SEC Company Response from UMeWorld Inc. (UMEW) (CIK 0001114936) (UMEW) — Nov 3, 2022
UMeWorld Inc. (UMEW) (CIK 0001114936)
Date: Nov. 3, 2022 · CIK: 0001114936 · Accession: 0001477932-22-008138
AI Filing Summary & Sentiment
File numbers found in text: 000-30813
Referenced dates: September 20, 2022
Letter
VIA EDGAR Division of Corporation Finance Office of Technology Securities and Exchange Commission UMeWorld Limited Amended Form 20-F for the year ended September 30, 2021 Filed February 17, 2022 File No. 000-30813
Dear Mr. Kempf and Ms. Kessman;
This letter is being furnished in response to the comments of the staff (the “Staff”) of the Division of Corporation Finance of the Securities and Exchange Commission that were contained in the Staff’s letter dated September 20, 2022 to UMeWorld Limited with respect to the Amended Form 20-F for the Fiscal Year Ended September 30, 2021.
Amended Form 20-F Filed on February 17, 2022
Cover Page
In response to the Staff’s comments 1, 2, 3 & 4, the Company proposes to revise its disclosure as follows:
UMeWorld Limited (“UMeWorld BVI”) is not a Chinese operating company, but rather a holding company incorporated in the British Virgin Islands. “XinYiXun” or the “VIE” shall hereinafter refer to Guangzhou XinYiXun Network Technology Co. Ltd., a company organized under the laws of the PRC and the operating entity, which has entered into a series of variable interest entity agreements (the “VIE Agreements”) with WFOE (as defined below), an indirect subsidiary of UMeWorld BVI. “UMeLook Hong Kong” shall hereinafter refer to UMeLook Limited, a company formed under the laws of Hong Kong and a wholly-owned subsidiary of UMeWorld BVI. “WFOE” shall hereinafter refer to UMeLook (Guangzhou) Information Technology Co. Ltd., a Chinese company and wholly-owned subsidiary of UMeLook Hong Kong. “We,” the “Company” or the “Group” shall refer to the group of UMeWorld BVI, UMeLook Hong Kong, XinYiXun and the WFOE. The “Affiliated Entities” shall refer to UMeLook Hong Kong, WFOE, and XinYiXun.
As a holding company with no material operations of its own, UMeWorld BVI conducts substantially all of its operations through XinYiXun, the operating entity established in the PRC, which has entered into the VIE Agreements with WFOE. Neither UMeWorld BVI nor its subsidiaries own any share in XinYiXun, which is hereinafter referred to as the “VIE.” The contractual arrangements with respect to the VIE and WFOE are not equivalent to an equity ownership in the business of the VIE and the holders of our Ordinary Shares may never hold equity interests in XinYiXun unless the VIE Agreements are replaced with the direct ownership of XinYiXun by the WFOE. Instead, for accounting purposes, UMeWorld BVI is the primary beneficiary of XinYiXun’s business operations through the VIE Agreements, which enables us to consolidate the financial results of the VIE in our consolidated financial statements under U.S. GAAP. We have evaluated the guidance in Financial Accounting Standards Board Accounting Standards Codification 810 and determined that we are regarded as the primary beneficiary of the VIE for accounting purposes, as a result of our direct ownership in the WFOE and the provisions of the VIE Agreements. The VIE Agreements or the contractual structure is used to provide non-Chinese investors with exposure to foreign investment in China-based companies where Chinese laws impose certain restrictions on foreign ownership over such companies of certain categories. Consequently, the Company consolidates the accounts of VIE for the periods presented. Any references to control or benefits that accrue to UMeWorld BVI because of the VIE Agreements are limited to, and subject to conditions we have satisfied for consolidation of the VIE under U.S. GAAP. The VIE is consolidated for accounting purposes but is not an entity in which UMeWorld BVI owns equity. UMeWorld BVI does not conduct any active operations and is the primary beneficiary of the VIE for accounting purposes only.
In addition, the contractual agreements with the VIE have not been tested in court in China and this structure involves unique risks to investors. For example, the PRC government could disallow the VIE Arrangements, which would likely result in a material change in the Group’s operations and structure and significant change in the value of our securities, including it could cause the value of such securities to significantly decline or become worthless. See “Risk Factors—Risks Relating to Doing Business in China.”
Our Ordinary Shares are shares of the company incorporated in British Virgin Islands, not the shares of the operating entities. Because of the Group’s corporate structure, the Company or Group is subject to the risks due to uncertainty of the interpretation and the application of the PRC laws and regulations. For a description of our corporate structure and VIE contractual arrangements, see “Information of The Company – Organizational Structure” and also “Risk Factors - Risks Related to Our Corporate Structure.”
As we conduct substantially all of the operations in mainland China, we are subject to legal and operational risks associated with having substantially all of the operations in mainland China, including risks related to the legal, political and economic policies of the Chinese government, the relations between China and the United States, and changes in Chinese laws and regulations, which could result in a material change in the operations and/or cause the value of our ordinary shares to significantly decline or become worthless and affect our ability to offer or continue to offer securities to investors. Recently, the PRC government initiated a series of regulatory actions and made a number of public statements on the regulation of business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas, adopting new measures to extend the scope of cybersecurity reviews, and expanding efforts in anti-monopoly enforcement. On December 28, 2021, thirteen governmental departments of the PRC, including the Cyberspace Administration of China (the “CAC”), issued the Cybersecurity Review Measures, which became effective on February 15, 2022. The Cybersecurity Review Measures provide that an online platform operator, which possesses 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. Because the current operations do not possess personal information from more than one million users at this moment, we do not believe that we are subject to the cybersecurity review by the CAC. In addition, as of the date of this report, we have not been involved in any investigations on cybersecurity review initiated by any PRC regulatory authority, nor have we received any inquiry, notice, or sanction related to cybersecurity review under the Cybersecurity Review Measures. As of the date of this report, no relevant laws or regulations in the PRC explicitly require us to seek approval from the China Securities Regulatory Commission (the “CSRC”) or any other PRC governmental authorities for our overseas listing plan, nor have we (including any of our subsidiaries or the VIE) received any inquiry, notice, warning or sanctions regarding our planned overseas listing from the CSRC or any other PRC governmental authorities. In summary, the recent statements and regulatory actions by China’s government related to the use of variable interest entities and data security or antimonopoly concerns, have not affected our ability to conduct the business, accept foreign investments, or list on a U.S. or other foreign exchange. However, since these statements and regulatory actions by the PRC government are newly published and official guidance and related implementation rules have not been issued, it is highly uncertain what the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on a U.S. or non-Chinese exchange. The Standing Committee of the National People’s Congress (the “SCNPC”) or other PRC regulatory authorities may in the future promulgate laws, regulations or implementing rules that would require XinYiXun, UMeWorld BVI or any subsidiaries to obtain regulatory approval from Chinese authorities before listing in the U.S. See “Risk Factors - Risks Relating to Doing Business in China.”
In addition, UMeLook Hong Kong may transfer funds within our corporate group in the future. We think that the legal and operational risks associated with operating in mainland China also may apply to UMeLook Hong Kong’s future limited activities in Hong Kong, to the extent applicable to the transfers of funds in Hong Kong, if Hong Kong adopts certain rules, regulations or policy guidance with respect to currency exchange control. We believe, without in reliance on the opinion of Hong Kong legal counsel, that any regulatory actions related to data security or anti-monopoly concerns in Hong Kong may have very minimum impact or no impact at all on the Company’s ability to conduct its business, accept foreign investments, or list on a U.S. or foreign exchange because we currently do not and do not plan to have any substantive operations, including any data-related operations, in Hong Kong and UMeLook Hong Kong, our only subsidiary in Hong Kong, currently has no operations and is expected to have the sole function of transferring funds within the corporate group in the future without playing any other roles in Hong Kong. See “Risk Factors - Risks Relating to Doing Business in China.”
Under our current corporate structure, to fund any cash and financing requirements UMeWorld BVI may have, UMeWorld BVI may rely on dividend payments from its subsidiaries. Furthermore, none of UMeWorld BVI, its subsidiaries, or the VIE has distributed any earnings or settled any amounts owed under the VIE Agreements, and nor does any of them have any plan to distribute earnings or settle amounts owed under the VIE Agreements in the foreseeable future. Additionally, the transfer of funds and assets between UMeWorld BVI and the Affiliated Entities is subject to restrictions. The PRC government imposes controls on the conversion of the RMB into foreign currencies and the remittance of currencies out of the PRC. XinYiXun, the PRC operating entity, receives substantially all of its revenue in RMB. As such we may convert a portion of XinYiXun’s revenue into other currencies to meet the foreign currency obligations, such as payments of dividends, if any. Shortages in the availability of foreign currency may restrict the ability of XinYiXun to remit sufficient foreign currency to pay dividends or other payments to UMeWorld BVI. However, there is no assurance that the Chinese government will not, in the future, intervene or impose further restrictions or limitations on XinYiXun’s ability to transfer cash out of mainland China and Hong Kong. See “Risk Factors - Risks Relating to Doing Business in China.” As of the date of this report, none of UMeWorld BVI’s subsidiaries or the VIE have made any dividends or distributions to UMeWorld BVI and UMeWorld BVI has made any dividends or distributions to its shareholders. We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future. If UMeWorld BVI determines to pay dividends on any of its Ordinary Shares in the future, as a holding company, it will be dependent on receipt of funds from UMeLook Hong Kong. UMeLook Hong Kong will rely on payments made from the WFOE and XinYiXun pursuant to the VIE Agreements. As of the date of this report, no cash transfer or transfer of other assets has occurred between UMeWorld Limited, any of its subsidiaries, and the VIE. As of the date of this report, none of UMeWorld BVI, its subsidiaries, or the VIE has a cash management policy.
Our Ordinary Shares may be prohibited from trading on a national exchange or “over-the-counter” markets under the HFCAA if the PCAOB determines it is unable to inspect or investigate completely our auditors for three consecutive years beginning in 2021. Further, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (“AHFCAA”) and on February 4, 2022, the U.S. House of Representatives passed the America Creating Opportunities for Manufacturing Pre-Eminence in Technology and Economic Strength (COMPETES) Act of 2022, or the COMPETES Act. If either the AHFCAA or COMPETES Act is enacted into law, it would amend the HFCAA and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections or complete investigations for two consecutive years instead of three.
Pursuant to the HFCAA, the PCAOB issued a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China and (2) Hong Kong. In addition, the PCAOB’s report identified the specific registered public accounting firms which are subject to these determinations. Since our participating auditor, HKCM CPA & Co. is located in Hong Kong, a jurisdiction where the PCAOB found it has been unable to inspect or investigate completely the audit work by auditors because of a position taken by the authorities in Hong Kong, which may impact our ability to remain listed on a United States or other foreign exchange. The related risks and uncertainties could cause the value of our shares to significantly decline. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PCAOB is currently unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections or investigation completely over our auditor deprives our investors with the benefits of such inspections” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our ordinary shares will be prohibited from trading in the United States under the HFCAA in 2024 if the PCAOB is unable to inspect or fully investigate auditors located in China, or as early as 2023 if proposed changes to the law are enacted. The delisting of our ordinary shares, or the threat of their being delisted, may materially and adversely affect the value of your investment.”
Page 36 Liquidity and Capital Resources
We are a holding company incorporated in the British Virgin Islands. We may need dividends and other distributions on equity from our PRC subsidiaries to satisfy our liquidity requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us.
Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries may also allocate a portion of their respective 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. These limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our abil
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CORRESP 1 filename1.htm umewf_corresp.htmNovember 3, 2022 VIA EDGAR Mr. Joseph Kempf Ms. Inessa Kessman Division of Corporation Finance Office of Technology Securities and Exchange Commission 100 F Street, NE, Washington, D.C. 20549 Re: UMeWorld Limited Amended Form 20-F for the year ended September 30, 2021 Filed February 17, 2022 File No. 000-30813 Dear Mr. Kempf and Ms. Kessman; This letter is being furnished in response to the comments of the staff (the “Staff”) of the Division of Corporation Finance of the Securities and Exchange Commission that were contained in the Staff’s letter dated September 20, 2022 to UMeWorld Limited with respect to the Amended Form 20-F for the Fiscal Year Ended September 30, 2021. Amended Form 20-F Filed on February 17, 2022 Cover Page In response to the Staff’s comments 1, 2, 3 & 4, the Company proposes to revise its disclosure as follows: UMeWorld Limited (“UMeWorld BVI”) is not a Chinese operating company, but rather a holding company incorporated in the British Virgin Islands. “XinYiXun” or the “VIE” shall hereinafter refer to Guangzhou XinYiXun Network Technology Co. Ltd., a company organized under the laws of the PRC and the operating entity, which has entered into a series of variable interest entity agreements (the “VIE Agreements”) with WFOE (as defined below), an indirect subsidiary of UMeWorld BVI. “UMeLook Hong Kong” shall hereinafter refer to UMeLook Limited, a company formed under the laws of Hong Kong and a wholly-owned subsidiary of UMeWorld BVI. “WFOE” shall hereinafter refer to UMeLook (Guangzhou) Information Technology Co. Ltd., a Chinese company and wholly-owned subsidiary of UMeLook Hong Kong. “We,” the “Company” or the “Group” shall refer to the group of UMeWorld BVI, UMeLook Hong Kong, XinYiXun and the WFOE. The “Affiliated Entities” shall refer to UMeLook Hong Kong, WFOE, and XinYiXun. As a holding company with no material operations of its own, UMeWorld BVI conducts substantially all of its operations through XinYiXun, the operating entity established in the PRC, which has entered into the VIE Agreements with WFOE. Neither UMeWorld BVI nor its subsidiaries own any share in XinYiXun, which is hereinafter referred to as the “VIE.” The contractual arrangements with respect to the VIE and WFOE are not equivalent to an equity ownership in the business of the VIE and the holders of our Ordinary Shares may never hold equity interests in XinYiXun unless the VIE Agreements are replaced with the direct ownership of XinYiXun by the WFOE. Instead, for accounting purposes, UMeWorld BVI is the primary beneficiary of XinYiXun’s business operations through the VIE Agreements, which enables us to consolidate the financial results of the VIE in our consolidated financial statements under U.S. GAAP. We have evaluated the guidance in Financial Accounting Standards Board Accounting Standards Codification 810 and determined that we are regarded as the primary beneficiary of the VIE for accounting purposes, as a result of our direct ownership in the WFOE and the provisions of the VIE Agreements. The VIE Agreements or the contractual structure is used to provide non-Chinese investors with exposure to foreign investment in China-based companies where Chinese laws impose certain restrictions on foreign ownership over such companies of certain categories. Consequently, the Company consolidates the accounts of VIE for the periods presented. Any references to control or benefits that accrue to UMeWorld BVI because of the VIE Agreements are limited to, and subject to conditions we have satisfied for consolidation of the VIE under U.S. GAAP. The VIE is consolidated for accounting purposes but is not an entity in which UMeWorld BVI owns equity. UMeWorld BVI does not conduct any active operations and is the primary beneficiary of the VIE for accounting purposes only. In addition, the contractual agreements with the VIE have not been tested in court in China and this structure involves unique risks to investors. For example, the PRC government could disallow the VIE Arrangements, which would likely result in a material change in the Group’s operations and structure and significant change in the value of our securities, including it could cause the value of such securities to significantly decline or become worthless. See “Risk Factors—Risks Relating to Doing Business in China.” Our Ordinary Shares are shares of the company incorporated in British Virgin Islands, not the shares of the operating entities. Because of the Group’s corporate structure, the Company or Group is subject to the risks due to uncertainty of the interpretation and the application of the PRC laws and regulations. For a description of our corporate structure and VIE contractual arrangements, see “Information of The Company – Organizational Structure” and also “Risk Factors - Risks Related to Our Corporate Structure.” As we conduct substantially all of the operations in mainland China, we are subject to legal and operational risks associated with having substantially all of the operations in mainland China, including risks related to the legal, political and economic policies of the Chinese government, the relations between China and the United States, and changes in Chinese laws and regulations, which could result in a material change in the operations and/or cause the value of our ordinary shares to significantly decline or become worthless and affect our ability to offer or continue to offer securities to investors. Recently, the PRC government initiated a series of regulatory actions and made a number of public statements on the regulation of business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas, adopting new measures to extend the scope of cybersecurity reviews, and expanding efforts in anti-monopoly enforcement. On December 28, 2021, thirteen governmental departments of the PRC, including the Cyberspace Administration of China (the “CAC”), issued the Cybersecurity Review Measures, which became effective on February 15, 2022. The Cybersecurity Review Measures provide that an online platform operator, which possesses 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. Because the current operations do not possess personal information from more than one million users at this moment, we do not believe that we are subject to the cybersecurity review by the CAC. In addition, as of the date of this report, we have not been involved in any investigations on cybersecurity review initiated by any PRC regulatory authority, nor have we received any inquiry, notice, or sanction related to cybersecurity review under the Cybersecurity Review Measures. As of the date of this report, no relevant laws or regulations in the PRC explicitly require us to seek approval from the China Securities Regulatory Commission (the “CSRC”) or any other PRC governmental authorities for our overseas listing plan, nor have we (including any of our subsidiaries or the VIE) received any inquiry, notice, warning or sanctions regarding our planned overseas listing from the CSRC or any other PRC governmental authorities. In summary, the recent statements and regulatory actions by China’s government related to the use of variable interest entities and data security or antimonopoly concerns, have not affected our ability to conduct the business, accept foreign investments, or list on a U.S. or other foreign exchange. However, since these statements and regulatory actions by the PRC government are newly published and official guidance and related implementation rules have not been issued, it is highly uncertain what the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on a U.S. or non-Chinese exchange. The Standing Committee of the National People’s Congress (the “SCNPC”) or other PRC regulatory authorities may in the future promulgate laws, regulations or implementing rules that would require XinYiXun, UMeWorld BVI or any subsidiaries to obtain regulatory approval from Chinese authorities before listing in the U.S. See “Risk Factors - Risks Relating to Doing Business in China.” In addition, UMeLook Hong Kong may transfer funds within our corporate group in the future. We think that the legal and operational risks associated with operating in mainland China also may apply to UMeLook Hong Kong’s future limited activities in Hong Kong, to the extent applicable to the transfers of funds in Hong Kong, if Hong Kong adopts certain rules, regulations or policy guidance with respect to currency exchange control. We believe, without in reliance on the opinion of Hong Kong legal counsel, that any regulatory actions related to data security or anti-monopoly concerns in Hong Kong may have very minimum impact or no impact at all on the Company’s ability to conduct its business, accept foreign investments, or list on a U.S. or foreign exchange because we currently do not and do not plan to have any substantive operations, including any data-related operations, in Hong Kong and UMeLook Hong Kong, our only subsidiary in Hong Kong, currently has no operations and is expected to have the sole function of transferring funds within the corporate group in the future without playing any other roles in Hong Kong. See “Risk Factors - Risks Relating to Doing Business in China.” 2 Under our current corporate structure, to fund any cash and financing requirements UMeWorld BVI may have, UMeWorld BVI may rely on dividend payments from its subsidiaries. Furthermore, none of UMeWorld BVI, its subsidiaries, or the VIE has distributed any earnings or settled any amounts owed under the VIE Agreements, and nor does any of them have any plan to distribute earnings or settle amounts owed under the VIE Agreements in the foreseeable future. Additionally, the transfer of funds and assets between UMeWorld BVI and the Affiliated Entities is subject to restrictions. The PRC government imposes controls on the conversion of the RMB into foreign currencies and the remittance of currencies out of the PRC. XinYiXun, the PRC operating entity, receives substantially all of its revenue in RMB. As such we may convert a portion of XinYiXun’s revenue into other currencies to meet the foreign currency obligations, such as payments of dividends, if any. Shortages in the availability of foreign currency may restrict the ability of XinYiXun to remit sufficient foreign currency to pay dividends or other payments to UMeWorld BVI. However, there is no assurance that the Chinese government will not, in the future, intervene or impose further restrictions or limitations on XinYiXun’s ability to transfer cash out of mainland China and Hong Kong. See “Risk Factors - Risks Relating to Doing Business in China.” As of the date of this report, none of UMeWorld BVI’s subsidiaries or the VIE have made any dividends or distributions to UMeWorld BVI and UMeWorld BVI has made any dividends or distributions to its shareholders. We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future. If UMeWorld BVI determines to pay dividends on any of its Ordinary Shares in the future, as a holding company, it will be dependent on receipt of funds from UMeLook Hong Kong. UMeLook Hong Kong will rely on payments made from the WFOE and XinYiXun pursuant to the VIE Agreements. As of the date of this report, no cash transfer or transfer of other assets has occurred between UMeWorld Limited, any of its subsidiaries, and the VIE. As of the date of this report, none of UMeWorld BVI, its subsidiaries, or the VIE has a cash management policy. Our Ordinary Shares may be prohibited from trading on a national exchange or “over-the-counter” markets under the HFCAA if the PCAOB determines it is unable to inspect or investigate completely our auditors for three consecutive years beginning in 2021. Further, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (“AHFCAA”) and on February 4, 2022, the U.S. House of Representatives passed the America Creating Opportunities for Manufacturing Pre-Eminence in Technology and Economic Strength (COMPETES) Act of 2022, or the COMPETES Act. If either the AHFCAA or COMPETES Act is enacted into law, it would amend the HFCAA and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections or complete investigations for two consecutive years instead of three. Pursuant to the HFCAA, the PCAOB issued a Determination Report on December 16, 2021 which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China and (2) Hong Kong. In addition, the PCAOB’s report identified the specific registered public accounting firms which are subject to these determinations. Since our participating auditor, HKCM CPA & Co. is located in Hong Kong, a jurisdiction where the PCAOB found it has been unable to inspect or investigate completely the audit work by auditors because of a position taken by the authorities in Hong Kong, which may impact our ability to remain listed on a United States or other foreign exchange. The related risks and uncertainties could cause the value of our shares to significantly decline. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PCAOB is currently unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections or investigation completely over our auditor deprives our investors with the benefits of such inspections” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our ordinary shares will be prohibited from trading in the United States under the HFCAA in 2024 if the PCAOB is unable to inspect or fully investigate auditors located in China, or as early as 2023 if proposed changes to the law are enacted. The delisting of our ordinary shares, or the threat of their being delisted, may materially and adversely affect the value of your investment.” 3 Page 36 Liquidity and Capital Resources We are a holding company incorporated in the British Virgin Islands. We may need dividends and other distributions on equity from our PRC subsidiaries to satisfy our liquidity requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. Current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries may also allocate a portion of their respective 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. These limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our abil