Underwriter.
4.13 No Fiduciary Duties. The Company acknowledges and agrees that the Underwriters’ responsibility to the Company is solely contractual and commercial in nature, based on arms-length negotiations and that neither the Underwriters nor their affiliates or any selected dealer shall be deemed to be acting in a fiduciary capacity, or otherwise owes any fiduciary duty to the Company or any of its affiliates in connection with the Offering and the other transactions contemplated by this Agreement. Notwithstanding anything in this Agreement to the contrary, the Company acknowledges that the Underwriters may have financial interests in the success of the Offering that are not limited to the difference between the price to the public and the purchase price paid to the Company by the Underwriters for the shares and the Underwriters have no obligation to disclose, or account to the Company for, any of such additional financial interests. The Company hereby waives and releases, to the fullest extent permitted by law, any claims that the Company may have against the Underwriters with respect to any breach or alleged breach of fiduciary duty.
4.14 Warrant Shares. If all or any portion of a Warrant is exercised at a time when there is an effective registration statement to cover the issuance of the Warrant Shares or if the Warrant is exercised via cashless exercise, the Warrant Shares issued pursuant to any such exercise shall be issued free of all restrictive legends. If at any time following the date hereof the Registration Statement (or any subsequent registration statement registering the sale or resale of the Warrant Shares) is not effective or is not otherwise available for the sale of the Warrant Shares, the Company shall immediately notify the holders of the Warrants in writing that such registration statement is not then effective or available and thereafter shall promptly notify such holders when the registration statement is effective and available again for the sale of the Warrant Shares (it being understood and agreed that the foregoing shall not limit the ability of the Company to issue, or any holder thereof to sell, any of the Warrant Shares in compliance with applicable federal and state securities laws).
4.15 Board Composition and Board Designations. The Company shall ensure that: (i) the qualifications of the persons serving as board members and the overall composition of the Board of Directors comply with the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder and with the listing requirements of the Trading Market and (ii) to the extent required by the Trading Market, at least one member of the Board of Directors qualifies as a “financial expert” as such term is defined under the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder.
4.16 Securities Laws Disclosure; Publicity. At the request of the Representative, if this Agreement is executed before 9:30 a.m. (New York City time), by 9:30 a.m. (New York City time) on the date hereof, or, if this Agreement is executed on or after 9:30 a.m. (New York City time), by 9:30 a.m. (New York City time) on the first business day following the date hereof, the Company shall issue a press release disclosing the material terms of the Offering. The Company and the Representative shall consult with each other in issuing any other press releases with respect to the Offering, and neither the Company nor any Underwriter shall issue any such press release nor otherwise make any such public statement without the prior consent of the Company, with respect to any press release of such Underwriter, or without the prior consent of such Underwriter, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication. The Company will not issue press releases or engage in any other publicity, without the Representative’s prior written consent, for a period ending at 5:00 p.m. (New York City time) on the first business day following the 16th day following the Closing Date, other than normal and customary releases issued in the ordinary course of the Company’s business.
4.17 Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that any Underwriter of the Securities is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that any Underwriter of Securities could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities.
4.18 Reservation of Ordinary Shares. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, a sufficient number of Ordinary Shares for the purpose of enabling the Company to issue Option Shares pursuant to the Option and Warrant Shares pursuant to any exercise of the Warrants.
4.19 Listing of Ordinary Shares. The Company hereby agrees to use best efforts to maintain the listing or quotation of the Ordinary Shares on the Trading Market on which it is currently listed, and concurrently with the Closing, the Company shall apply to list or quote all of the Closing Shares, Option Shares and Warrant Shares on such Trading Market and promptly secure the listing of all of the Closing Shares, Option Shares and Warrant Shares on such Trading Market. The Company further agrees, if the Company applies to have the Ordinary Shares traded on any other Trading Market, it will then include in such application all of the Closing Shares, Option Shares and Warrant Shares, and will take such other action as is necessary to cause all of the Closing Shares, Option Shares and Warrant Shares to be listed or quoted on such other Trading Market as promptly as possible. The Company will then use best efforts to maintain the listing or quotation of the Ordinary Shares on such other Trading Market and to comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of such other Trading Market. The Company agrees to maintain the eligibility of the Ordinary Shares for electronic transfer through the Depository Trust Company or another established clearing corporation, including, without limitation, by timely payment of fees to the Depository Trust Company or such other established clearing corporation in connection with such electronic transfer.
4.20 Intentionally Omitted.
4.21 Tail Financing Payments. Upon Closing or if the Closing of the Offering does not occur prior to the end of the Representative’s Engagement Period (as defined in the Engagement Agreement) (other than a termination for Cause (as defined in the Engagement Agreement)), then if within six (6) months following such time, the Company completes any financing of equity, equity-linked, convertible or debt or other capital-raising activity with, or receives any proceeds from, any investors the Representative actually contacted or introduced to the Company, then the Company shall pay to the Representative upon closing of such financing or receipt of such proceeds the cash and warrant compensation as described herein, in each case only with respect to the portion of such proceeds received from such investors, . The right to receive a fee in connection with this Section 4.21 shall be subject to FINRA Rule 5110(g)(5)(B), and the Company shall have a right of termination for cause, which includes that the Company may
terminate the Underwriters’ engagement upon the Underwriters’ material failure to provide the
underwriting services required by this Agreement. The Company’s exercise of the right of termination for cause will eliminate any
obligations with respect to the payment of any termination fee or provision of any tail financing fee, including the tail financing set
forth above. No later than ten (10) business days after the Closing or the termination or expiration of this Agreement, the Representative
will provide by electronic mail a written list of such persons or entities that the Representative had actually contacted or introduced
to the Company during the Engagement Period, together with reasonable documentary evidence of written communications demonstrating that
such persons or entities were in fact introduced to the Company by the Representative; provided, however, that the number of such persons
or entities shall not exceed 25.
4.22 Subsequent Equity Sales.
(a) From the date hereof until six (6) months after the Closing Date, neither the Company nor any Subsidiary shall (i) issue, enter into any agreement to issue or announce the issuance or proposed issuance of any Ordinary Shares or Ordinary Share Equivalents or (ii) file any registration statement or amendment or supplement thereto, other than the Prospectus, or filing a registration statement on Form S-8 in connection with any employee benefit plan.
(b) From the date hereof until thirty (30) days after the Closing Date, the Company shall be prohibited from effecting or entering into an agreement to effect any issuance by the Company or any of its Subsidiaries of Ordinary Shares or Ordinary Share Equivalents (or a combination of units thereof) involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional Ordinary Shares either (A) at a conversion price, exercise price or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the Ordinary Shares at any time after the initial issuance of such debt or equity securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Ordinary Shares or (ii) enters into, or effects a transaction under, any agreement, including, but not limited to, an equity line of credit or an “at-the-market offering”, whereby the Company may issue securities at a future determined price regardless of whether shares pursuant to such agreement have actually been issued and regardless of whether such agreement is subsequently canceled. Any Underwriter shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.
(c) Notwithstanding the foregoing, this Section 4.22 shall not apply in respect of an Exempt Issuance, except that no Variable Rate Transaction shall be an Exempt Issuance.
4.23 Research Independence. The Company acknowledges that each Underwriter’s research analysts and research departments, if any, are required to be independent from their respective investment banking divisions and are subject to certain regulations and internal policies, and that such Underwriter’s research analysts may hold and make statements or investment recommendations and/or publish research reports with respect to the Company and/or the offering that differ from the views of its investment bankers. The Company hereby waives and releases, to the fullest extent permitted by law, any claims that the Company may have against such Underwriter with respect to any conflict of interest that may arise from the fact that the views expressed by their independent research analysts and research departments may be different from or inconsistent with the views or advice communicated to the Company by such Underwriter’s investment banking divisions. The Company acknowledges that the Representative is a full service securities firm and as such from time to time, subject to applicable securities laws, may effect transactions for its own account or the account of its customers and hold long or short position in debt or equity securities of the Company.
4.24 Right of First Refusal. The Company grants the Representative the right of first refusal for a period of six (6) months after the Closing to act as the sole managing underwriter and book runner, or sole placement agent or sales agent, for any and all future public or private equity, equity-linked or debt (excluding commercial bank debt) offerings for which the Company retains the service of an underwriter, agent, advisor, finder or other person or entity in connection with such offering during such six (6) month period of the Company, or any successor to or any subsidiary of the Company. The Company shall not offer to retain any entity or person in connection with any such offering on terms more favorable than terms on which it offers to retain the Representative. Such offer shall be made in writing in order to be effective. The Representative shall notify the Company within ten (10) business days of its receipt of the written offer contemplated above as to whether or not it agrees to accept such retention. If the Representative should decline such retention, the Company shall have no further obligations to the Representative with respect to the offering for which it has offered to retain the Representative, except as otherwise provided for herein.
ARTICLE V.
DEFAULT BY UNDERWRITERS
If on the Closing Date or any Option Closing Date, if any, any Underwriter shall fail to purchase and pay for the portion of the Closing Securities or Option Securities, as the case may be, which such Underwriter has agreed to purchase and pay for on such date (otherwise than by reason of any default on the part of the Company), the Representative, or if the Representative is the defaulting Underwriter, the non-defaulting Underwriters, shall use their reasonable efforts to procure within 36 hours thereafter one or more of the other Underwriters, or any others, to purchase from the Company such amounts as may be agreed upon and upon the terms set forth herein, the Closing Securities or Option Securities , as the case may be, which the defaulting Underwriter or Underwriters failed to purchase. If during such 36 hours the Representative shall not have procured such other Underwriters, or any others, to purchase the Closing Securities or Option Securities, as the case may be, agreed to be purchased by the defaulting Underwriter or Underwriters, then (a) if the aggregate number of Closing Securities or Option Securities, as the case may be, with respect to which such default shall occur does not exceed 10% of the Closing Securities or Option Securities, as the case may be, covered hereby, the other Underwriters shall be obligated, severally, in proportion to the respective numbers of Closing Securities or Option Securities, as the case may be, which they are obligated to purchase hereunder, to purchase the Closing Securities or Option Securities, as the case may be, which such defaulting Underwriter or Underwriters failed to purchase, or (b) if the aggregate number of Closing Securities or Option Securities, as the case may be, with respect to which such default shall occur exceeds 10% of the Closing Securities or Option Securities, as the case may be, covered hereby, the Company or the Representative will have the right to terminate this Agreement without liability on the part of the non-defaulting Underwriters or of the Company except to the extent provided in Article VI hereof. In the event of a default by any Underwriter or Underwriters, as set forth in this Article V, the applicable Closing Date may be postponed for such period, not exceeding seven days, as the Representative, or if the Representative is the defaulting Underwriter, the non-defaulting Underwriters, may determine in order that the required changes in the Prospectus or in any other documents or arrangements may be effected. The term “Underwriter” includes any Person substituted for a defaulting Underwriter. Any action taken under this Section shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement.
ARTICLE VI.
INDEMNIFICATION
6.1 Indemnification of the Underwriters. Subject to the conditions set forth below, the Company agrees to indemnify and hold harmless the Underwriters, and each dealer selected by each Underwriter that participates in the offer and sale of the Securities (each a “Selected Dealer”) and each of their respective directors, officers and employees and each Person, if any, who controls such Underwriter or any Selected Dealer (“Controlling Person”) within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, against any and all loss, liability, claim, damage and expense whatsoever (including but not limited to any and all legal or other expenses reasonably incurred in investigating, preparing or defending against any litigation, commenced or threatened, or any claim whatsoever, whether arising out of any action between such Underwriter and the Company or between such Underwriter and any third party or otherwise) to which they or any of them may become subject under the Securities Act, the Exchange Act or any other statute or at common law or otherwise or under the laws of foreign countries, arising out of or based upon any Proceeding, commenced or threatened (whether or not such Underwriter is a target of or party to such Proceeding), or arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in (i) any Preliminary Prospectus, if any, the Registration Statement or the Prospectus (as from time to time each may be amended and supplemented); (ii) any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing of the offering of the Securities, including any “road show” or investor presentations made to investors by the Company (whether in person or electronically); or (iii) any application or other document or written communication (in this Article VI, collectively called “application”) executed by the Company or based upon written information furnished by the Company in any jurisdiction in order to qualify the Securities under the securities laws thereof or filed with the Commission, any state securities commission or agency, Trading Market or any securities exchange; or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, unless such statement or omission was made in reliance upon and in conformity with written information furnished to the Company with respect to the applicable Underwriter by or on behalf of such Underwriter expressly for use in any Preliminary Prospectus, if any, the Registration Statement or Prospectus, or any amendment or supplement thereto, or in any application, as the case may be. With respect to any untrue statement or omission or alleged untrue statement or omission made in the Preliminary Prospectus, if any, the indemnity agreement contained in this Section 6.1 shall not inure to the benefit of an Underwriter to the extent that any loss, liability, claim, damage or expense of such Underwriter results from the fact that a copy of the Prospectus was not given or sent to the Person asserting any such loss, liability, claim or damage at or prior to the written confirmation of sale of the Securities to such Person as required by the Securities Act and the rules and regulations thereunder, and if the untrue statement or omission has been corrected in the Prospectus, unless such failure to deliver the Prospectus was a result of non-compliance by the Company with its obligations under this Agreement. The Company agrees promptly to notify each Underwriter of the commencement of any litigation or proceedings against the Company or any of its officers, directors or Controlling Persons in connection with the issue and sale of the Public Securities or in connection with the Registration Statement or Prospectus.
6.2 Procedure. If any action is brought against an Underwriter, a Selected Dealer or a Controlling Person in respect of which indemnity may be sought against the Company pursuant to Section 6.1, such Underwriter, such Selected Dealer or Controlling Person, as the case may be, shall promptly notify the Company in writing of the institution of such action and the Company shall assume the defense of such action, including the employment and fees of counsel (subject to the reasonable approval of such Underwriter or such Selected Dealer, as the case may be) and payment of actual expenses. Such Underwriter, such Selected Dealer or Controlling Person shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Underwriter, such Selected Dealer or Controlling Person unless (i) the employment of such counsel at the expense of the Company shall have been authorized in writing by the Company in connection with the defense of such action, or (ii) the Company shall not have employed counsel to have charge of the defense of such action, or (iii) such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to the Company (in which case the Company shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events the reasonable fees and expenses of not more than one additional firm of attorneys selected by such Underwriter (in addition to local counsel), Selected Dealer and/or Controlling Person shall be borne by the Company. Notwithstanding anything to the contrary contained herein, if any Underwriter, Selected Dealer or Controlling Person shall assume the defense of such action as provided above, the Company shall have the right to approve the terms of any settlement of such action which approval shall not be unreasonably withheld.
6.3 Indemnification of the Company. Each Underwriter severally and not jointly agrees to indemnify and hold harmless the Company, its directors, officers and employees and agents who control the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all loss, liability, claim, damage and expense described in the foregoing indemnity from the Company to such Underwriter, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions made in any Preliminary Prospectus, if any, the Registration Statement or Prospectus or any amendment or supplement thereto or in any application, in reliance upon, and in strict conformity with, written information furnished to the Company with respect to such Underwriter by or on behalf of such Underwriter expressly for use in such Preliminary Prospectus, if any, the Registration Statement or Prospectus or any amendment or supplement thereto or in any such application. In case any action shall be brought against the Company or any other Person so indemnified based on any Preliminary Prospectus, if any, the Registration Statement or Prospectus or any amendment or supplement thereto or any application, and in respect of which indemnity may be sought against such Underwriter, such Underwriter shall have the rights and duties given to the Company, and the Company and each other Person so indemnified shall have the rights and duties given to such Underwriter by the provisions of this Article VI. Notwithstanding the provisions of this Section 6.3, no Underwriter shall be required to indemnify the Company for any amount in excess of the underwriting discounts and commissions applicable to the Securities purchased by such Underwriter. The Underwriters’ obligations in this Section 6.3 to indemnify the Company are several in proportion to their respective underwriting obligations and not joint.
6.4 Contribution.
(a) Contribution Rights. In order to provide for just and equitable contribution under the Securities Act in any case in which (i) any Person entitled to indemnification under this Article VI makes a claim for indemnification pursuant hereto but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Article VI provides for indemnification in such case, or (ii) contribution under the Securities Act, the Exchange Act or otherwise may be required on the part of any such Person in circumstances for which indemnification is provided under this Article VI, then, and in each such case, the Company and each Underwriter, severally and not jointly, shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company and such Underwriter, as incurred, in such proportions that such Underwriter is responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the Prospectus bears to the initial offering price appearing thereon and the Company is responsible for the balance; provided, that, no Person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. For purposes of this Section, each director, officer and employee of such Underwriter or the Company, as applicable, and each Person, if any, who controls such Underwriter or the Company, as applicable, within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as such Underwriter or the Company, as applicable. Notwithstanding the provisions of this Section 6.4, no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions applicable to the Securities purchased by such Underwriter. The Underwriters’ obligations in this Section 6.4 to contribute are several in proportion to their respective underwriting obligations and not joint.
(b) Contribution Procedure. Within fifteen days after receipt by any party to this Agreement (or its representative) of notice of the commencement of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party (“contributing party”), notify the contributing party of the commencement thereof, but the failure to so notify the contributing party will not relieve it from any liability which it may have to any other party other than for contribution hereunder. In case any such action, suit or proceeding is brought against any party, and such party notifies a contributing party or its representative of the commencement thereof within the aforesaid fifteen days, the contributing party will be entitled to participate therein with the notifying party and any other contributing party similarly notified. Any such contributing party shall not be liable to any party seeking contribution on account of any settlement of any claim, action or proceeding affected by such party seeking contribution without the written consent of such contributing party. The contribution provisions contained in this Section 6.4 are intended to supersede, to the extent permitted by law, any right to contribution under the Securities Act, the Exchange Act or otherwise available.
ARTICLE VII.
MISCELLANEOUS
7.1 Termination.
(a) Termination Right. The Representative shall have the right to terminate this Agreement at any time prior to any Closing Date, (i) if any domestic or international event or act or occurrence has materially disrupted, or in its opinion will in the immediate future materially disrupt, general securities markets in the United States; or (ii) if trading on any Trading Market shall have been suspended or materially limited, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required by FINRA or by order of the Commission or any other government authority having jurisdiction, or (iii) if the United States shall have become involved in a new war or an increase in major hostilities, or (iv) if a banking moratorium has been declared by a New York State or federal authority, or (v) if a moratorium on foreign exchange trading has been declared which materially adversely impacts the United States securities markets, or (vi) if the Company shall have sustained a material loss by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act which, whether or not such loss shall have been insured, will, in the Representative’s opinion, make it inadvisable to proceed with the delivery of the Securities, or (vii) if the Company is in material breach of any of its representations, warranties or covenants hereunder, or (viii) if the Representative shall have become aware after the date hereof of such a change that would reasonably be expected to have a Material Adverse Effect in the conditions or prospects of the Company as in the Representative’s reasonable judgment would make it impracticable to proceed with the offering, sale and/or delivery of the Securities or to enforce contracts made by the Underwriters for the sale of the Securities.
(b) Expenses. In the event this Agreement shall be terminated pursuant to Section 7.1(a), within the time specified herein or any extensions thereof pursuant to the terms herein, the Company shall be obligated to pay to the Representative its actual and accountable out of pocket expenses related to the transactions contemplated herein then due and payable, including the fees and disbursements of HTFL up to $50,000 (provided, however, that such expense cap in no way limits or impairs the indemnification and contribution provisions of this Agreement).
(c) Indemnification. Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement, and whether or not this Agreement is otherwise carried out, the provisions of Article VI shall not be in any way effected by such election or termination or failure to carry out the terms of this Agreement or any part hereof.
7.2 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, the Prospectus and the Prospectus Supplement, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, including but not limited to the engagement agreement, dated January 14, 2026 (“Engagement Agreement”), by and between the Company and the Representative, which the parties acknowledge have been merged into such documents, exhibits and schedules.
7.3 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the time of transmission, if such notice or communication is delivered via e-mail attachment at the email address set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the time of transmission, if such notice or communication is delivered via e-mail attachment at the e-mail address as set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.
7.4 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Representative. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.
7.5 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
7.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.
7.7 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any Action or Proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such Action or Proceeding is improper or is an inconvenient venue for such Proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such Action or Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. In addition to and without limiting the foregoing, the Company hereby appoints Puglisi & Associates as its authorized agent (the “Authorized Agent”) upon whom process may be served in any suit, action or proceeding arising out of or based upon the this Agreement or the Transaction Documents or the transactions contemplated herein which may be instituted in any New York federal or state court, by the Representative, the directors, officers, partners, employees and agents of the Representative and each affiliate of the Representative, and expressly accept the non-exclusive jurisdiction of any such court in respect of any such suit, action or proceeding. The Company hereby represents and warrants that the Authorized Agent has accepted such appointment and has agreed to act as said agent for service of process, and the Company agrees to take any and all action, including the filing of any and all documents that may be necessary to continue such appointment in full force and effect as aforesaid. The Company hereby authorizes and directs the Authorized Agent to accept such service. Service of process upon the Authorized Agent shall be deemed, in every respect, effective service of process upon the Company. If the Authorized Agent shall cease to act as agent for service of process, the Company shall appoint, without unreasonable delay, another such agent in the United States, and notify you of such appointment. Notwithstanding the foregoing, any action arising out of or based upon this Agreement may be instituted by the Representative, the directors, officers, partners, employees and agents of the Representative and each respective affiliate of the Representative, in any court of competent jurisdiction in the Cayman Islands. This paragraph shall survive any termination of this Agreement, in whole or in part.
7.8 Survival. The representations and warranties contained herein shall survive the Closing and the Option Closing, if any, and the delivery of the Securities.
7.9 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such “.pdf” signature page were an original thereof.
7.10 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
7.11 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Underwriters and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any Action for specific performance of any such obligation the defense that a remedy at law would be adequate.
7.12 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.
7.13 Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and Ordinary Shares in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Ordinary Shares that occur after the date of this Agreement.
7.14 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVE FOREVER ANY RIGHT TO TRIAL BY JURY.
(Signature Pages Follow)
If the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among the Company and the several Underwriters in accordance with its terms.
| Very truly yours, | ||
| BLUE HAT INTERACTIVE ENTERTAINMENT TECHNOLOGY | ||
| By: | ||
| Name: | Xiaodong Chen | |
| Title: | Chief Executive Officer | |
Address for Notice:
7th Floor, Building C, No. 1010 Anling Road
Huli District, Xiamen, China 361009
Attn: Chief Executive Officer
Copy to:
Pryor Cashman LLP
7 Times Square
New York, New York 10036
Attn: Elizabeth F. Chen, Esq.
Accepted on the date first above written.
MAXIM GROUP LLC
As the Representative of the several
Underwriters listed on Schedule I
By: Maxim Group LLC
| By: | ||
| Name: | ||
| Title: |
Address for Notice:
300 Park Avenue, 16th Floor
New York, NY 10022
Attn: James Siegel
Copy to:
Hunter Taubman Fischer & Li LLC
950 Third Avenue, 19th Floor
New York, NY 10022
Attn: Joan Wu, Esq.
SCHEDULE I
Schedule of Underwriters
| Underwriters | Closing Shares | Pre-Funded Warrants |
Closing Warrants |
Closing Purchase Price | ||||||||||||
| Maxim Group LLC | $ | |||||||||||||||
| Total | $ | |||||||||||||||
EXHIBIT A
Form of Lock-Up Agreement
EXHIBIT B
Form of Pre-Funded Warrant
EXHIBIT C
Form of Closing Warrant
EXHIBIT 3.1
THE COMPANIES ACT (AS REVISED)
COMPANY LIMITED BY SHARES
THIRD AMENDED AND RESTATED
MEMORANDUM
AND
ARTICLES OF ASSOCIATION OF
BLUE HAT INTERACTIVE ENTERTAINMENT
TECHNOLOGY
(Adopted by a Special Resolution passed on July 10, 2025)
THE COMPANIES ACT (AS REVISED)
COMPANY LIMITED BY SHARES
THIRD AMENDED AND RESTATED
MEMORANDUM OF ASSOCIATION
OF
BLUE HAT INTERACTIVE ENTERTAINMENT
TECHNOLOGY
(Adopted by a Special Resolution passed on July 10, 2025)
| 1. | The name of the Company is Blue Hat Interactive Entertainment Technology. |
| 2. | The registered office of the Company shall be situated at the office of Campbells Corporate Services Limited, Floor 4, Willow House, Cricket Square, Grand Cayman KY1-9010, Cayman Islands, or at such other place in the Cayman Islands as the directors may at any time decide. |
| 3. | The objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by any law as provided by Section 7(4) of the Companies Act (as revised). |
| 4. | The Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit as provided by Section 27 (2) of the Companies Act (as revised). |
| 5. | Nothing in the preceding paragraphs shall be deemed to permit the Company to carry on the business of a bank or trust company without being licensed in that behalf under the provisions of the Banks and Trust Companies Act (as revised), or to carry on insurance business from within the Cayman Islands or the business of an insurance manager, agent, sub-agent or broker without being licensed in that behalf under the provisions of the Insurance Act (as revised), or to carry on the business of company management without being licensed in that behalf under the Companies Management Act (as revised). |
| 6. | The Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands, but nothing in this paragraph shall be so construed as to prevent the Company effecting and concluding contracts in the Cayman Islands and exercising in the Cayman Islands any of its power necessary for the carrying on of its business outside the Cayman Islands. |
| 7. | The liability of each Member is limited to the amount, if any, unpaid on such Member’s shares. |
| 8. | The share capital of the Company is US$500,000,000 divided into 5,000,000,000,000,000 ordinary shares of US$0.0000001 par value each with power for the Company, subject to the provisions of the Companies Act (as revised) and the Articles of Association, to redeem or purchase any of its shares and to sub-divide or consolidate the said shares or any of them and to issue all or any part of its capital whether original, redeemed, increased or reduced, with or without any preference, priority or special privilege or subject to any postponement of rights or to any conditions or restrictions whatsoever and so that unless the conditions of issue shall otherwise expressly provide, every issue of shares, whether stated to be ordinary, preference or otherwise, shall be subject to the powers on the part of the Company hereinbefore provided. |
| 9. | The Company has power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands. |
| 10. | Capitalized terms that are not defined in this Memorandum of Association bear the same meaning as those given in the Articles of Association of the Company. |
THE COMPANIES ACT (AS REVISED)
COMPANY LIMITED BY SHARES
THIRD AMENDED AND RESTATED ARTICLES OF
ASSOCIATION
OF
BLUE HAT INTERACTIVE ENTERTAINMENT
TECHNOLOGY
(Adopted by a Special Resolution passed on July 10, 2025)
Preliminary
| 1. | The regulations contained in Table A in the First Schedule of the Law shall not apply to the Company and the following regulations shall be the Articles of Association of the Company. |
| 2. | In these Articles: |
| (a) | the following terms shall have the meanings set opposite if not inconsistent with the subject or context: |
| “allotment” shares | are taken to be allotted when a person acquires the unconditional right to be included in the Register of Members in respect of those shares; |
| “Articles” these | articles of association of the Company as from time to time amended by Special Resolution; |
| “Audit Committee” | the audit committee of the Company formed by the Board pursuant to Article 102 hereof, or any successor of the audit committee; |
| “Board” or “Board of Directors” | means the board of directors of the Company; |
| “clear days” | in relation to a period of notice means that period excluding both the day when the notice is given or deemed to be given and the day for which it is given or on which it is to take effect; |
| “Clearing House” | a clearing house recognized by the laws of the jurisdiction in which shares in the capital of the Company (or depository receipts thereof) are listed or quoted on a stock exchange or interdealer quotation system in such jurisdiction; |
| “Company” | the above named company; |
| “Company’s Web-site” | means the website of the Company, its web-address or domain name; |
| “Compensation Committee” or “Remuneration Committee” | the compensation committee or the remuneration committee of the Company formed by the Board pursuant to Article 102 hereof, or any successor of the compensation committee or remuneration committee; |
| “Designated Stock Exchange” | the Nasdaq Capital Market and any other stock exchange or interdealer quotation system on which shares in the capital of the Company are listed or quoted; |
| “Directors” | means the Directors for the time being of the Company or, as the case may be, those Directors assembled as a board or as a committee of the board; |
| “dividend” | includes a distribution or interim dividend or interim distribution; “electronic” has the same meaning as in the Electronic Transactions Act (as revised); |
| “electronic communication” | a communication sent by electronic means, including electronic posting to the Company’s Website, transmission to any number, address or internet website (including SEC’s website) or other electronic delivery methods as otherwise decided and approved by not less than two-thirds of the vote of the Board; |
| “electronic record” | has the same meaning as in the Electronic Transactions Act (as revised); |
| “electronic record” | has the same meaning as in the Electronic Transactions Act (as revised); |
| “electronic signature” | has the same meaning as in the Electronic Transactions Act (as revised); |
| “Equity Securities” | shares and any securities convertible into or exchangeable or exercisable for shares; |
| “Exchange Act” | the Securities Exchange Act of 1934, as amended; |
| “executed” | means any mode of execution; |
| “holder” | in relation to any share, the Member whose name is entered in the Register of Members as the holder of the share; |
| “Indemnified Person” | means every Director, alternate Director, Secretary or other officer for the time being or from time to time of the Company; |
| “Independent Directors” | means a Director who is an independent director as defined in any Designated Stock Exchange Rules or in Rule 10A-3 under the Exchange Act, as the case may be; |
| “Islands” | the British Overseas Territory of the Cayman Islands; |
| “Law” | the Companies Act (as revised); |
| “Member” | has the same meaning as in the Law; |
| “Memorandum” | the memorandum of association of the Company as from time to time amended; “month” a calendar month; |
| month” | a calendar month; |
| “Nomination and Governance Committee” | the nomination and governance committee of the Company formed by the Board pursuant to Article 102 hereof, or any successor of the nomination and governance committee; |
| “officer” | includes a Director or a Secretary; |
| “Ordinary Resolution” | a resolution (i) of a duly constituted general meeting of the Company passed by a simple majority of the votes cast by, or on behalf of, the Members entitled to vote present in person or by proxy and voting at the meeting or (ii) approved in writing by all of the Members entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Members and the effective date of the resolution so adopted shall be the date on which the instrument, or the last of such instruments, if more than one, is |
| “Other Indemnitors” | means persons or entities other than the Company that may provide indemnification, advancement of expenses and/or insurance to the Indemnified Persons in connection with such Indemnified Persons involvement in the management of the Company; |
| “paid up” | means paid up as to the par value and any premium payable in respect of the issue of any shares and includes credited as paid up; |
| “Person” | any individual, corporation, general or limited partnership, limited liability company, joint stock company, joint venture, estate, trust, association, organization or any other entity or governmental entity; |
| “Register of Members” | the register of Members required to be kept pursuant to the Law; “Seal” the common seal of the Company including every duplicate seal; |
| “SEC” | the United States Securities and Exchange Commission of the United States of America or any other federal agency for the time being administering the Securities Act; |
| “Secretary” any | person appointed by the Directors to perform any of the duties of the secretary of the Company, including a joint, assistant or deputy secretary; |
| “Securities Act” | means the Securities Act of 1933 of the United States of America, as amended, or any similar federal statute and the rules and regulations of the SEC thereunder, all as the same shall be in effect at the time; |
| “share” | a share in the share capital of the Company, and includes stock (except where a distinction between shares and stock is expressed or implied) and includes a fraction of a share; |
| “signed” | includes an electronic signature or a representation of a signature affixed by mechanical means; |
| “Special Resolution” | a resolution (i) which has been passed by a majority of not less than two-thirds of such Members as, being entitled to do so, vote in person or by proxy at a general meeting of which notice specifying the intention to propose the resolution as a special resolution has been duly given or (ii) approved in writing by all of the Members entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of the Members and the effective date of the Special Resolution so adopted shall be the date on which the instrument or the last of such instruments, if more than one, is executed; |
| “subsidiary” | a company is a subsidiary of another company if that other company: |
| (i) | holds a majority of the voting rights in it; |
| (ii) | is a member of it and has the right to appoint or remove a majority of its board of directors; or |
| (iii) | is a member of it and controls alone, pursuant to an agreement with other members, a majority of the voting rights in it; or |
| (iv) | is a subsidiary of a company which is itself a subsidiary of that other company. For the purpose of this definition the expression “company” includes any body corporate established in or outside of the Islands; |
| “Transfer” with | respect to any Equity Securities of the Company, any sale, assignment, Lien, hypothecation, pledge, conveyance in trust, gift, transfer by bequest, devise or descent, or other transfer or disposition of any kind, including, but not limited to, transfers pursuant to divorce or legal separation, transfers to receivers, levying creditors, trustees or receivers in bankruptcy proceedings or general assignees for the benefit of creditors, whether voluntary, involuntarily or by operation of law, directly or indirectly (including the Transfer of a controlling interest in any entity the assets of which consist at least in part of Equity Securities). “transferor” and “transferee” have meanings corresponding to the foregoing; |
| “Treasury Share” | means a Share held in the name of the Company as a treasury share in accordance with the Law; |
| “U.S. Person” | means a Director who is citizen or resident of the United States of America; |
| “written” and “in writing” | includes all modes of representing or reproducing words in visible form including in the form of an electronic record; |
| (b) | unless the context otherwise requires, words or expressions defined in the law shall have the same meanings herein but excluding any statutory modification thereof not in force when these Articles become binding on the Company; |
| (c) | unless the context otherwise requires: |
| (i) | words importing the singular number shall include the plural number and vice-versa; |
| (ii) | words importing the masculine gender only shall include the feminine gender; and |
| (iii) | words importing persons only shall include companies or associations or bodies of person whether incorporated or not; |
| (d) | the word “may” shall be construed as permissive and the word “shall” shall be construed as imperative; |
| (e) | the headings herein are for convenience only and shall not affect the construction of these Articles; |
| (f) | references to statutes are, unless otherwise specified, references to statutes of the Islands and, subject to paragraph (b) above, include any statutory modification or re-enactment thereof for the time being in force; and |
| (g) | where an Ordinary Resolution is expressed to be required for any purpose, a Special Resolution is also effective for that purpose. |
Commencement of Business
| 3. | The business of the Company may be commenced as soon after incorporation as the Directors shall see fit, notwithstanding that only some of the shares may have been allotted. |
| 4. | The Directors may pay, out of the capital or any other monies of the Company, all expenses incurred in or about the formation and establishment of the Company including the expenses of registration. |
Situation of offices of the Company
| 5. | (a) The registered office of the Company shall be situated at the office of Campbells Corporate Services Limited, Floor 4, Willow House, Cricket Square, Grand Cayman KY1-9010, Cayman Islands, or at such other place in the Cayman Islands as the directors may at any time decide. |
(b) The Company, in addition to its registered office, may establish and maintain such other offices, places of business and agencies in the Islands and elsewhere as the Directors may from time to time determine.
Shares
| 6. | (a) | Subject to the rules of any Designated Stock Exchange and to the provisions, if any, in the Memorandum and these Articles, the Directors have general and unconditional authority to allot, grant options over, offer or otherwise deal with or dispose of any unissued shares in the capital of the Company without the approval of holders of Shares (whether forming part of the original or any increased share capital), either at a premium or at par, with or without preferred, deferred or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise and to such persons, on such terms and conditions, and at such times as the Directors may decide, but so that no share shall be issued at a discount, except in accordance with the provisions of the Law. In particular and without prejudice to the generality of the foregoing, the Board is hereby empowered to authorize by resolution or resolutions from time to time and without the approval of holders of Shares the issuance of one or more classes or series of preferred Shares, to cause to be issued such preferred shares and to fix the designations, powers, preferences and relative, participating, optional and other rights, if any, and the qualifications, limitations and restrictions thereof, if any, including, without limitation, the number of shares constituting each such class or series, dividend rights, conversion rights, redemption privileges, voting powers, full or limited or no voting powers, and liquidation preferences, and to increase or decrease the size of any such class or series (but not below the number of Shares of any class or series of preferred Shares then outstanding) to the extent permitted by Law. Without limiting the generality of the foregoing, the resolution or resolutions providing for the establishment of any class or series of preferred shares may, to the extent permitted by law, provide that such class or series shall be superior to, rank equally with or be junior to the preferred Shares of any other class or series. |
| (b) | The Company shall not issue shares or warrants to bearer. | |
| (c) | Subject to the rules of any Designated Stock Exchange, the Directors have general and unconditional authority to issue warrants or convertible securities of similar nature conferring the right upon the holders thereof to subscribe for, purchase or receive any class of shares or securities in the capital of the Company to such persons, on such terms and conditions, and at such times as the Directors may decide. |
| (d) | The Company may issue fractions of a share of any class and a fraction of a share shall be subject to and carry the corresponding fraction of liabilities (whether with respect to nominal or par value, premium, contribution, calls or otherwise howsoever), limitations, preferences, privileges, qualifications, restrictions, rights and other attributes of a whole share of that class of shares. | |
| 7. | The Company may, in so far as the Law permits, pay a commission to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, or procuring or agreeing to procure subscriptions (whether absolute or conditional) for any shares in the capital of the Company. Such commissions may be satisfied by the payment of cash or the allotment of fully or partly paid up shares or partly in one way and partly in the other. The Company may also, on any issue of shares, pay such brokerage fees as may be lawful. |
| 8. | Except as required by law, no person shall be recognized by the Company as holding any share upon any trust, and the Company shall not be bound by or be compelled in any way to recognize (even when having notice thereof) any equitable, contingent, future or partial interest in any share (except only as by these Articles or by law otherwise provided) or any other rights in respect of any share except an absolute right to the entirety thereof in the holder. |
| 9. | (a) If at any time the share capital is divided into different classes of shares, the rights attached to any class of shares (unless otherwise provided by these Articles or the terms of issue of the shares of that class) may be varied with the consent in writing of the holders of two-thirds of the issued shares of that class or with the sanction of a Special Resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting, the provisions of these Articles relating to general meetings shall mutatis mutandis apply, but so that the necessary quorum shall be any one or more persons holding or representing by proxy not less than one-third of the issued shares of the class and that any holder of shares of the class present in person or by proxy may demand a poll; |
(b) The rights conferred upon the holders of the shares of any class shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.
| 10. | The Directors may accept contributions to the capital of the Company otherwise than in consideration of the issue of shares and the amount of any such contribution shall, unless otherwise agreed at the time of such contribution is made, be treated as share premium and shall be subject to the provisions of the Law and these Articles applicable to share premium. |
Share Certificates
| 11. | A Member shall only be entitled to a share certificate if the Directors resolve that share certificates shall be issued. Share certificates representing Shares, if any, shall be in such form as the Directors may determine. Share certificates shall be signed by one or more Directors or other person authorized by the Directors. The Directors may authorize certificates to be issued with the authorized signature(s) affixed by mechanical process. All certificates for Shares shall be consecutively numbered or otherwise identified and shall specify the Shares to which they relate. All certificates surrendered to the Company for transfer shall be cancelled and subject to the Articles and no new certificate shall be issued until the former certificate representing a like number of relevant Shares shall have been surrendered and cancelled. The Company shall be authorized to issue Shares in uncertificated form. |
| 12. | Every share certificate of the Company shall bear legends required under the applicable laws, including the Securities Act. |
| 13. | If a share certificate is defaced, worn-out, lost or destroyed, it may be renewed on such terms (if any) as to evidence and indemnity and payment of the expenses reasonably incurred by the Company in investigating evidence as the Directors may determine but otherwise free of charge, and (in the case of defacement or wearing-out) on delivery to the Company of the old certificate. |
Lien
| 14. | The Company shall have a first and paramount lien on every share (not being a fully paid share) for all moneys (whether presently payable or not) payable at a fixed time or called in respect of that share. The Directors may at any time declare any share to be wholly or in part exempt from the provisions of this Article. The Company’s lien on a share shall extend to any amount in respect of it. |
| 15. | The Company may sell in such manner as the Directors determine any shares on which the Company has a lien if a sum in respect of which the lien exists is presently payable and is not paid within fourteen (14) clear days after notice has been given to the holder of the share or to the person entitled to it in consequence of the death or bankruptcy of the holder, demanding payment and stating that if the notice is not complied with the shares may be sold. |
| 16. | To give effect to a sale the Directors may authorize some person to execute an instrument of transfer of the shares sold to, or in accordance with the directions of, the purchaser. The title of the transferee to the shares shall not be affected by any irregularity or invalidity in the proceedings in reference to the sale. |
| 17. | The net proceeds of the sale, after payment of the costs, shall be applied in payment of so much of the sum for which the lien exists as is presently payable, and any residue shall (upon surrender to the Company for cancellation of the certificate for the shares sold and subject to a like lien for any moneys not presently payable as existed upon the shares before the sale) be paid to the person entitled to the shares at the date of the sale. |
Calls on shares and Forfeiture
| 18. | Subject to the terms of allotment, the Directors may make calls upon the Members in respect of any moneys unpaid on their shares (whether in respect of nominal value or premium) and each Member shall (subject to receiving at least fourteen (14) clear days’ notice specifying when and where payment is to be made) pay to the Company as required by the notice the amount called on his shares. A call may be required to be paid by installments. A call may, before receipt by the Company of any sum due thereunder, be revoked in whole or in part and payment of a call may be postponed in whole or in part. A person upon whom a call is made shall remain liable for calls made upon him notwithstanding the subsequent transfer of the shares in respect of which the call was made. |
| 19. | A call shall be deemed to have been made at the time when the resolution of the Directors authorizing the call was passed. |
| 20. | The joint holders of a share shall be jointly and severally liable to pay all calls in respect of the share. |
| 21. | If a call remains unpaid after it has become due and payable the person from whom it is due and payable shall pay interest on the amount unpaid from the day it became due and payable until it is paid at the rate fixed by the terms of allotment of the share or in the notice of the call or, if no rate is fixed, at an annual rate of ten percent (10%) but the Directors may waive payment of the interest wholly or in part. |
| 22. | An amount payable in respect of a share on allotment or at any fixed date, whether in respect of nominal value or premium or as an installment of a call, shall be deemed to be a call, and if it is not paid when due all the provisions of the Articles shall apply as if that amount had become due and payable by virtue of a call. |
| 23. | Subject to the terms of allotment, the Directors may make arrangements on the issue of shares for a difference between the holders in the amounts and times of payment of calls on their shares. |
| 24. | If a call remains unpaid after it has become due and payable the Directors may give to the person from whom it is due not less than fourteen (14) clear days’ notice requiring payment of the amount unpaid, together with any interest which may have accrued. The notice shall name the place where payment is to be made and shall state that if the notice is not complied with the shares in respect of which the call was made will be liable to be forfeited. |
| 25. | If the notice is not complied with any share in respect of which it was given may, before the payment is required by the notice has been made, be forfeited by a resolution of the Directors and the forfeiture shall include all dividends or other moneys payable in respect of the forfeited shares and not paid before the forfeiture. |
| 26. | Subject to the provisions of the Law, a forfeited share may be sold, re-allotted or otherwise disposed of on such terms and in such manner as the Directors determine either to the person who was before the forfeiture the holder or to any other person, and at any time before a sale, re-allotment or other disposition, the forfeiture may be canceled on such terms as the Directors think fit. Where for the purposes of its disposal a forfeited share is to be transferred to any person the Directors may authorize any person to execute an instrument of transfer of the share to that person. |
| 27. | A person any of whose shares have been forfeited shall cease to be a Member in respect of them and shall surrender to the Company for cancellation the certificate for the shares forfeited but shall remain liable to the Company for all moneys which at the date of forfeiture were presently payable by him to the Company in respect of those shares with interest at the rate at which interest was payable on those moneys before the forfeiture or, if no interest was so payable, at an annual rate of ten percent (10%) from the date of forfeiture until payment but the Directors may waive payment wholly or in part or enforce payment without any allowance for the value of the shares at the time of forfeiture or for any consideration received on their disposal. |
| 28. | A statutory declaration by a Director or the Secretary that a share has been forfeited on a specified date shall be conclusive evidence of the facts stated in it as against all persons claiming to be entitled to the share and the declaration shall (subject to the execution of an instrument of transfer if necessary) constitute a good title to the share and the person to whom the share is disposed of shall not be bound to see to the application of the consideration, if any, nor shall his title to the share be affected by any irregularity in or invalidity of the proceedings in reference to the forfeiture or disposal of the share. |
Transfer of Shares
| 29. | Subject to these Articles, any Member may transfer all or any of his shares by an instrument of transfer in the usual or common form or in a form prescribed by any Designated Stock Exchange or in any other form approved by the Board and may be under hand or, if the transferor or transferee is a Clearing House, by hand or by electronic machine imprinted signature or by such other manner of execution as the Board may approve from time to time. |
| 30. | The instrument of transfer shall be executed by or on behalf of the transferor and the transferee provided that the Board may dispense with the execution of the instrument of transfer by the transferee in any case which it thinks fit in its discretion to do so. Without prejudice to Article 29, the Board may also resolve, either generally or in any particular case, upon request by either the transferor or transferee, to accept mechanically executed transfers. The transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the Register of Members in respect thereof. Nothing in these Articles shall preclude the Board from recognizing a renunciation of the allotment or provisional allotment of any share by the allottee in favour of some other person. |
| 31. | (1) The Board may, in its absolute discretion, and without giving any reason therefore, refuse to register a transfer of any share that is not a fully paid up share to a person of whom it does not approve, or any share issued under any share incentive scheme for employees upon which a restriction on transfer imposed thereby still subsists, and it may also, without prejudice to the foregoing generality, refuse to register a transfer of any share to more than four joint holders or a transfer of any share that is not a fully paid up share on which the Company has a lien. |
(2) The Board may, in its absolute discretion, and without giving any reason therefore, determine that the Company shall maintain one or more branch registers of Members in accordance with the Law. The Board may also, in its absolute discretion, and without giving any reason therefore, determine which register of Members shall constitute the principal register and which shall constitute the branch register or registers, and to vary such determination from time to time.
| 32. | Without limiting the generality of Article 31, the Board may decline to recognize any instrument of transfer unless: |
| (a) | a fee of such maximum sum as any Designated Stock Exchange may determine to be payable or such lesser sum as the Board may from time to time require is paid to the Company in respect thereof; |
| (b) | the instrument of transfer is in respect of only one class of shares; |
| (c) | the Shares are fully paid and free of any lien; |
| (d) | the instrument of transfer is lodged at the registered office or such other place at which the Register of Members is kept in accordance with the accompanied by any relevant share certificate(s) and/or such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer (and, if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do); and |
| (e) | if applicable, the instrument of transfer is duly and properly stamped. |
| 33. | If the Directors refuse to register a transfer of a share, they shall within one month after the date on which the transfer was lodged with the Company send to the transferee notice of the refusal. |
| 34. | The registration of transfers of shares or of any class of shares may, after compliance with any notice requirement of any Designated Stock Exchange, be suspended and the Register of Members be closed at such times and for such periods (not exceeding in the whole thirty (30) days in any year) as the Board may determine. |
| 35. | The Company shall be entitled to retain any instrument of transfer which is registered, but any instrument of transfer which the Directors refuse to register shall be returned to the person lodging it when notice of the refusal is given. |
Transmission of Shares
| 36. | If a Member dies the survivor, or survivors where he was a joint holder, and his personal representatives where he was a sole holder or the only survivor of joint holders shall be the only persons recognized by the Company as having any title to his interest; but nothing in the Articles shall release the estate of a deceased Member from any liability in respect of any share which had been jointly held by him. |
| 37. | A person becoming entitled to a share in consequence of the death or bankruptcy of a Member may, upon such evidence being produced as the Directors may properly require, elect either to become the holder of the share or to have some person nominated by him registered as the transferee. If he elects to become the holder he shall give notice to the Company to that effect. If he elects to have another person registered he shall execute an instrument of transfer of the share to that person. All the Articles relating to the transfer of shares shall apply to the notice or instrument of transfer as if it were an instrument of transfer executed by the Member and the death or bankruptcy of the Member had not occurred. |
| 38. | A person becoming entitled to a share by reason of the death or bankruptcy of a Member shall have the rights to which he would be entitled if he were the holder of the share, except that he shall not, before being registered as the holder of the share, be entitled in respect of it to attend or vote at any meeting of the Company or at any separate meeting of the holders of any class of shares in the Company. |
Changes of Capital
| 39. | (a) Subject to and in so far as permitted by the provisions of the Law, the Company may from time to time by Ordinary Resolution alter or amend the Memorandum to: |
| (i) | increase its share capital by such sum, to be divided into shares of such amount, as the resolution shall prescribe; |
| (ii) | consolidate and divide all or any of its share capital into shares of larger amounts than its existing shares; |
| (iii) | convert all or any of its paid up shares into stock and reconvert that stock into paid up shares of any denomination; |
| (iv) | sub-divide its existing shares, or any of them, into shares of smaller amounts than is fixed by the Memorandum; and |
| (v) | cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled. |
(b) Except so far as otherwise provided by the conditions of issue, the new shares shall be subject to the same provisions with reference to the payment of calls, lien, transfer, transmission, forfeiture and otherwise as the shares in the original share capital.
| 40. | Whenever as a result of a consolidation of shares any Members would become entitled to fractions of a share, the Directors may, on behalf of those Members, sell the shares representing the fractions for the best price reasonably obtainable to any person (including, subject to the provisions of the Law, the Company) and distribute the net proceeds of sale in due proportion among those Members, and the Directors may authorize some person to execute an instrument of transfer of the shares to, or in accordance with the directions of the purchaser. The transferee shall not be bound to see to the application of the purchase money nor shall his title to the shares be affected by any irregularity in or invalidity of the proceedings in reference to the sale. |
| 41. | The Company may by Special Resolution reduce its share capital and any capital redemption reserve in any manner and with, and subject to, any incident, consent, order or other matter required by law. |
Redemption and Purchase of Own Shares
| 42. | Subject to the provisions of the Law and these Articles, the Company may: |
| (a) | issue shares on terms that they are to be redeemed or are liable to be redeemed at the option of the Company or the Member on such terms and in such manner as the Directors may, before the issue of shares, determine; |
| (b) | purchase its own shares (including any redeemable shares) in such manner and on such terms as the Directors may determine and agree with the relevant Member; and |
| (c) | make a payment in respect of the redemption or purchase of its own shares in any manner authorized by the Law, including out of capital. |
| 43. | The Directors may, when making a payment in respect of the redemption or purchase of shares, if so authorized by the terms of issue of the shares (or otherwise by agreement with the holder of such shares) make such payment in cash or in specie (or partly in one and partly in the other). |
| 44. | Upon the date of redemption or purchase of a share, the holder shall cease to be entitled to any rights in respect thereof (excepting always the right to receive (i) the price therefore and (ii) any dividend which had been declared in respect thereof prior to such redemption or purchase being effected) and accordingly his name shall be removed from the Register of Members with respect thereto and the share shall be cancelled. |
Treasury Shares
| 45. | The Directors may, prior to the purchase, redemption or surrender of any Share, determine that such Share shall be held as a Treasury Share. |
| 46. | The Directors may determine to cancel a Treasury Share or transfer a Treasury Share on such terms as they think proper (including, without limitation, for nil consideration). |
Register of Members
| 47. | The Company shall maintain or cause to be maintained an overseas or local Register of Members in accordance with the Law. |
| 48. | The Directors may determine that the Company shall maintain one or more branch registers of Members in accordance with the Law. The Directors may also determine which register of Members shall constitute the principal register and which shall constitute the branch register or registers, and to vary such determination from time to time. |
Closing Register of Members or Fixing Record Date
| 49. | For the purpose of determining Members entitled to notice of, or to vote at any meeting of Members or any adjournment thereof, or Members entitled to receive payment of any dividend or other distribution, or in order to make a determination of Members for any other purpose, the Directors may provide that the Register of Members shall be closed for transfers for a stated period which shall not in any case exceed forty (40) clear days. If the Register shall be so closed for the purpose of determining those Members that are entitled to receive notice of, attend or vote at a meeting of Members, the Register shall be so closed for at least ten (10) clear days immediately preceding such meeting and the record date for such determination shall be the date of the closure of the Register. |
| 50. | In lieu of, or apart from, closing the Register of Members, the Directors may fix in advance or arrears a date as the record date for any such determination of Members entitled to notice of, or to vote at any meeting of the Members or any adjournment thereof, or for the purpose of determining the Members entitled to receive payment of any dividend or other distribution, or in order to make a determination of Members for any other purpose. |
| 51. | If the Register of Members is not so closed and no record date is fixed for the determination of Members entitled to notice of, or to vote at, a meeting of Members or Members entitled to receive payment of a dividend or other distribution, the date on which notice of the meeting is sent or posted or the date on which the resolution of the Directors resolving to pay such dividend or other distribution is passed, as the case may be, shall be the record date for such determination of Members. When a determination of Members entitled to vote at any meeting of Members has been made as provided in this Article, such determination shall apply to any adjournment thereof. |
General Meetings
| 52. | All general meetings other than annual general meetings shall be called extraordinary general meetings and the Company shall specify the meeting as such in the notices calling it. |
| 53. | The Company may, but shall not (unless required by the Law) be obliged to, in each year hold a general meeting as its annual general meeting, and shall specify the meeting as such in the notices calling it. Any general meeting shall be held at such time and place as the Directors shall appoint. |
| 54. | At the annual general meeting, the report of the Directors (if any) shall be presented. |
| 55. | The Directors may, whenever they think fit, convene an extraordinary general meeting of the Company, and they shall on a Members’ requisition in accordance with the Articles forthwith proceed to convene an extraordinary general meeting of the Company. |
| 56. | A Members’ requisition is a requisition of Members holding at the date of deposit of the requisition not less than two-thirds, in par value of the issued shares which as at that date carry the right to vote at general meetings of the Company. |
| 57. | The Members’ requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the registered office, and may consist of several documents in like form each signed by one or more requisitionists. |
| 58. | If there are no Directors as at the date of the deposit of the Members’ requisition or if the Directors do not within twenty-one days from the date of the deposit of the Members’ requisition duly proceed to convene a general meeting to be held within a further twenty-one days, the requisitionists, or any of them representing more than one-half of the total voting rights of all of the requisitionists, may themselves convene a general meeting, but any meeting so convened shall be held no later than the day which falls three months after the expiration of the said twenty-one day period. |
| 59. | A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general meetings are to be convened by Directors. |
| 60. | Notwithstanding any other provision of the Articles, the Members who requisition a meeting: |
| a) | May propose only Ordinary Resolutions to be considered and voted upon at such meeting; and |
| b) | Shall have no right to propose any resolutions with respect to the election, appointment or removal of Directors or with respect to the size of the Board of Directors. |
| 61. | Save as set out in Articles 52 to 60, the Members have no right to propose resolutions to be considered or voted upon at annual general meetings or extraordinary general meetings of the Company. |
Notice of General Meetings
| 62. | At least ten (10) clear days’ notice specifying the place, the day and the hour of each general meeting and the general nature of such business to be transacted thereat shall be given in the manner hereinafter provided, or in such other manner (if any) as may be prescribed by Ordinary Resolution, to such persons as are entitled to vote or may otherwise be entitled under these Articles to receive such notices from the Company; provided that a general meeting of the Company shall, whether or not the notice specified in this Article has been given and whether or not the provisions of the Articles regarding general meetings have been complied with, be deemed to have been duly convened if it is so agreed: |
| (a) | in the case of an annual general meeting, by all of the Members entitled to attend and vote thereat; and |
| (b) | in the case of an extraordinary general meeting, by a majority in number of the Members having a right to attend and vote at the meeting, together holding not less than 95%, in par value of the Shares giving that right. |
| 63. | The accidental omission to give notice of a general meeting to, or the non-receipt of notice of a meeting by, any person entitled to receive notice shall not invalidate the proceedings at that general meeting. |
Proceedings at General Meetings
| 64. | No business shall be transacted at any meeting unless a quorum is present at the time when the meeting proceeds to business. Members holding not less than an aggregate of one-third in nominal value of the total issued voting shares in the Company entitled to vote upon the business to be transacted, shall be a quorum. |
| 65. | If a quorum is not present within half an hour from the time appointed for the meeting to commence or if during such a meeting a quorum ceases to be present, the meeting, if convened upon a Members’ requisition, shall be dissolved and in any other case it shall stand adjourned and shall reconvene on the same day in the next week at the same time and/or place or to such other day, time and/or place as the Directors may determine, and if at the reconvened meeting a quorum is not present within half an hour from the time appointed for the meeting to commence, the Members present shall be a quorum. |
| 66. | If the Directors wish to make this facility available for a specific general meeting or all general meetings of the Company, participation in any general meeting of the Company may be by means of a telephone or similar communication equipment by way of which all Persons participating in such meeting can communicate with each other and such participation shall be deemed to constitute presence in person at the meeting. |
| 67. | The chairman of the board of Directors or in his absence some other Director nominated by the Directors shall preside as chairman of the meeting, but if neither the chairman nor such other Director (if any) is present within fifteen minutes after the time appointed for holding the meeting and willing to act, the Directors present shall elect one of their number to be chairman and, if there is only one Director present and willing to act, he shall be chairman. If no Director is willing to act as chairman, or if no Director is present within fifteen minutes after the time appointed for holding the meeting, the Members present in person or by proxy and entitled to vote shall choose one of their number to be chairman. |
| 68. | The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, the establishment of procedures for the maintenance of order and safety, limitations on the time allotted to questions or comments on the affairs of the Company, restrictions on entry to such meeting after the time prescribed for the commencement thereof, and the opening and closing of the polls. The chairman of the meeting shall announce at each such meeting the date and time of the opening and the closing of the polls for each matter upon which the Members will vote at such meeting. |
| 69. | A Director shall, notwithstanding that he is not a Member, be entitled to attend and speak at any general meeting and at any separate meeting of the holders of any class of shares in the Company. |
| 70. | The chairman may, with the consent of any meeting at which a quorum is present (and shall if so directed by the meeting), adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than business which might properly have been transacted at the meeting had the adjournment not taken place. When a meeting is adjourned for fourteen days or more, at least seven (7) clear days’ notice shall be given specifying the time and place of the adjourned meeting and the general nature of the business to be transacted. Otherwise it shall not be necessary to give any such notice. |
| 71. | At each meeting of the Members, all corporate actions, including the election of Directors, to be taken by vote of the Members (except as otherwise required by applicable law and except as otherwise provided in these Articles) shall be authorized by Ordinary Resolution. Where a separate vote by a class or classes or series is required, the affirmative vote of the majority of Shares of such class or classes or series present in person or represented by proxy at the meeting shall be the act of such class or series (unless provided otherwise in the resolutions providing for the issuance of such series). |
| 72. | At any general meeting a resolution put to the vote of the meeting shall be decided on a poll. |
| 73. | A poll shall be taken in such manner as the chairman directs and he may appoint scrutineers (who need not be Members) and fix a place and time for declaring the result of the poll. The result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. |
| 74. | In the case of equality of votes, the chairman shall be entitled to a casting vote in addition to any other vote he may have. |
| 75. | Any action required or permitted to be taken at any annual or extraordinary general meetings of the Company may be taken only upon the vote of the Members at an annual or extraordinary general meeting duly noticed and convened in accordance with these Articles and the Law and may not be taken by written resolution of the Members. |
| 76. | If for so long as the Company has only one Member: |
| (a) | in relation to a general meeting, the sole Member or a proxy for that Member or (if the Member is a corporation) a duly authorized representative of that Member is a quorum and Article 64 is modified accordingly; |
| (b) | the sole Member may agree that any general meeting be called by shorter notice than that provided for by the Articles; and |
| (c) | all other provisions of the Articles apply with any necessary modification (unless the provision expressly provides otherwise). |
Votes of Members
| 77. | Subject to any rights or restrictions attached to any shares, every Member who (being an individual) is present in person or by proxy or (being a corporation) is present by a duly authorized representative not being himself a Member entitled to vote, shall have one vote, and on a poll every Member and every person representing a Member by proxy shall have one vote for every share of which he is the holder. |
| 78. | In the case of joint holders, the vote of the senior joint holder who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders; and seniority shall be determined by the order in which the names of the holders stand in the Register of Members. |
| 79. | A Member in respect of whom an order has been made by any court having jurisdiction (whether in the Islands or elsewhere) in matters concerning mental disorder may vote, by his receiver, curator bonis or other person authorized in that behalf appointed by that court, and any such receiver, curator bonis or other person may vote by proxy. Evidence to the satisfaction of the Directors of the authority of the person claiming to exercise the right to vote shall be received at the registered office of the Company, or at such other place as is specified in accordance with the Articles for the deposit or delivery of forms of appointment of a proxy, or in any other manner specified in the Articles for the appointment of a proxy, not less than forty-eight eight hours before the time appointed for holding the meeting or adjourned meeting at which the right to vote is to be exercised and in default the right to vote shall not be exercisable. |
| 80. | No Member shall, unless the Directors otherwise determine, be entitled to vote at any general meeting or at any separate meeting of the holders of any class of shares in the Company, either in person or by proxy, in respect of any share held by him unless all moneys presently payable by him in respect of that share have been paid. |
| 81. | No objection shall be raised to the qualification of any voter except at the meeting or adjourned meeting at which the vote objected to is tendered, and every vote not disallowed at the meeting shall be valid. Any objection made in due time shall be referred to the chairman whose decision shall be final and conclusive. |
| 82. | Votes may be given either personally or by proxy. Deposit or delivery of a form of appointment of a proxy does not preclude a Member from attending and voting at the meeting or at any adjournment of it. |
| 83. | A Member entitled to more than one vote need not, if he votes, use all his votes or cast all votes he uses the same way. |
| 84. | Subject as set out herein, an instrument appointing a proxy shall be in writing in any usual form or in any other form which the Directors may approve and shall be executed by or on behalf of the appointor save that, subject to the Law, the Directors may accept the appointment of a proxy received in an electronic communication at an address specified for such purpose, on such terms and subject to such conditions as they consider fit. The Directors may require the production of any evidence which they consider necessary to determine the validity of any appointment pursuant to this Article. |
| 85. | The form of appointment of a proxy and any authority under which it is executed or a copy of such authority certified notarially or in some other way approved by the Directors may: |
| (a) | in the case of an instrument in writing, be left at or sent by post to the registered office of the Company or such other place within the Islands as is specified in the notice convening the meeting or in any form of appointment of proxy sent out by the Company in relation to the meeting at any time before the time for holding the meeting or adjourned meeting at which the person named in the form of appointment of proxy proposes to vote; |
| (b) | in the case of an appointment of a proxy contained in an electronic communication, where an address has been specified by or on behalf of the Company for the purpose of receiving electronic communications: |
| (i) | in the notice convening the meeting; or |
| (ii) | in any form of appointment of a proxy sent out by the Company in relation to the meeting; or |
| (iii) | in any invitation contained in an electronic communication to appoint a proxy issued by the Company in relation to the meeting; |
be received at such address at any time before the time for holding the meeting or adjourned meeting at which the person named in the form of appointment of proxy proposes to vote;
| (c) | in the case of a poll taken more than forty-eight eight hours after it is demanded, be deposited or delivered as required by paragraphs (a) or (b) of this Article after the poll has been demanded and at any time before the time appointed for the taking of the poll; or |
| (d) | where the poll is taken immediately but is taken not more than forty-eight eight hours after it was demanded, be delivered at the meeting at which the poll was demanded to the chairman or to the secretary or to any Director; |
and a form of appointment of proxy which is not deposited or delivered in accordance with this Article is invalid.
| 86. | Any corporation or other non-natural person which is a Member of the Company may in accordance with its constitutional documents, or in the absence of such provision by resolution of its directors or other governing body, authorize such person as it thinks fit to act as its representative at any meeting of the Company or of any class of Members, and the person so authorized shall be entitled to exercise the same powers on behalf of the corporation which he represents as the corporation could exercise if it were an individual Member. |
| 87. | A vote or poll demanded by proxy or by the duly authorized representative of a corporation shall be valid notwithstanding the previous determination of the authority of the person voting or demanding a poll unless notice of the determination was received by the Company at the registered office of the Company or, in the case of a proxy, any other place specified for delivery or receipt of the form of appointment of proxy or, where the appointment of a proxy was contained in an electronic communication, at the address at which the form of appointment was received, before the commencement of the meeting or adjourned meeting at which the vote is given or the poll demanded or (in the case of a poll taken otherwise than on the same day as the meeting or adjourned meeting) the time appointed for taking the poll. |
Number of Directors
| 88. | The Board shall consist of such number of Directors as a majority of the Directors then in office may determine from time to time, and subject always to the rights (if any) of the holders of preferred shares (if any) to elect additional directors under specified circumstances. |
| 89. | The Board of Directors may elect to have a chairman of the Board of Directors elected and appointed by a majority of the Directors then in office. The Directors may also elect a vice-chairman of the Board of Directors. The period for which the chairman and the vice- chairman shall hold office shall also be determined by a majority of all of the Directors then in office. The chairman of the Board of Directors shall preside as chairman at every meeting of the Board of Directors. To the extent the chairman of the Board of Directors is not present at a meeting of the Board of Directors, the vice-chairman of the Board of Directors (if any), or in his absence, the attending Directors may choose one Director to be the chairman of the meeting. Observed Article 122 below, the chairman of the Board of Directors’ voting rights as to the matters to be decided by the Board of Directors shall be the same as other Directors. |
| 90. | The Board may, from time to time, and except as required by applicable law or the listing rules of any Designated Stock Exchange, adopt, institute, amend, modify or revoke the corporate governance policies or initiatives, which shall be intended to set forth the policies of the Company and the Board on various corporate governance related matters as the Board shall determine by resolution from time to time. |
Alternate Directors
| 91. | Any Director (but not an alternate Director) may by writing appoint any other Director, or any other person willing to act, to be an alternate Director and by writing may remove from office an alternate Director so appointed by him. |
| 92. | An alternate Director shall be entitled to receive notice of all meetings of Directors and of all meetings of committees of Directors of which his appointor is a member, to attend and vote at every such meeting at which the Director appointing him is not personally present, to sign any written resolution of the Directors, and generally to perform all the functions of his appointor as a Director in his absence. |
| 93. | An alternate Director shall cease to be an alternate Director if his appointor ceases to be a Director. |
| 94. | Any appointment or removal of an alternate Director shall be by notice to the Company signed by the Director making or revoking the appointment or in any other manner approved by the Directors. |
| 95. | Subject to the provisions of the Articles, an alternate Director shall be deemed for all purposes to be a Director and shall alone be responsible for his own acts and defaults and shall not be deemed to be the agent of the Director appointing him. |
Proxy Directors
| 96. | (a) A Director but not an alternate Director may be represented at any meetings of the Board of Directors by a proxy appointed by him in which event the presence or vote of the proxy shall for all purposes be deemed to be that of the Director. |
(b) The provisions of Articles 82 to 87 shall mutatis mutandis apply to the appointment of proxies by Directors.
Any person appointed as a proxy pursuant to paragraph (a) above shall be the agent of the Director, and not an officer of the Company.
Powers of Directors
| 97. | Subject to the provisions of the Law, the Memorandum and the Articles, and to any directions given by Ordinary Resolution and the listing rules of any Designated Stock Exchange, the business of the Company shall be managed by the Directors who may exercise all the powers of the Company. No alteration of the Memorandum or Articles and no such direction shall invalidate any prior act of the Directors which would have been valid if that alteration had not been made or that direction had not been given. The powers given by this Article shall not be limited by any special power given to the Directors by the Articles and a meeting of Directors at which a quorum is present may exercise all powers exercisable by the Directors. |
| 98. | The Board may exercise all the powers of the Company to raise capital or borrow money and to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and, subject to the Law, to issue debentures, bonds and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party. |
Delegation of Directors’ Powers
| 99. | Subject to these Articles, the Directors may from time to time appoint any Person, whether or not a director of the Company, to hold such office in the Company as the Directors may think necessary for the administration of the Company, including without prejudice to the foregoing generality, the office of the chief executive officer, chief technology officer and chief financial officer, one or more vice presidents, managers or controllers, and for such term and at such remuneration (whether by way of salary or commission or participation in profits or partly in one way and partly in another), and with such powers and duties as the Directors may think fit. |
| 100. | The Directors may, by power of attorney or otherwise, appoint any person to be the agent of the Company for such purposes and on such conditions as they determine, including authority for the agent to delegate all or any of his powers. |
| 101. | Subject to applicable law and the listing rules of any Designated Stock Exchange, the Directors may delegate any of their powers to any committee (including, without limitation, an Audit Committee, Compensation Committee or Remuneration Committee and Nomination and Governance Committee), consisting of one or more Directors. They may also delegate to any managing Director or any Director holding any other executive office such of their powers as they consider desirable to be exercised by him. Any such delegation may be made subject to any conditions the Directors may impose, and either collaterally with or to the exclusion of its own powers and may be revoked or altered. Subject to any such conditions, the proceedings of a committee with two or more Members shall be governed by the provisions of the Articles regulating the proceedings of Directors so far as they are capable of applying. Where a provision of the Articles refers to the exercise of a power, authority or discretion by the Directors and that power, authority or discretion has been delegated by the Directors to a committee, the provision shall be construed as permitting the exercise of the power, authority or discretion by the committee. |
| 102. | The Board may establish an Audit Committee, a Compensation Committee or Remuneration Committee and a Nomination and Governance Committee and, if such committees are established, it shall adopt formal written charters for such committees and review and assess the adequacy of such formal written charters on an annual basis. Each of these committees shall be empowered to do all things necessary to exercise the rights of such committee set forth in these Articles and shall have such powers as the Board may delegate pursuant to Article 101. Each of the Audit Committee, the Compensation Committee or the Remuneration Committee and the Nomination and Governance Committee, if established, shall consist of such number of directors as the Board shall from time to time determine (or such minimum number as may be required from time to time by any Designated Stock Exchange). For so long as any class of Shares are listed on a Designated Stock Exchange, the Audit Committee, the Compensation Committee or the Remuneration Committee and the Nomination and Governance Committee shall be made up of such number of Independent Directors as required from time to time by any Designated Stock Exchange Rules or otherwise required by applicable law. |
Appointment, Disqualification and Removal of Directors
| 103. | The first directors shall be appointed in writing by the subscriber or subscribers to the Memorandum. |
| 104. | The Company may by Ordinary Resolution appoint any person to be a Director or may by Ordinary Resolution remove any Director. |
| 105. | Any vacancies on the Board arising other than upon the removal of a Director by Ordinary Resolution can be filled by the remaining Director(s) (notwithstanding that the remaining Director(s) may constitute fewer than the number of Directors required by Article 88 or fewer than is required for a quorum pursuant to Article 121). Any such appointment shall be as an interim Director to fill such vacancy until the next general meeting of the Company (and such appointment shall terminate at the commencement of such general meeting of the Company). |
| 106. | [Intentionally left blank] |
| 107. | There is no age limit for Directors of the Company. |
| 108. | No shareholding qualification shall be required for a Director. A Director who is not a Member shall nevertheless be entitled to receive notice of and to attend and speak at general meetings of the Company. |
| 109. | The Board must at all times comply with the residency and citizenship requirements of U.S. securities laws applicable to foreign private issuers and shall at no time have a majority of Directors who are U.S. Persons. Notwithstanding any other provision in these Articles, no appointment or election of a U.S. Person as a Director shall be permitted if such appointment or election would have the effect of creating a majority of Directors who are U.S. Persons, and any such appointment or election shall be disregarded for all purposes. |
| 110. | The office of a Director shall be vacated if: |
| (a) | he becomes prohibited by law from being a Director; |
| (b) | he becomes bankrupt or makes any arrangement or composition with his creditors generally; |
| (c) | he dies, or is, in the opinion of all his co-Directors, incapable by reason of mental disorder of discharging his duties as Director; |
| (d) | he resigned his office by notice to the Company; |
| (e) | he has for more than six months been absent without permission of the Directors from meetings of Directors held during that period and the Directors resolve that his office be vacated; |
| 111. | [Intentionally left blank] |
Remuneration of Directors
| 112. | The Directors shall be entitled to such remuneration as the Board may determine and, unless otherwise determined, the remuneration shall be deemed to accrue from day to day. If established, the Compensation Committee or the Remuneration Committee will assist the Board in reviewing and approving compensation decisions. |
| 113. | A Director who, at the request of the Directors, goes or resides outside of the Islands, makes a special journey or performs a special service on behalf of the Company may be paid such reasonable additional remuneration (whether by way of salary, percentage of profits or otherwise) and expenses as the Directors may decide. |
Directors’ Expenses
| 114. | The Directors may be paid all traveling, hotel and other expenses properly incurred by them in connection with their attendance at meetings of Directors or committees of Directors or general meetings or separate meetings of the holders of any class of shares or of debentures of the Company or otherwise in connection with the discharge of their duties. |
Directors’ Appointments and Interests
| 115. | The Directors may appoint one or more of their body to the office of managing Director or to any other executive office under the Company, and the Company may enter into an agreement or arrangement with any Director for his/her employment, subject to applicable law and any listing rules of the SEC or any Designated Stock Exchange, or for the provision by him of any services outside the scope of the ordinary duties of a Director. Any such appointment, agreement or arrangement may be made upon such terms as the Directors determine and they may remunerate any such Director for his services as they think fit. Any appointment of a Director to an executive office shall terminate automatically if he ceases to be a Director but without prejudice to any claim to damages for breach of the contract of service between the Director and the Company. |
| 116. | Subject to the Law and listing rules of any Designated Stock Exchange, if he has disclosed to the Directors the nature and extent of any material interest of his, a Director notwithstanding his office: |
| (a) | may be a party to, or otherwise interested in, any transaction or arrangement with the Company or in which the Company is otherwise interested; |
| (b) | may be a Director or other officer of, or employed by, or a party to any transaction or arrangement with, or otherwise interested in, any body corporate promoted by the Company or in which the Company is otherwise interested; and |
| (c) | shall not, by reason of his office, be accountable to the Company for any benefit which he derives from any such office or employment or from any such transaction or arrangement or from any interest in any such body corporate and no such transaction or arrangement shall be liable to be avoided on the ground of any such interest or benefit. |
| 117. | For the purposes of the preceding Article: |
| (a) | a general notice given to the Directors that a Director is to be regarded as having an interest of the nature and extent specified in the notice in any transaction or arrangement in which a specified person or class of persons is interested shall be deemed to be a disclosure that the Director has an interest in any such transaction of the nature and extent so specified; and |
| (b) | an interest of which a Director has no knowledge and of which it is unreasonable to expect him to have knowledge shall not be treated as an interest of his. |
| 118. | A Director must disclose any material interest pursuant to the Articles, and such Director may not vote at any meeting of Directors or of a committee of Directors on any resolution concerning a matter in which he has, directly or indirectly, an interest or duty. The Director shall be counted in the quorum present at a meeting when any such resolution is under consideration and such resolution may be passed by a majority of the disinterested Directors present at the meeting even if such disinterested Directors together constitute less than a quorum. |
| 119. | Notwithstanding the foregoing, no “Independent Director” as defined in the rules of any Designated Stock Exchange or in Rule 10A-3 under the Exchange Act, and with respect of whom the Board has determined constitutes an “Independent Director” for purposes of compliance with applicable law or the Company’s listing requirements, shall without the consent of the Audit Committee take any of the foregoing actions or any other action that would reasonably be likely to affect such Director’s status as an “Independent Director” of the Company. |
Directors’ Gratuities and Pensions
| 120. | The Directors may provide benefits, whether by the payment of gratuities or pensions or by insurance or otherwise, for any existing Director or any Director who has held but no longer holds any executive office or employment with the Company or with any body corporate which is or has been a subsidiary of the Company or a predecessor in business of the Company or of any such subsidiary, and for any member of his family (including a spouse and a former spouse) or any person who is or was dependent on him, and may (as well before as after he ceases to hold such office or employment) contribute to any fund and pay premiums for the purchase or provision of any such benefit. |
Proceedings of Directors
| 121. | The quorum for the transaction of the business of the Directors may be fixed by the Directors, and unless so fixed shall be equal to a majority of the Directors then holding office if there are two or more Directors, and shall be one if there is only one Director. A person who holds office as an alternate Director shall, if his appointor is not present, be counted in the quorum. A Director who also acts as an alternate Director shall, if his appointor is not present, count twice towards the quorum. |
| 122. | Subject to the provisions of the Articles, the Directors may regulate their proceedings as they determine is appropriate. Questions arising at any meeting shall be decided by a majority of votes. In the case of an equality of votes, the chairman shall have a second or casting vote. A Director who is also an alternate Director shall be entitled in the absence of his appointor to a separate vote on behalf of his appointor in addition to his own vote. |
| 123. | Meetings of the Directors shall be held at least once every calendar quarter and shall take place either in China or in the United States or elsewhere previously agreed among the Directors. A person may participate in a meeting of the Directors or any committee of Directors by conference telephone or other communications equipment by means of which all the persons participating in the meeting can communicate with each other at the same time. Participation by a person in a meeting in this manner is treated as presence in person at that meeting and is counted in a quorum and entitled to vote. |
| 124. | A resolution in writing (in one or more counterparts) signed by all the Directors or all the members of a committee of the Directors (an alternate Director being entitled to sign such a resolution on behalf of his appointor and if such alternate Director is also a Director, being entitled to sign such resolution both on behalf of his appointer and in his capacity as a Director) shall be as valid and effectual as if it had been passed at a meeting of the Directors, or committee of Directors as the case may be, duly convened and held. |
| 125. | A Director or alternate Director may, or other officer of the Company on the direction of a Director or alternate Director shall, call a meeting of the Directors by at least five (5) clear days’ notice in writing to every Director and alternate Director which notice shall set forth the general nature of the business to be considered unless notice is waived by all the Directors (or their alternates) either at, before or after the meeting is held. To any such notice of a meeting of the Directors all the provisions of the Articles relating to the giving of notices by the Company to the Members shall apply mutatis mutandis. |
| 126. | The continuing Directors (or a sole continuing Director, as the case may be) may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the number fixed by or pursuant to the Articles as the necessary quorum of Directors the continuing Directors or Director may act for the purpose of increasing the number of Directors to be equal to such fixed number, or of summoning a general meeting of the Company, but for no other purpose. |
| 127. | The Directors may elect a chairman of their board and determine the period for which he is to hold office; but if no such chairman is elected, or if at any meeting the chairman is not present within thirty minutes after the time appointed for the meeting to commence, the Directors present may choose one of their number to be chairman of the meeting. |
| 128. | All acts done by any meeting of the Directors or of a committee of the Directors (including any person acting as an alternate Director) shall, notwithstanding that it is afterwards discovered that there was some defect in the appointment of any Director or alternate Director, and/or that they or any of them were disqualified, and/or had vacated their office and/or were not entitled to vote, be as valid as if every such person had been duly appointed and/or not disqualified to be a Director or alternate Director and/or had not vacated their office and/or had been entitled to vote, as the case may be. |
| 129. | A Director who is present at a meeting of the Directors at which action on any Company matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent from such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Company immediately after the conclusion of the meeting. Such right to dissent shall not apply to a Director who voted in favour of such action. |
Secretary and other officers
| 130. | The Directors may by resolution appoint a Secretary and may by resolution also appoint such other officers as may from time to time be required upon such terms as the duration of office, remuneration and otherwise as they may think fit. Such Secretary or other officers need not be Directors and in the case of the other officers may be ascribed such titles as the Directors may decide. The Directors may by resolution remove any Secretary or other officer appointed pursuant to this Article. |
Minutes
| 131. | The Directors shall cause minutes to be made in books kept for the purposes of recording: |
| (a) | all appointments of officers made by the Directors; and |
| (b) | all resolutions and proceedings of meetings of the Company, of the holders of any class of shares in the Company, and of the Directors, and of committees of Directors, including the names of the Directors present at each such meeting. |
Seal
| 132. | (a) The Company may, if the Directors so determine, have a Seal. The Seal shall only be used by the authority of the Directors or of a committee of Directors authorized by the Directors. The Directors may determine who shall sign any instrument to which the Seal is affixed, and unless otherwise so determined every such instrument shall be signed by a Director and by the Secretary or by a second Director. |
| (b) | The Company may have for use in any place or places outside the Islands a duplicate Seal or Seals, each of which shall be a reproduction of the Seal of the Company and, if the Directors so determine, shall have added on its face the name of every place where it is to be used. |
| (c) | The Directors may by resolution determine (i) that any signature required by this Article need not be manual, but may be affixed by some other method or system of reproduction or mechanical or electronic signature and/or; (ii) that any document may bear a printed reproduction of the Seal in lieu of affixing the Seal thereto. |
| (d) | No document or deed otherwise duly executed and delivered by or on behalf of the Company shall be regarded as invalid merely because at the date of the delivery of the deed or document, the Director, Secretary or other officer or person who shall have executed the same or affixed the Seal thereto, as the case may be, for and on behalf of the Company shall have ceased to hold such office and authority on behalf of the Company. |
Dividends
| 133. | Subject to the provisions of the Law, the Company may by Ordinary Resolution declare dividends (including interim dividends) in accordance with the respective rights of the Members, but no dividend shall exceed the amount recommended by the Directors. |
| 134. | Subject to the provisions of the Law, the Directors may declare dividends in accordance with the respective rights of the Members and authorize payment of the same out of the funds of the Company lawfully available therefore. If at any time the share capital is divided into different classes of shares the Directors may pay dividends on shares which confer deferred or non-preferred rights with regard to dividends as well as on shares which confer preferential rights with regard to dividends, but no dividend shall be paid on shares carrying deferred or non-preferred rights if, at the time of payment, any preferential dividend is in arrears. The Directors may also pay at intervals settled by them any dividend payable at a fixed rate if it appears that there are sufficient funds of the Company lawfully available for distribution to justify the payment. Provided the Directors act in good faith they shall not incur any liability to the holders of shares conferring preferred rights for any loss they may suffer by the lawful payment of a dividend on any shares having deferred or non- preferred rights. |
| 135. | The Directors may, before recommending or declaring any dividend, set aside out of the funds legally available for distribution such sums as they think proper as a reserve or reserves which shall, at the discretion of the Directors, be applicable for meeting contingencies, or for equalising dividends or for any other purpose to which those funds may be properly applied and pending such application may, at the like discretion, either be employed in the business of the Company or be invested in such investments (other than shares in the capital of the Company) as the Directors may from time to time think fit. |
| 136. | Except as otherwise provided by the rights attached to shares, all dividends shall be declared and paid according to the amounts paid up on the shares on which the dividend is paid. All dividends shall be paid in proportion to the number of shares a Member holds during any portion or portions of the period in respect of which the dividend is paid; but, if any share is issued on terms providing that it shall rank for dividend as from a particular date, that share shall rank for dividend accordingly. |
| 137. | The Directors may deduct from a dividend or other amounts payable to a person in respect of a share any amounts due from him to the Company on account of a call or otherwise in relation to a share. |
| 138. | Any Ordinary Resolution, or Directors’ resolution declaring a dividend may direct that it shall be satisfied wholly or partly by the distribution of assets and, where any difficulty arises in regard to such distribution, the Directors may settle the same and in particular may issue fractional certificates and fix the value for distribution of any assets and may determine that cash shall be paid to any Member upon the footing of the value so fixed in order to adjust the rights of Members and may vest any assets in trustees. |
| 139. | Any dividend or other moneys payable on or in respect of a share may be paid by cheque sent by post to the registered address of the person entitled or, if two or more persons are the holders of the share or are jointly entitled to it by reason of the death or bankruptcy of the holder, to the registered address of that one of those persons who is first named in the Register of Members or to such person and to such address as the person or persons entitled may in writing direct. Subject to any applicable law or regulations, every cheque shall be made payable to the order of the person or persons entitled or to such other person as the person or persons entitled may in writing direct and payment of the cheque shall be a good discharge to the Company. Any joint holder or other person jointly entitled to a share as aforesaid may give receipts for any dividend or other moneys payable in respect of the share. |
| 140. | No dividend or other moneys payable in respect of a share shall bear interest against the Company unless otherwise provided by the rights attached to the share. |
| 141. | Any dividend which has remained unclaimed for six years from the date when it became due for payment shall, if the Directors so resolve, be forfeited and cease to remain owing by the Company. |
Accounting Records and Audit
| 142. | The books of account relating to the Company’s affairs shall be kept in such manner as may be determined from time to time by the Directors. The books of account shall be kept at the registered office, or at such other place or places as the Directors think fit, and shall always be open to the inspection of the Directors. |
| 143. | The Directors may from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of Members not being Directors, and no Member (not being a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by applicable law, listing rules of any Designated Stock Exchange, or authorized by the Directors or by Ordinary Resolution. |
| 144. | [Intentionally left blank] |
| 145. | [Intentionally left blank] |
| 146. | Respected Article 147 below, subject to the applicable law and rules of any Designated Stock Exchange, the accounts relating to the Company’s affairs shall be audited in such manner as may be determined from time to time by the Company by Ordinary Resolution or failing any such determination by the Directors or failing any determination as aforesaid shall not be audited. |
| 147. | The Audit Committee (or in the absence of such an Audit Committee, the Board) shall appoint an auditor of the Company who shall hold office until removed from office by a resolution of the Audit Committee (or the Board, as applicable) and shall fix his or their remuneration. |
| 148. | Every auditor of the Company shall have a right of access at all times to the books and accounts of the Company and shall be entitled to require from the Directors and officers of the Company such information and explanation as may be necessary for the performance of the duties of the auditors. |
Capitalization of Profits
| 149. | The Directors may: |
| (a) | subject as provided in this Article, resolve to capitalize any undivided profits of the Company not required for paying any preferential dividend (whether or not they are available for distribution) or any sum standing to the credit of the Company’s share premium account or capital redemption reserve; |
| (b) | appropriate the sum resolved to be capitalized to the Members who would have been entitled to it if it were distributed by way of dividend and in the same proportions and apply such sum on their behalf either in or towards paying up the amounts, if any, for the time being unpaid on any shares held by them respectively, or in paying up in full unissued shares or debentures of the Company of a nominal amount equal to such sum, and allot the shares or debentures credited as fully paid to those Members, or as they may direct, in those proportions, or partly in one way and partly in the other; |
| (c) | resolve that any shares so allotted to any Member in respect of a holding by him of any partly-paid shares rank for dividend, so long as such shares remain partly paid, only to the extent that such partly paid shares rank for dividend; |
| (d) | make such provision by the issue of fractional certificates or by payment in cash or otherwise as they determine in the case of shares or debentures becoming distributable under this Article in fractions; and |
| (e) | authorize any person to enter on behalf of all the Members concerned into an agreement with the Company providing for the allotment of them respectively, credited as fully paid, of any shares or debentures to which they may be entitled upon such capitalization, any agreement made under such authority being binding on all such Members. |
Share Premium Account
| 150. | The Directors shall in accordance with Section 34 of the Law establish a share premium account and shall carry to the credit of such account from time to time a sum equal to the amount or value of the premium paid on the issue of any share or capital contributed as described in Article 10. |
| 151. | There shall be debited to any share premium account: |
| (a) | on the redemption or purchase of a share the difference between the nominal value of such share and the redemption or purchase price provided always that at the discretion of the Directors such sum may be paid out of the profits of the Company or, if permitted by Section 37 of the Law, out of capital; and |
| (b) | any other amounts paid out of any share premium account as permitted by Section 34 of the Law. |
Notices
| 152. | Except as otherwise provided in these Articles, and subject to the rules of any Designated Stock Exchanges, any notice or document may be served by the Company or by the Person entitled to give notice to any Member either personally, or by posting it airmail or air courier service in a prepaid letter addressed to such Member at his address as appearing in the Register, or by electronic mail to any electronic mail address such Member may have specified in writing for the purpose of such service of notices, or by advertisement in appropriate newspapers in accordance with the requirements of any Designated Stock Exchange, or by facsimile or by placing it on the Company’s Website. In the case of joint holders of a Share, all notices shall be given to that one of the joint holders whose name stands first in the Register in respect of the joint holding, and notice so given shall be sufficient notice to all the joint holders. |
| 153. | Notices posted to addresses outside the Cayman Islands shall be forwarded by prepaid airmail. |
| 154. | Any notice or other document, if served by: |
| (a) | post, shall be deemed to have been served five days after the time when the letter containing the same is posted; |
| (b) | facsimile, shall be deemed to have been served upon production by the transmitting facsimile machine of a report confirming transmission of the facsimile in full to the facsimile number of the recipient; |
| (c) | recognized courier service, shall be deemed to have been served 48 hours after the time when the letter containing the same is delivered to the courier service; |
| (d) | electronic mail, shall be deemed to have been served immediately upon the time of the transmission by electronic mail; or |
| (e) | placing it on the Company’s Website, shall be deemed to have been served one (1) hour after the notice or document is placed on the Company’s Website. |
In proving service by post or courier service it shall be sufficient to prove that the letter containing the notice or documents was properly addressed and duly posted or delivered to the courier service.
| 155. | A Member present, either in person or by proxy, at any meeting of the Company or of the holders of any class of shares in the Company shall be deemed to have received notice of the meeting, and, where requisite, of the purpose for which it was called. |
| 156. | Any notice or document delivered or sent by post to or left at the registered address of any Member in accordance with the terms of these Articles shall notwithstanding that such Member be then dead or bankrupt, and whether or not the Company has notice of his death or bankruptcy, be deemed to have been duly served in respect of any Share registered in the name of such Member as sole or joint holder, unless his name shall at the time of the service of the notice or document, have been removed from the Register as the holder of the Share, and such service shall for all purposes be deemed a sufficient service of such notice or document on all Persons interested (whether jointly with or as claiming through or under him) in the Share. |
| 157. | Notice of every general meeting of the Company shall be given to: |
| (a) | all Members holding Shares with the right to receive notice and who have supplied to the Company an address, facsimile number or email address for the giving of notices to them; and |
| (b) | every Person entitled to a Share in consequence of the death or bankruptcy of a Member, who but for his death or bankruptcy would be entitled to receive notice of the meeting. |
No other Person shall be entitled to receive notices of general meetings.
Winding Up
| 158. | If the Company is wound up, the liquidator may, with the sanction of a Special Resolution and any other sanction required by the Law, divide among the Members in specie the whole or any part of the assets of the Company and may, for that purpose, value any assets and determine how the division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of the assets in trustees upon such trusts for the benefit of the Members as he with the like sanction determines, but no Member shall be compelled to accept any assets upon which there is a liability. |
| 159. | If the Company shall be wound up and the assets available for distribution amongst the Members as such shall be insufficient to repay the whole of the paid up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the Members in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up, on the shares held by them respectively. And if in a winding up the assets available for distribution amongst the Members shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed pari passu amongst the Members in proportion to the capital paid up at the commencement of the winding up on the shares held by them respectively. This Article is to be without prejudice to the rights of the holders of shares issued upon special terms and conditions. |
Indemnity
| 160. | (a) Every Indemnified Person for the time being and from time to time of the Company and the personal representatives of the same shall be indemnified and secured harmless out of the assets and funds of the Company against all actions, proceedings, costs, charges, expenses, losses, damages, liabilities, judgments, fines, settlements and other amounts (including reasonable attorneys’ fees and expenses and amounts paid in settlement and costs of investigation (collectively “Losses”) incurred or sustained by him otherwise than by reason of his own dishonesty in or about the conduct of the Company’s business or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities or discretions, including without prejudice to the generality of the foregoing, any Losses incurred by him in defending or investigating (whether successfully or otherwise) any civil, criminal, investigative and administrative proceedings concerning or in any way related to the Company or its affairs in any court whether in the Islands or elsewhere. Such Losses incurred in defending or investigating any such proceeding shall be paid by the Company as they are incurred upon receipt, in each case, of an undertaking by or on behalf of the Indemnified Person to repay such amounts if it is ultimately determined by a non-appealable order of a court of competent jurisdiction that such Indemnified Person is not entitled to indemnification hereunder with respect thereto. However, the Company will not indemnify its directors, officers, or persons controlling it for liabilities arising under the Securities Act, because it is the SEC’s opinion that such indemnification is against public policy as expressed in such act and is, therefore, unenforceable. |
| (b) | No such Indemnified Person of the Company and the personal representatives of the same shall be liable (i) for the acts, receipts, neglects, defaults or omissions of any other Director or officer or agent of the Company or (ii) by reason of his having joined in any receipt for money not received by him personally or in any other act to which he was not a direct party for conformity or (iii) for any loss on account of defect of title to any property of the Company or (iv) on account of the insufficiency of any security in or upon which any money of the Company shall be invested or (v) for any loss incurred through any bank, broker or other agent or any other party with whom any of the Company’s property may be deposited or |
(vi) any loss, damage or misfortune whatsoever which may happen in or arise from the execution or discharge of the duties, powers, authorities or discretions of his office or in relation thereto or (vii) for any loss occasioned by any negligence, default, breach of duty, breach of trust, error of judgement or oversight on such Person’s part, unless he has acted
dishonestly, with willful default or through fraud.
| (c) | The Company hereby acknowledges that certain Indemnified Persons may have certain rights to indemnification, advancement of expenses and/or insurance from or against (other than directors’ and officers’ or similar insurance obtained or maintained by or on behalf of the Company or any of its subsidiaries, including any such insurance obtained or |
maintained pursuant to Article 161 hereof) the Other Indemnitors. The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to an Indemnified Person are primary and any obligation of the Other Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by such Indemnified Person are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by an Indemnified Person and shall be liable for the full amount of all Losses to the extent legally permitted and as required by the terms of these Articles (or
any other agreement between the Company and an Indemnified Person), without regard to any rights an Indemnified Person may have against the Other Indemnitors, and (iii) that it irrevocably waives, relinquishes and releases the Other Indemnitors from any and all claims against the Other Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Other Indemnitors on behalf of an Indemnified Person with respect to any claim for which such Indemnified Person has sought indemnification from the Company shall affect the foregoing, the Other Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of such Indemnified Person against the Company. For the avoidance of doubt, no Person or entity providing Directors’ or officers’ or similar insurance obtained or maintained by or on behalf of the Company or any of its subsidiaries, including any Person providing such insurance obtained or maintained pursuant to Article 161 hereof shall be an Other Indemnitor.
| 161. | The Directors may exercise all the power of the Company to purchase and maintain insurance for the benefit of a Person who is or was (whether or not the Company would have the power to indemnify such Person against such liability under the provisions of Article 160 or under applicable law): |
| (a) | a Director, alternate Director, Secretary or auditor of the Company or of a company which is or was a subsidiary undertaking of the Company or in which the Company has or had an interest (whether direct or indirect); or |
| (b) | the trustee of a retirement benefits scheme or other trust in which a person referred to in the preceding paragraph is or has been interested, |
indemnifying him against any liability which may lawfully be insured against by the Company.
Financial Year
| 162. | Unless the Directors otherwise prescribe, the financial year of the Company shall end on 31st of December in each year. |
Amendment of Memorandum and Articles
| 163. | (a) Subject to the Law, the Company may by Special Resolution change its name or change the provisions of the Memorandum with respect to its objects, powers or any other matter specified therein. |
(b) Subject to the Law and as provided in these Articles, the Company may at any time and from time to time by Special Resolution, alter or amend these Articles in whole or in part.
Transfer by way of Continuation
| 164. | The Company may by Special Resolution resolve to be registered by way of continuation in a jurisdiction outside the Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing. In furtherance of a resolution adopted pursuant to this Article, the Directors may cause an application to be made to the Registrar of Companies to deregister the Company in the Islands or such other jurisdiction in which it is for the time being incorporated, registered or existing and may cause all such further steps as they consider appropriate to be taken to effect the transfer by way of continuation of the Company. |
Information
| 165. | No Member shall be entitled to require discovery of or any information respecting any detail of the Company’s trading or any matter which is or may be in the nature of a trade secret or secret process which may relate to the conduct of the business of the Company and which in the opinion of the Directors it will be inexpedient in the interests of the Members of the Company to communicate to the public. |
Exhibit 4.2
PRE-FUNDED ORDINARY SHARE PURCHASE WARRANT
BLUE HAT INTERACTIVE ENTERTAINMENT TECHNOLOGY
| Warrant Shares: [_______] | Issuance Date: [_______], 2026 |
THIS PRE-FUNDED ORDINARY SHARE PURCHASE WARRANT (this “Warrant”) certifies that, for value received, [_____________] or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and until this Warrant is exercised in full (the “Termination Date”) but not thereafter, to subscribe for and purchase from BLUE HAT INTERACTIVE ENTERTAINMENT TECHNOLOGY, an exempted company incorporated under the laws of the Cayman Islands (the “Company”), up to [______] Ordinary Shares (as subject to adjustment hereunder, the “Warrant Shares”). The purchase price of one Ordinary Share under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. In addition to the terms defined elsewhere in this Warrant, the following terms have the meanings indicated in this Section 1:
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Ordinary Shares are then listed or quoted on a Trading Market, the bid price of the Ordinary Shares for the time in question (or the nearest preceding date) on the Trading Market on which the Ordinary Shares are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Ordinary Shares for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Ordinary Shares are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Ordinary Shares are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per Ordinary Share so reported, or (d) in all other cases, the fair market value of a Ordinary Share as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Warrants then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York and the Cayman Islands are authorized or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York and the Cayman Islands generally are open for use by customers on such day.
“Commission” means the United States Securities and Exchange Commission.
“Ordinary Shares” means the ordinary shares of the Company, par value of US$0.0000001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.
“Ordinary Share Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Ordinary Shares, including, without limitation, any debt, preferred shares, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Ordinary Shares.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Registration Statement” means the Company’s registration statement on Form F-1 (File No. 333-[___]).
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Subsidiary” means any subsidiary of the Company and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.
“Trading Day” means a day on which the Ordinary Shares are traded on a Trading Market.
“Trading Market” means any of the following markets or exchanges on which the Ordinary Shares are listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange (or any successors to any of the foregoing).
“Transfer Agent” means VStock Transfer, LLC, the current transfer agent of the Company, with a mailing address of 18 Lafayette Place, Woodmere, New York 11598, and any successor transfer agent of the Company.
“Underwriting Agreement” means the underwriting agreement, dated as of [_______], 2026, by and among the Company and Maxim Group LLC as representative of the underwriters named therein, as amended, modified or supplemented from time to time in accordance with its terms.
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Ordinary Shares are then listed or quoted on a Trading Market, the daily volume weighted average price of the Ordinary Shares for such date (or the nearest preceding date) on the Trading Market on which the Ordinary Shares are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Ordinary Shares for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Ordinary Shares are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Ordinary Shares are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per Ordinary Share so reported, or (d) in all other cases, the fair market value of a Ordinary Share as determined by an independent appraiser selected in good faith by the holders of a majority in interest of the Warrants then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
“Warrants” means this Warrant and other Pre-Funded Ordinary Share purchase warrants issued by the Company pursuant to the Registration Statement.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) one (1) Trading Day and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the Warrant Shares specified in the applicable Notice of Exercise by wire transfer unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise on the Trading Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
b) Exercise Price. The aggregate exercise price of this Warrant, except for a nominal exercise price of $0.0001 per Warrant Share, was pre-funded to the Company on or prior to the Initial Exercise Date and, consequently, no additional consideration (other than the nominal exercise price of $0.0001 per Warrant Share) shall be required to be paid by the Holder to any Person to effect any exercise of this Warrant. The Holder shall not be entitled to the return or refund of all, or any portion, of such pre-paid aggregate exercise price under any circumstance or for any reason whatsoever. The remaining unpaid exercise price per Ordinary Share under this Warrant shall be $0.0001, subject to adjustment hereunder (the “Exercise Price”).
c) Cashless Exercise. This Warrant may also be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
| (A) | = | as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) the highest Bid Price of the Ordinary Shares on the principal Trading Market as reported by Bloomberg L.P. (“Bloomberg”) within two (2) hours of the time of the Holder’s delivery of the Notice of Exercise pursuant to Section 2(a) hereof if such Notice of Exercise is delivered during “regular trading hours,” or within two (2) hours after the close of “regular trading hours” on a Trading Day or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is delivered pursuant to Section 2(a) hereof after two (2) hours following the close of “regular trading hours” on such Trading Day; |
| (B) | = | the Exercise Price of this Warrant, as adjusted hereunder; and |
| (X) | = | the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise. |
If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares being issued shall take on the registered characteristics of the Warrants being exercised. The Company agrees not to take any position contrary to this Section 2(c).
d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) this Warrant is being exercised via cashless exercise, and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earlier of (i) one (1) Trading Day after the delivery to the Company of the Notice of Exercise and (ii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”), provided that the payment of the aggregate Exercise Price (other than in the instance of a cashless exercise) is received by the Company by the Warrant Share Delivery Date. Upon delivery of the Notice of Exercise, the Holder shall be deemed, solely for purposes of Regulation SHO under the Securities Act to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received within the earlier of (i) one (1) Trading Day and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver or cause the delivery to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Ordinary Shares on the date of the applicable Notice of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the third Trading Day after the Warrant Share Delivery Date) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number of Trading Days, on the Company’s primary Trading Market with respect to the Ordinary Shares as in effect on the date of delivery of the Notice of Exercise. Notwithstanding the foregoing, with respect to any Notice(s) of Exercise delivered on or prior to 12:00 p.m. (New York City time) on the Initial Exercise Date, which may be delivered at any time after the time of execution of the Underwriting Agreement, the Company agrees to deliver the Warrant Shares subject to such notice(s) by 4:00 p.m. (New York City time) on the Initial Exercise Date and the Initial Exercise Date shall be the Warrant Share Delivery Date for purposes hereunder, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise) is received by the Company by such Warrant Share Delivery Date.
ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, Ordinary Shares to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the Ordinary Shares so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of Ordinary Shares that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Ordinary Shares having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of this Warrant for Ordinary Shares with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver Ordinary Shares upon exercise of the Warrant as required pursuant to the terms hereof.
v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall round up to the nearest whole share.
vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
vii. Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of Ordinary Shares beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of Ordinary Shares issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of Ordinary Shares which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Ordinary Share Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding Ordinary Shares, a Holder may rely on the number of outstanding Ordinary Shares as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of Ordinary Shares outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing to the Holder the number of Ordinary Shares then outstanding. In any case, the number of outstanding Ordinary Shares shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding Ordinary Shares was reported. The “Beneficial Ownership Limitation” shall be [9.99/4.99%] of the number of Ordinary Shares outstanding immediately after giving effect to the issuance of Ordinary Shares issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of Ordinary Shares outstanding immediately after giving effect to the issuance of Ordinary Shares upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
Section 3. Certain Adjustments.
a) Share Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a share dividend or otherwise makes a distribution or distributions to all holders of its Ordinary Shares or any other equity or equity equivalent securities payable in Ordinary Shares (which, for avoidance of doubt, shall not include any Ordinary Shares issued by the Company upon exercise of this Warrant), (ii) subdivides issued and outstanding Ordinary Shares into a larger number of shares, (iii) combines (including by way of reverse share split) issued and outstanding Ordinary Shares into a smaller number of shares, or (iv) issues by reclassification of Ordinary Shares any shares of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of Ordinary Shares (excluding treasury shares, if any) issued and outstanding immediately before such event and of which the denominator shall be the number of Ordinary Shares issued and outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the date of payment of such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time, while this Warrant is outstanding, the Company grants, issues or sells any Ordinary Share Equivalents or rights to purchase stock, warrants, securities or other property pro rata to all record holders of any class of Ordinary Shares (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of Ordinary Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Ordinary Shares are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such Ordinary Shares as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
c) Payments to be made to Holder in the event of a Distribution. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to all holders of Ordinary Shares, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to receive a payment (“Payment under Warrant”) equivalent to the amount of distribution that a shareholder holding the same number of Ordinary Shares as the Holder holds under this Warrant acquirable upon completion of the exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) would be entitled to under the Distribution. The date for determining the amount of such Payment under Warrant shall be the date immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of Ordinary Shares are to be determined for the participation in such Distribution (provided, however, that, to the extent that the Holder’s right to receive such Payment under Warrant would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to receive said Payment under Warrant to such extent (or in the beneficial ownership of any Ordinary Shares as a result of such Distribution to such extent) and the amount of such Payment under Warrant shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
d) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company and all of its Subsidiaries, taken as a whole, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Ordinary Shares are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of greater than 50% of the outstanding Ordinary Shares or greater than 50% of the voting power of the common equity of the Company, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Ordinary Shares or any compulsory share exchange pursuant to which the Ordinary Shares are effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other
business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with
another Person or group of Persons whereby such other Person or group acquires greater than 50% of the outstanding Ordinary Shares or
greater than 50% of the voting power of the common equity of the Company (each a “Fundamental Transaction”), then,
upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been
issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without
regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of Ordinary Shares of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”)
receivable as a result of such Fundamental Transaction by a holder of the number of Ordinary Shares for which this Warrant is exercisable
immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant).
For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect of one Ordinary Share in such Fundamental Transaction,
and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value
of any different components of the Alternate Consideration. If holders of Ordinary Shares are given any choice as to the securities, cash
or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in
a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all
of the obligations of the Company under this Warrant in accordance with the provisions of this Section 3(d) pursuant to written agreements
in form and substance reasonably satisfactory to Holders of a majority in interest of the Warrants (based on the number of Warrant Shares
underlying such Warrants) then outstanding (as determined without unreasonable delay) prior to such Fundamental Transaction and shall,
at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of such
Successor Entity (or its parent entity) equivalent to the Ordinary Shares acquirable and receivable upon exercise of this Warrant (without
regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies
the exercise price hereunder to such shares (but taking into account the relative value of the Ordinary Shares pursuant to such Fundamental
Transaction and the value of such shares, such number of shares and such exercise price being for the purpose of protecting the economic
value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in
form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and
be substituted for, the Company under this Warrant (so that from and after the occurrence or consummation of such Fundamental Transaction,
each and every provision of this Warrant referring to the “Company” shall refer instead to the Successor Entity or Successor
Entities, jointly and severally), and the Successor Entity or Successor Entities may exercise every right and power of the Company prior
thereto and the Successor Entity or Successor Entities shall assume all of the obligations of the Company prior thereto under this Warrant
with the same effect as if such Successor Entity or Successor Entities, jointly and severally, had been named as the Company herein. For
the avoidance of doubt, the Holder shall be entitled to the benefits of the provisions of this Section 3(d) regardless of (i) whether
the Company has sufficient authorized Ordinary Shares for the issuance of Warrant Shares and/or (ii) whether a Fundamental Transaction
occurs prior to the Initial Exercise Date.
e) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of Ordinary Shares deemed to be issued and outstanding as of a given date shall be the sum of the number of Ordinary Shares (excluding treasury shares, if any) issued and outstanding.
f) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Ordinary Shares, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Ordinary Shares, (C) the Company shall authorize the granting to all holders of the Ordinary Shares rights or warrants to subscribe for or purchase any shares of any class or of any rights, (D) the approval of any shareholders of the Company shall be required in connection with any reclassification of the Ordinary Shares, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange whereby the Ordinary Shares are converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by email to the Holder at its last email address as it shall appear upon the Warrant Register of the Company, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Ordinary Shares of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Ordinary Shares of record shall be entitled to exchange their Ordinary Shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Report on Form 6-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 4. Transfer of Warrant.
a) Transferability. This Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
Section 5. Miscellaneous.
a) No Rights as Shareholder; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a shareholder of the Company prior to the issuance of Warrant Shares upon the exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” pursuant to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any share certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Trading Day, then such action may be taken or such right may be exercised on the next succeeding Trading Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued share capital a sufficient number of Ordinary Shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Ordinary Shares may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the extent as waived or consented to by Holders of a majority in interest of the Warrants (based on the number of Warrant Shares underlying such Warrants) then outstanding which are not beneficially owned by Affiliates of the Company, the Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment; provided, however, that no modification of the terms (including but not limited to the adjustments described in Section 3) upon which the Warrants are exercisable or the rights of holders of Warrants to receive liquidated damages or other payments in cash from the Company or reducing the percentage required for consent to modification of this Warrant may be made without the consent of the Holder of each outstanding Warrant affected thereby. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, except for any increase as a result of any share consolidation as set forth in Section 3(a), (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Warrant (whether brought against a party hereto or their respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in any such suit, action or proceeding
by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address
in effect for notices to it under this Warrant and agrees that, subject to applicable law, such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any
other manner permitted by law. If either party shall commence an action, suit or proceeding to enforce any provisions of this Warrant,
the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for their reasonable attorneys’ fees
and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Exercise, shall be in writing and delivered personally, by e-mail, or sent by a nationally recognized overnight courier service, addressed to the Company, at 7th Floor, Building C, No. 1010 Anling Road, Huli District, Xiamen, China 361009, Attention: Investor Relations, email address: ir@bluehatgroup.net, or such other email address or address as the Company may specify for such purposes by notice to the Holders. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by e-mail, or sent by a nationally recognized overnight courier service addressed to each Holder at the e-mail address or address of such Holder appearing on the books of the Company. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the time of transmission, if such notice or communication is delivered via e-mail at the e-mail address set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the time of transmission, if such notice or communication is delivered via e-mail at the e-mail address set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Report on Form 6-K.
i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Ordinary Shares or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company, on the one hand, and the Holder, on the other hand.
m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature Page Follows)
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
| BLUE HAT INTERACTIVE ENTERTAINMENT TECHNOLOGY | ||
| By: | ||
| Name: | ||
| Title: | ||
NOTICE OF EXERCISE
To: BLUE HAT INTERACTIVE ENTERTAINMENT TECHNOLOGY
(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
☐ in lawful money of the United States; or
☐ if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
_______________________________
The Warrant Shares shall be delivered to the following DWAC Account Number:
_______________________________
_______________________________
_______________________________
[SIGNATURE OF HOLDER]
Name of Investing Entity: ________________________________________________________________________
Signature of Authorized Signatory of Investing Entity: _________________________________________________
Name of Authorized Signatory: ___________________________________________________________________
Title of Authorized Signatory: ____________________________________________________________________
Date: ________________________________________________________________________________________
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
| Name: | ||
| (Please Print) | ||
| Address: | ||
| (Please Print) | ||
| Phone Number: | ||
| Email Address: | ||
| Dated: _______________ __, ______ | ||
| Holder’s Signature: __________________________ | ||
| Holder’s Address: ___________________________ |
Exhibit 4.3
ORDINARY SHARE PURCHASE WARRANT
BLUE HAT INTERACTIVE ENTERTAINMENT TECHNOLOGY
| Warrant Shares: [_______] | Issuance Date: ________, 2026 |
THIS ORDINARY SHARE PURCHASE WARRANT (this “Warrant”) certifies that, for value received, [_____________] or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to 5:00 p.m. (New York City time) on the [ ] year anniversary of the Initial Exercise Date, provided that, if such date is not a Trading Day, then the next Trading Day (the “Termination Date”) but not thereafter, to subscribe for and purchase from BLUE HAT INTERACTIVE ENTERTAINMENT TECHNOLOGY, an exempted company incorporated under the laws of the Cayman Islands (the “Company”), up to [______] Ordinary Shares (as subject to adjustment hereunder, the “Warrant Shares”). The purchase price of one Ordinary Share under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).
Section 1. Definitions. In addition to the terms defined elsewhere in this Warrant, the following terms have the meanings indicated in this Section 1:
“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.
“Bid Price” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Ordinary Shares are then listed or quoted on a Trading Market, the bid price of the Ordinary Shares for the time in question (or the nearest preceding date) on the Trading Market on which the Ordinary Shares are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Ordinary Shares for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Ordinary Shares are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Ordinary Shares are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per Ordinary Share so reported, or (d) in all other cases, the fair market value of an Ordinary Share as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Warrants then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York and the Cayman Islands are authorized or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York and the Cayman Islands generally are open for use by customers on such day.
“Commission” means the United States Securities and Exchange Commission.
“Ordinary Shares” means the ordinary shares of the Company, par value of US$0.0000001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.
“Ordinary Share Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Ordinary Shares, including, without limitation, any debt, preferred shares, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Ordinary Shares.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Floor Price” means a price equal to $[ ].[1]
“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
“Registration Statement” means the Company’s registration statement on Form F-1 (File No. 333-______).
“Reset Date” means, 9:00 a.m. Eastern time on the date that is (i) _____, 20261 (the “First Reset Date”) and (ii) _______, 20262 (the “Second Reset Date”).
“Reset Price” means, on the First Reset Date, $____3 and on the Second Reset Date, $_____ 4 (in each case, as adjusted for share splits, share dividends, recapitalizations, reorganizations, reclassification, combinations, reverse share splits or other similar events occurring after the Initial Exercise Date).
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Subsidiary” means any subsidiary of the Company, and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.
“Trading Day” means a day on which the Ordinary Shares are traded on a Trading Market.
“Trading Market” means any of the following markets or exchanges on which the Ordinary Shares are listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange (or any successors to any of the foregoing).
1 The Second Trading Day after Closing
2 The Fifth Trading Day after Closing
3 70% of the Exercise Price
4 50% of the Exercise Price
[1] To fill in a price that is no less than 20% of the Nasdaq Minimum Price under its listing rule 5635(d) which is the lower of: (i) the closing price (as reflected on Nasdaq.com); or (ii) the average closing price of the Ordinary Shares (as reflected on Nasdaq.com) for the five trading days immediately preceding the signing of the Underwriting Agreement.
“Transfer Agent” means VStock Transfer, LLC, the current transfer agent of the Company, with a mailing address of 18 Lafayette Place, Woodmere, New York 11598, and any successor transfer agent of the Company.
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Ordinary Shares are then listed or quoted on a Trading Market, the daily volume weighted average price of the Ordinary Shares for such date (or the nearest preceding date) on the Trading Market on which the Ordinary Shares are then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Ordinary Shares for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Ordinary Shares are not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Ordinary Shares are then reported on the Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per Ordinary Share so reported, or (d) in all other cases, the fair market value of an Ordinary Share as determined by an independent appraiser selected in good faith by the holders of a majority in interest of the Warrants then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
“Warrants” means this Warrant and other Ordinary Share purchase warrants issued by the Company pursuant to the Registration Statement.
Section 2. Exercise.
a) Exercise of Warrant. Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed PDF copy submitted by e-mail (or e-mail attachment) of the Notice of Exercise in the form annexed hereto (the “Notice of Exercise”). Within the earlier of (i) one (1) Trading Day and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined in Section 2(d)(i) herein) following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the Warrant Shares specified in the applicable Notice of Exercise by wire transfer unless the cashless exercise (or zero cash exercise) procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. No ink-original Notice of Exercise shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Exercise be required. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date on which the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise on the Trading Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.
b) Exercise Price.
| i. | The initial exercise price per Ordinary Share under this Warrant shall be $[ ], subject to adjustment hereunder, provided, however, that if on a Reset Date, the applicable Reset Price is less than the Exercise Price, the Exercise Price shall be decreased to such Reset Price (it being understood that no adjustment shall be made if such Reset Price is equal to or greater than the Exercise Price) (the “Exercise Price”). If the Exercise Price is adjusted on a Reset Date pursuant to this paragraph, the number of Warrant Shares issuable hereunder shall be proportionately increased so that after such adjustment the aggregate Exercise Price payable hereunder shall equal the aggregate Exercise Price of the Warrant immediately prior to such Reset Date. | |
| ii. | For the avoidance of doubt, the aggregate Exercise Price of this Warrant following any reduction in the Exercise Price of this Warrant and corresponding increase in Warrant Shares on any Reset Date shall be equal to the aggregate Exercise Price of this Warrant as determined as of the Closing Date, subject only to reductions in the aggregate number of Warrant Shares as a result of exercises of this Warrant by the Holder. |
c) Cashless Exercise. If at the time of exercise hereof there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of the Warrant Shares to the Holder, then this Warrant may only be exercised, in whole or in part, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:
| (A) | = | as applicable: (i) the VWAP on the Trading Day immediately preceding the date of the applicable Notice of Exercise if such Notice of Exercise is (1) both executed and delivered pursuant to Section 2(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 2(a) hereof on a Trading Day prior to the opening of “regular trading hours” (as defined in Rule 600(b) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) the highest Bid Price of the Ordinary Shares on the principal Trading Market as reported by Bloomberg L.P. (“Bloomberg”) within two (2) hours of the time of the Holder’s delivery of the Notice of Exercise pursuant to Section 2(a) hereof if such Notice of Exercise is delivered during “regular trading hours,” or within two (2) hours after the close of “regular trading hours” on a Trading Day or (iii) the VWAP on the date of the applicable Notice of Exercise if the date of such Notice of Exercise is a Trading Day and such Notice of Exercise is delivered pursuant to Section 2(a) hereof after two (2) hours following the close of “regular trading hours” on such Trading Day; | |
| (B) | = | the Exercise Price of this Warrant, as adjusted hereunder; and | |
| (X) | = | the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise. |
At any time after the Initial Exercise Date and whether or not an effective registration statement is available, the Holder may also effect a “zero cash exercise”. In such event, the aggregate number of Warrant Shares issuable in such zero cash exercise pursuant to any given Notice of Exercise electing to effect a zero cash exercise shall equal the product of (i) the aggregate number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise, multiplied by (ii) two (2.0).
If Warrant Shares are issued in such a cashless exercise (or zero cash exercise), the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares being issued shall take on the registered characteristics of the Warrants being exercised. The Company agrees not to take any position contrary to this Section 2(c).
d) Mechanics of Exercise.
i. Delivery of Warrant Shares Upon Exercise. The Company shall cause the Warrant Shares purchased hereunder to be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) this Warrant is being exercised via cashless exercise or zero cash exercise, and otherwise by physical delivery of a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the address specified by the Holder in the Notice of Exercise by the date that is the earlier of (i) one (1) Trading Day after the delivery to the Company of the Notice of Exercise and (ii) the number of Trading Days comprising the Standard Settlement Period after the delivery to the Company of the Notice of Exercise (such date, the “Warrant Share Delivery Date”), provided that the payment of the aggregate Exercise Price (other than in the instance of a cashless exercise or zero cash exercise) is received by the Company by the Warrant Share Delivery Date. Upon delivery of the Notice of Exercise, the Holder shall be deemed, solely for purposes of Regulation SHO under the Securities Act to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the Warrant Shares, provided that payment of the aggregate Exercise Price (other than in the case of a cashless exercise or zero cash exercise) is received within the earlier of (i) one (1) Trading Day and (ii) the number of Trading Days comprising the Standard Settlement Period following delivery of the Notice of Exercise. If the Company fails for any reason to deliver or cause the delivery to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date,
the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty,
for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Ordinary Shares on the date of the applicable Notice
of Exercise), $10 per Trading Day (increasing to $20 per Trading Day on the third Trading Day after the Warrant Share Delivery Date) for
each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The
Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and
exercisable. As used herein, “Standard Settlement Period” means the standard settlement period, expressed in a number
of Trading Days, on the Company’s primary Trading Market with respect to the Ordinary Shares as in effect on the date of delivery
of the Notice of Exercise.
ii. Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant, at the time of delivery of the Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
iii. Rescission Rights. If the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.
iv. Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Transfer Agent to transmit to the Holder the Warrant Shares in accordance with the provisions of Section 2(d)(i) above pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, Ordinary Shares to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the Ordinary Shares so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of Ordinary Shares that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Ordinary Shares having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of this Warrant to purchase Ordinary Shares with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver Ordinary Shares upon exercise of the Warrant as required pursuant to the terms hereof.
v. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall round up to the nearest whole share.
vi. Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that, in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares.
vii. Closing of Books. The Company will not close its shareholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
e) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of Ordinary Shares beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of Ordinary Shares issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of Ordinary Shares which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Ordinary Share Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding Ordinary Shares, a Holder may rely on the number of outstanding Ordinary Shares as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of Ordinary Shares outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing to the Holder the number of Ordinary Shares then outstanding. In any case, the number of outstanding Ordinary Shares shall be determined after giving effect to the conversion or exercise of
securities of the Company, including this Warrant, by the Holder or its Affiliates
or Attribution Parties since the date as of which such number of outstanding Ordinary Shares was reported. The “Beneficial Ownership
Limitation” shall be [9.99/4.99%] of the number of Ordinary Shares outstanding immediately after giving effect to the issuance
of Ordinary Shares issuable upon exercise of this Warrant. The Holder, upon notice to the Company, may increase or decrease the Beneficial
Ownership Limitation provisions of this Section 2(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the
number of Ordinary Shares outstanding immediately after giving effect to the issuance of Ordinary Shares upon exercise of this Warrant
held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any increase in the Beneficial Ownership Limitation
will not be effective until the 61st day after such notice is delivered to the Company. The provisions of this paragraph shall
be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph
(or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to
make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph
shall apply to a successor holder of this Warrant.
Section 3. Certain Adjustments.
a) Share Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a share dividend or otherwise makes a distribution or distributions to all holders of its Ordinary Shares or any other equity or equity equivalent securities payable in Ordinary Shares (which, for avoidance of doubt, shall not include any Ordinary Shares issued by the Company upon exercise of this Warrant), (ii) subdivides issued and outstanding Ordinary Shares into a larger number of shares, (iii) combines (including by way of reverse share split) issued and outstanding Ordinary Shares into a smaller number of shares, or (iv) issues by reclassification of Ordinary Shares any shares of share capital of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of Ordinary Shares (excluding treasury shares, if any) issued and outstanding immediately before such event and of which the denominator shall be the number of Ordinary Shares issued and outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the date of payment of such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time, while this Warrant is outstanding, the Company grants, issues or sells any Ordinary Share Equivalents or rights to purchase stock, warrants, securities or other property pro rata to all record holders of any class of Ordinary Shares (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of Ordinary Shares acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Ordinary Shares are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such Ordinary Shares as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
c) Payments to be made to Holder in the event of a Distribution. During such time as this Warrant is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to all holders of Ordinary Shares, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be
entitled to receive a payment (“Payment
under Warrant”) equivalent to the amount of distribution that a shareholder holding the same number of Ordinary Shares as the
Holder holds under this Warrant acquirable upon completion of the exercise of this Warrant (without regard to any limitations on exercise
hereof, including without limitation, the Beneficial Ownership Limitation), would be entitled to under the Distribution. The date for
determining the amount of such Payment under Warrant shall be the date immediately before the date of which a record is taken for such
Distribution, or, if no such record is taken, the date as of which the record holders of Ordinary Shares are to be determined for the
participation in such Distribution (provided, however, that to the extent that the Holder’s right to receive such
Payment under Warrant would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled
to receive said Payment under Warrant to such extent (or in the beneficial ownership of any Ordinary Shares as a result of such Distribution
to such extent) and the amount of such Payment under Warrant due shall be held in abeyance for the benefit of the Holder until such time,
if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
d) Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company and all of its Subsidiaries, taken as a whole, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Ordinary Shares are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of greater than 50% of the outstanding Ordinary Shares or greater than 50% of the voting power of the common equity of the Company, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Ordinary Shares or any compulsory share exchange pursuant to which the Ordinary Shares are effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off, merger or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires greater than 50% of the outstanding Ordinary Shares or greater than 50% of the voting power of the common equity of the Company (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of Ordinary Shares of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of Ordinary Shares for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one Ordinary Share in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Ordinary Shares are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 3(d) pursuant to written agreements in form and substance reasonably satisfactory to Holders of a majority in interest of the Warrants (based on the number of Warrant Shares underlying such Warrants) then outstanding (as determined without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of such Successor Entity (or its parent entity) equivalent to the Ordinary Shares acquirable and receivable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies
the exercise price hereunder to such shares (but taking into account the relative value of the Ordinary Shares pursuant to such Fundamental
Transaction and the value of such shares, such number of shares and such exercise price being for the purpose of protecting the economic
value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in
form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and
be substituted for, the Company under this Warrant (so that from and after the occurrence or consummation of such Fundamental Transaction,
each and every provision of this Warrant referring to the “Company” shall refer instead to the Successor Entity or Successor
Entities, jointly and severally), and the Successor Entity or Successor Entities may exercise every right and power of the Company prior
thereto and the Successor Entity or Successor Entities shall assume all of the obligations of the Company prior thereto under this Warrant
with the same effect as if such Successor Entity or Successor Entities, jointly and severally, had been named as the Company herein. For
the avoidance of doubt, the Holder shall be entitled to the benefits of the provisions of this Section 3(d) regardless of (i) whether
the Company has sufficient authorized Ordinary Shares for the issuance of Warrant Shares and/or (ii) whether a Fundamental Transaction
occurs prior to the Initial Exercise Date.
e) Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of Ordinary Shares deemed to be issued and outstanding as of a given date shall be the sum of the number of Ordinary Shares (excluding treasury shares, if any) issued and outstanding.
f) Notice to Holder.
i. Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly deliver to the Holder by email a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment.
ii. Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Ordinary Shares, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Ordinary Shares, (C) the Company shall authorize the granting to all holders of the Ordinary Shares rights or warrants to subscribe for or purchase any shares of any class or of any rights, (D) the approval of any shareholders of the Company shall be required in connection with any reclassification of the Ordinary Shares, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Ordinary Shares are converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be delivered by email to the Holder at its last email address as it shall appear upon the Warrant Register of the Company, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Ordinary Shares of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Ordinary Shares of record shall be entitled to exchange their Ordinary Shares for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided in this Warrant constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Report on Form 6-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
g) Floor Price. In no event, at any time while this Warrant is outstanding, shall the Exercise Price be adjusted to a price that is less than the Floor Price, including, for the avoidance of doubt, any adjustments provided in this Warrant.
Section 4. Transfer of Warrant.
a) Transferability. This Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company unless the Holder has assigned this Warrant in full, in which case, the Holder shall surrender this Warrant to the Company within three (3) Trading Days of the date on which the Holder delivers an assignment form to the Company assigning this Warrant in full. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
b) New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the Initial Exercise Date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
c) Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
Section 5. Miscellaneous.
a) No Rights as Shareholder; No Settlement in Cash. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a shareholder of the Company prior to the issuance of Warrant Shares upon exercise hereof as set forth in Section 2(d)(i), except as expressly set forth in Section 3. Without limiting any rights of a Holder to receive Warrant Shares on a “cashless exercise” (or zero cash exercise) pursuant to Section 2(c) or to receive cash payments pursuant to Section 2(d)(i) and Section 2(d)(iv) herein, in no event shall the Company be required to net cash settle an exercise of this Warrant.
b) Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any share certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
c) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Trading Day, then such action may be taken or such right may be exercised on the next succeeding Trading Day.
d) Authorized Shares.
The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued share capital a sufficient number of Ordinary Shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of issuing the necessary Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Ordinary Shares may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the extent as waived or consented to by the Holders of a majority in interest of the Warrants (based on the number of Warrant Shares underlying such Warrants) then outstanding which are not beneficially owned by Affiliates of the Company, the Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment; provided, however, that no modification of the terms (including but not limited to the adjustments described in Section 3) upon which the Warrants are exercisable or the rights of holders of Warrants to receive liquidated damages or other payments in cash from the Company or reducing the percentage required for consent to modification of this Warrant may be made without the consent of the Holder of each outstanding Warrant affected thereby. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, except for any increase as a result of any share consolidation as set forth in Section 3(a), (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
e) Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Warrant (whether brought against a party hereto or their respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Warrant and agrees that, subject to applicable law, such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action, suit or proceeding to enforce any provisions of this Warrant, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for their reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.
f) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, and the Holder does not utilize cashless exercise or zero cash exercise, will have restrictions upon resale imposed by state and federal securities laws.
g) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.
h) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder including, without limitation, any Notice of Exercise, shall be in writing and delivered personally, by e-mail, or sent by a nationally recognized overnight courier service, addressed to the Company, at 7th Floor, Building C, No. 1010 Anling Road, Huli District, Xiamen, China 361009, Attention: Investor Relations, email address: ir@bluehatgroup.net, or such other email address or address as the Company may specify for such purposes by notice to the Holders. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by e-mail, or sent by a nationally recognized overnight courier service addressed to each Holder at the e-mail address or address of such Holder appearing on the books of the Company. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the time of transmission, if such notice or communication is delivered via e-mail at the e-mail address set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the time of transmission, if such notice or communication is delivered via e-mail at the e-mail address set forth in this Section on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Report on Form 6-K.
i) Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Ordinary Shares or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
j) Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
k) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.
l) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company, on the one hand, and the Holder, on the other hand.
m) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
n) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
********************
(Signature Page Follows)
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
| BLUE HAT INTERACTIVE ENTERTAINMENT TECHNOLOGY | ||
| By: | ||
| Name: | ||
| Title: | ||
NOTICE OF EXERCISE
To: BLUE HAT INTERACTIVE ENTERTAINMENT TECHNOLOGY
(1) The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.
(2) Payment shall take the form of (check applicable box):
☐ in lawful money of the United States; or
☐ if permitted the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).
☐ no cancellation of Warrant Shares pursuant to the zero cash exercise procedure set forth in subsection 2(c).
(3) Please issue said Warrant Shares in the name of the undersigned or in such other name as is specified below:
The Warrant Shares shall be delivered to the following DWAC Account Number:
[SIGNATURE OF HOLDER]
Name of Investing Entity: ________________________________________________________________________
Signature of Authorized Signatory of Investing Entity: _________________________________________________
Name of Authorized Signatory: ___________________________________________________________________
Title of Authorized Signatory: ____________________________________________________________________
Date: ________________________________________________________________________________________
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to
| Name: | ||
| (Please Print) | ||
| Address: | ||
| (Please Print) | ||
| Phone Number: | ||
| Email Address: | ||
| Dated: _______________ __, ______ | ||
| Holder’s Signature: _______________________________ | ||
| Holder’s Address: ________________________________ |
EXHIBIT 5.1
| Campbells | |
| Registered Foreign Law Firm | |
| By Email | 3001-04 & 3010 |
| 30/F Gloucester Tower, | |
| The Landmark | |
| Blue Hat Interactive Entertainment Technology | 15 Queen’s Road Central |
| Floor 4, Willow House, | Hong Kong |
| Cricket Square, | |
| D +852 | |
| Grand Cayman, KY1-9010 | T +852 3708 3000 |
| Cayman Islands | F +852 3706 5408 |
| E jnip@campbellslegal.com | |
| campbellslegal.com | |
| Our Ref: | |
| Your Ref: | |
| 9 February 2026 | |
| CAYMAN | BVI | HONG KONG | |
| Dear Sirs |
Blue Hat Interactive Entertainment Technology
We have acted as Cayman Islands legal advisers to Blue Hat Interactive Entertainment Technology (the “Company”), a Cayman Islands exempted company, in connection with the Company’s registration and offering (the “Offering”) of (i) 10,666,666 units (the “Unit(s)”) with each Unit consisting of (A) one ordinary share, par value $0.0000001 each of the Company (“Ordinary Share(s)”), or one pre-funded warrant (“Pre-Funded Warrant(s)”) exercisable for one Ordinary Share, and (B) one warrant (“Warrant(s)”) initially exercisable for one Ordinary Share; (ii) up to 10,666,666 Ordinary Shares underlying the Pre-Funded Warrants; and (iii) up to 42,666,666 Ordinary Shares underlying the Warrants (the Ordinary Shares as referred to in (ii) and (iii) are collectively referred to as the “Warrant Shares”, together with the Warrants and Pre-Funded Warrants are collectively referred to as the “Securities”) through a Registration Statement on Form F-1 (the “Registration Statement”), filed with the Securities and Exchange Commission under the U.S. Securities Act of 1933, as amended to date (the “Act”), as to which this opinion is a part, to be filed with the United States Securities and Exchange Commission (the “Commission”).
| 1 | Assumptions |
The following opinions are given only as to, and based on, circumstances and matters of fact existing and known to us on the date of this opinion letter. These opinions only relate to the laws of the Cayman Islands which are in force on the date of this opinion letter. In giving these opinions we have relied (without further verification) upon the completeness and accuracy of the Resolutions and the Certificate of Good Standing (each as defined below). We have also relied upon the following assumptions, which we have not independently verified:
| 1.1 | Copies of documents, conformed copies or drafts of documents provided to us are true and complete copies of, or in the final forms of, the originals, and translations of documents provided to us are complete and accurate; |
| 1.2 | All signatures, initials and seals are genuine; |
| 1.3 | There is nothing under any law (other than the laws of the Cayman Islands) which would or might affect the opinions expressed herein; |
| 1.4 | The A&R Memorandum and Articles (as defined below) remain in full force and effect and are unamended; |
| 1.5 | The Resolutions were duly passed in the manner prescribed in the A&R Memorandum and Articles and the resolutions contained in the Resolutions are in full force and effect at the date hereof and have not been amended, varied or revoked in any respect; |
| 1.6 | Any conditions to which the Resolutions are subject will have been satisfied; |
| 1.7 | The authorised shares of the Company as set out in the A&R Memorandum and Articles have not been amended; |
| 1.8 | The minute book and corporate records of the Company as maintained at its registered office in the Cayman Islands are complete and accurate in all material respects, and all minutes and resolutions filed therein represent a complete and accurate record of all meetings of the shareholders and directors (or any committee thereof) (duly convened in accordance with the then effective Memorandum and Articles of Association of the Company) and all resolutions passed at the meetings, or passed by written consent as the case may be. |
| 1.9 | On the date of allotment (where applicable) and issuance of any Securities, the Company is, and after any such allotment and issuance the Company is and will be able to, pay its liabilities as they become due; |
| 1.10 | The Company will have sufficient authorised and unissued share capital to effect the issue and allotment of any Ordinary Shares or Warrant Shares of the Company at the time of issuance, whether as a principal issue or on the conversion, exchange, or exercise of any Securities; |
| 1.11 | The Orindary Shares and the Warrant Shares to be offered and issued by the Company pursuant to the Registration Statement, the Warrants and Pre-funded Warrants will be issued by the Company against payment in full, which shall be equal to at least the aggregate par value of the Ordinary Shares or Warrant Shares to be issued pursuant thereto, in accordance with Registration Statement and be duly registered in the Company’s register of members; |
| 1.12 | There is no contractual or other prohibition or restriction (other than as arising under Cayman Islands law) binding on the Company prohibiting or restricting it from entering into and performing its obligations under the Registration Statement and the Securities; |
| 1.13 | There is nothing under any law (other than the laws of the Cayman Islands) which would or might affect the opinions herein; |
| 1.14 | The validity and binding effect under the laws of the United States of America of the Registration Statement and that the Registration Statement will be duly filed with the Commission; |
| 1.15 | The Registration Statement has been declared effective by the Commission prior to, or concurrent with, the sale of the Securities pursuant to the Registration Statement; and |
| 1.16 | The Offering and the transactions contemplated thereunder comply with the requirements of the applicable rules of the Nasdaq Capital Market. |
2
| 2 | Documents Reviewed |
We have reviewed originals, copies, drafts or conformed copies of the following documents and such other documents or instruments as we deem necessary:
| 2.2 | A copy of the Registration Statement as provided and to be filed with the Commission on or about the date of this opinion; |
| 2.3 | A copy of the certificate of incorporation issued by the Registrar of Companies in the Cayman Islands on 13 June 2018; |
| 2.4 | A copy of the statutory registers of directors and officers, members, mortgages and charges of the Company as maintained at its registered office in the Cayman Islands by Campbells Corporate Services Limited and reviewed on 9 February 2026; |
| 2.5 | A copy of the third amended and restated Memorandum and Articles of Association of the Company adopted by the Shareholder Resolutions on 10 July 2025 (the “A&R Memorandum and Articles”); |
| 2.6 | Certificate of Good Standing in respect of the Company issued by the Registrar of Companies in the Cayman Islands dated 29 January 2026 (the “Certificate of Good Standing”); |
| 2.7 | Copies of the written resolutions of the board of directors of the Company dated 9 February 2026 (the “Resolutions”); |
| 2.8 | The records of proceedings of the Company on file with, and available for inspection on 9 February 2026, at the Grand Court of the Cayman Islands; |
| 2.9 | A copy of the final draft form of the underwriting agreement in relation to the Offering to be entered into among the Company and the parties therein; |
| 2.10 | A copy of the final draft form of the lock-up agreement in relation to the Offering to be entered into among the Company and the parties therein; |
| 2.11 | A copy of the final draft form of the Pre-Funded Warrant; |
| 2.12 | A copy of the final draft form of the Warrant. |
| 3 | Opinion |
Based upon the foregoing and subject to the qualifications set out below and having regard to such legal considerations as we deem relevant, we are of the opinion that:
| 3.1 | The Company has been duly incorporated as an exempted company with limited liability and is validly existing and in good standing with the Registrar of Companies under the laws of the Cayman Islands. |
| 3.2 | The authorised share capital of the Company is US$500,000,000 divided into 5,000,000,000,000,000 ordinary shares of US$0.0000001 par value each. |
| 3.2 | The issue and allotment (as applicable) of the Ordinary Shares and Warrant Shares have been duly authorised, and when allotted, issued and paid for as contemplated as described in the Registration Statement, the Pre-Funded Warrants, and the Warrants, the Ordinary Shares and Warrant Shares will be validly and legally issued and allotted, fully paid and non-assessable. As a matter of Cayman Islands law, a share is only issued when it has been entered in the register of members (shareholders). |
3
| 3.3 | The issuance of the Warrants and Pre-funded Warrants has been duly and validly authorised pursuant to the Resolutions. |
| 3.4 | The statements under the caption “Taxation” in the prospectus forming part of the Registration Statement, to the extent that they constitute statements of Cayman Islands law, are accurate in all material respects and that such statements constitute our opinion. |
| 4 | Qualifications |
| 4.1 | We make no comment with respect to any representations and warranties which may be made by or with respect to the Company in any of the documents or instruments cited in this opinion or otherwise with respect to the commercial terms of the transactions the subject of this opinion. |
| 4.2 | In this opinion, the phrase “non-assessable” means, with respect to the Ordinary Shares and Warrant Shares, that a shareholder shall not, solely by virtue of its status as a shareholder, be liable for additional assessments or calls on the Ordinary Shares and the Warrant Shares by the Company or its creditors (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstance in which a court may be prepared to pierce or lift the corporate veil). |
| 4.3 | To maintain the Company in good standing under the laws of the Cayman Islands, annual filing fees must be paid and returns made to the Registrar of Companies within the time frame prescribed by law. |
We hereby consent to filing of this opinion as an exhibit to the Registration Statement and to the reference to our name under the heading “Enforcement of Civil Liabilities” and “Legal matters” and elsewhere in the Registration Statement. In giving our consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission thereunder, with respect to any part of the Registration Statement, including this opinion and an exhibit or otherwise.
Yours faithfully
/s/ Campbells
Campbells
4
Exhibit 5.2
February 9, 2026
Blue Hat Interactive Entertainment Technology
7th Floor, Building C
No. 1010 Anling Road, Huli District
Xiamen, China 361009
People’s Republic of China
Ladies and Gentlemen:
We have acted as United States securities counsel to Blue Hat Interactive Entertainment Technology, a company incorporated under the laws of the Cayman Islands (the “Company”), in connection with the filing of a registration statement on Form F-1, including all amendments and supplements thereto (the “Registration Statement”), under the Securities Act of 1933, as amended (the “Securities Act”). The Registration Statement relates to the following securities of the Company: (i) 10,666,666 units (each, an “Unit,” and, collectively, the “Units”), with each Unit consisting of (A) one ordinary share, par value $0.0000001 per share (each, an “Ordinary Share,” and, collectively, the “Ordinary Shares”), or one pre-funded warrant (each, a “Pre-Funded Warrant,” and, collectively, the “Pre-Funded Warrants”), and (B) one common warrant to purchase one Ordinary Share (each, a “Common Warrant,” and, collectively, the “Common Warrants”), (ii) up to 10,666,666 Ordinary Shares underlying the Pre-Funded Warrants (the “Pre-Funded Warrant Shares”), and (iii) up to 42,666,666 Ordinary Shares underlying the Common Warrants (the “Warrant Shares”). The Units, the Pre-Funded Warrant Shares, and the Warrant Shares are collectively referred to herein as the “Securities.” Capitalized terms used in this opinion letter and not otherwise defined herein shall have the respective meanings given to them in the underwriting agreement by and between the Company and Maxim Group LLC, as representative of underwriters named therein (the “Underwriting Agreement”), and the forms of Pre-Funded Warrant and Common Warrants (the “Forms of Warrants”).
You have requested our opinion as to the matters set forth below in connection with the Registration Statement. For purposes of rendering our opinion, we have examined: (i) the Registration Statement and all exhibits thereto; (ii) the most recent prospectus included in the Registration Statement on file with the U.S. Securities Exchange Commission (the “Commission”) as of the date of this opinion letter; (iii) a form of the Underwriting Agreement; (iv) the Forms of Warrants; and (v) the records of corporate actions of the Company relating to the Registration Statement, the Underwriting Agreement, the Pre-Funded Warrants, and the Common Warrants and matters in connection therewith. We have also made such other investigation as we have deemed appropriate. We have examined and relied upon certificates of public officials and, as to certain matters of fact that are material to our opinion, we have also relied on certificates of officers of the Company.
In rendering the opinions set forth below, we have assumed that (i) all information contained in all documents reviewed by us is true and correct; (ii) all signatures on all documents examined by us are genuine; (iii) all documents submitted to us as originals are authentic and all documents submitted to us as copies conform to the authentic originals of such documents; (iv) each natural person signing any document reviewed by us had the legal capacity to do so; and (v) the certificates representing the Securities will be duly executed and delivered.
We have also assumed that (i) the Company has been duly incorporated, and is validly existing and in good standing; (ii) the Company has requisite legal status and legal capacity under the laws of the jurisdiction of its incorporation; (iii) the Company has complied and will comply with all aspects of the laws of the jurisdiction of its incorporation, in connection with the transactions contemplated by, and the performance of its obligations under the Pre-Funded Warrants and the Common Warrants; (iv) the Company has the corporate power and authority to execute, deliver and perform all its obligations under the Pre-Funded Warrants and the Common Warrants; (v) as provided in Section 5(e) of the form of Pre-funded Warrant and Section 5(e) of the form of Common Warrant, all questions concerning the construction, validity, enforcement and interpretation of the Pre-Funded Warrants and the Common Warrants shall be governed by the internal laws of the State of New York, without regard to the principles of conflicts of law thereof; (vi) service of process will be effected in the manner and pursuant to the methods of the State of New York at the time such service is effected; and (vii) at the time of exercise of the Pre-Funded Warrants and the Common Warrants, a sufficient number of Ordinary Shares that have been reserved by the Company’s board of directors or a duly authorized committee thereof will be authorized and available for issuance and that the consideration for the issuance and sale of the Ordinary Shares in connection with such exercise is in an amount that is not less than the par value of such Ordinary Shares.
The opinions are limited to (a) the federal laws of the United States of America and (b) the laws of the State of New York that, in either case and based on our experience, are applicable to transactions of the type contemplated by the Underwriting Agreement, the Pre-Funded Warrants, and the Common Warrants. We are members of the Bar of the State of New York. We do not hold ourselves out as being conversant with, or expressing any opinion with respect to, the laws of any jurisdiction other than the federal laws of the United States of America and the laws of the State of New York. Accordingly, the opinions expressed herein are expressly limited to the federal laws of the United States of America and the laws of the State of New York.
Except as expressly set forth in this opinion letter, we are not opining on specialized laws that are not customarily covered in opinion letters of this kind, such as tax, insolvency, antitrust, pension, employee benefit, environmental, intellectual property, banking, consumer lending, insurance, labor, health and safety, anti-money laundering, anti-terrorism, and state securities laws, or on the rules of any self-regulatory organization, securities exchange, contract market, clearing organization, or other platform, vehicle, or market for trading, processing, clearing, or reporting transactions. We are not opining on any other law or the law of any other jurisdiction, including any foreign jurisdiction or any county, municipality, or other political subdivision or local governmental agency or authority.
Based upon and subject to the foregoing, we are of the opinion that (i) when the Pre-Funded Warrants included in the Units have been duly executed and delivered by the Company against payment of the consideration therefor pursuant to the Underwriting Agreement, such Pre-Funded Warrants will constitute binding obligations of the Company, enforceable against the Company in accordance with their terms; and (ii) when the Common Warrants included in the Units have been duly executed and delivered by the Company against payment of the consideration therefor pursuant to the Underwriting Agreement, such Common Warrants will constitute binding obligations of the Company, enforceable against the Company in accordance with their terms.
Our opinions set forth above with respect to the validity or binding effect of any security or obligation may be limited by (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, marshaling, moratorium or other similar laws affecting the enforcement generally of the rights and remedies of creditors and secured parties or the obligations of debtors, (ii) general principles of equity (whether considered in a proceeding in equity or at law), including, but not limited to, principles limiting the availability of specific performance or injunctive relief, and concepts of materiality, reasonableness, good faith and fair dealing, (iii) the possible unenforceability under certain circumstances of provisions providing for indemnification, contribution, exculpation, release or waiver that may be contrary to public policy or violative of federal or state securities laws, rules or regulations, and (iv) the effect of course of dealing, course of performance, oral agreements or the like that would modify the terms of an agreement or the respective rights or obligations of the parties under an agreement.
This opinion letter speaks only as of the date hereof and we assume no obligation to update or supplement this opinion letter if any applicable laws change after the date of this opinion letter or if we become aware after the date of this opinion letter of any facts, whether existing before or arising after the date hereof, that might change the opinions expressed above.
This opinion letter is furnished in connection with the Registration Statement and may not be relied upon for any other purpose without our prior written consent in each instance. Further, no portion of this letter may be quoted, circulated or referred to in any other document for any other purpose without our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name as it appears under the caption “Legal Matters” in the Registration Statement. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission promulgated thereunder.
| Very truly yours, | |
| /s/ Pryor Cashman LLP | |
| Pryor Cashman LLP |
Exhibit 8.2
February 9, 2026
Blue Hat Interactive Entertainment Technology
|
7th Floor, Building C No. 1010 Anling Road, Huli District Xiamen, China 361009 |
People’s Republic of China
Ladies and Gentlemen:
We have acted as U.S. counsel to Blue Hat Interactive Entertainment Technology, a Cayman Islands exempted company (the “Company”), in connection with the Registration Statement on Form F-1 (the “Registration Statement”) filed by the Company with the U.S. Securities and Exchange Commission (the “Commission”) under the U.S. Securities Act of 1933, as amended, relating to the issuance by the Company of certain units, with each unit consisting of one ordinary share, par value US$ 0.0000001 per share (collectively, the “ordinary shares”), or one pre-funded warrant exercisable for one ordinary share, and one warrant initially exercisable for one ordinary share.
We have examined the Registration Statement (including the prospectus contained therein (the “Prospectus”)). In addition, we have examined, and have relied as to matters of fact upon, originals, or duplicates or certified or conformed copies, of such records, agreements, documents and other instruments and such certificates or comparable documents of public officials and of officers and representatives of the Company, and have made such other investigations as we have deemed relevant and necessary in connection with the opinion hereinafter set forth. In rendering the opinion set forth below, we have assumed the accuracy of the factual matters described in the Registration Statement. We have also assumed that all of the ordinary shares are validly issued and fully paid.
In rendering the opinion set forth below, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as duplicates or certified or conformed copies and the authenticity of the originals of such latter documents.
Based upon the foregoing, and subject to the qualifications, assumptions and limitations stated herein and in the Prospectus, we are of the opinion that the statements made in the Prospectus under the caption “Taxation — Material U.S. Federal Income Tax Considerations for U.S. Holders,” insofar as they purport to constitute summaries of certain provisions of U.S. federal income tax law and regulations or legal conclusions with respect thereto, constitutes accurate summaries of such matters in all material respects.
We note that, because the determination of the Company’s status as a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes is based on an annual determination that cannot be made until the close of a taxable year, and involves extensive factual investigation, we do not express any opinion herein with respect to the Company’s PFIC status in any taxable year.
We do not express any opinion herein concerning any law other than the U.S. federal income tax law.
We hereby consent to the filing of this opinion letter as Exhibit 8.2 to the Registration Statement.
| Very truly yours, | |
| /s/ Pryor Cashman LLP | |
| Pryor Cashman LLP |
EXHIBIT 10.30
LOCK-UP AGREEMENT
________, 2026
Maxim Group LLC,
acting as representative to the several underwriters:
Re: Underwriting Agreement, dated _______, 2026 (the “Underwriting Agreement”), by and between Blue Hat Interactive Entertainment Technology (the “Company”) and Maxim Group LLC, acting as representative (the “Representative”) of the several underwriters (collectively, the “Underwriters”)
Ladies and Gentlemen:
The undersigned irrevocably agrees with the Representative that, from the date hereof until six (6) months following the Closing Date (as defined in the Underwriting Agreement) (such period, the “Restriction Period”), the undersigned will not offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the undersigned or any Affiliate (as defined in the Underwriting Agreement) of the undersigned or any person in privity with the undersigned or any Affiliate of the undersigned), directly or indirectly, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to, any ordinary shares of the Company, par value $0.0000001 per share (the “Ordinary Shares”) or securities convertible, exchangeable or exercisable into, Ordinary Shares of the Company beneficially owned, held or hereafter acquired by the undersigned (the “Securities”). Beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. In order to enforce this covenant, the undersigned hereby authorizes the Company to impose irrevocable stop-transfer instructions preventing the transfer agent of the Company from effecting any actions in violation of this letter agreement. The Representative may consent to an early release from the Restriction Period if, in its sole and absolute discretion, the market for the Securities would not be adversely impacted by sales and in cases of financial emergency.
Notwithstanding anything herein to the contrary, if (1) the closing of the offering of the Securities has not occurred prior to ________, 2026, (2) the Company notifies the Representative in writing prior to the execution of the Underwriting Agreement that it does not intend to proceed with the offering of the Securities, or (3) the Underwriting Agreement (other than any provision thereof which is expressed to survive termination) shall terminate, this agreement shall be of no further force or effect and the undersigned shall be released from all restrictions hereunder.
Notwithstanding the foregoing, and subject to the conditions below, the undersigned may transfer the Securities, provided that the Company receives a signed lock-up letter agreement (in the form of this letter agreement) for the balance of the Restriction Period from each donee, trustee, distributee, or transferee, as the case may be, prior to such transfer,:
| i) | as a bona fide gift or gifts; |
| ii) | to any immediate family member or to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned (for purposes of this letter agreement, “immediate family” shall mean any relationship by blood, marriage or adoption, not more remote than first cousin); |
| iii) | to any corporation, partnership, limited liability company, or other business entity all of the equity holders of which consist of the undersigned and/or the immediate family of the undersigned; |
| iv) | if the undersigned is a corporation, partnership, limited liability company, trust or other business entity (a) to another corporation, partnership, limited liability company, trust or other business entity that is an Affiliate of the undersigned or (b) in the form of a distribution to limited partners, limited liability company members or shareholders of the undersigned; |
| v) | if the undersigned is a trust, to the beneficiary of such trust; |
| vi) | by will, other testamentary document or intestate succession to the legal representative, heir, beneficiary or a member of the immediate family of the undersigned; |
| vii) | by operation of law, such as pursuant to a qualified domestic order or in connection with a divorce settlement; or |
| viii) | to cover the payment of the exercise prices or the payment of taxes associated with the exercise or vesting of equity awards that were issued under any equity compensation plan of the Company; |
In addition, notwithstanding the foregoing, this letter agreement shall not restrict the delivery of Ordinary Shares to the undersigned upon (i) exercise any options granted under any employee benefit plan of the Company; provided that any Ordinary Shares or Securities acquired in connection with any such exercise will be subject to the restrictions set forth in this letter agreement, (ii) issuance in connection with the transaction consummated under agreements for the purchase of gold or (iii) the exercise, conversion, or exchange of outstanding securities of the Company; provided that such Ordinary Shares delivered to the undersigned in connection with such exercise, conversion or exchange are subject to the restrictions set forth in this letter agreement.
The undersigned acknowledges that the execution, delivery and performance of this letter agreement is a material inducement to each Underwriter to perform under the Underwriting Agreement and that each Underwriter (which shall be a third party beneficiary of this letter agreement) shall be entitled to specific performance of the undersigned’s obligations hereunder. The undersigned hereby represents that the undersigned has the power and authority to execute, deliver and perform this letter agreement, that the undersigned has received adequate consideration therefor and that the undersigned will indirectly benefit from the closing of the transactions contemplated by the Underwriting Agreement.
This letter agreement may not be amended or otherwise modified in any respect without the written consent of each of the Representative and the undersigned. This letter agreement shall be construed and enforced in accordance with the laws of the State of New York without regard to the principles of conflict of laws. The undersigned hereby irrevocably submits to the exclusive jurisdiction of the United States District Court sitting in the Southern District of New York and the courts of the State of New York located in Manhattan, for the purposes of any suit, action or proceeding arising out of or relating to this letter agreement, and hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that (i) it is not personally subject to the jurisdiction of such court, (ii) the suit, action or proceeding is brought in an inconvenient forum, or (iii) the venue of the suit, action or proceeding is improper. The undersigned hereby irrevocably waives personal service of process and, to the extent permitted by law, consents to process being served in any such suit, action or proceeding by receiving a copy thereof sent to the Company at the address in effect for notices to it under the Underwriting Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. The undersigned hereby waives any right to a trial by jury. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. The undersigned agrees and understands that this letter agreement does not intend to create any relationship between the undersigned and each Underwriter and that no issuance or sale of the Securities is created or intended by virtue of this letter agreement.
This letter agreement shall be binding on successors and assigns of the undersigned with respect to the Securities and any such successor or assign shall enter into a similar agreement for the benefit of the Underwriters. This letter agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provisions hereof be enforced by, any other person.
*** SIGNATURE PAGE FOLLOWS***
This letter agreement may be executed in two or more counterparts, all of which when taken together may be considered one and the same agreement.
| Signature | |
| Print Name | |
| Position in Company, if any | |
| Address for Notice: | |
| Blue Hat Interactive Entertainment Technology | ||
| Name: | ||
| Title: | ||
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the inclusion in this Registration Statement on Form F-1 of our report dated April 30, 2025, relating to the consolidated financial statements of Blue Hat Interactive Entertainment Technology and subsidiaries (the “Company”).
We also consent to the reference to our firm under the heading “Experts” in such Registration Statement.
/s/ OneStop Assurance PAC
Singapore
February 9, 2026
EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the inclusion in this Registration Statement on Form F-1 of our report dated May 8, 2023, relating to the consolidated financial statements of Blue Hat Interactive Entertainment Technology and subsidiaries (the “Company”).
We also consent to the reference to our firm under the heading “Experts” in the Registration Statement.
/s/ Audit Alliance LLP
Singapore
February 9, 2026