As filed with the Securities and Exchange
Commission on September 1, 2023
Registration No. 333-272274
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 1 to
Form F-1
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
MERCURITY FINTECH HOLDING INC.
(Exact name of registrant as specified in its
charter)
Cayman
Islands |
|
6199 |
|
Not
Applicable |
(State or other jurisdiction
of
incorporation or organization) |
|
(Primary Standard Industrial
Classification Code Number) |
|
(I.R.S. Employer
Identification Number) |
Shi Qiu
Chief Executive Officer
1330 Avenue of the Americas, Fl 33,
New York, NY 10019
Tel: +1(949)-678-9653
|
(Address, including zip
code, and telephone number, |
including area code,
of registrant’s principal executive offices) |
Cogency Global
Inc.
122 East 42nd Street,
18th Floor
New York, NY 10168
(212) 947-7200
(Name, address,
including zip code, and telephone number, including area code, of agent for service)
Copies to:
Huan
Lou, Esq. |
Sichenzia Ross Ference LLP
1185 Avenue of the America, 31st Fl
New York, NY 10036
Telephone: +1-212-930-9700 |
Approximate
date of commencement of proposed sale to the public: As soon as practicable after the effective date hereof.
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. x
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 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 which
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 said 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 Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
PRELIMINARY
PROSPECTUS |
SUBJECT
TO COMPLETION |
DATED
SEPTEMBER 1, 2023 |
32,087,130 ordinary shares
Mercurity Fintech Holding Inc.
This prospectus relates to
the resale by the selling shareholders identified in this prospectus of up to 32,087,130 ordinary shares, par value US$0.004 per share,
as further described below under “Prospectus Summary—Private Placements.”
The selling shareholders
are identified in the table commencing on page 13. No ordinary shares are being registered hereunder for sale by us. We will not
receive any proceeds from the sale of the ordinary shares by the selling shareholders. All net proceeds from the sale of the ordinary
shares covered by this prospectus will go to the selling shareholders (see “Use of Proceeds”). The selling shareholders
are offering their securities in order to create a public trading market for our equity securities in the United States. Unlike an initial
public offering, any sale by the selling shareholders of the ordinary shares is not being underwritten by any investment bank. The selling
shareholders may sell all or a portion of the ordinary shares from time to time in market transactions through any market on which our
ordinary shares are then traded, in negotiated transactions or otherwise, and at prices and on terms that will be determined by the then
prevailing market price or at negotiated prices directly or through a broker or brokers, who may act as agent or as principal or by a
combination of such methods of sale (see “Plan of Distribution”).
Our ordinary shares currently
trade on the Nasdaq Capital Market, or NASDAQ, under the symbol “MFH.” The last reported closing price of our ordinary shares
on August 29, 2023 was $1.48.
We are not a “controlled
company” as defined under the Nasdaq Listing Rules, but we qualify as a “foreign private issuer”, as defined in Rule 405
under the U.S. Securities Act of 1933, as amended, or the Securities Act, and are eligible for reduced public company reporting requirements.
Mercurity Fintech Holding
Inc. or “MFH Cayman” is not a Chinese operating company but a Cayman Islands holding company with our operations conducted
through our U.S., Hong Kong and PRC subsidiaries. Under this holding company structure, investors are purchasing equity interests in
MFH Cayman, a Cayman Islands holding company, and obtaining indirect ownership interests in our U.S., Hong Kong and Chinese operating
companies. PRC regulatory authorities could decide to limit foreign ownership in our industry in the future, in which case there could
be a risk that we would be unable to do business in China as we are currently structured. In such event, despite our efforts to restructure
to comply with the then applicable PRC laws and regulations in order to continue our operations in China, we may experience material
changes in our business and results of operations, our attempts may prove to be futile due to factors beyond our control, and the value
of the ordinary shares you invest in may significantly decline or become worthless.
Prior to 2022, the majority
of our operations were based in mainland China. During 2022, we divested our software development business in mainland China, established
a new management team, and relocated our headquarters to the United States with the newly established Hong Kong office as the operational
hub for our business in the Asia Pacific region. As a result of the recent operational reorganization, the majority of our operations
are currently based in the U.S. while part of our technical and back-office team in mainland China.
To certain extent, we
are subject to legal and operational risks associated with having part of our 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. 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. We do
not believe that we are subject to the cybersecurity review by the CAC. In addition, as of the date of this prospectus, 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 prospectus, 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 or securities offering plan, nor have we (including any of our subsidiaries)
received any inquiry, notice, warning or sanctions regarding our planned offering of securities from the CSRC or any other PRC governmental
authorities. Also, as of the date of this prospectus, we do not believe we are in a monopolistic position in the industry in which we
operate. 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 remains uncertain what the potential impact such modified or new laws and regulations
will have on our daily business operations. 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 our
Chinese subsidiaries to obtain regulatory approval from Chinese authorities before future offerings of securities in the U.S. These risks
could result in a material change in our operations in China and potentially the value of our securities being registered herein for
sale. The CSRC regulatory risks could significantly limit or completely hinder our ability to offer or continue to offer securities to
investors and cause the value of such securities to significantly decline or be worthless.
In addition, our Ordinary
Shares may be prohibited from trading on a national exchange or over-the-counter market under the Holding Foreign Companies Accountable
Act (the “HFCA Act”) if the Public Company Accounting Oversight Board (United States) (the “PCAOB”) is unable
to inspect our auditors for three consecutive years. In addition, on June 22, 2021, the U.S. Senate passed the Accelerating Holding
Foreign Companies Accountable Act (the “AHFCAA”), which was signed into law on December 29, 2022, reducing the period
of time for foreign companies to comply with the PCAOB audits to two consecutive years instead of three, thus reducing the time period
for triggering the prohibition on trading. Pursuant to the HFCA Act, 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: (i) Mainland
China of the PRC, and (ii) Hong Kong; and such report identified the specific registered public accounting firms which are subject
to these determinations. On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and China’s Ministry of
Finance (the “PRC MOF”) in respect of cooperation on the oversight of PCAOB-registered public accounting firms based in Mainland
China and Hong Kong. Pursuant to the Statement of Protocol, the PCAOB conducted inspections on select registered public accounting firms
subject to the Determination Report in Hong Kong between September 2022 and November 2022. On December 15, 2022, the PCAOB
issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions
where it is unable to inspect or investigate completely registered public accounting firms. Each year, the PCAOB will determine whether
it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines
in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong
and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed
with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for
the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future
fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the
HFCAA. Our auditor, Onestop Assurance PAC, is headquartered in Singapore, and has been inspected by the PCAOB on a regular basis. Our
auditor is not headquartered in Mainland China or Hong Kong and was not identified in the Determination Report as a firm subject to the
PCAOB’s determinations.
Remittance of dividends by
a wholly foreign-owned company out of China is subject to examination by the banks designated by SAFE. Our PRC subsidiary has not paid
dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve
funds. For PRC and United States federal income tax considerations in connection with an investment in our shares, see “Taxation.”
Under our current corporate
structure, to fund any liquidity requirements an entity in our corporate group may have, a subsidiary may rely on loans or payments from
MFH Cayman and MFH Cayman may receive distributions or cash transfers from our subsidiaries. Additionally, the transfer of funds and
assets between MFH Cayman and its subsidiaries is not subject to any Chinese currency exchange restrictions. As of the date of this prospectus,
during the past two completed fiscal years, none of our subsidiaries has made any dividends or distributions to MFH Cayman and neither
has MFH Cayman made any dividends or distributions to its shareholders or subsidiaries. We intend to keep any future earnings to finance
the expansion of our business, and we do not anticipate any cash dividends will be paid in the foreseeable future. If MFH Cayman determines
to pay dividends on any of its ordinary shares in the future, as a holding company, it may derive funds for such distribution from its
own cash position or contributions from its subsidiaries. During the past three completed fiscal years, some transfers of non-cash assets
occurred between MFH Cayman and its subsidiaries, in which MFH Cayman repaid the debts of its PRC subsidiary, MFH Cayman advanced expenses
for its Hong Kong subsidiary, MFH Cayman transferred fixed assets to MFH Tech and MFH Cayman collected money on behalf of certain other
subsidiaries. As of the date of this prospectus, neither MFH Cayman nor its subsidiaries had a cash management policy. See “The
Company–Cash Distribution” on page 9.
Investing
in our Ordinary Shares involves a high degree of risk, including the risk of losing your entire investment. See “Risk Factors”
starting on page 11 to read about the factors you should consider before buying the Ordinary Shares.
Neither the Securities
and Exchange Commission, or the SEC, nor any state or other foreign securities commission has approved nor disapproved these securities
or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2023
TABLE OF CONTENTS
You should rely only on
the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us or to which we have referred
you. Neither we nor any of the selling shareholders have authorized anyone to provide you with different information. Neither we nor
any of the selling shareholders are making an offer of these securities in any jurisdiction where the offer is not permitted. You should
not assume that the information in this prospectus or any applicable prospectus supplement is accurate as of any date other than the
date of the applicable document. Since the date of this prospectus, our business, financial condition, results of operations and prospects
may have changed.
For investors outside of
the United States: Neither we nor any of the selling shareholders have done anything that would permit this offering or possession or
distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are
required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.
In this prospectus, “we,”
“us,” “our,” and the “Company” refer to Mercurity Fintech Holding Inc. and its wholly owned subsidiaries,
Mercurity Fintech Technology Holding Inc., Mercurity Limited, Ucon Capital (HK) Limited, Beijing Lianji Future Technology Co., Ltd.
and Chaince Securities.
Our reporting currency is
the U.S. dollar. Unless otherwise expressly stated or the context otherwise requires, references in this prospectus to “dollars”
or “$” are to U.S. dollars.
This prospectus includes
statistical, market and industry data and forecasts which we obtained from publicly available information and independent industry publications
and reports that we believe to be reliable sources. These publicly available industry publications and reports generally state that they
obtain their information from sources that they believe to be reliable, but they do not guarantee the accuracy or completeness of the
information. Although we believe that these sources are reliable, we have not independently verified the information contained in such
publications.
Our
consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United
States of America, or U.S. GAAP.
The
number of ordinary shares currently issued and outstanding is 46,538,116 as of May 9, 2023. No new shares are being issued
by the Company pursuant to this offering.
ABOUT THIS PROSPECTUS
This prospectus describes
the general manner in which the selling shareholders identified in this prospectus may offer from time to time up to 32,087,130 ordinary
shares. If necessary, the specific manner in which the ordinary shares may be offered and sold will be described in a supplement to this
prospectus, which supplement may also add, update or change any of the information contained in this prospectus. To the extent there
is a conflict between the information contained in this prospectus and the prospectus supplement, you should rely on the information
in the prospectus supplement, provided that if any statement in one of these documents is inconsistent with a statement in another document
having a later date—for example, any prospectus supplement—the statement in the document having the later date modifies or
supersedes the earlier statement.
GLOSSARY OF DEFINED TERMS
In this prospectus, unless otherwise indicated or the context otherwise
requires, references to:
| · | “we,”
“us,”, “company”, “our company,” or “our”
refers to Mercurity Fintech Holding Inc. and its consolidated subsidiaries, including Mercurity
Fintech Technology Holding Inc., Mercurity Limited, Ucon Capital (HK) Limited, Beijing Lianji
Future Technology Co., Ltd. and Chaince Securities; |
| · | “MFH
Cayman” refers to Mercurity Fintech Holding Inc., the holding company of our group. |
| · | “MFH
Tech” refers to Mercurity Fintech Technology Holding Inc., a wholly-owned subsidiary
of MFH Cayman; |
| | |
| · | “Chaince
Securities” refers to Chaince Securities, Inc. |
| · | “Ucon”
refers to Ucon Capital (HK) Limited, a subsidiary of the Company; |
| · | “ordinary
shares” refer to our ordinary shares, par value US$0.004 per share; |
| · | “ADS”
refers to our American depositary shares, each of which represented 360 ordinary shares before
the mandatory exchange of the ADS for ordinary shares and removal of the ADR facility, effective
February 28, 2023; |
| · | “ADR”
refers to American depositary receipt, which was cancelled on February 28, 2023 upon
termination of the ADR facility; |
| · | “VIEs”
refers to (i) Mercurity (Beijing) Technology Co., Ltd, or Mercurity Beijing, and (ii) Beijing
Lianji Technology Co., Ltd., or Lianji, which, together with Mercurity Beijing, were
consolidated by us solely for accounting purposes as variable interest entities, and which
have ceased to be our consolidated entities, following the termination of our VIE structure
on January 15, 2022; |
| · | “Our
WFOE” or “Lianji Future” refers to Beijing Lianji Future Technology Co., Ltd.,
our subsidiary in China that is a wholly foreign-owned enterprise; |
| · | “China”
or “PRC” are to the People’s Republic of China, including Hong Kong and
Macau; however the only time such jurisdictions are not included in the definition of PRC
and China is when we reference to the specific laws that have been adopted by the PRC. The
same legal and operational risks associated with operations in China also apply to operations
in Hong Kong. The term “Chinese” has a correlative meaning for the purpose of
this prospectus; |
| · | “Renminbi”
or “RMB” refers to the legal currency of China; and |
| · | “$,”
“US$,” “dollar” or “U.S. dollar” refers to the legal
currency of the United States. |
PROSPECTUS SUMMARY
This summary highlights
information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing
in our securities. Before you decide to invest in our securities, you should read the entire prospectus carefully, including the “Risk
Factors” section and the financial statements and related notes appearing at the end of this prospectus.
Overview
Prior to July 2019,
we provided integrated B2B services to food service suppliers and customers in China. In May 2019, we acquired Mercurity Limited
and its subsidiaries and variable interest entity (“VIE”) to start blockchain technical services including developing digital
asset transaction platforms and other solutions based on blockchain technologies.
On July 22, 2019, we
divested our B2B services to food service suppliers and customers by selling all the issued and outstanding shares of New Admiral Limited,
or New Admiral, our former wholly-owned subsidiary operating the B2B business, to Marvel Billion Development Limited, or Marvel Billion.
After this divestment, we are no longer engaged in B2B services and our current principal business is focused on providing blockchain
technical services. We design and develop digital asset transaction platforms based on blockchain technologies for customers to facilitate
crypto asset trading and asset digitalization and provide supplemental services for such platforms, such as customized software development
services, maintenance services and compliance support services.
In March 2020, we acquired
NBpay Investment Limited and its subsidiaries and variable interest entity(“VIE”), a developer of asset transaction platform
products based on blockchain technologies, to advance the blockchain technical services business.
In August 2021, we added
cryptocurrency mining as one of our main businesses going forward. We entered into cryptocurrency mining pools by executing a business
contract with a collective mining service provider on October 22, 2021 to provide computing power to the mining pool and derived
USD$664,307 related revenue in 2021 and USD$783,089 related revenue in the first half of 2022.
Due to the extremely adverse
regulatory measures taken by the Chinese government in 2021 in the field of digital currency production and transaction, our board of
Directors decided on December 10, 2021 to divest the VIEs, which were the Chinese operating companies of the related business controlled
through VIE agreements, and the divestiture of such VIEs was completed on January 15, 2022.
In late February 2022,
Wei Zhu, our former acting Chief Financial Officer, former Co-Chief Executive Officer, and a former member and Co-Chairperson of the
Board, and Minghao Li, a former member of the Board, were suspected of certain criminal offenses unrelated to our company’s operations
and had been detained by the Economic Crime Investigation Detachment of Sheyang County Public Security Bureau, Yancheng City, Jiangsu
Province, People’s Republic of China. At the same time, Sheyang Public Security Bureau wrongly seized the digital assets hardware
cold wallet which belonged to the Company, along with the cryptocurrencies stored therein.
Due to the dismantling
of the VIEs and the cessation of all business related to the digital asset transaction platforms, the temporary difficulties we faced
by the aforementioned incident where our cryptocurrencies were seized and impounded, the departure of our original Chinese technical
team in the first half of 2022, and because we failed to rebuild the technical service team in the second half of 2022, our blockchain
technical services business did not generate any revenue in 2022.
In July 2022, we added
digital consultation services as one of our main businesses going forward, providing digital payment solutions, asset management, and
a continued expansion into online and traditional brokerage services.
On July 15, 2022,
we incorporated Mercurity Fintech Technology Holding Inc. (“MFH Tech”) to develop distributed computing and storage services
and digital consultation services. On August 23, 2022, MFH Tech signed a Consulting Agreement with a Chinese media company, pursuant
to which MFH Tech will serve as a business consultant in order to facilitate the Client to establish the entity in the United States
and make financing strategy, and derived USD$80,000 related revenue in 2022.
On December 15,
2022, we entered into an asset purchase agreement with Huangtong International Co., Ltd., providing for the acquisition and purchase
of Web3 decentralized storage infrastructure, including cryptocurrency mining servers, cables, and other electronic devices, for an aggregate
consideration of USD$5,980,000, payable in our ordinary shares. The investment is made with an aim to own mining machines capable of
gathering, processing, and storing vast amounts of data, to advance the cryptocurrency mining business, and to further solidify us as
a pioneer in the creation of the Web3 framework. On December 20, 2022, the assets began to be used for Filecoin mining operations
and derived USD$348 related revenue in 2022.
On January 10, 2023,
we entered into an asset purchase agreement with Jinhe Capital Limited, providing for the purchase of 5,000 Antminer S19 PRO Bitcoin
mining machines, for an aggregate consideration of USD$9,000,000. The S19 Pro offers cutting-edge technology and are the highest quality
machines currently available on the market with increased speed, computing power and efficiency. The decision to purchase these machines
was made with the intention of providing our Company with a competitive edge in the cryptocurrency mining sector, and an increase in
revenue relative to cost, due to their efficiency and overall cost-effectiveness.
On January 28, 2023,
we decided to write off NBpay Investment Limited and its subsidiaries, which had no meaningful assets or business nor employees. After
the adjustment of the above corporate structure, MFH Tech has been acting as the primary U.S. operating entity of distributed computing
and storage services (including cryptocurrency mining) and digital consultation services business, and our Hong Kong and China subsidiaries
are expected to act as the operating entities of the digital consultation services (mainly digital payment solution services) in the
Asia-Pacific region, and we plan to establish a new technical services team in China to support our digital consultation services.
On April 12, 2023, the
Company completed the incorporation of another U.S. subsidiary, Chaince Securities, which plans to develop Financial advisory services,
online and traditional brokerage services independently in the future. On May 3, 2023, Chaince Securities entered into a Purchase
and Sale Agreement for the acquisition of all assets and liabilities of J.V. Delaney & Associates, an investment advisory firm
and FINRA licensed broker dealer.
Blockchain technical services
We provide digital asset
trading infrastructure solutions based on internet and blockchain technologies to our customers. These services include, among others,
(i) comprehensive solutions in connection with digital asset transactions, (ii) platform-based products, such as transaction
facilitation systems, trading systems, account management systems, operation management systems and mobile applications, and (iii) a
variety of supplemental services, such as customized software development services, maintenance services and compliance support services.
We launched Version 2.0 of our asset trading platform in 2019 which has included enhancements to the functionality of Version 1.0 as
well as new offerings of services and products for our customer on this platform. Our target customers for such trading platforms are
mainly cryptocurrency traders, blockchain-based virtual communities, and liquidity providers. In 2019, we generated substantially all
of our Revenue from selling our cryptocurrency asset trading platform and providing supplemental services to one customer who purchased
this platform. As a result of such sale, we are no longer operating such cryptocurrency asset trading platform. However, due to changes
in management and business team in 2021, we did not conclude any additional sales from this trading platform product in 2021. In 2022,
as a result of major changes to the regulatory environment and violent fluctuations in the cryptocurrency market, the Company dismantled
its VIE structure and suspended the provision of blockchain technology services to original customers, and has no current intention to
expand new customers for the time being. Nevertheless, the Company plans to focus on the development of digital payment functions on
the vision of the current asset digitalization platform, and hopes to provide digital payment products and solutions to the market after
obtaining the corresponding payment license.
In November 2020,
we launched an open, decentralized finance (DeFi) platform that designed to solve retail traders’ global problems of low liquidity
and capital utilization, poor governance, token growth incentive deficiencies, and slow transaction speeds. However, due to changes of
the business focus in 2021, the revenue from this DeFi platform was immaterial and we discontinued the development of such DeFi platform.
Later, we developed an
asset digitalization platform, which can provide blockchain-based digitalization solutions for traditional assets, such as fiat currencies,
bonds and precious metals. The revenue from this product was US$122,343 during the year of 2021, generated by one of the VIEs which have
been divested in 2022, and therefore these revenues are classified under loss/income from discontinued operations in our audited consolidated
financial statements for the year ended December 31, 2021. Due to the dismantling of the VIEs and the cessation of all business
related to the digital asset transaction platforms, as well as the temporary difficulties brought to us by the incident that a portion
of our cryptocurrencies were out of control, we did not conclude any digital asset trading and asset digitalization platform and solutions
related revenue in 2022. Currently we are no longer operating such asset digitalization platform. Due to the regulatory changes in the
digital asset industry, we do not plan to conduct any business related to the asset trading platform, asset digitalization platform and
decentralized finance (DeFi) platform. In terms of our blockchain technical services, we plan to combine our original project management
experience and technology related to blockchain technical services with our digital consultation services to further develop digital
banking and digital payment services business.
Cryptocurrency Mining
In August 2021, we
added cryptocurrency mining as one of our main businesses going forward. Cryptocurrency mining is part of our distributed computing and
storage services business. We carry out cryptocurrency mining primarily from our facilities located in New Jersey, United States.
We have entered into cryptocurrency
mining pools by executing contracts with the mining pool operators or executing contracts with the sharing mining service providers to
increase computing power or storage capacity to the mining pool. The contracts are terminable at any time by either party and our enforceable
right to compensation only begins when we provide computing power or storage capacity to the mining pool operator. In exchange for providing
computing power or storage capacity, we are entitled to a fractional share of the fixed digital asset awards the mining pool operator
receives, for successfully adding blocks to the blockchain. Our fractional share is relative to the proportion of computing power or
storage capacity we contribute to the mining pool operator toward the total computing power or storage capacity contributed by all mining
pool participants in solving the current algorithm.
Providing computing power
or storage capacity in digital asset transaction verification services is an output of our ordinary activities. The provision of such
computing power or storage capacity is the only performance obligation in our contracts with mining pool operators or contracts with
the sharing mining service providers. The transaction consideration we receive, if any, is noncash consideration, which we measure at
fair value on the date received, which is not materially different than the fair value at contract inception or the time we have earned
the award from the pools. These considerations are all variable. Since significant reversals of cumulative revenue are possible given
the nature of the assets, the consideration is constrained until the mining pool operator successfully places a block (by being the first
to solve an algorithm) and we receive confirmation of the consideration it will receive, at which time revenue is recognized. There is
no significant financing component related to these transactions. Fair value of the digital assets award received is determined using
the quoted price of the related digital assets at the time of receipt.
For the year ended December 31,
2022, we earned $783,090 in Bitcoin mining revenue from shared mining operations and $348 in Filecoin mining revenue from physical mining
operations.
In January 2023, our
U.S. subsidiary, MFH Tech signed a Coinbase Prime Broker Agreement with Coinbase, Inc., filed as Exhibit 99.1 to our registration statement
on Form F-1. The agreement includes the Coinbase Custody Custodial Services Agreement (the “Custody Agreement”) and the Coinbase
Master Trading Agreement (the “MTA”). The agreement sets forth the terms and conditions pursuant to which the Coinbase Entities
will open and maintain the prime broker account for us and provide services relating to custody, trade execution, lending or post-trade
credit (if applicable), and other services for certain digital assets. As of the date of this prospectus, we do not own and/or hold crypto
assets on behalf of third parties.
In May 2023, it was reported
that a trust sponsor had requested for withdrawal of its registration statement filed with the SEC in deference to the requests in the
SEC Staff’s letters, and that the SEC was of the view that Filecoins constituted “securities” under U.S. securities
laws. Additionally, in June 2023, the SEC filed a lawsuit against Binance, and named Filecoin as, among other cryptocurrencies, constituting
“securities” under U.S. securities laws. Such categorization, as well as further regulatory developments, new legislations
and regulations, and changes in regulatory policy, may have materially adverse impacts on our business, financial condition and results
of operations, as well as the price of our shares. Our Filecoin assets constituted less than 7% of our consolidated total assets as of
December 31, 2022. As such, we believe that such regulatory changes will have minimal impacts to us. We are reviewing the recent legal
and regulatory developments and we intend to alter our business focus and strategy whenever necessary to remain compliant with all applicable
laws and regulations. See also “Risk Factors—Certain crypto assets and cryptocurrencies have been identified as a “security”
in certain jurisdictions, and we may be subject to regulatory scrutiny, inquiries, investigations, fines, and other penalties, which
may adversely affect our business, operating results, and financial condition.”
In addition, due to recent
developments in the regulations of cryptocurrencies, particularly in the U.S., such as the creation of subcommittees of the House Financial
Services Committee, the approval of custodians for digital assets securities, and the Security and Exchange Commission’s crackdown
on illegal trading platforms, we have seen increases of the price volatility of various cryptocurrency assets. For instance, the price
of Bitcoins experienced sharp volatility in the first seven months of 2023, including a high price of more than $31,000 and a low price
of less than $17,000, and the price of Filecoins also experienced sharp volatility in the first seven months of 2023, including a high
price of more than $9 and a low price of less than $3. Our total cryptocurrency asset holdings constituted less than 25% of our consolidated
total assets as of December 31, 2022. As such, we believe that the immediate impact of such regulatory changes will be limited to us.
We are closely monitoring the changes and trends in prices of cryptocurrencies, and we may make changes to our business focus and strategies
in the future should the need arise. See also “Risk Factors—Our operating results may fluctuate and continue to fluctuate,
including due to the highly volatile nature of crypto.”
Similarly, due to the
increased price volatility of cryptocurrencies in general, individualized management failures, failures of internal control and oversight,
as well as other macroeconomic or other factors, a string of bankruptcies have occurred in the crypto asset industry, including those
of Genesis Global Capital, FTX, BlockFi, Celsuis Network, Voyager Digital and Three Arrows Capital. Such bankruptcies and adverse developments
in the crypto asset industry and have not impacted and is not expected to materially and adversely impact our business, financial condition,
customers, and counterparties, either directly or indirectly, as the Company is not a direct counterparty to such entities. We do not
have any material assets that may not be recovered due to the bankruptcies of those named companies or may otherwise be lost or misappropriated.
We are also not aware of any material direct or indirect exposures to other counterparties, customers, custodians, or other participants
in crypto asset markets that have filed for bankruptcy, that have been decreed insolvent or bankrupt, that have made any assignment for
the benefit of creditors, or have had a receiver appointed for them, that have experienced excessive redemptions or suspended redemptions
or withdrawals of crypto assets, that have the crypto assets of their customers unaccounted for; or that have experienced material corporate
compliance failures. However, it is possible that these recent bankruptcies may have exacerbated the further pricing decline of certain
cryptocurrencies, such as Bitcoin, in 2023 which may have imposed adverse impacts to our mining losses and/or value of the cryptocurrencies
we hold.
Investors in our securities
should be aware that engaging in cryptocurrency mining may result in certain environmental harms and transition risks related to climate
change that may affect our business, financial condition and results of operations, as mining operations consume a substantial amount
of power, which may contribute to increased carbon emissions. Recent policy and regulatory changes relating to limiting carbon emissions
could impose additional operational and compliance burdens on our cryptocurrency mining operations, such as more stringent reporting
requirements or higher compliance fees. There have also been recent market trends that may alter business opportunities for our industry,
stemming from recent regulatory and policy changes in the jurisdictions in which we operate, where regulators have come out to state
that certain cryptocurrencies constitute “securities” and that there would be increased regulation and oversight over businesses
engaged in cryptocurrencies, which is highly power-consuming and poses environmental risks. These may lead to increased credit risks,
which may lead to financiers and lenders being less willing to enter into business relationships with us, as well as increased litigation
risks related to climate change in the jurisdictions in which we carry out mining operations, Some businesses as well as some investors
may have also ceased accepting cryptocurrencies for certain types of purchases, and stopped investing in businesses involved in cryptocurrencies
businesses, due to environmental concerns associated with cryptocurrencies mining, which may have adverse impacts on our business, financial
condition, and results of operations. See “Risk Factors—Environmental concerns associated with cryptocurrencies mining
could have adverse impacts on our business, financial condition, and results of operations.”
Consultation services
In July 2022, we
added digital consultation services as one of our main businesses going forward, providing digital payment solutions for various types
of companies, asset management, and a continued expansion into online and traditional brokerage services.
Considering that the contents
of different projects of our consultation service business varies greatly, we adopt the percentage-of-completion method to measure and
recognize revenue for each consultation service project. The percentage-of-completion method recognizes income as work on a contract’s
(or group of closely related contracts) progress. The recognition of Revenue and profits is generally related to costs incurred in providing
the services required under the contract.
On August 23, 2022,
we signed a Consulting Agreement with a Chinese media company, pursuant to which we will serve as a business consultant in order to facilitate
the Client to establish the entity in the United States and make financing strategy. As of December 31, 2022, the project was approximately
50% on schedule and we recognized consultation service revenue of $80,000 for the year ended December 31, 2022 in line with the
completion schedule and have plans to expand upon this business in the near future.
In the first half of
2023, we further refined our business structure by further dividing consultation services into financial advisory services, digital banking
and digital payment services. MFH Tech is acting as our operating entity for digital banking and digital payment services in North America
while Ucon as our operating entity for digital payment services in Asia Pacific. We plan to make Chaince Securities our operating entity
for financial advisory services as well as the online and traditional brokerage services once it becomes a licensed FINRA member.
Types Of Cryptocurrencies We Have Held
As of December
31, 2022 and as of the date of this prospectus, we have held five types of cryptocurrencies, which are Bitcoin, USD Coin, FileCoin, Tether
USD, and FF Coin. We received these types of cryptocurrencies through mining operations, compensation to us for services and products
provided, and acquisition of certain digital assets. In May 2019, we acquired FFcoins with an estimated value of $1,200,000 at the prevailing
market price. FF(Fifty-five) coin is a decentralized blockchain digital asset issued by 55 Global Market. In 2020, due to the significant
decline in the FF coin market price, the Company recognized an impairment loss of $835,344 at market value at the end of 2020. Even more
unfortunately, in 2021, the FF coins further completely lost its market value, and the Company wrote down the remaining book value of
the FF coins to 0 and recognized an impairment loss of $372,995.
Due to the price
crash of Bitcoin in 2022, the Company, out of caution, decided to change the impairment test method of Bitcoin and other cryptocurrencies
from testing once or twice a year by calculating the fair value based on the average daily closing price of the past 12 months to testing
every day by calculating the fair value based on the intraday low price. We restated the impacted financial statements as of December
31, 2021, and for the year ended December 31, 2021, and related notes included herein to correct these changes. We recognized $1,292,568
impairment loss of intangible assets for the year ended December 31, 2021 and $3,144,053 impairment loss of intangible assets for the
year ended December 31, 2022 as the restated financial statements.
The revised impairment loss of
intangible assets for the year ended December 31, 2021 and 2022 is detailed as follows:
| |
December 31, | | |
December 31, | | |
December 31, | |
| |
2022 | | |
2021 | | |
2020 | |
| |
| US$ | | |
| US$ | | |
| US$ | |
Bitcoin | |
| 3,111,232 | | |
| 908,453 | | |
| - | |
USD Coin | |
| - | | |
| 11,120 | | |
| - | |
Filecoin | |
| 26,957 | | |
| - | | |
| | |
Tether USDs (“USDT”) | |
| 5,864 | | |
| - | | |
| | |
FF Coins | |
| - | | |
| 372,995 | | |
| 835,344 | |
Total impairment loss of intangible assets | |
| 3,144,053 | | |
| 1,292,568 | | |
| 835,344 | |
In order to avoid the
recurrence of such asset losses, the current management of the company has optimized and improved the investment strategy, asset management
internal control and many other aspects to reduce the relevant business risks.
Analysis of Our Crypto Asset Mining Operations
In August 2021, based
on the Company's technical capabilities, experience and resources in the cryptocurrency industry, the potential of the cryptocurrency
market and the increasingly clear regulatory policy of the US government on cryptocurrency, our management entered into the field of
cryptocurrency mining.
On October 22, 2021,
we, through our wholly-owned subsidiary Ucon, entered into a Bitcoin joint mining business agreement (the “Computing Power Purchase
Agreement”) with Carpenter Creek LLC (“Bitdeer”), pursuant to which we purchased 180 days of computing power for 480
Antminer S17+ mining machines located in Tennessee from Bitdeer to start our Bitcoin mining business. Based on the Computing Power Purchase
Agreement, we paid for the electricity costs and computing power costs (including costs of renting mining machines, operating site and
networks) incurred for mining Bitcoins pursuant to our orders. Our average daily operating costs (electricity costs and computing power
costs) for this business was $11,080.35 and we recognized revenues on a daily basis based on the closing price of the rewarded Bitcoins
on that day. The comparative data of revenue and cost of this Bitcoin shared mining business compiled by month are as follows:
Period |
The
number of Bitcoin rewards |
Revenue |
Cost |
Gross
profit |
Average
closing price of Bitcoin |
Breakeven
Bitcoin price |
October,
2021 |
1.15637957 |
$71,061.41 |
$(60,018.55) |
$11,042.86 |
$61,659.24 |
$51,902.12
|
November,
2021 |
5.82873982 |
$353,802.33 |
$(332,410.42) |
$21,391.91 |
$60,641.88 |
$57,029.55
|
December,
2021 |
4.77001406 |
$239,443.11 |
$(310,249.72) |
$(70,806.61) |
$49,683.50 |
$65,041.68
|
January,
2022 |
5.29383051 |
$220,287.73 |
$(343,490.76) |
$(123,203.03) |
$41,483.14 |
$64,885.11
|
February,
2022 |
4.42114903 |
$179,749.11 |
$(310,249.72) |
$(130,500.61) |
$40,625.01 |
$70,174.00
|
March,
2022 |
4.81988816 |
$201,511.74 |
$(343,490.76) |
$(141,979.02) |
$41,804.32 |
$71,265.30
|
April,
2022 |
4.33004452 |
$181,540.87 |
$(294,552.57) |
$(122,897.40) |
$41,799.11 |
$68,025.30
|
Total
Amount |
30.62004567 |
$1,447,396.30 |
$(1,994,462.50) |
$(556,951.90) |
|
|
We carried out the Bitcoin
mining from October 2021 to April 2022. Our computing power during this period was 35,000TH/s, our average daily output during this period
was 0.17011136 BTC, and the revenue per unit of computing power was 0.000004860 BTC/TH/day. For this Bitcoin mining business, we essentially
leased the Bitcoin mining machines instead of owning them, while the cost of renting the mining machines proved to be very high. The
average daily operating cost (including the cost of renting the mining machines) of our Bitcoin mining was $110,80.51, so we would not
make a profit until the average price of Bitcoin exceeds $65,137.
However, back in October
2021, the management did not anticipate the Bitcoin market crash that would begin in December 2021. In December 2021, the price of Bitcoin
suddenly plummeted from the price range of $60,000 per coin and during the first eight months of 2023 such price lingered around the
range of $16,000 to $30,000, causing the Company's Bitcoin mining business suffering a great loss. Due to the sharp fluctuations in the
price of Bitcoin over the past two years, from May 2022 to August 2023, we did not carry out any business related to Bitcoin mining.
On August 30, 2023, the
whole net computing power of Bitcoin was 366.47EH/s, and the net unit computing power income on that day was 0.00000232BTC/TH/day, which
was significantly lower than that in 2022. Accordingly, the cost of obtaining a unit Bitcoin reward from Bitcoin mining business will
increase significantly in the future.
Although the difficulty
of mining Bitcoin has significantly increased and the price of Bitcoin remains low, we will still seek to obtain certain profits through
cost control. In the future, cryptocurrency mining will be part of our distributed storage and computing services and will only be conducted
when we expect that it is likely to generate a profit.
S19 Pro Mining Project
On February 10, 2023,
the Company entered into a purchase agreement (the “S19 Pro Purchase Agreement”) with the seller to buy 5,000 Ant Miner S19
Pro Bitcoin miners for a total purchase price of $9 million, equivalent to the price of $1,800 per machine. Taking into account the increasing
difficulty of mining in the mining industry and the general loss of the top mining enterprises, the Company is considering the diversification
of its business in the financial technology field, and has decided to reduce the procurement scale of Bitcoin miners and reduce the company's
investment in the mining field. As such, the Company and seller entered into an amendment (the “Amendment”) to the S19 Pro
Purchase Agreement, pursuant to which the parties have agreed to reduce the purchase order to no more than 2,000 Bitcoin miners for a
total amount of no more than $3.6 million. As the Ant miner S19 Pro Bitcoin miner is currently one of the best-selling models in the
market and our order is back ordered, our batch of the S19 Pro has not been delivered as of the date of this letter. At present, the
Company has paid the seller $3 million US dollars. Depending on the actual delivery date of the mining machines and bitcoin market conditions,
the Company may change the order amount in the future. As things stand now, the Company may not receive these scheduled miners until
the end of 2023 and may begin Bitcoin mining operations in January 2024.
We have assumed that
the final number of Bitcoin mining machines purchased is 1500 for the following breakeven analysis. Based on the current level of Bitcoin
mining difficulty of the whole net, the breakeven analysis of this batch of Bitcoin mining machines to carry out Bitcoin mining business
is as follows:
Types
of Bitcoin mining machines |
The
number of Bitcoin mining machines |
Expected
average computing power (TH/s) |
Average
daily operating costs |
Assumed
daily net unit computing power income (BTC/(TH/s)/day) |
Number of Bitcoin rewards (BTC/day)
[2] |
Breakeven Bitcoin price
[3=1/2] |
Average
daily equipment depreciation cost |
Average
daily electricity, operating site and internet cost |
Average
daily labor cost |
Total
average daily operating costs [1] |
Ant
Miner S19 Pro |
1500 |
150000 |
$1,500 |
$7,020 |
$200 |
$8,720 |
0.00000232 |
0.3480 |
$25,057 |
As of August
30, 2023, according to the data of Feixiaohao platforms, a platform that aggregates information of the global cryptocurrency markets,
the average daily lowest transaction price of Bitcoin for the last 30 days is $27,751.22, which is higher than the above breakeven price
of Bitcoin that we have measured.
On December 15, 2022,
we entered into an asset purchase agreement with Huangtong International Co., Ltd., providing for the acquisition and purchase of Web3
decentralized storage infrastructure, including cryptocurrency mining servers, cables, and other electronic devices, for an aggregate
consideration of USD$5,980,000, payable in our ordinary shares. The investment is made with an aim to own mining machines capable of
gathering, processing, and storing vast amounts of data, to advance the cryptocurrency mining business. Starting on December 20, 2022,
we have been using some of the storage capacity of these devices for Filecoin mining business, and other storage capacity will be used
to provide cloud storage services to distributed application product operators. We expect the storage capacity for Filecoin mining operations
to reach around 60.4PiB in June 2024. The operating costs of Filecoin mining business currently include depreciation costs of equipment,
site fees, electricity fees, network fees and software deployment costs. The comparative data of revenue and cost of this Filecoin mining
business as of June 30, 2023 compiled by month are as follows:
Period |
The
number of Filecoin rewards |
Revenue |
Cost |
Gross
profit |
Average
lowest price of Filecoin |
Breakeven
Filecoin price |
December,
2022 |
115.49 |
$348.40 |
$(69,816.21) |
$(69,467.81) |
$2.7529 |
$604.52
|
January,
2023 |
3,844.55 |
$16,703.40 |
$(78,786.25) |
$(62,082.85) |
$4.0691 |
$20.49
|
February,
2023 |
5,416.79 |
$31,691.07 |
$(111,791.17) |
$(80,100.10) |
$5.8636 |
$20.64
|
March,
2023 |
6,147.68 |
$34,976.60 |
$(129,113.59) |
$(94,136.99) |
$5.6405 |
$21.00
|
April,
2023 |
5,190.72 |
$28,880.42 |
$(99,253.75) |
$(70,373.33) |
$5.5566 |
$19.12
|
May,
2023 |
6,480.06 |
$29,671.39 |
$(99,253.75) |
$(69,582.36) |
$4.6073 |
$15.32
|
June,
2023 |
6,472.78 |
$24,942.82 |
$(99,253.75) |
$(74,310.93) |
$3.8786 |
$15.33
|
Total
Amount |
33,668.07 |
$167,214.10 |
$(687,268.47) |
$(520,054.37) |
|
|
We carried
out the Filecoin mining business from December 2022. As of June 30, 2023, we have opened two nodes on the Filecoin blockchain with a
set storage capacity of 30.2Pib, one of which has not reached the maximum set storage capacity, so the current storage capacity of the
two nodes was 25.16PiB. We plan to open another two nodes in the second half of 2023 to enable our hardware devices to release more storage
capacity in exchange for revenue, and we expect our storage capacity for Filecoin mining operations to reach 60.4PiB in June 2024.
As of June
30, 2023, the whole net computing power of Filecoin was 21.9288EiB, and the net unit storage capacity income on that day was 0.0084 FIL/TiB/day.
One of our nodes reached the set maximum storage capacity of 15.1PiB in early June 2023, and the actual output efficiency of this node
in June 2023 was 0.0095FIL/TiB/day, which is about 13 percent higher than the output efficiency of the whole network.
Considering that the market
price of Filecoin had also fluctuated significantly in the past two years, we, out of caution, recognize daily revenue based on the lowest
trading price on the day of receiving Filecoin rewards, and conduct impairment test monthly by calculating the fair value based on the
lowest historical value of Filecoin during the holding period. Since it takes some time for Filecoin to reach its maximum computing power
per node, our Filecoin mining business is not yet profitable. We currently have only two nodes, as of June 30, 2023, the final capacity
of the two nodes is 25.16PiB, these two nodes have not reached the maximum computing power, we also plan to open another two nodes in
the second half of 2023 to enable our hardware devices to release more storage capacity in exchange for revenue.
In addition, we are also
exploring opportunities to use some of the storage capacity of our hardware devices planned for non-Filecoin mining businesses to provide
computing power and cloud storage services to distributed platform operators. When and if the storage capacity of our Filecoin mining
business reaches the set 60.4PiB, the output of Filecoin mining will reach the expected stable level. We expect our Filecoin mining output
to reach the stable level in June 2024 but we cannot guaranty that we will achieve this goal on schedule or at all. We use the same batch
of Web3 decentralized storage infrastructure for our cloud storage services to decentralized platform operators and Filecoin mining business
and therefore do not need to add any new equipment.
On August 30, 2023, the
net unit storage capacity income of the whole net of Filecoin mining is 0.0071 FIL/TiB/day. Assuming that our Filecoin mining business
has reached the set maximum storage capacity of 60.4PiB and the average net unit storage capacity income is 0.0071 FIL/TiB/day, and that
our business of providing cloud storage services to decentralized platform operators can bring in $70,000 per month (average $2,333 per
day), then, our breakeven analysis of our business of Filecoin mining and providing cloud storage services to decentralized platform
operators is as follows:
Expected
average storage capacity (PiB) |
Assumed
output efficiency (FIL/TiB/day) |
The
daily number of Filecoin rewards (1) |
Expected
daily operating cost of Filecoin mining and providing cloud storage services to decentralized platform operators (3) |
Expected
average daily revenue from providing cloud storage services to decentralized platform operators (3) |
Breakeven Filecoin price
[4=(2-3)/1] |
Average
daily equipment depreciation cost |
Average
daily electricity, operating site and internet cost |
Average
daily labor cost |
Expected
daily operating cost (2) |
60.4PiB
(equal to 61,849.6TiB) |
0.0071 |
439.13 |
$2,493 |
$933 |
$267 |
$3,693 |
$2,333 |
$3.10
|
As of August 30, 2023,
according to the data of Feixiaohao platforms, a platform that aggregates information of the global cryptocurrency markets, the average
daily lowest transaction price of Filecoin for the last 30 days is $3.78, which is higher than the above breakeven price of Filecoin
that we have measured.
However, the above assumption about the revenue
of providing cloud storage services to decentralized platform operators is set based on our future business objectives. If we fail to
achieve the assumed objectives of the providing cloud storage services to decentralized platform operators in the future, our Filecoin
mining and cloud storage services to decentralized platform operators may incur a loss as a whole.
Private Placements
Our Company has entered into
certain transactions with investors involving the issuance of our ordinary shares as consideration (the “Private Placements”).
Private Placement to Hexin Global Limited
and others
Pursuant to a securities
purchase agreement dated November 11, 2022, our Company closed a private investment in public equity (“PIPE”) financing
with certain non-U.S. investors for gross proceeds of $3.15 million. Net proceeds from the PIPE financing are expected to be used to
advance the Company’s business development activities for working capital and other general corporate purposes. Among other purposes,
the Company intends to use part of the Proceeds to grow its cryptocurrency consultation services in the U.S., including obtaining the
“BitLicense” from New York State Department of Financial Services for digital currency related activities, although the Company
cannot provide any assurance on actually obtaining the “BitLicense” in the near future or at all. Pursuant to the securities
purchase agreement and the warrants, our Company issued an aggregate of 2,423,076,922 units at a purchase price of $0.0013 per unit (pre-reverse
split). Each unit shall consist of one ordinary share and three warrants, with each warrant entitling the investor to purchase one ordinary
share at the exercise price of USD$ 1/180th per ordinary share subject to certain adjustments and conditions set forth therein. The warrants
shall have a term of three years from the issuance date.
Following the completion
of the above financing and at the date hereof, Hexin Global Limited has a beneficial interest in 5,769,231 of our ordinary shares, which
are being registered for resale pursuant to this prospectus.
Private Placement to Ms. Hanqi Li and
others
On November 30, 2022,
our Company entered into a securities purchase agreement with two investors to offer and sell the Company’s units, each consisting
of one ordinary share and three warrants for total gross proceeds of $5 million.
Among other purposes, our
Company intends to use part of the proceeds to grow its cryptocurrency consultation services in the U.S., including obtaining the “BitLicense”
from New York State Department of Financial Services for digital currency related activities although the Company cannot provide any
assurance on actually obtaining the “BitLicense” in the near future or at all.
Pursuant to the agreement,
our Company issued an aggregate of 3,676,470,589 units at a purchase price of $0.00136 per unit (pre-reverse split) for a total of approximately
$5,000,000. Each unit shall consist of one ordinary share and three warrants, with each warrant entitling the investor to purchase one
ordinary share at the exercise price of $1/360th per ordinary share subject to certain adjustments and conditions set forth therein.
The warrants shall have a term of three years from the issuance date.
Further, on December 23,
2022, our Company entered into a securities purchase agreement with an accredited non-U.S. investor to offer and sell the Company’s
units, each consisting of one ordinary share and three warrants for total gross proceeds of $5 million. The Company expects to use the
net proceeds from the three rounds of PIPE financing to develop its Web3 and blockchain infrastructure, expand its consultation services,
and pursue the licensure for cryptocurrency from New York State Department of Financial Services.
Pursuant to this securities purchase
agreement, our Company issued an aggregate of 4,545,454,546 units at a purchase price of $0.00110 per unit (pre-reverse split) for total
gross proceeds of approximately $5,000,000. Each unit shall consist of one ordinary share and three warrants, with each warrant entitling
the investor to purchase one ordinary share at the exercise price of $1/360th per ordinary share subject to certain adjustments and conditions
set forth therein. The warrants shall have a term of three years from the issuance date.
As of June 30, 2023,
we have not received revenue related to our digital consultation services business. We plan to first apply for the financial license
required to engage in crypto-related business in the United States, following which we will develop our digital payment business and
digital bank business on the basis of cryptocurrency advisory business in the future.
The Company has done
the following work in 2023 to grow its crypto consulting-related business in the United States:
On May 1, 2023, the Company
engaged the Bates Group, a well-established compliance service company based in Portland, OR, to guide and assist the Company with obtaining
the cryptocurrency license and money transmitter license. Bates Group has a proven track record, having successfully helped companies
secure Bitlicenses in the past. Additionally, on May 23, 2023, Bates Group provided us with a proposed framework of the Company’s
compliance program, based on which we, together with Bates Group, are currently developing, refining and finalizing a standard and detailed
compliance program to assist and support worldwide crypto firms to settle operating compliance issues in the United States.
Furthermore, the Company
is developing the digital payment functions based on the current asset digitalization platform, and hopes to provide digital payment
solution consultation services to the market after obtaining the corresponding payment license.
In addition, Ucon successfully
earned the approval to enter the Cyberport Incubator in August 2023. The Cyberport Incubator is a collaborative government initiative
supporting over 1,900 technology companies, regarded as the Center of Web3 and crypto in Asia. Ucon’s mission is to provide the
digital consultation services in the Asia Pacific region.
Following completion of the
financings set out above and as at the date of this prospectus, as well as certain private sales undertaken by Ms. Hanqi Li to three
separate buyers, Xin Rong Gan, Hailei Zhang and Hong Mei Zhou, Ms. Li has a beneficial interest in 7,229,579 of our ordinary shares,
which are being registered for resale pursuant to this prospectus.
Private Placement to Huangtong International
Co., Ltd.
On December 15, 2022,
our Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Huangtong International Co., Ltd.
(the “Huangtong International”), providing for the Company’s acquisition and purchase of Web3 decentralized storage
infrastructure, including cryptocurrency mining servers, cables, and other electronic devices, for an aggregate consideration of $5,980,000,
payable in the Company’s ordinary shares. The investment is made with an aim to own mining machines capable of gathering, processing,
and storing vast amounts of data, and to further solidify the Company as a pioneer in the creation of the Web3 framework.
Pursuant to the Agreement,
our Company would make the payment for the aforementioned equipment in the form of its ordinary shares, at a stipulated price of $0.0022
per share, in the aggregate amount of 2,718,181,818 shares (pre-reverse split). Following the completion of our share consolidation in
2023 and as at the date of this prospectus, Huangtong International now has a beneficial interest in 7,601,320 of our ordinary shares,
which are being registered for resale pursuant to this prospectus. The ownership of the crypto-mining equipment has been passed to MFH
after the Company successfully issued the Purchase Price Shares to Huangtong International. Huangtong International was responsible for
the installation of all mining equipment at sites designated by the Company and will also undertake routine maintenance of the devices
for one year.
Recent Regulatory Developments
We
are subject to a wide variety of complex laws and regulations in the United States, PRC and other jurisdictions in which we operate.
The laws and regulations govern many issues related to our business practices, including those regarding cryptocurrencies, cybersecurity,
offering and listing of securities, monopolistic behaviours, consumer protection, intellectual property, product liability and disclosures,
employee benefits, taxation and other matters.
These
laws and regulations are constantly evolving and may be interpreted, applied, created, superseded, or amended in a manner that could
harm our business. These changes may occur immediately or develop over time through judicial decisions or as new guidance or interpretations
are provided by regulatory and governing bodies, such as federal, state and local administrative agencies. As we expand our business
into new markets or introduce new features or offerings into existing markets, regulatory bodies or courts may claim that we are subject
to additional requirements, or that we are prohibited from conducting business in certain jurisdictions. This section summarizes the
certain regulations applicable to our business.
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. As of the date of this prospectus, we are not directly subject to these
regulatory actions or statements, as we have not implemented any monopolistic behavior and our business does not involve the large-scale
collection of user data, implicate cybersecurity, or involve any other type of restricted industry.
As
of the date of this prospectus, we believe that none of our subsidiaries is currently
required to obtain regulatory approvals or permissions from the CSRC, the CAC, or any other relevant PRC regulatory authorities for their
business operations, our offering (including the sales of securities to foreign investors) and our listing in the U.S. under any existing
PRC law, regulations or rules, nor have we received any inquiry, notice, warning, sanctions or regulatory objection to our business operations,
our offering and listing in the U.S. from the CSRC, the CAC, or other PRC regulatory authorities.
On
November 14, 2021, CAC released the Regulations on Network Data Security (draft for public comments) and accepted public comments
until December 13, 2021. The draft Regulations on Network Data Security provide that data processors refer to individuals or organizations
that autonomously determine the purpose and the manner of processing data. If a data processor that processes personal data of more than
one million users intends to list overseas, it shall apply for a cybersecurity review. In addition, data processors that process important
data or are listed overseas shall carry out an annual data security assessment on their own or by engaging a data security services institution,
and the data security assessment report for the prior year should be submitted to the local cyberspace affairs administration department
before January 31 of each year. On December 28, 2021, the Measures for Cybersecurity Review (2021 version) was promulgated
and took effect on February 15, 2022, which iterates that any “online platform operator” controlling personal information
of more than one million users which seeks to list in a foreign stock exchange should also be subject to cybersecurity review. We are not an “operator of critical information infrastructure” or “large-scale
data processor” as mentioned above. However, PRC regulations relating to personal information protection and data protection,
it has been clarified in the relevant provision that the processing of PRC individual’s personal information outside China will
also under the jurisdiction of the PRC Personal Information Protection Law and if data processing outside China harms the national security,
public interests or the rights and interests of citizens or organizations of the PRC, legal responsibilities will also be investigated.
In addition, neither the Company nor its subsidiaries is an operator of any “critical information infrastructure” as defined
under the PRC Cybersecurity Law and the Security Protection Measures on Critical Information Infrastructure.
However,
Measures for Cybersecurity Review (2021 version) was recently adopted and the Network Internet Data Protection Draft Regulations (draft
for comments) is in the process of being formulated and the Opinions remain unclear on how it will be interpreted, amended and implemented
by the relevant PRC governmental authorities. There remain uncertainties as to when the final measures will be issued and take effect,
how they will be enacted, interpreted or implemented, and whether they will affect us. If we inadvertently conclude that the Measures
for Cybersecurity Review (2021 version) do not apply to us, or applicable laws, regulations, or interpretations change and it is determined
in the future that the Measures for Cybersecurity Review (2021 version) become applicable to us, we may be subject to review when conducting
data processing activities, and may face challenges in addressing its requirements and make necessary changes to our internal policies
and practices. We may incur substantial costs in complying with the Measures for Cybersecurity Review (2021 version), which could result
in material adverse changes in our business operations and financial position. If we are not able to fully comply with the Measures for
Cybersecurity Review (2021 version), our ability to offer or continue to offer securities to investors may be significantly limited or
completely hindered, and our securities may significantly decline in value or become worthless.
On
December 24, 2021, the CSRC released the Administrative Provisions of the State Council Regarding the Overseas Issuance and Listing
of Securities by Domestic Enterprises (Draft for Comments) (the “Draft Administrative Provisions”) and the Measures for the
Overseas Issuance of Securities and Listing Record-Filings by Domestic Enterprises (Draft for Comments) (the “Draft Filing Measures,”
collectively with the Draft Administrative Provisions, the “Draft Rules Regarding Overseas Listing”). The Draft Rules Regarding
Overseas Listing lay out the filing regulation arrangement for both direct and indirect overseas listing, and clarify the determination
criteria for indirect overseas listing in overseas markets. Among other things, if a domestic enterprise intends to conduct any follow-on
offering in an overseas market, the record-filing obligation is with a major operating entity incorporated in the PRC and such filing
obligation shall be completed within three working days after the completion of the offering. The required filing materials shall include
but not limited to: filing report and relevant commitments and domestic legal opinions. The Draft Rules Regarding Overseas Listing,
if enacted, may subject us to additional compliance requirement in the future. Any failure of us to fully comply with new regulatory
requirements may significantly limit or completely hinder our ability to offer or continue to offer our ordinary shares, cause significant
disruption to our business operations, and severely damage our reputation, which would materially and adversely affect our financial
condition and results of operations and cause our ordinary shares to significantly decline in value or become worthless.
As further advised by our
PRC counsel, as of the date of the registration statement, no effective laws or regulations in the PRC explicitly require us to seek approval
from the CSRC or any other PRC governmental authorities for our overseas listing or securities offering plans, nor has our Company or
any of our subsidiaries received any inquiry, notice, warning or sanctions regarding our overseas listing and offering of securities from
the CSRC or any other PRC governmental authorities. We have filed the legal opinion of our PRC counsel as part of our Securities and Exchange
Commission (the “SEC”) filing on Form F-1 as exhibit 5.2. 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 us. 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 requires our Company, or any of our subsidiaries to obtain regulatory approval from Chinese authorities before conducting
securities offerings in the U.S. It is possible that formal regulation will require companies listed outside the PRC which have/had PRC
interests to submit registration or filings to CSRC retrospectively. If any of our subsidiaries or the holding company were required to
obtain approval in the future and were denied permission from PRC authorities to conduct securities offerings in the U.S., our ability
to conduct our business may be materially impacted, we will not be able to continue listing on any U.S. exchange, continue to offer securities
to investors, the interest of the investors may be materially adversely affected and our ordinary shares may significantly decrease in
value or become worthless.
In addition, our Ordinary
Shares may be prohibited from trading on a national exchange or over-the-counter market under the Holding Foreign Companies Accountable
Act (the “HFCA Act”) if the Public Company Accounting Oversight Board (United States) (the “PCAOB”) is unable
to inspect our auditors for three consecutive years. In addition, on June 22, 2021, the U.S. Senate passed the Accelerating Holding
Foreign Companies Accountable Act (the “AHFCAA”), which was signed into law on December 29, 2022, reducing the period
of time for foreign companies to comply with the PCAOB audits to two consecutive years instead of three, thus reducing the time period
for triggering the prohibition on trading. Pursuant to the HFCA Act, 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: (i) Mainland
China of the PRC, and (ii) Hong Kong; and such report identified the specific registered public accounting firms which are subject
to these determinations. On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and China’s Ministry of
Finance (the “PRC MOF”) in respect of cooperation on the oversight of PCAOB-registered public accounting firms based in Mainland
China and Hong Kong. Pursuant to the Statement of Protocol, the PCAOB conducted inspections on select registered public accounting firms
subject to the Determination Report in Hong Kong between September 2022 and November 2022. On December 15, 2022, the PCAOB
issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions
where it is unable to inspect or investigate completely registered public accounting firms. Each year, the PCAOB will determine whether
it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines
in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong
and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed
with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for
the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future
fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the
HFCAA. Our auditor, Onestop Assurance PAC, is headquartered in Singapore, and has been inspected by the PCAOB on a regular basis. Our
auditor is not headquartered in Mainland China or Hong Kong and was not identified in the Determination Report as a firm subject to the
PCAOB’s determinations.
Corporate Information
We
were incorporated in incorporated in Cayman Islands on July 13, 2011. On December 28, 2016, the Company changed its name from
Wowo Limited to JMU Limited. On April 30, 2020, the Company changed its name from JMU Limited to Mercurity Fintech Holding Inc.
Our principal executive offices are located at 1330 Avenue of Americas, Fl 33, New York, 10019, United States and the telephone number
at that address is +1(949)-678-9653. Information contained on, or that can be accessed through, our website does not constitute
a part of this prospectus and is not incorporated by reference herein or therein. We have included our website address in this prospectus
solely for informational purposes and you should not consider any information contained on, or that can be accessed through, our website
as part of this prospectus or in deciding whether to purchase our securities.
The
following diagram illustrates our corporate structure as of the date of this prospectus:
![Graphic](https://www.sec.gov/Archives/edgar/data/1527762/000110465923097752/tm2316516d_f1img02.jpg)
Cash Distribution
Under
our current corporate structure, to fund any liquidity requirements an entity in our corporate group may have, our subsidiaries may rely
on loans or payments from MFH Cayman and MFH Cayman may receive distributions or cash transfers from our subsidiaries. As of the date
of this prospectus, there are no currency exchange restrictions or limitations imposed on the transfer of capital within our corporate
structure, except that the transfers are subject to money laundering and anti-corruption rules and regulations. However, there is
no guarantee that the applicable government will not promulgate new laws or regulations that may impose such restrictions on currency
exchanges in the future. As of the date of this prospectus, during the past three completed fiscal years, some transfers of non-cash
assets occurred between MFH Cayman and its subsidiaries, in which MFH Cayman repaid the debts of its PRC subsidiary, MFH Cayman advanced
expenses for Ucon, MFH Cayman transferred fixed assets to MFH Tech and MFH Cayman collected money on behalf of its other subsidiaries.
The following table illustrates the breakdown of the cash transfer within our organization for the year ended December 31, 2022:
Lender | |
Borrower | |
Amount
Due | |
Mercurity Fintech Holding Inc. | |
Mercurity Fintech Technology Holding Inc. | |
$ | 50,000 | |
The
following table illustrates the breakdown of our outstanding loans within our group as of December 31, 2022 (including the non-cash
transfers of claims and obligations):
Lender | |
Borrower | |
Amount
Due | |
Mercurity Fintech Holding Inc. | |
Mercurity Fintech Technology Holding Inc. | |
$ | 62,000 | |
Mercurity Fintech Holding Inc. | |
Ucon Capital (HK) Limited | |
$ | 2,093,608 | |
Mercurity Fintech Holding Inc. | |
Beijing Lianji Future Technology Co., Ltd | |
$ | 743,855 | |
Mercurity Limited | |
Mercurity Fintech Holding Inc. | |
$ | 1,100,240 | |
As
of the date of this prospectus, neither MFH Cayman nor its subsidiaries has a cash management policy. During the past three completed
fiscal years, none of MFH Cayman’s subsidiaries has paid dividends, made distributions, transferred cash or other assets by kind
to MFH Cayman or its shareholders directly or indirectly. The current laws and regulations of the PRC on currency exchange requires registration
with or approval from the SAFE for conversion of RMB into foreign currency and remission out of mainland China to pay capital expenses,
such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the
future to foreign currencies for current account transactions. However, there is no assurance that the Chinese government will not, in
the future, intervene or impose restrictions or limitations on the Company’s ability to generate income out of mainland China and
Hong Kong.
As
of the date of this prospectus, during the past two completed fiscal years, none of our subsidiaries has made any dividends or
distributions to MFH Cayman, nor has MFH Cayman made any dividends or distributions to its shareholders. We intend to keep any future
earnings to re-invest in and finance the expansion of our business. If MFH Cayman determines to pay dividends on any of its ordinary
shares in the future, as a holding company, it may derive funds for such distribution from its own cash position or contributions from
its subsidiaries.
Implications of being a “Foreign Private
Issuer”
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. As a foreign private issuer, we are not subject to the same requirements that are imposed upon U.S. domestic
issuers by the SEC. Under the Exchange Act, we are subject to reporting obligations that, in certain respects, are less detailed and
less frequent than those of U.S. domestic reporting companies. For example, we are not required to issue quarterly reports, proxy statements
that comply with the requirements applicable to U.S. domestic reporting companies, or individual executive compensation information that
is as detailed as that required of U.S. domestic reporting companies. We also have four months after the end of each fiscal year to file
our annual report with the SEC and are not required to file current reports as frequently or promptly as U.S. domestic reporting companies.
Our officers, directors, and principal shareholders are exempt from the requirements to report transactions in our equity securities
and from the short-swing profit liability provisions contained in Section 16 of the Exchange Act. As a foreign private issuer, we
are not subject to the requirements of Regulation FD (Fair Disclosure) promulgated under the Exchange Act. In addition, as a foreign
private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required under
the Nasdaq Stock Market rules for domestic U.S. issuers and are not required to be compliant with all Nasdaq Stock Market rules as
of the date of our initial listing on Nasdaq as would domestic U.S. issuers. These exemptions and leniencies will reduce the frequency
and scope of information and protections available to you in comparison to those applicable to a U.S. domestic reporting company. We
intend to take advantage of the exemptions available to us as a foreign private issuer.
THE OFFERING
This prospectus relates to
the resale by the selling shareholders identified in this prospectus of up to 32,087,130 ordinary shares. All of the ordinary shares,
when sold, will be sold by these selling shareholders. The selling shareholders may sell their ordinary shares from time to time at prevailing
market prices. We will not receive any proceeds from the sale of the ordinary shares by the selling shareholders.
Ordinary shares currently issued and outstanding |
|
46,538,116
ordinary shares |
Ordinary shares that will be issued and outstanding immediately after this offering |
|
46,538,116
ordinary shares |
Ordinary shares offered by the selling shareholders |
|
Up
to 32,087,130 ordinary shares |
Use of proceeds
|
|
We will not receive any proceeds from the sale
of the ordinary shares by the selling shareholders. All net proceeds from the sale of the ordinary shares covered by this prospectus
will go to the selling shareholders (see “Use of Proceeds”). |
Risk
factors |
|
You should read the “Risk
Factors” section starting on page 11 of this prospectus for a discussion of factors to consider carefully before deciding
to invest in our securities. |
NASDAQ
symbol |
|
“MFH” |
The
number of ordinary shares currently issued and outstanding is 46,538,116 as of May 9, 2023. No new ordinary shares will be
issued by our Company under this offering.
RISK
FACTORS
Investing in our ordinary
shares involves a high degree of risk. You should carefully consider the risks described in Part I, Item 3, D. Risk Factors
in our most recent Annual Report on Form 20-F, together with the other information set forth in this prospectus, and in
the other documents that we include or incorporate by reference into this prospectus, as updated by our Current Reports on Form 6-K and other
filings we make with the SEC, the risk factors described under the caption “Risk Factors” in any applicable prospectus supplement
and any risk factors set forth in our other filings with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, or the Exchange Act, before making a decision about investing in our ordinary shares. The risks
and uncertainties we have described are not the only ones we face. Additional risks and uncertainties not presently known to us or that
we currently deem immaterial may also affect our operations. If any risks actually occur, our business, financial condition and results
of operations may be materially and adversely affected. In such an event, the trading price of our ordinary shares could decline and
you could lose part or all of your investment.
The risk factor titled
“Risk Factors—Domestic and international regulatory regimes governing blockchain technologies, digital assets, distribution
and utilization of digital assets are still evolving and uncertain, and any changes in related regulations or policies may have adverse
consequences on the development and value of certain digital assets.” described in Part I, Item 3, D. Risk Factors
in our most recent Annual Report on Form 20-F is hereby replaced in its entirely by the following:
“Certain crypto assets and cryptocurrencies
have been identified as a “security” in certain jurisdictions, and we may be subject to regulatory scrutiny, inquiries, investigations,
fines, and other penalties, which may adversely affect our business, operating results, and financial condition.
Cryptocurrency mining
operations constitute a portion of our business and regulatory developments in the characterization of such crypto assets will have an
impact on our business, financial condition and results of operations. The SEC and its staff have taken the position that certain crypto
assets fall within the definition of a “security” under the U.S. federal securities laws. The legal test for determining
whether any given crypto asset is a security is a highly complex, fact-driven analysis that evolves over time, and any eventual court
ruling and outcome is difficult to predict. The SEC generally does not provide advance guidance or confirmation on the status of any
particular crypto asset as a security. Furthermore, the SEC’s views in this area have evolved over time and it is difficult to
predict the direction or timing of any continuing evolution.
Several foreign jurisdictions
have taken a broad-based approach to classifying crypto assets as “securities,” while other foreign jurisdictions, such as
Switzerland, Malta, and Singapore, have adopted a narrower approach. As a result, certain crypto assets may be deemed to be a “security”
under the laws of some jurisdictions but not others. Various foreign jurisdictions may, in the future, adopt additional laws, regulations,
or directives that affect the characterization of crypto assets as “securities.”
The classification of
a crypto asset as a security under applicable law has wide-ranging implications for businesses engaged in operations relating to crypto
assets. For example, a crypto asset that is a security in the United States may generally only be offered or sold in the United States
pursuant to a registration statement filed with the SEC or in an offering that qualifies for an exemption from registration. Persons
that effect transactions in crypto assets that are securities in the United States may be subject to registration with the SEC as a “broker”
or “dealer.” Platforms that bring together purchasers and sellers to trade crypto assets that are securities in the United
States are generally subject to registration as national securities exchanges, or must qualify for an exemption, such as by being operated
by a registered broker-dealer as an ATS in compliance with rules for ATSs. Persons facilitating clearing and settlement of securities
may be subject to registration with the SEC as a clearing agency. Foreign jurisdictions may have similar licensing, registration, and
qualification requirements.
Further, if Bitcoin, Ethereum,
stablecoins or any other crypto asset is deemed to be a security under any U.S. federal, state, or foreign jurisdiction, or in a proceeding
in a court of law or otherwise, it may have adverse consequences for such crypto asset. For instance, all transactions in such crypto
asset would have to be registered with the SEC or other foreign authority, or conducted in accordance with an exemption from registration,
which could severely limit its liquidity, usability and transactability. Moreover, the networks on which such crypto assets are utilized
may be required to be regulated as securities intermediaries, and subject to applicable rules, which could effectively render the network
impracticable for its existing purposes. Further, it could draw negative publicity and a decline in the general acceptance of the crypto
asset. Also, it may make it difficult for such crypto asset to be traded, cleared, and custodied as compared to other crypto assets that
are not considered to be securities. As such, our holdings of cryptocurrencies from our mining operations, as well as our storage and
trading of such cryptocurrencies on third party service provider platforms, may be adversely affected by any fall in value of cryptocurrencies
and any increased restrictions on their trading and liquidity. Whether our activities require registration or the crypto assets we hold
would be considered securities is a risk-based assessment, and not a legal standard binding on a regulatory body or court, and does not
preclude legal or regulatory action.”
Additionally, we are
also subject to the following risk factors.
Risks Relating to Our Business and Industry
The enactment of legislation imposing
moratoriums on issuing permits for certain cryptocurrency mining operations that use carbon-based power sources and similar laws could
adversely impact our business, operating results, and financial condition.
In the 2021-2022 Legislative
Session, the New York State Senate introduced Bill S6486D, which establishes a two-year moratorium on cryptocurrency mining operations
that use proof-of-work authentication methods to validate blockchain transactions. Such restrictions and moratoriums will materially
limit the scope of our business operations if we choose to carry out cryptocurrency mining operations in such jurisdictions where they
are prohibited. Our cryptocurrency mining facilities are located in New Jersey, and at present we remain unaffected by the potential
passage of Bill S6486D. Nonetheless, if a law similar to Bill S6486D were passed and comes into effect in New Jersey or other jurisdictions
in which we may carry out cryptocurrency mining operations in the future, this might force us to relocate our cryptocurrency mining operations,
which will incur time and resources, and may have other material effects on our business. The passage of any other crypto legislation
or regulation which may be directly or indirectly related to our business model may also material effects on your business, financial
condition, and results of operations.
Blockchain mining activities are energy-intensive,
which may restrict the geographic locations of miners and have a negative environmental impact.
Blockchain mining
activities are inherently energy-intensive and electricity costs account for a significant portion of the overall mining costs. The availability
and cost of electricity will restrict the geographic locations of mining activities. Any shortage of electricity supply or increase in
electricity cost in a jurisdiction may negatively impact the viability and the expected economic return for blockchain mining activities
in that jurisdiction, which may in turn negatively impact our business, financial condition, and results of operations.
In addition, the significant
consumption of electricity may have a negative environmental impact, including contribution to climate change, which may give rise to
public opinion against allowing the use of electricity for blockchain mining activities or government measures restricting or prohibiting
the use of electricity for such mining activities, and may also invite adverse media coverage or public opinion against our brand. Regulators
may also impose regulatory restrictions on blockchain mining activities. Any such development in the jurisdictions where we carry out
our cryptocurrency mining could have a material and adverse effect on our business, financial condition and results of operations.
Environmental concerns associated with
cryptocurrencies mining could have adverse impacts on our business, financial condition, and results of operations.
Engaging in cryptocurrency
mining may result in certain environmental harms and transition risks related to climate change that may affect our business, financial
condition, and results of operations, as mining operations consume a substantial amount of power, which may contribute to increased carbon
emissions. Moreover, recent policy and regulatory changes relating to limiting carbon emissions could impose additional operational and
compliance burdens on our cryptocurrency mining operations, such as more stringent reporting requirements or higher compliance fees.
Such regulations may lead to increased credit risks, which may lead financiers and lender to be less willing to enter into business relationships
with us, as well as increased litigation risks related to climate change in the jurisdictions in which we carry out mining operations.
Further, some businesses as well as some investors may have ceased accepting cryptocurrencies for certain types of purchases, and stopped
investing in businesses involved in cryptocurrencies businesses due to environmental concerns associated with cryptocurrencies mining.
Such developments could have a material and adverse effect on our business, financial condition and results of operations.
We are subject to an extensive, highly
evolving and uncertain regulatory landscape and any adverse changes to, or our failure to comply with, any laws and regulations could
adversely affect our brand, reputation, business, operating results, and financial condition.
Our business is subject
to extensive laws, rules, regulations, policies, orders, determinations, directives, treaties, and legal and regulatory interpretations
and guidance in the markets in which we operate, including those governing financial services and banking, securities, broker-dealers,
crypto asset exchange and transfer, cross-border and domestic money and crypto asset transmission, privacy, data governance, data protection,
cybersecurity, fraud detection, payment services (including payment processing and settlement services), anti-money laundering, and counter-terrorist
financing. Many of these legal and regulatory regimes were adopted prior to the advent of the internet, mobile technologies, crypto assets,
and related technologies. As a result, some applicable laws and regulations do not contemplate or address unique issues associated with
the cryptoeconomy, are subject to significant uncertainty, and vary widely across U.S. federal, state, and local and international jurisdictions.
These legal and regulatory regimes, including the laws, rules, and regulations thereunder, evolve frequently and may be modified, interpreted,
and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another. Moreover, the complexity and
evolving nature of our business and the significant uncertainty surrounding the regulation of the cryptoeconomy requires us to exercise
our judgment as to whether certain laws, rules, and regulations apply to us, and it is possible that governmental bodies and regulators
may disagree with our conclusions. To the extent we have not complied with such laws, rules, and regulations, we could be subject to
significant fines, revocation of licenses, limitations on our products and services, reputational harm, and other regulatory consequences,
each of which may be significant and could adversely affect our business, operating results, and financial condition.
Our operating results may fluctuate
and continue to fluctuate, including due to the highly volatile nature of crypto.
Our business operations
include cryptocurrency mining and the provision of digital consultation services, and thus our operating results are dependent on crypto
assets and the broader cryptoeconomy. Due to the highly volatile nature of the cryptoeconomy and the prices of crypto assets, which have
experienced and continue to experience significant volatility, our operating results have, and may continue to, fluctuate significantly
in accordance with market sentiments and movements in the broader cryptoeconomy. Our operating results will continue to fluctuate significantly
as a result of a variety of factors, many of which are unpredictable and in certain instances are outside of our control, including:
| · | changes
in the legislative or regulatory environment, or actions by U.S. or foreign governments or
regulators, including fines, orders, or consent decrees; |
| · | investments
we make in the development of products and services as well as technology offered to our
developers, international expansion, and sales and marketing; |
| · | our
ability to establish and maintain partnerships, collaborations, joint ventures, or strategic
alliances with third parties; |
| · | market
conditions of, and overall sentiment towards, the cryptoeconomy, including the trading prices
of crptocurrencies; |
| · | macroeconomic
conditions, including interest rates and inflation; |
| · | adverse
legal proceedings or regulatory enforcement actions, judgments, settlements, or other legal
proceeding and enforcement-related costs; |
| · | the
development and introduction of existing and new products and services by us or our competitors; |
| · | our
ability to control costs, including our operating expenses incurred to grow and expand our
operations and to remain competitive; |
| · | system
failure, outages or interruptions, including with respect to third-party crypto networks; |
| · | our
lack of control over decentralized or third-party blockchains and networks that may experience
downtime, cyber-attacks, critical failures, errors, bugs, corrupted files, data losses, or
other similar software failures, outages, breaches and losses; |
| · | breaches
of security or privacy; |
As a result of these factors,
it is difficult for us to forecast growth trends accurately and our business and future prospects are difficult to evaluate, particularly
in the short term.
Our revenue is partially dependent on
the prices of crypto assets. If such price or volume declines, our business, operating results, and financial condition would be adversely
affected.
We generate a portion
of our total revenue from our cryptocurrency mining operations. Declines in the price of crypto assets may result in lower total revenue
to us, cause us to recognize losses, and affect the price of our shares.
The price of crypto assets
and associated demand for buying, selling, and trading crypto assets have historically been subject to significant volatility. For instance,
in 2017, the value of certain crypto assets, including Bitcoin, experienced steep increases in value, and our customer base expanded
worldwide. The increases in value of certain crypto assets, including Bitcoin, from 2016 to 2017, and then again in 2021, were followed
by a steep decline in 2018 and again in 2022, which has adversely affected our net revenue and operating results. If the value of crypto
assets and transaction volume do not recover or further decline, our ability to generate revenue may suffer and customer demand for our
products and services may decline, which could adversely affect our business, operating results and financial condition. The price and
trading volume of any crypto asset is subject to significant uncertainty and volatility, depending on a number of factors, including:
| · | market
conditions of, and overall sentiment towards, crypto assets and the cryptoeconomy, including,
but not limited to, as a result of actions taken by or developments of other companies in
the cryptoeconomy; |
| · | changes
in liquidity, market-making volume, and trading activities; |
| · | trading
activities on other crypto platforms worldwide, many of which may be unregulated, and may
include manipulative activities; |
| · | investment
and trading activities of highly active consumer and institutional users, speculators, miners,
and investors; |
| · | the
speed and rate at which crypto is able to gain adoption as a medium of exchange, utility,
store of value, consumptive asset, security instrument, or other financial assets worldwide,
if at all; |
| · | decreased
user and investor confidence in crypto assets and crypto platforms; |
| · | negative
publicity and events relating to the cryptoeconomy; |
| · | unpredictable
social media coverage or “trending” of, or other rumors and market speculation
regarding crypto assets; |
| · | the
ability for crypto assets to meet user and investor demands; |
| · | the
functionality and utility of crypto assets and their associated ecosystems and networks,
including crypto assets designed for use in various applications; |
| · | consumer
preferences and perceived value of crypto assets and crypto asset markets; |
| · | increased
competition from other payment services or other crypto assets that exhibit better speed,
security, scalability, or other characteristics; |
| · | regulatory
or legislative changes and updates affecting the cryptoeconomy; |
| · | the
characterization of crypto assets under the laws of various jurisdictions around the world; |
| · | the
adoption of unfavorable taxation policies on crypto asset investments by governmental entities; |
| · | legal
and regulatory changes affecting the operations of miners and validators of blockchain networks,
including limitations and prohibitions on mining activities, or new legislative or regulatory
requirements as a result of growing environmental concerns around the use of energy in bitcoin
and other proof-of-work mining activities; |
| · | ongoing
technological viability and security of crypto assets and their associated smart contracts,
applications and networks, including vulnerabilities against hacks and scalability; |
| · | monetary
policies of governments, trade restrictions, and fiat currency devaluations; and |
| · | national
and international economic and political conditions. |
There is no assurance
that any crypto asset in which we conduct mining or related operations will maintain its value or that there will be meaningful levels
of trading activities and liquidity. In the event that the price of crypto assets decline, our business, operating results, and financial
condition, as well as our share price, would be adversely affected, and we may have to recognize losses or impairments in our investments
or other crypto assets due to disruptions in the crypto asset markets.
The future development and growth of
crypto is subject to a variety of factors that are difficult to predict and evaluate. If crypto does not grow as we expect, our business,
operating results, and financial condition could be adversely affected.
Crypto assets built on
blockchain technology were only introduced in 2008 and remain in the early stages of development. In addition, different crypto assets
are designed for different purposes. Bitcoin, for instance, was designed to serve as a peer-to-peer electronic cash system, while Ethereum
was designed to be a smart contract and decentralized application platform. Many other crypto networks-ranging from cloud computing to
tokenized securities networks-have only recently been established. The further growth and development of any crypto assets and their
underlying networks and other cryptographic and algorithmic protocols governing the creation, transfer, and usage of crypto assets represent
a new and evolving paradigm that is subject to a variety of factors that are difficult to evaluate, including:
| · | many
crypto networks have limited operating histories, have not been validated in production,
and are still in the process of developing and making significant decisions that will affect
the design, supply, issuance, functionality, and governance of their respective crypto assets
and underlying blockchain networks, any of which could adversely affect their respective
crypto assets; |
| · | many
crypto networks are in the process of implementing software upgrades and other changes to
their protocols, which could introduce bugs, security risks, or adversely affect the respective
crypto networks; |
| · | several
large networks, including Bitcoin and Ethereum, are developing new features to address fundamental
speed, scalability, and energy usage issues. If these issues are not successfully addressed,
or are unable to receive widespread adoption, it could adversely affect the underlying crypto
assets; |
| · | security
issues, bugs, and software errors have been identified with many crypto assets and their
underlying blockchain networks, some of which have been exploited by malicious actors. There
are also inherent security weaknesses in some crypto assets, such as when creators of certain
crypto networks use procedures that could allow hackers to counterfeit tokens. Any weaknesses
identified with a crypto asset could adversely affect its price, security, liquidity, and
adoption. If a malicious actor or botnet (a volunteer or hacked collection of computers controlled
by networked software coordinating the actions of the computers) obtains a majority of the
compute or staking power on a crypto network, as has happened in the past, it may be able
to manipulate transactions, which could cause financial losses to holders, damage the network’s
reputation and security, and adversely affect its value; |
| · | the
development of new technologies for mining, such as improved application-specific integrated
circuits (commonly referred to as ASICs), or changes in industry patterns, such as the consolidation
of mining power in a small number of large mining farms, could reduce the security of blockchain
networks, lead to increased liquid supply of crypto assets, and reduce a crypto’s price
and attractiveness; |
| · | if
rewards and transaction fees for miners or validators on any particular crypto network are
not sufficiently high to attract and retain miners, a crypto network’s security and
speed may be adversely affected, increasing the likelihood of a malicious attack; |
| · | many
crypto assets have concentrated ownership or an “admin key”, allowing a small
group of holders to have significant unilateral control and influence over key decisions
related to their crypto networks, such as governance decisions and protocol changes, as well
as the market price of such crypto assets; |
| · | the
governance of many decentralized blockchain networks is by voluntary consensus and open competition,
and many developers are not directly compensated for their contributions. As a result, there
may be a lack of consensus or clarity on the governance of any particular crypto network,
a lack of incentives for developers to maintain or develop the network, and other unforeseen
issues, any of which could result in unexpected or undesirable errors, bugs, or changes,
or stymie such network’s utility and ability to respond to challenges and grow; and |
| · | many
crypto networks are in the early stages of developing partnerships and collaborations, all
of which may not succeed and adversely affect the usability and adoption of the respective
crypto assets. |
Various other technical
issues have also been uncovered from time to time that resulted in disabled functionalities, exposure of certain users’ personal
information, theft of users’ assets, and other negative consequences, and which required resolution with the attention and efforts
of their global miner, user, and development communities. If any such risks or other risks materialize, and in particular if they are
not resolved, the development and growth of crypto may be significantly affected and, as a result, our business, operating results, and
financial condition could be adversely affected.
Any failure to safeguard and manage
our crypto assets could adversely impact our business, operating results, and financial condition.
We believe we have developed
and maintained administrative, technical, and physical safeguards and safeguard our crypto assets and which are designed to comply with
applicable legal requirements and industry standards. However, it is nevertheless possible that hackers, employees or service providers
acting contrary to our policies, or others could circumvent these safeguards to improperly access our systems or documents, or the systems
or documents of our business partners, agents, or service providers, and improperly access, obtain, misuse crypto assets and funds. The
methods used to obtain unauthorized access, disable, or degrade service or sabotage systems are also constantly changing and evolving
and may be difficult to anticipate or detect for long periods of time. Any loss of cash or crypto assets could result in a substantial
business disruption, adverse reputational impact, inability to compete with our competitors, and regulatory investigations, inquiries,
or actions. Any security incident resulting in a compromise of crypto assets could result in substantial costs to us, expose us to regulatory
enforcement actions, limit our ability to provide services, subject us to litigation, significant financial losses, damage our reputation,
and adversely affect our business, operating results, financial condition, and cash flows.
The theft, loss, or destruction of private
keys required to access any crypto assets held in custody for our own account may be irreversible. If we are unable to access our private
keys or if we experience a hack or other data loss relating to our ability to access any crypto assets, it could cause regulatory scrutiny,
reputational harm, and other losses.
Crypto assets are generally
controllable only by the possessor of the unique private key relating to the digital wallet in which the crypto assets are held. While
blockchain protocols typically require public addresses to be published when used in a transaction, private keys must be safeguarded
and kept private in order to prevent a third party from accessing the crypto assets held in such a wallet. To the extent that any of
the private keys relating to our wallets containing crypto assets is lost, destroyed, or otherwise compromised or unavailable, and no
backup of the private key is accessible, we will be unable to access the crypto assets held in the related wallet. Further, we cannot
provide assurance that our wallet will not be hacked or compromised. Crypto assets and blockchain technologies have been, and may in
the future be, subject to security breaches, hacking, or other malicious activities. Any loss of private keys relating to, or hack or
other compromise of, digital wallets used to store our crypto assets could adversely affect our ability to access or sell crypto assets,
and subject us to significant financial losses in addition to hurting our brand and reputation, result in significant losses, and adversely
impact our business.
Any gaps in our risk management processes
and policies in respect of crypto asset could adversely impact our business, operating results, and financial condition.
In late February 2022,
Wei Zhu, our former acting Chief Financial Officer, former Co-Chief Executive Officer, and a former member and Co-Chairperson of the
Board, and Minghao Li, a former member of the Board, were suspected of certain criminal offenses unrelated to our Company’s operations
and were detained by the Economic Crime Investigation Detachment of Sheyang County Public Security Bureau, Yancheng City, Jiangsu Province,
People’s Republic of China. At the same time, Sheyang Public Security Bureau wrongly seized the digital assets hardware cold wallet
belonging to the Company, along with the cryptocurrencies stored in the hardware cold wallet. Our Company has since undergone major management
personnel changes. As of the date of this prospectus, our board and management have not identified any material gaps in our risk management
processes and policies in relation to our business model and any crypo assets that we hold. Nonetheless, if any gaps in our risk management
processes and policies were to arise, such deficiencies could adversely impact our business, operating results, and financial condition.
In turn, such deficiencies would require our board and management to make appropriate changes to our risk management processes and policies.
The assertion of jurisdiction by U.S.
and foreign regulators and other government entities over crypto assets and crypto asset markets could adversely impact our business,
operating results, and financial condition.
We operate our business
in a number of jurisdictions, including the U.S. and China. In the case that U.S. and foreign regulators or other government entities
assert jurisdiction over a business in the crypto asset markets, this could lead to conflicting laws or directives which, in turn, could
impede our business operations. Moreover, such conflicting laws or directives will make it difficult to determine which laws, rules,
and regulations apply to our business. Additionally, U.S. and foreign regulators as well as other government entities may disagree with
our determination as to which laws, rules, and regulations apply to our business. This could lead to additional compliance cost burdens,
as well as increasing our risks of running afoul of laws and regulations from certain jurisdictions in which we operate our business.
Risks Relating to Doing Business in the
PRC
We conduct a portion of our business
operations in China and are subject to the attendant risks of operating in China, including regulatory risks resulting from political
and regulatory changes which may be swift and unexpected.
We are not a Chinese
operating company but a Cayman Islands holding company with a portion of our operations conducted by our subsidiaries based in China.
Prior to 2022, the majority of our operations were based in mainland China. During 2022, we divested our software development business
in mainland China, established a new management team, and relocated our headquarters to the United States with the newly established
Hong Kong office as the operational hub for our business in the Asia Pacific region. As a result of the recent operational reorganization,
the majority of our operations are currently based in the U.S. while part of our technical and back-office team in mainland China.
Investors in our securities
are purchasing equity interest in MFH Cayman, a holding company incorporated in the Cayman Islands with business operations in China
and the U.S. and therefore, investors may never hold equity interests in any of our Chinese operating entities. This operating structure
may involve unique risks to investors. There are significant legal and operational risks associated with being based in or having a portion
of business operations in China. Any of such risks and uncertainties could result in material changes in our operations and/or the value
of our ordinary shares or could significantly limit or completely hinder our ability to offer or continue to offer ordinary shares and/or
other securities to investors and cause the value of such securities to significantly decline or be worthless. The PRC government has
significant authority to exert influence on the ability of a company with operations in China to conduct business. The PRC government
has initiated a series of regulatory actions and has 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 and data privacy protection. As of the date of this prospectus, we do not believe that we are subject to: (i) the cybersecurity
review with the Cyberspace Administration of China, or CAC, as our products and services are not offered to individual users but to our
institutional customers, we do not possess a large amount of personal information in our business operations, and our business does not
involve the collection of data that affects or may affect national security, implicates cybersecurity, or involves any type of restricted
industry; or (ii) merger control review by China’s anti-monopoly enforcement agency due to the fact that we do not engage in monopolistic
behaviors that are subject to these statements or regulatory actions. However, since these statements and regulatory actions are new,
it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or
regulations or detailed implementations and interpretations will be modified or promulgated, and, if any, the potential impact such modified
or new laws and regulations will have on our daily business operation, ability to accept foreign investments and listing of our securities
on a U.S. or other foreign exchange. In addition, changes in the legal, political and economic policies of the Chinese government, the
relations between China and the United States, or Chinese or U.S. regulations may materially and adversely affect our business, financial
condition and results of operations. Any such changes could significantly limit or completely hinder our ability to offer or continue
to offer our securities to investors, and could cause the value of our securities to significantly decline or become worthless. The PRC
government has significant oversight and discretion over the conduct of our business and may intervene with or influence our operations
as the government deems appropriate to further regulatory, political and societal goals. The PRC government has recently 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 adversely affect our business, financial
condition and results of operations. Furthermore, the PRC government has recently indicated an intent to exert more oversight and control
over overseas securities offerings and other capital markets activities and foreign investment in China-based companies like us. Any
such action, once taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer
securities to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless.
For more information about
our SEC filings, please see “Where You Can Find More Information” and “Incorporation by Reference.”
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
Some of the statements made
under “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” “Business” and elsewhere in this prospectus 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 products, 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.
Important factors that could
cause actual results, developments, and business decisions to differ materially from those anticipated in these forward-looking statements
include, among other things:
| · | our
planned level of revenues and capital expenditures; |
| · | our
ability to market and sell our products and services; |
| · | our
plans to continue to invest in research and development to develop technology for both existing
and new products; |
| · | our
ability to maintain our relationships with suppliers, manufacturers, and other partners; |
| · | our
ability to maintain or protect the validity of our intellectual property and know-how; |
| · | our
ability to retain key executive members; |
| · | our
ability to internally develop and protect new inventions and intellectual property; |
| · | our
ability to expose and educate the industry about the use of our services and products; |
| · | our
expectations regarding our tax classifications; |
| · | interpretations
of current laws and the passages of future laws; and |
| · | the
impact of the COVID-19 pandemic and resulting government actions on us, our manufacturers,
suppliers, and facilities. |
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 prospectus in greater detail under the heading “Risk Factors” and elsewhere
in this prospectus. 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.
LISTING DETAILS
Our ordinary shares currently
trade on NASDAQ under the symbol “MFH”. As of the date of this prospectus, our only listed class of securities are our ordinary
shares. All of our ordinary shares, including those to be offered by the selling shareholders pursuant to this prospectus, have the same
rights and privileges. For more information, see “Description of Share Capital and Governing Documents—Our Articles of
Association—Ordinary shares”.
USE OF PROCEEDS
We will not receive any proceeds
from the sale of the ordinary shares by the selling shareholders. All net proceeds from the sale of the ordinary shares will go to the
selling shareholders.
DIVIDEND POLICY
Since our inception, we have
not declared or paid any dividends on our ordinary shares. We have no present plan to pay any dividends on our ordinary shares in the
foreseeable future. We intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
Any future determination
to pay dividends will be made at the discretion of our board of directors subject to certain restrictions under Cayman Islands law, namely
that our company may only pay dividends out of profits or share premium, and provided always that in no circumstances may a dividend
be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. In addition,
our shareholders may by ordinary resolution declare a dividend at a general meeting of our company, but no dividend may exceed the amount
recommended by our board of directors. Our board of directors’ decision to declare and pay dividends may be based on a number of
factors, including our future operations and earnings, capital requirements and surplus, the amount of distributions, if any, received
by us from our U.S., Hong Kong and PRC subsidiaries, our general financial condition, contractual restrictions and other factors that
the board of directors may deem relevant. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.
We are a holding company
incorporated in the Cayman Islands. In order for us to distribute any dividends to our shareholders, we will rely on dividends distributed
by our US, Hong Kong and PRC subsidiaries. Certain payments from our PRC subsidiary to us are subject to PRC taxes, such as withholding
income tax. In addition, regulations in China currently permit payment of dividends of a PRC company only out of accumulated distributable
after-tax profits as determined in accordance with its articles of association and the accounting standards and regulations in China.
Our PRC subsidiary is required to set aside at least 10% of its after-tax profit based on PRC accounting standards every year to a statutory
common reserve fund until the aggregate amount of such reserve fund reaches 50% of the registered capital of such subsidiary. Such statutory
reserves are not distributable as loans, advances or cash dividends. Our PRC subsidiary may set aside a certain amount of its after-tax
profits to other funds at its discretion. These reserve funds can only be used for specific purposes and are not transferable to the
company’s parent in the form of loans, advances or dividends. See our annual report filed on Form 20-F with the SEC on April 25,
2023, “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in the PRC—Governmental control
of currency conversion could affect the value of our shares. We rely principally on dividends and other distributions on equity paid
by our US, Hong Kong and PRC subsidiaries to fund any cash and financing requirements we might have. Any limitation on the ability of
our US, Hong Kong and PRC subsidiaries to pay dividends to us could have an adverse effect on our ability to conduct our business.”
SELLING SHAREHOLDERS
The 32,087,130 ordinary shares
being offered by the selling shareholders are the aggregate of ordinary shares previously issued to the selling shareholders in the closing
of the Private Placements. For additional information regarding the Private Placements, see “Prospectus Summary—Private
Placements”. We are registering the ordinary shares in order to permit the selling shareholders to offer the ordinary shares
for resale from time to time.
Other than the relationships
described herein, to our knowledge, the selling shareholders have not had any material relationship with us within the past three years.
Any selling shareholders
that are affiliates of broker-dealers and any participating broker-dealers would be deemed to be “underwriters” within the
meaning of the Securities Act, and any commissions or discounts given to any such selling shareholders or broker-dealer may be regarded
as underwriting commissions or discounts under the Securities Act. To our knowledge, none of the selling shareholders listed below are
broker-dealers or affiliates of broker-dealers.
The table below lists the
selling shareholders and other information regarding the beneficial ownership of the ordinary shares by each of the selling shareholders.
The second column lists the number of ordinary shares beneficially owned by each selling shareholder, based on its ownership of the ordinary
shares, as of May 9, 2023.
The third column lists the
ordinary shares being offered by this prospectus by the selling shareholders.
Because the number of ordinary
shares may be adjusted for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions, the
number of ordinary shares that will actually be issued may be more or less than the number of ordinary shares being offered by this prospectus.
The fourth column assumes the sale of all of the ordinary shares offered by the selling shareholders pursuant to this prospectus.
As explained below under
“Plan of Distribution,” we have agreed with the selling shareholders to bear certain expenses (other than broker discounts
and commissions, if any) in connection with the registration statement, which includes this prospectus.
Name of Selling Shareholders | |
Ordinary
Shares Beneficially Owned Prior to Offering(1) | | |
Percentage
of Existing Ordinary Shares Prior to Offering(2) | | |
Maximum
Number of Ordinary Shares to be Sold Pursuant to this Prospectus | | |
Ordinary
Shares Beneficially Owned Immediately After Sale of Maximum Number of Shares in this Offering(1) | | |
Percentage
of Equity Capital Immediately After Sale of Maximum Number of Shares in this Offering(2) | |
Hanqi
Li(3) | |
| 28,918,312 | | |
| 42.4 | % | |
| 7,229,579 | | |
| 21,688,733 | | |
| 31.8 | % |
Huangtong
International Co., Ltd(4) | |
| 15,202,640 | | |
| 28.1 | % | |
| 7,601,320 | | |
| 7,601,320 | | |
| 14.0 | % |
Hexin
Global Limited(5) | |
| 23,076,924 | | |
| 36.1 | % | |
| 5,769,231 | | |
| 17,307,693 | | |
| 27.1 | % |
Hailei
Zhang(6) | |
| 9,120,000 | | |
| 17.1 | % | |
| 2,280,000 | | |
| 6,840,000 | | |
| 12.8 | % |
Hong
Mei Zhou(7) | |
| 18,428,000 | | |
| 30.5 | % | |
| 4,607,000 | | |
| 13,821,000 | | |
| 22.9 | % |
Xin
Rong Gan(8) | |
| 18,400,000 | | |
| 30.5 | % | |
| 4,600,000 | | |
| 13,800,000 | | |
| 22.9 | % |
(1) |
Beneficial
ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities.
Ordinary shares subject to options or warrants currently exercisable, or exercisable within 60 days of May 9, 2023, are
counted as outstanding for computing the percentage of the selling shareholder holding such options or warrants but are not counted
as outstanding for computing the percentage of any other selling shareholder. |
|
|
(2) |
The applicable percentage
of beneficial ownership is calculated based on the total number of ordinary shares issued and outstanding, being 46,538,116 shares,
as of May 9, 2023, together with the additional ordinary shares to be issued to the relevant selling shareholder upon exercise
of warrants held. |
|
|
(3) |
Hanqi Li holds 7,229,579
ordinary shares and warrants which can be exercised to purchase up to 21,688,733 ordinary shares. The mailing address of Hanqi Li
is Flat 35/F Tower 9, Grand Yoho, Yuen Long, Hong Kong. |
|
|
(4) |
Huangtong International
Co., Ltd holds 7,601,320 ordinary shares and warrants held which can be exercised to purchase up to 7,601,320 ordinary shares. The
mailing address of Huangtong International Co., Ltd is Room 1603, Shui On Centre, Wan Chai, Hong Kong. |
|
|
(5) |
Hexin Global Limited holds
5,769,231 ordinary shares and warrants which can be exercised to purchase up to 17,307,693 ordinary shares. The mailing address of
Hexin Global Limited is 7/F, 15 Shelter Street, Causeway Bay, Hong Kong. |
|
|
(6) |
Hailei Zhang holds 2,280,000
ordinary shares and warrants which can be exercised to purchase up to 6,840,000 ordinary shares. The mailing address of Hailei Zhang
is Room 1410, Unit 2, New Inter First Block, Zhongxing Fifth Road, Daya Bay, Huizhou City, Guangdong Province, China. |
|
|
(7) |
Hong Mei Zhou holds 4,607,000
ordinary shares and warrants which can be exercised to purchase up to 13,821,000 ordinary shares. The mailing address of Hong Mei
Zhou is Building 6, State Veteran's Institute, No. 26, Mengla Road, Jinghong, Xishuangbanna Dai Autonomous Prefecture, Yunnan
Province, China. |
|
|
(8) |
Xin Rong Gan holds 4,600,000
ordinary shares and warrants which can be exercised to purchase up to 13,800,000 ordinary shares. The mailing address of Xin Rong
Gan is Room 2-204, Building 7, Jindaotian Jinzhou Garden, Luohu District, Shenzhen, Guangdong Province, China. |
PLAN OF DISTRIBUTION
We are registering the ordinary
shares previously issued, to permit the resale of these ordinary shares by the holders of these securities from time to time after the
date of this prospectus. We will not receive any of the proceeds from the sale by the selling shareholders of the ordinary shares. Unlike
an initial public offering, any resale by the selling shareholders of the ordinary shares is not being underwritten by any investment
bank. We will bear all fees and expenses incident to our obligation to register the selling shareholders’ ordinary shares.
The selling shareholders
may sell all or a portion of the ordinary shares beneficially owned by them and offered hereby from time to time directly or through
one or more underwriters, broker-dealers or agents. If the ordinary shares are sold through underwriters or broker-dealers, the selling
shareholders will be responsible for underwriting discounts or commissions or agent’s commissions. The ordinary shares may be sold
in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the
time of sale, or at negotiated prices. These sales may be effected in transactions, which may involve crosses or block transactions,
| · | on
any national securities exchange or quotation service on which the securities may be listed
or quoted at the time of sale; |
| · | in
the over-the-counter market; |
| · | in
transactions other than on these exchanges or systems or the over-the-counter market; |
| · | ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| · | block
trades in which the broker-dealer will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction; |
| · | purchases
by a broker-dealer as principal and resale by the broker-dealer for its account; |
| · | an
exchange distribution in accordance with the rules of the applicable exchange; |
| · | privately
negotiated transactions; |
| · | sales
pursuant to Rule 144 under the Securities Act; |
| · | broker-dealers
may agree with the selling securityholders to sell a specified number of such shares at a
stipulated price per share; |
| · | a
combination of any such methods of sale; and |
| · | any
other method permitted pursuant to applicable law. |
If the selling shareholders
affect such transactions by selling ordinary shares to or through underwriters, broker-dealers, or agents, such underwriters, broker-dealers
or agents may receive commissions in the form of discounts, concessions or commissions from the selling shareholders or commissions from
purchasers of the ordinary shares for whom they may act as an agent or to whom they may sell as principal (which discounts, concessions
or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions
involved).
The selling shareholders
may pledge or grant a security interest in some or all of the ordinary shares owned by them and, if they default in the performance of
their secured obligations, the pledgees or secured parties may offer and sell the ordinary shares from time to time pursuant to this
prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act, amending,
if necessary, the list of selling shareholders to include the pledgee, transferee or other successors in interest as selling stockholders
under this prospectus. The selling shareholders also may transfer and donate the ordinary shares in other circumstances in which case
the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
The selling shareholders and any broker-dealer participating in the distribution of the shares may be deemed to be “underwriters”
within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer
may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the shares is
made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of ordinary shares being offered
and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling shareholders and any discounts, commissions or concessions allowed or reallowed or paid to
broker-dealers.
Under the securities laws
of some states, the ordinary shares may be sold in such states only through registered or licensed brokers or dealers. In addition, in
some states, the ordinary shares may not be sold unless such shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
There can be no assurance
that any selling shareholder will sell any or all of the ordinary shares registered pursuant to the registration statement, of which
this prospectus forms a part.
The selling shareholders
and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange, and the
rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the shares by the selling shareholders and any other participating person. Regulation M may also restrict
the ability of any person engaged in the distribution of the ordinary shares to engage in market-making activities with respect to the
shares. All of the foregoing may affect the marketability of the ordinary shares and the ability of any person or entity to engage in
market-making activities with respect to the ordinary shares.
We will pay all expenses
of the registration of the ordinary shares pursuant to the Private Placements, estimated to be $101,500 in total, including, without
limitation, SEC filing fees and expenses of compliance with state securities or “blue sky” laws; provided, however, that
a selling shareholder will pay all underwriting discounts and selling commissions if any. We will indemnify the selling shareholders
against liabilities, including some liabilities under the Securities Act, in accordance with the Private Placements, or the selling shareholders
will be entitled to contribution. We may be indemnified by the selling shareholders against civil liabilities, including liabilities
under the Securities Act, that may arise from any written information furnished to us by the selling shareholders specifically for use
in this prospectus, in accordance with the related Private Placements, or we may be entitled to contribution.
Once sold under the registration
statement, of which this prospectus forms a part, the ordinary shares will be freely tradable in the hands of persons other than our
affiliates.
DESCRIPTION OF SECURITIES
TO BE REGISTERED
Ordinary shares
General
As of April 5, 2023,
our authorized share capital consisted of US$250,000 divided into 62,500,000 ordinary shares of US$0.004 each, of which
46,538,116 ordinary shares were issued and outstanding. All of our outstanding ordinary shares have been, or at the time of the Closing,
will be, validly issued, fully paid, and non-assessable. Our ordinary shares are not redeemable and are not subject to any preemptive
right.
All of our issued and outstanding
ordinary shares are fully paid and non-assessable. Our ordinary shares are issued in registered form and are issued when registered in
our register of members. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their ordinary shares.
Our fourth amended and restated memorandum and articles of association do not permit us to issue bearer shares.
Dividends
The holders of our ordinary
shares are entitled to such dividends as may be declared by our shareholders or board of directors subject to the Companies Act (As Revised)
of the Cayman Islands, or the Companies Act, and to the fourth amended and restated articles of association. Under Cayman Islands law,
dividends may be declared and paid only out of funds legally available therefor, namely out of either profit or our share premium account,
and provided further that a dividend may not be paid if this would result in our company being unable to pay its debts as they fall due
in the ordinary course of business.
Voting Rights
Each ordinary share is entitled
to one vote on all matters upon which the ordinary shares are entitled to vote. Voting at any meeting of shareholders is by show of hands
unless a poll is demanded before or on the declaration of the result of the show of hands.
A poll may be demanded by
the chairman of such meeting or any one shareholder present in person or by proxy.
An ordinary resolution to
be passed by the shareholders requires the affirmative vote of a simple majority of votes attached to the ordinary shares cast in a general
meeting, while a special resolution requires the affirmative vote of at least two-thirds of votes cast attached to the ordinary shares
in a meeting. A special resolution will be required for important matters such as a change of name or making changes to our memorandum
and articles of association.
Transfer of ordinary shares
Subject to the restrictions
contained in our fourth amended and restated articles of association, as applicable, any of our shareholders may transfer all or any
of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.
Our board of directors may,
in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up 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. Our board of directors may also decline to register any transfer of any ordinary share unless:
|
· |
the instrument of transfer
is lodged with us or such other place at which the register of members is kept in accordance with Cayman Islands law, accompanied
by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably require
to show the right of the transferor to make the transfer; |
|
· |
the instrument of transfer is in respect of only one
class of shares; |
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· |
the instrument of transfer is properly stamped, if
required; |
|
· |
the ordinary shares transferred are fully paid and
free of any lien in favor of us; |
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· |
a fee of such maximum sum
as the Nasdaq Global Market may determine to be payable or such lesser sum as the board may from time to time require is paid to
us in respect thereof; and |
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· |
the transfer is not to more than four joint holders. |
If our directors refuse to
register a transfer they are required, within three months 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.
The registration of transfers
may, after compliance with any notice requirement of the Nasdaq Global Market, be suspended and the register closed at such times and
for such periods as our directors may from time to time determine; provided, however, that the registration of transfers shall not be
suspended nor the register closed for more than 30 days in any year as our directors may determine.
Restructuring
A company may present a petition
to the Grand Court of the Cayman Islands for the appointment of a restructuring officer on the grounds that the company:
(a) is or is likely
to become unable to pay its debts; and
(b) intends to present a compromise
or arrangement to its creditors (or classes thereof) either pursuant to the Companies Act, the law of a foreign country or by way of
a consensual restructuring.
The Grand Court may, among
other things, make an order appointing a restructuring officer upon hearing of such petition, with such powers and to carry out such
functions as the court may order. At any time (i) after the presentation of a petition for the appointment of a restructuring officer
but before an order for the appointment of a restructuring officer has been made, and (ii) when an order for the appointment of
a restructuring officer is made, until such order has been discharged, no suit, action or other proceedings (other than criminal proceedings)
shall be proceeded with or commenced against the company, no resolution to wind up the company shall be passed, and no winding up petition
may be presented against the company, except with the leave of the court. However, notwithstanding the presentation of a petition for
the appointment of a restructuring officer or the appointment of a restructuring officer, a creditor who has security over the whole
or part of the assets of the company is entitled to enforce the security without the leave of the court and without reference to the
restructuring officer appointed.
Liquidation
On a return of capital on
winding up or otherwise (other than on redemption or purchase of ordinary shares), assets available for distribution among the holders
of ordinary shares will be distributed among the holders of the ordinary shares on a pro rata basis. If our assets available for distribution
are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders
proportionately.
Calls on ordinary shares and
Forfeiture of ordinary shares
Our board of directors may
from time to time make calls upon shareholders for any amounts unpaid on their ordinary shares in a notice served to such shareholders
at least 14 clear days prior to the specified time of payment. The ordinary shares that have been called upon and remain unpaid are subject
to forfeiture.
Share Repurchases
We are empowered under our
fourth amended and restated memorandum of association to purchase our shares subject to the Companies Act and our fourth amended and
restated articles of association. Our fourth amended and restated articles of association provide that this power is exercisable by our
board of directors in such manner, upon such terms and subject to such conditions as it in its absolute discretion thinks fit subject
to the Companies Act and, where applicable, the rules of the Nasdaq Global Market and the applicable regulatory authority.
Variation of Rights of Shares
If at any time, our share
capital is divided into different classes of shares, all or any of the special rights attached to any class of shares may, subject to
the provisions of the Companies Act, be varied with the sanction of a special resolution passed at a separate general meeting of the
holders of the shares of that class. Consequently, the rights of any class of shares cannot be detrimentally altered without a majority
of two-thirds of the vote of all of the shares in that class. The rights conferred upon the holders of the shares of any class issued
with preferred or other rights will 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 with such existing class of shares.
General Meetings of Shareholders
Shareholders' meetings may
be convened by our board of directors. Cayman Islands law 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 fourth amended and restated articles of association allow our shareholders holding shares
representing in aggregate not less than 30% of our voting share capital in issue, to requisition an extraordinary general meeting of
our shareholders, in which case our directors are obliged to call such meeting and to put the resolutions so requisitioned to a vote
at such meeting; however, our fourth amended and restated articles of association do not provide our shareholders with any right to put
any proposals before annual general meetings or extraordinary general meetings not called by such shareholders. Advance notice of at
least ten clear days is required for the convening of our annual general shareholders' meeting and any other general meeting of our shareholders.
A quorum required for a meeting of shareholders consists of at least two shareholders present or by proxy, representing not less than
one-third in nominal value of the total issued voting shares in our company.
Retirement, Election and Removal
of Directors
Unless otherwise determined
by the members in the general meeting, our fourth amended and restated articles of association provide that our board will consist of
not less than three directors. There are no provisions relating to retirement of directors upon reaching any age limit.
Any director on our board
may be removed by way of an ordinary resolution of shareholders. Any vacancies on our board of directors or additions to the existing
board of directors can be filled by the affirmative vote of a majority of the remaining directors. The shareholders may also by ordinary
resolution elect any person to be a director either to fill a casual vacancy or as an addition to the existing board of directors.
Any director appointed by
the board of directors to fill a casual vacancy shall hold office for the remaining term of the director in whose place he is appointed
and shall be eligible for re-election at the expiry of the said term.
Grounds for vacating
a director
The office of a director
shall be vacated if the director:
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· |
resigns his office by notice
in writing delivered to us or tendered at a meeting of the board of directors; |
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· |
becomes of unsound mind or dies; |
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· |
without special leave of
absence from the board of directors, is absent from meetings of the board of directors for six consecutive months and the board of
directors resolves that his office be vacated; |
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· |
becomes bankrupt or has
a receiving order made against him or suspends payment or compounds with his creditors; |
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· |
is prohibited by law from being a director; or |
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· |
ceases to be a director
by virtue of any provisions of Cayman Islands law or is removed from office pursuant to the fourth amended and restated articles
of association. |
Proceedings of Board of Directors
Our fourth amended and restated
articles of association provide that our business is to be managed and conducted by our board of directors. The quorum necessary for
the board meeting may be fixed by the board and, unless so fixed at another number, will be two directors.
Inspection of Books and Records
Holders of our 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
(except for our memorandum and articles of association, our register of mortgages and charges and special resolutions of our shareholders).
However, we will in our fourth amended and restated articles of association provide our shareholders with the right to inspect our list
of shareholders and to receive annual audited financial statements. See "Where You Can Find More Information".
Changes in Capital
We may from time to time
by ordinary resolution:
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· |
increase the share capital
by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe; |
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· |
consolidate and divide
all or any of our share capital into shares of a larger amount than our existing shares; |
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· |
without prejudice to the
powers of the board of directors under our articles of association, divide our shares into several classes and without prejudice
to any special rights previously conferred on the holders of existing shares attach thereto respectively and preferential, deferred,
qualified or special rights, privileges, conditions or such restrictions which in the absence of any such determination by the Company
in general meeting, as the board of directors may determine; |
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· |
sub-divide our existing shares, or any of them into
shares of a smaller amount; or |
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· |
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 by special resolution
reduce our share capital or any capital redemption reserve in any manner permitted by law.
Register of Members
Under Cayman Islands law,
we must keep a register of members and there should be entered therein
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(a) |
the names and addresses
of the members, together with a statement of the shares held by each member, and such statement shall confirm (i) the amount
paid or agreed to be considered as paid, on the shares of each member; (ii) the number and category of shares held by each member,
and (iii) whether each relevant category of shares held by a member carries voting rights under the articles of association
of the company, and if so, whether such voting rights are conditional; |
|
(b) |
the date on which the name
of any person was entered on the register as a member; and |
|
(c) |
the date on which any person
ceased to be a member. |
Under Cayman Islands law,
the register of members of our company is prima facie evidence of the matters set out therein (i.e. the register of members will raise
a presumption of fact on the matters referred to above unless rebutted) and a member registered in the register of members should be
deemed as a matter of Cayman Islands law to have legal title to the shares as set against its name in the register of members. Once our
register of members has been updated, the shareholders recorded in the register of members will be deemed to have legal title to the
shares set against their name.
If the name of any person
is incorrectly entered in or omitted from our register of members, or if there is any default or unnecessary delay in entering on the
register the fact of any person having ceased to be a member of our company, the person or member aggrieved (or any member of our company
or our company itself) may apply to the Cayman Islands Grand Court for an order that the register be rectified, and the Court may either
refuse such application or it may, if satisfied of the justice of the case, make an order for the rectification of the register.
Differences in Corporate Law
The Companies Act is derived,
to a large extent, from the Older Companies Acts of England but does not follow recent statutory enactments in England. In addition,
the Companies Act differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of
the significant differences between the provisions of the Companies Act applicable to us and the laws applicable to companies incorporated
in the United States.
Mergers and Similar Arrangements
The Companies Act permits
mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For
these purposes, (a) "merger" means the merging of two or more constituent companies and the vesting of their undertaking,
property and liabilities in one of such companies as the surviving company and (b) a "consolidation" means the combination
of two or more constituent companies into a combined company and the vesting of the undertaking, property and liabilities of such companies
to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve
a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each
constituent company, and (b) such other authorization, if any, as may be specified in such constituent company's articles of association.
The written plan of merger
or consolidation must be filed with the Registrar of Companies together with a declaration as to the solvency of the consolidated or
surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate
of merger or consolidation will be given to the members and creditors of each constituent company and that notification of the merger
or consolidation will be published in the Cayman Islands Gazette. Dissenting shareholders have the right to be paid the fair value of
their shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) if they follow the required procedures,
subject to certain exceptions. Court approval is not required for a merger or consolidation which is effected in compliance with these
statutory procedures.
In addition, there are statutory
provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved by (a) 75%
in value of the shareholders or class of shareholders, as the case may be, or (b) a majority in number representing 75% in value
of the creditors or each class of creditors, as the case may be, with whom the arrangement is to be made, that are, in each case, present
and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently
the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express
to the court the view that the transaction ought not to be approved, the Grand Court of the Cayman Islands can be expected to approve
the arrangement if it determines that:
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· |
the statutory provisions as to the required majority
vote have been met; |
|
· |
the shareholders have been fairly represented at the
meeting in question and the statutory majority are acting bona fide without coercion of the minority to promote interests adverse
to those of the class; |
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· |
the arrangement is such that may be reasonably approved
by an intelligent and honest man of that class acting in respect of his interest; and |
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· |
the arrangement is not one that would more properly
be sanctioned under some other provision of the Companies Act. |
When a takeover offer is
made and accepted by holders of 90% of the shares affected within four months, the offeror may, within a two-month period commencing
on the expiration of such four month period, require the holders of the remaining shares to transfer such shares on the terms of the
offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which
has been so approved unless there is evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction
is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be
available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined
value of the shares.
Shareholders' Suits
In principle, we will normally
be the proper plaintiff and as a general rule a derivative action may not be brought by a minority shareholder. However, based on
English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, there are exceptions to the foregoing
principle, including when:
|
· |
a company acts or proposes to act illegally or ultra
vires; |
|
· |
the act complained of,
although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not been obtained;
and |
|
· |
those who control the company are perpetrating a "fraud
on the minority". |
Indemnification of Directors
and Executive Officers and Limitation of Liability
Cayman Islands law does not
limit the extent to which a company's 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. Our fourth amended and restated memorandum and articles of association
permit indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as such unless
such losses or damages arise from dishonesty or fraud which may attach to such directors or officers. This standard of conduct is generally
the same as permitted under the Delaware General Corporation Law for a Delaware corporation. In addition, we intend to enter into indemnification
agreements with our directors and senior executive officers that will provide such persons with additional indemnification beyond that
provided in our third amended and restated memorandum and articles of association.
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing
provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Anti-Takeover Provisions in
the Memorandum and Articles of Association
Some provisions of our fourth
amended and restated memorandum and articles of association may discourage, delay or prevent a change in control of our company or management
that shareholders may consider favorable, including provisions that authorize our board of directors to issue preference shares in one
or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares without any further
vote or action by our shareholders.
However, under Cayman Islands
law, our directors may only exercise the rights and powers granted to them under our memorandum and articles of association, as amended
and restated from time to time, for what they believe in good faith to be in the best interests of our company.
Directors' Fiduciary Duties
As a matter of Cayman Islands
law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore it is considered
that he owes the following duties to the company—a duty to act bona fide in the best interests of the company, a duty not to make
a profit based on his or her position as director (unless the company permits him to do so) and a duty not to put himself in a position
where the interests of the company conflict with his or her personal interest or his or her duty to a third party. A director of a Cayman
Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit
in the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge
and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and
care and these authorities are likely to be followed in the Cayman Islands.
In addition, directors of
a Cayman Islands company must not place themselves in a position in which there is a conflict between their duty to the company and their
personal interests. However, this obligation may be varied by the company's articles of association, which may permit a director to vote
on a matter in which he has a personal interest provided that he has disclosed that nature of his interest to the board. Our fourth amended
and restated memorandum and articles of association provides that a director with an interest (direct or indirect) in a contract or arrangement
or proposed contract or arrangement with the company must declare the nature of his interest at the meeting of the board of directors
at which the question of entering into the contract or arrangement is first considered, if he knows his interest then exists, or in any
other case at the first meeting of the board of directors after he is or has become so interested.
A general notice may be given
at a meeting of the board of directors to the effect that (i) the director is a member/officer of a specified company or firm and
is to be regarded as interested in any contract or arrangement which may after the date of the notice in writing be made with that company
or firm; or (ii) he is to be regarded as interested in any contract or arrangement which may after the date of the notice in writing
to the board of directors be made with a specified person who is connected with him, will be deemed sufficient declaration of interest.
Following the disclosure being made pursuant to our fourth amended and restated memorandum and articles of association and subject to
any separate requirement for Audit Committee approval under applicable law or the listing rules of Nasdaq, and unless disqualified
by the chairman of the relevant board meeting, a director may vote in respect of any contract or arrangement in which such director is
interested and may be counted in the quorum at such meeting. However, even if a director discloses his interest and is therefore permitted
to vote, he must still comply with his duty to act bona fide in the best interest of our company.
In comparison, under Delaware
corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components:
the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily
prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders,
all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in
a manner he or she reasonably believes to be in the best interests of the corporation. He or she must not use his or her corporate position
for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation
and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by
the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and
in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by
evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director
must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.
Shareholder Proposals
Under the Delaware General
Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with
the notice provisions in the governing documents. The Delaware General Corporation Law does not provide shareholders an express right
to put any proposal before the annual meeting of shareholders, but in keeping with common law, Delaware corporations generally afford
shareholders an opportunity to make proposals and nominations provided that they comply with the notice provisions in the certificate
of incorporation or bylaws. A special meeting may be called by the board of directors or any other person authorized to do so in the
governing documents, but shareholders may be precluded from calling special meetings.
There are no statutory requirements
under Cayman Islands law allowing our shareholders to requisition a shareholders' meeting. However, under our fourth amended and restated
articles of association, on the requisition of shareholders representing not less than 30% of the voting rights entitled to vote at general
meetings, the board shall convene an extraordinary general meeting. As an exempted Cayman Islands company, we are not obliged by law
to call shareholders' annual general meetings. Our fourth amended and restated articles of association provides that we may (but shall
not be obliged to) in each calendar year hold a general meeting as our annual general meeting.
Cumulative Voting
Under the Delaware General
Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation's certificate of incorporation
specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors
since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases
the shareholder's voting power with respect to electing such director. As permitted under Cayman Islands law, our fourth amended and
restated articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any less protections
or rights on this issue than shareholders of a Delaware corporation.
Removal of Directors
Under the Delaware General
Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of
the issued and outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our fourth amended
and restated articles of association, directors may be removed by an ordinary resolution of shareholders.
Transactions with Interested
Shareholders
The Delaware General Corporation
Law contains a business combination statute applicable to Delaware public corporations whereby, unless the corporation has specifically
elected not to be governed by such statute by amendment to its certificate of incorporation or bylaws that is approved by its shareholders,
it is prohibited from engaging in certain business combinations with an "interested shareholder" for three years following
the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which
owns or owned 15% or more of the target's outstanding voting stock or who or which is an affiliate or associate of the corporation and
owned 15% or more of the corporation's outstanding voting stock within the past three years. This has the effect of limiting the ability
of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does
not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors
approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages
any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target's board of directors.
Cayman Islands law has no
comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination
statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does
provide that such transactions must be entered into bona fide in the best interests of the company and for a proper corporate purpose
and not with the effect of constituting a fraud on the minority shareholders.
Dissolution; Winding Up
Under the Delaware General
Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding
100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved
by a simple majority of the corporation's outstanding shares. Delaware law allows a Delaware corporation to include in its certificate
of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under Cayman Islands law,
a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolution of its members or, if the
company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority to order winding
up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so.
Under the Companies Act and
our fourth amended and restated articles of association, our company may be dissolved, liquidated or wound up by a special resolution
of our shareholders. The court has authority to order winding up in a number of specified circumstances including where it is, in the
opinion of the court, just and equitable to do so.
Variation of Rights of Shares
Under the Delaware General
Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of
such class, unless the certificate of incorporation provides otherwise. Under Cayman Islands law and our fourth amended and restated
articles of association, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class
only with the sanction of a special resolution passed at a separate meeting of the holders of the shares of that class.
Amendment of Governing Documents
Under the Delaware General
Corporation Law, a corporation's certificate of incorporation may be amended only if adopted and declared advisable by the board of directors
and approved by a majority of the outstanding shares entitled to vote, and the bylaws may be amended with the approval of a majority
of the outstanding shares entitled to vote and may, if so provided in the certificate of incorporation, also be amended by the board
of directors. Under Cayman Islands law, our fourth amended and restated memorandum and articles of association may only be amended by
a special resolution of our shareholders.
Rights of Non-Resident or Foreign
Shareholders
There are no limitations
imposed by our fourth amended and restated memorandum and articles of association on the rights of non-resident or foreign shareholders
to hold or exercise voting rights on our shares. In addition, there are no provisions in our fourth amended and restated memorandum and
articles of association that require our company to disclose shareholder ownership above any particular ownership threshold.
Directors' Power to Issue Shares
Subject to applicable law,
our board of directors is empowered to issue or allot shares or grant options and warrants with or without preferred, deferred, qualified
or other special rights or restrictions.
Preemptive Rights
The shareholders of our company
do not have preemptive right.
Other Rights
Not applicable.
TAXATION
The
following is a general summary of the material Cayman Islands, People’s Republic of China and U.S. federal income tax consequences
relevant to an investment in our ordinary shares. The discussion is not intended to be, nor should it be construed as, legal or tax advice
to any particular prospective purchaser. The discussion is based on laws and relevant interpretations thereof as of the date of this
annual report, all of which are subject to change or different interpretations, possibly with retroactive effect. The discussion does
not address U.S. state or local tax laws, or tax laws of jurisdictions other than the Cayman Islands, the People’s Republic of
China and the United States. You should consult your own tax advisors with respect to the consequences of acquisition, ownership and
disposition of our ordinary shares.
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 after execution, brought within
the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments
made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments
of dividends and capital in respect of the shares will not be subject to taxation in the Cayman Islands and no withholding will be required
on the payment of a dividend or capital to any holder of the Shares, nor will gains derived from the disposal of the shares be subject
to Cayman Islands income or corporation tax.
People’s Republic of China Taxation
Under
the Enterprise Income Tax Law and the Regulations on the Implementation of the Enterprise Income Tax Law of the People’s Republic
of China, enterprises established outside of China but whose “de facto management body” is located in China are considered
“resident enterprises” for PRC tax purposes. Under the applicable implementation regulations, “de facto management
body” is defined as the organizational body that effectively exercises overall management and control over production and business
operations, personnel, finance and accounting, and properties of the enterprise. Substantially all of our management is currently based
in China, and may remain in China in the future. If we are treated as a “resident enterprise” for PRC tax purposes, foreign
enterprise holders of our ordinary shares may be subject to a 10% PRC income tax upon dividends payable by us and on gains realized on
their sales or other dispositions of our ordinary shares. See “Item 3. Key Information—D. Risk Factors—Risks Relating
to Doing Business in China—Under the PRC enterprise income tax law, we could be classified as a ‘resident enterprise’
of China. Such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.” In addition, gains
derived by our non-PRC individual shareholders from the sale of our shares may be subject to a 20% PRC withholding tax. It is unclear
whether our non-PRC individual shareholders (including our ADS holders) would be subject to any PRC tax on dividends obtained by such
non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to dividends
realized by non-PRC individuals, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax
treaty. However, it is unclear either whether our non-PRC shareholders would be able to claim the benefits of any tax treaties between
their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise.
Material United States Federal Income
Tax Considerations
The
following summary describes the material U.S. federal income tax consequences generally applicable to U.S. Holders (as defined below)
of the ownership of our ordinary shares as of the date hereof. Except where noted, this summary deals only with ordinary shares held
as capital assets for U.S. federal income tax purposes. As used herein, the term “United States Holder” or “U.S. Holders”
means a beneficial owner of our ordinary share or ADS that is for United States federal income tax purposes:
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an individual citizen or resident of the United States; |
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a corporation (or other
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; |
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an estate the income of
which is subject to United States federal income taxation regardless of its source; or |
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a trust if it (1) is
subject to the primary supervision of a court within the United States and one or more United States persons have the authority to
control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury
regulations to be treated as a United States person. |
This
summary does not represent a detailed description of all of the U.S. federal income tax consequences, including those that may be applicable
to U.S. Holders if you are subject to special treatment under the United States federal income tax laws, such as:
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a broker-dealer in securities or currencies; |
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a bank or other financial institution; |
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a regulated investment company; |
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a real estate investment trust; |
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a tax-exempt organization
(including a private foundation); |
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Certain former U.S. citizens
or long-term residents; |
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a person holding our ordinary
shares as part of a hedging, integrated or conversion transaction, a constructive or wash sale or a straddle; |
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a dealer or trader in securities
that use the mark-to-market method of accounting; |
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a person who owns or is
deemed to own 10% or more of our stock (by voter or value); |
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a partnership or other
pass-through entity for U.S. federal income tax purposes (or an investor therein); |
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a person whose “functional
currency” for U.S. federal income tax purposes is not the United States dollar; |
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a person who acquires our
ordinary shares through the exercise of an employee share option or otherwise as compensation; or |
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persons holding our ordinary
shares in connection with a trade or business, permanent establishment, or fixed place of business outside the United States. |
In
addition, this discussion does not address any state, local, estate, gift, alternative minimum or non-United States tax considerations,
special accounting rules under Section 451(b) of the Code or the Medicare contribution tax on net investment income. Each
U.S. Holder is urged to consult its tax advisor regarding the U.S. federal, state, local and non-United States income and other tax considerations
of an investment in our ordinary shares.
The
discussion below is based upon the provisions of the Code, final, temporary and proposed Treasury regulations promulgated thereunder,
rulings, administrative pronouncements and judicial decisions as of the date hereof. Such authorities may be interpreted differently,
replaced, revoked or modified, possibly with retroactive effect, so as to result in U.S. federal income tax consequences different from
those discussed below. No ruling has been sought from the Internal Revenue Service, or the IRS, with respect to any U.S. federal income
tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position. In addition,
this summary is based, in part, upon representations made by the depositary to us and assumes that the deposit agreement, and all other
related agreements, will be performed in accordance with their terms.
If
a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds our ordinary shares, the tax treatment
of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Such partnership
or their partners should consult their tax advisors regarding an investment in our ordinary shares.
Taxation of Dividends and Other Distributions
on our ordinary shares
Subject
to the discussion under “—Passive Foreign Investment Company” below, the gross amount of any distributions on our ordinary
shares (including any amounts withheld to reflect PRC withholding taxes) will be taxable as dividends, to the extent paid out of our
current or accumulated earnings and profits, as determined under United States federal income tax principles. Such income (including
withheld taxes) will be includable in a U.S Holder’s gross income as ordinary income on the day actually or constructively received
by the U.S Holder, in the case of the ordinary shares. Such dividends will not be eligible for the dividends received-deduction allowed
to corporations under the Code.
Dividends
paid to certain non-corporate United States Holders may be taxable at preferential rates applicable to long-term capital gain if we are
treated as a “qualified foreign corporation,” provided certain holding period requirements are met (as discussed below).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. Our ordinary shares are listed on the Nasdaq
Capital Market, and thus, pursuant to the United States Treasury Department guidance, our ordinary shares are treated as readily tradable
on an established securities market in the United States. Thus, we believe that dividends we pay on our ordinary shares will meet the
conditions required for the reduced tax rate.
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 are deemed to be a PRC resident enterprise under the PRC tax law, we believe that we would be
eligible for the benefits of the income tax treaty between the United States and the PRC (including any protocol thereunder), or the
Treaty, and if we are eligible for such benefits, dividends we pay on our ordinary shares, regardless of whether such shares are readily
tradable on an established securities market in the United States, would be eligible for the reduced tax rates. For a discussion regarding
whether we may be classified as a PRC resident enterprise, see “Item 10. Additional Information—E. Taxation—People’s
Republic of China Taxation.”
Even
if dividends we pay on our ordinary shares would be treated as paid by a qualified foreign corporation, non-corporate U.S. Holders will
not be eligible for the reduced tax rates if they do not hold our ordinary shares for more than 60 days during the 121-day period beginning
60 days before the ex-dividend date or to the extent that such U.S. Holders elect to treat the dividend income as “investment income”
under the Code. In addition, the tax rate reduction will not apply if the recipient of a dividend is obligated to make related payments
with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period
has been met. The U.S Holders should consult their tax advisors regarding the application of these rules in their particular circumstances.
Non-corporate
U.S. Holders will not be eligible for the reduced tax rate on any dividends received from us if we are a PFIC for the taxable year in
which such dividends are paid or for the preceding taxable year.
In
the event that we are deemed to be a PRC resident enterprise under the PRC tax law, a U.S. Holder may be subject to PRC withholding taxes
on dividends paid to the U.S. Holder with respect to our ordinary shares. See “Item 10. Additional Information—E. Taxation—People’s
Republic of China Taxation.” In that case, PRC withholding taxes on dividends (limited, in the case of a U.S. holder who qualifies
for the benefits of the Treaty, to the extent not exceeding the applicable dividend withholding rate under the Treaty) generally will
be treated as foreign taxes eligible for credit against the 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 generally will
constitute passive category income. The rules governing the foreign tax credit are complex. U.S. Holders are urged to consult their
tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
To
the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, as determined
under United States federal income tax principles, the distribution will first be treated as a tax-free return of capital, causing a
reduction in the adjusted basis of the ordinary shares (thereby increasing the amount of gain, or decreasing the amount of loss, to be
recognized by a U.S. Holder on a subsequent disposition of the ordinary shares), and the balance in excess of adjusted basis will be
taxed as capital gain recognized on a sale or exchange. However, we do not expect to calculate our earnings and profits in accordance
with United States federal income tax principles. Therefore, U.S. Holders should expect that a distribution generally will be treated
as a dividend (as discussed above).
Passive Foreign Investment Company
If
we are a PFIC for any taxable year during which a U.S. Holder holds our ordinary shares, the U.S. Holder will generally be subject to
the special tax rules discussed below, regardless of whether we remain a PFIC, except if the U.S. Holder makes a timely mark-to-market
election discussed below.
These
special tax rules generally apply to any “excess distribution” (generally any distribution paid during a taxable year
to a U.S. Holder which 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 the ordinary shares) we make to the U.S. Holder and any gain realized from a sale or other
disposition of our ordinary shares. Distributions received in a taxable year that are greater than 125% of the average annual distributions
received during the shorter of the three preceding taxable years or your holding period for the ordinary shares will be treated as excess
distributions. Under these special tax rules:
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the excess distribution
or gain will be allocated ratably over the U.S Holder’s holding period for the ordinary shares, |
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the amount allocated to
the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC with respect to the U.S. Holder
(each, a “pre-PFIC year”), will be treated as ordinary income, and |
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the amount allocated to
each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect for individuals or
corporations, as appropriate, for that taxable year; and. |
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the interest charge generally
applicable to underpayments of tax will be imposed on the resulting tax attributable to each prior taxable year, other than a pre-PFIC
year. |
If
we are a PFIC for any taxable year during which a U.S. Holder holds our ordinary shares and any of our non-United States subsidiaries,
including our VIEs, is also a PFIC, the U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the
lower-tier PFIC for purposes of the application of these rules. U.S. Holders are urged to consult their tax advisors regarding the application
of the PFIC rules to any of our subsidiaries.
As
an alternative to the excess distribution rules discussed above, a U.S. Holder of “marketable stock” in a PFIC may make
a mark-to-market election with respect to such stock. “Marketable stock” is generally stock that is regularly traded on a
qualified exchange.
If
the U.S. Holder makes an effective mark-to-market election, which is generally effective for the taxable year for which the election
is made and all subsequent taxable years, the U.S. Holder will generally (i) include as ordinary income for each taxable year that
we are a PFIC the excess, if any, of the fair market value of the ordinary shares held at the end of the taxable year over the adjusted
tax basis in the ordinary shares, and (ii) deduct as an ordinary loss in each such taxable year the excess, if any, of the adjusted
tax basis in the ordinary shares over their fair market value at the end of the taxable year, but only to the extent of the net amount
previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ordinary
shares would be adjusted to reflect any income or loss resulting from the mark-to-market election. Any gain the U.S. Holder recognizes
upon the sale or other disposition of its ordinary shares in a year when we are a PFIC will be treated as ordinary income and any loss
will be treated as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market
election. If we cease to be a PFIC, the U.S. Holder will not be required to take into account the gain or loss described above during
any period that we are not a PFIC. Because a mark-to-market election cannot technically be made for any lower-tier PFICs that we may
own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any
investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes. U.S. Holders are urged
to consult their tax advisors about the availability of the mark-to-market election, and whether making the election would be advisable
in their particular circumstances.
Instead
of making a mark-to-market election, a U.S. investor in a PFIC may generally mitigate the adverse consequences of the excess distribution
rules described above by electing to treat the PFIC as a “qualified electing fund” under the Code. However, we do not
intend to provide the information necessary for U.S. Holders to make such an election.
We
expect to file annual reports on Form 20-F with the U.S. Securities and Exchange Commission in which we will indicate whether we
believe we were a PFIC for the relevant taxable year. We do not intend to make any other annual determination or otherwise notify U.S.
Holders regarding our status as a PFIC for any taxable year. U.S. Holders are urged to consult their tax advisors regarding the U.S.
federal income tax consequences of holding our ordinary shares if we are a PFIC in any taxable year.
If a U.S. Holder
owns (or is deemed to own) our ordinary shares during any taxable year that we are a PFIC, the U.S. Holder must generally file an annual
IRS Form 8621 or such other form as is required by the United States Treasury Department with respect to us. Taxation of Capital
Gains
For
U.S. federal income tax purposes, a U.S. Holder will generally recognize gain or loss on any sale or exchange of our ordinary shares
in an amount equal to the difference between the amount realized for the ordinary shares and the U.S. Holder’s adjusted tax basis
in the ordinary shares. Subject to the discussion under “—Passive Foreign Investment Company” above, such gain or loss
will generally be capital gain or loss. Any capital gain or loss will be long-term if the ordinary shares have been held for more than
one year. The deductibility of capital losses may be subject to limitations.
Any
such gain or loss the U.S. Holder recognizes will generally be treated as United States source income or loss for foreign tax credit
limitation purposes, which will generally limit the availability of foreign tax credits. However, if we are treated as a PRC resident
enterprise for PRC tax purposes and PRC tax were imposed on any gain, and if the U.S. Holder is eligible for the benefits of the Treaty,
the U.S. Holder may elect to treat such gain as PRC source gain under the Treaty and, accordingly, the U.S. Holder may be able to credit
the PRC tax against the U.S. Holder’s United States federal income tax liability. If the U.S. Holder is not eligible for the benefits
of the Treaty or fails to make the election to treat any gain as PRC source, then the U.S. Holder generally would not be able to use
the foreign tax credit arising from any PRC tax imposed on the disposition of our ordinary shares unless such credit can be applied (subject
to applicable limitations) against tax due on other income treated as derived from foreign sources. The U.S. Holder will be eligible
for the benefits of the Treaty if, for purposes of the Treaty, the U.S. Holder is a resident of the United States, and the U.S. Holder
meets other factual requirements specified in the Treaty. Because qualification for the benefits of the Treaty is a fact-intensive inquiry
which depends upon the particular circumstances of each investor, U.S. Holders are specifically urged to consult their tax advisors regarding
their eligibility for the benefits of the Treaty and the availability of the foreign tax credit and the election to treat any gain as
PRC source under their particular circumstances.
Information Reporting and Backup Withholding
Payments
of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally
are subject to information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or other
exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and
certifies that it is not subject to backup withholding.
Backup
withholding is not an additional tax. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit
against the U.S. holder’s U.S. federal income tax liability and may entitle it to a refund, provided that the required information
is timely furnished to the IRS.
Foreign Asset Reporting
Certain U.S. Holders who
are individuals (and under proposed regulations, certain entities) may be required to report information relating to an interest in our
ordinary shares, subject to certain exceptions (including an exception for shares held in accounts maintained by U.S. financial institutions)
on IRS Form 8938. U.S. Holders are urged to consult their tax advisors regarding their information reporting obligations, if any,
with respect to their ownership and disposition of our ordinary shares.
This summary does not contain a detailed description
of all the United States federal income tax consequences that may be applicable to you in light of your particular circumstances and,
except as set forth below with respect to PRC tax considerations, does not address the effects of any state, local or non-United States
tax laws. If you are considering the purchase, ownership or disposition of our ordinary shares, you should consult your own tax advisors
concerning the United States federal income tax consequences to you in light of your particular situation as well as any consequences
arising under the laws of any other taxing jurisdiction.
LEGAL MATTERS
Certain legal matters as
to U.S. federal securities law concerning this offering will be passed upon for us by Sichenzia Ross Ference LLP, New York, New York.
Certain legal matters as to Cayman Islands law will be passed upon for us by Maples and Calder (Hong Kong) LLP. Certain legal matters
as to PRC law will be passed upon for us by Deheng Law Offices. Sichenzia Ross Ference LLP may rely upon Maples and Calder (Hong Kong)
LLP with respect to matters governed by Cayman Islands law and Deheng Law Offices with respect to matters governed by PRC law.
EXPERTS
The financial statements
as of December 31, 2022 and 2021 and for the years then ended included in this prospectus have been so included in reliance on the
report of Onestop Assurance PAC and Shanghai Perfect C.P.A. Partnership respectively, each an independent registered public accounting
firm, given on the authority of said firms as experts in auditing and accounting.
EXPENSES
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 | |
$ | 6,000 | |
Printer fees and expenses | |
$ | 5,000 | |
Legal fees and expenses | |
$ | 65,000 | |
Accounting fees and expenses(1) | |
$ | 20,500 | |
Miscellaneous | |
$ | 5,000 | |
Total | |
$ | 101,500 | |
(1) |
Including fees associated
with incremental audit procedures for 2019-2021 required to comply with PCAOB standards. |
ENFORCEABILITY OF CIVIL
LIABILITIES
We are incorporated under
the laws of the Cayman Islands as an exempted company with limited liability. We are incorporated in the Cayman Islands to take advantage
of certain benefits associated with being a Cayman Islands exempted company, such as:
| · | political
and economic stability; |
| · | an
effective judicial system; |
| · | a
favorable tax system; |
| · | the
absence of exchange control or currency restrictions; and |
| · | the
availability of professional and support services. |
However, certain disadvantages
accompany incorporation in the Cayman Islands. These disadvantages include but are not limited to:
| · | the
Cayman Islands has a less developed body of securities laws as compared to the United States
and these securities laws provide significantly less protection to investors as compared
to the United States; and |
| · | Cayman
Islands companies may not have standing to sue before the federal courts of the United States. |
Our memorandum and articles
of association does not contain provisions requiring that disputes, including those arising under the securities laws of the United States,
between us, our officers, directors and shareholders, be arbitrated.
A substantial portion of our directors and executive officers are nationals
or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States.
As a result, it may be difficult for a shareholder to effect service of process within the United States upon these individuals, or to
bring an action against us or these individuals in the United States, or to enforce against us or them judgments obtained in United States
courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in
the United States. It may also be difficult for you to enforce judgments obtained in U.S. courts based on the civil liability provisions
of the U.S. federal securities laws against us and our officers and directors.
There is uncertainty as to
whether the courts of the Cayman Islands would (i) recognize or enforce judgments of U.S. courts obtained against us or our directors
or officers that are predicated upon the civil liability provisions of the securities laws of the United States or any state in the United
States, or (ii) entertain original actions brought in the Cayman Islands against us or our directors or officers that are predicated
upon the securities laws of the United States or any state in the United States. Although there is no statutory enforcement in the Cayman
Islands of judgments obtained in a U.S. court (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 a liquidated sum for which such judgment
has been given, provided such judgment (i) is given by a foreign court of competent jurisdiction, (ii) imposes on the judgment
debtor a liability to pay a liquidated sum for which the judgment has been given, (iii) is final and conclusive, (iv) is not
in respect of taxes, a fine or a penalty, (v) is not inconsistent with a Cayman Islands judgment in respect of the same matter,
and (vi) is not impeachable on the grounds of fraud and 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 United States courts under civil liability provisions of the securities laws
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.
There is uncertainty as to
whether the courts of China would:
| · | recognize
or enforce judgments of United States courts obtained against us or our directors or officers
predicated upon the civil liability provisions of the securities laws of the United States
or any state in the United States; or |
| · | entertain
original actions brought in each respective jurisdiction against us or our directors or officers
predicated upon the securities laws of the United States or any state in the United States. |
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 and other applicable laws and regulations based either on treaties between China
and the country where the judgment is made or on principles of reciprocity between jurisdictions. There exists no treaty and few other
forms of reciprocity between China and the United States or the Cayman Islands governing the recognition and enforcement of foreign judgments
as of the date of this prospectus. In addition, according to the PRC Civil Procedures Law, courts in China will not enforce a foreign
judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law 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 or in the Cayman Islands. Under the PRC Civil Procedures Law and PRC Law on the Application
of Laws to Foreign-related Civil Relations, foreign shareholders may originate actions based on PRC law before a PRC court against a
company for disputes relating to contracts or other property interests, and the PRC court may accept a cause of action based on the laws
or the parties’ express mutual agreement in contracts choosing PRC courts for dispute resolution if such foreign shareholders can
establish sufficient nexus to the PRC for a PRC court to have jurisdiction and meet other procedural requirements, including, among others,
that the plaintiff must have a direct interest in the case and that there must be a concrete claim, a factual basis and a cause for the
case. The PRC court will determine whether to accept the complaint in accordance with the PRC Civil Procedures Law and PRC Law on the
Application of Laws to Foreign-related Civil Relations. The shareholder may participate in the action by itself or entrust any other
person or PRC legal counsel to participate on behalf of such shareholder. Foreign citizens and companies will have the same rights as
PRC citizens and companies in an action unless the home jurisdiction of such foreign citizens or companies restricts the rights of PRC
citizens and companies.
There is uncertainty as to
whether the judgment of United States courts will be directly enforced in Hong Kong, as the United States and Hong Kong 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. However, a foreign judgment may be enforced in Hong Kong at common law by bringing an action in a Hong Kong court
since the judgment may be regarded as creating a debt between the parties to it, provided that the foreign judgment, among other things,
is a final judgment conclusive upon the merits of the claim and is for a liquidated amount in a civil matter and not in respect of taxes,
fines, penalties, or similar charges. Such a judgment may not, in any event, be so enforced in Hong Kong if (a) it was obtained
by fraud; (b) the proceedings in which the judgment was obtained were opposed to natural justice; (c) its enforcement or recognition
would be contrary to the public policy of Hong Kong; (d) the court of the United States was not jurisdictionally competent; or (e) the
judgment was in conflict with a prior Hong Kong judgment.
In addition, it will be difficult
for U.S. shareholders to originate actions against us in China in accordance with PRC laws because we are incorporated under the laws
of the Cayman Islands and it will be difficult for U.S. shareholders, by virtue only of holding our ordinary shares, to establish a connection
to China for a PRC court to have jurisdiction as required under the PRC Civil Procedures Law.
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 registration of the ordinary shares to be sold by
the selling shareholders, or the Registration Statement. This prospectus, which is part of the Registration Statement, 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.
The SEC also 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 not currently subject
to the information reporting requirements of the Exchange Act. In connection with when the Registration Statement is declared effective
by the SEC, we will become subject to the information reporting requirements of the Exchange Act that are applicable to foreign private
issuers. Accordingly, we will be required to file or furnish reports and other information 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 are exempt from the rules under
the Exchange Act related to the furnishing and content of proxy statements, and our officers, 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
are not 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 will 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, and intend to submit to the SEC, on Form 6-K,
unaudited interim financial information.
We
maintain a corporate website at https://mercurityfintech.com/. Information contained on, or that can be accessed through,
our website does not constitute a part of this prospectus. We have included our website address in this prospectus solely as an inactive
textual reference. We will post on our website any materials required to be so posted on such website under applicable corporate or securities
laws and regulations, including, posting any XBRL interactive financial data required to be filed with the SEC and any notices of general
meetings of our shareholders.
MATERIAL CHANGES
Except as otherwise described
in our Annual Report on Form 20-F
for the fiscal year ended December 31, 2022, and our Reports on Form 6-K filed or submitted under the Exchange Act and
incorporated by reference herein and as disclosed in this prospectus, no reportable material changes have occurred since December 31,
2022.
INCORPORATION BY REFERENCE
The
SEC allows us to incorporate by reference much of the information that we file with the SEC, which means that we can disclose important
information to you by referring you to those publicly available documents. The information that we incorporate by reference in this prospectus
is considered to be part of this prospectus. This prospectus incorporates by reference the documents listed below (other than any portions
of such documents that are not deemed “filed” under the Exchange Act in accordance with the Exchange Act and applicable SEC
rules):
Any
information contained in this prospectus or in any document incorporated by reference in this prospectus will be deemed to be modified
or superseded to the extent that a statement contained in any prospectus supplement or free writing prospectus provided to you by us
modifies or supersedes the original statement.
The
reports and documents incorporated by reference into this prospectus are available to the public free of charge on the investor relations
portion of our website located at https://mercurityfintech.com/. You may also request a copy of these filings, at no cost, by writing
to us at the following addresses:
Mercurity Fintech Holding
Inc.
1330 Avenue of Americas,
Fl 33,
New York, 10019, United
State
Attention: Chief Financial
Officer, Yukuan Zhang
Email: mike@mercurityfintech.com
32,087,130 ordinary shares
Mercurity Fintech Holding Inc.
PROSPECTUS
,
2023
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 6. Indemnification of Directors, Officers
and Employees
Indemnification
Cayman Islands law does not
limit the extent to which a company’s 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. Our fourth amended and restated memorandum and articles of association
permit indemnification of officers and directors for the time being of the Company for all actions, costs, charges, losses, damages and
expenses incurred or sustained by or by reason of any act done, concurred in or omitted in or about the execution of their duty, or supposed
duty, in their capacities as such unless such losses or damages arise from dishonesty or fraud which may attach to such directors or
officers. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.
In addition, we intend to enter into indemnification agreements with our directors and senior executive officers that will provide such
persons with additional indemnification beyond that provided in our fourth amended and restated memorandum and articles of association.
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing
provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Item 7. Recent Sales of Unregistered Securities
Set forth below are the sales
of all securities by the Company since January 1, 2022, which were not registered under the Securities Act. The Company believes
that each of such issuances was exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities
Act, Rule 701 and/or Regulation S under the Securities Act.
On November 11, 2022,
we entered into a Securities Purchase Agreement in connection with a private investment in public equity (the “PIPE”) financing
with certain non-U.S. investors to offer and sell our units, each consisting of one ordinary share and three warrants for total gross
proceeds of USD$3.15 million (the “First PIPE Proceeds”).
On November 30, 2022,
we entered into a Securities Purchase Agreement with two investors to offer and sell our units, each consisting of one ordinary share
and three warrants for total gross proceeds of USD$5 million (the “Second PIPE Proceeds”).
On December 15, 2022,
we entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Huangtong International Co., Ltd.
(the “Vendor” or “Huangtong International”), providing for the acquisition of certain assets, for an aggregate
consideration of USD$5,980,000, payable in our ordinary shares. Pursuant to the Asset Purchase Agreement, we completed payment for the
acquired assets in the form of our ordinary shares (the “Purchase Price Shares”), at a stipulated price of USD$0.0022 per
share, in the aggregate amount of 2,718,181,818 shares. We also issued Huangtong International certain amount of warrants, with an exercise
price of USD$0.00167 per ordinary share, subject to certain conditions.
On December 23, 2022,
we entered into a Securities Purchase Agreement in connection with a private investment in public equity (the “PIPE”) financing
with an accredited non-U.S. investor to offer and sell our units, each consisting of one ordinary share and three warrants for total
gross proceeds of USD$5 million.
On February 6, 2023,
we entered into a Securities Purchase Agreement (“SPA”) with a non-U.S. investor (the “Purchaser”). Pursuant
to the SPA, we issued the Purchaser an Unsecured Convertible Promissory Note with a face value of $9 million upon receiving the proceeds
from the Purchaser on February 2, 2023. The Note shall bear non-compounding interest at a rate per annum equal to 5% from the date
of issuance until repayment of the Note unless the Purchaser elects to convert the Note into ordinary shares. If the Purchaser does not
elect to convert the Note, then the outstanding principal amount and all accrued but unpaid interest on the Note shall be due and payable
upon the one-year anniversary of the Issuance Date of the Note (the “Maturity Date”). The Purchaser has the right to convert
the outstanding balance under the Note into the Company’s ordinary shares (the “Conversion Shares”) at a per share
price equal to $0.00172 (the “Conversion Share Price”) according to the terms and conditions of the Note. In addition, upon
conversion of the Note, the Purchaser shall receive 100% warrant coverage equal to the number of Conversion Shares with the exercise
price at the Conversion Share Price.
Item 8. Exhibits and Financial Statement Schedules
Exhibit
Number |
|
Exhibit Description |
3.1 |
|
Fourth
Amended and Restated Memorandum and Articles of Association of the Registrant (incorporated by reference to exhibit 1.1 of our annual
report on Form 20-F filed with the SEC on June 12, 2020) |
4.1 |
|
Description
of Securities (incorporated by reference to exhibit 2.3 of our annual report on Form 20-F filed with the SEC on June 12,
2020) |
4.2 |
|
Specimen
Certificate for ordinary shares (incorporated by reference to exhibit 4.2 to our F-1 registration statement (File No. 333-201413)
initially filed with the SEC on January 9, 2015) |
5.1** |
|
Legal opinion of Maples and Calder (Hong Kong) LLP |
5.2** |
|
Legal opinion of Deheng Law Offices |
10.1+ |
|
Amended
and Restated 2011 Share Incentive Plan (incorporated by reference to exhibit 10.1 to our S- 8 registration statement (File No. 333-206466)
filed with the SEC on August 19, 2015) |
10.2+ |
|
2020
Share Incentive Plan (incorporated by reference to Exhibit 4.2 of the annual report on Form 20-F filed with the SEC on
June 15, 2022) |
10.3+ |
|
2021
Share Incentive Plan (incorporated by reference to exhibit 10.1 to our S- 8 registration statement (File No. 333-259774) filed
with the SEC on September 24, 2021) |
10.4+ |
|
2022
Share Incentive Plan (incorporated by reference to Exhibit 4.4 of the annual report on Form 20-F filed with the SEC on
April 25, 2023) |
10.5 |
|
Share
Purchase Agreement, dated as of September 2, 2021, by and between the Registrant and TEAO TECHNOLOGY CO., LIMITED, GUANRUI TECHNOLOGY
CO., LIMITED and Xuan Ying Co., Ltd (incorporated by reference to Exhibit 4.7 of the annual report on Form 20-F filed with
the SEC on June 15, 2022) |
10.6 |
|
Share
Purchase Agreement, dated as of September 27, 2021, by and between the Registrant and Newlight X Ltd. (incorporated by reference
to Exhibit 4.9 of the annual report on Form 20-F filed with the SEC on June 15, 2022) |
10.7 |
|
Share
Purchase Agreement, dated as of September 27, 2021, by and between the Registrant and Castlewood Fintech Ltd. (incorporated
by reference to Exhibit 4.10 of the annual report on Form 20-F filed with the SEC on June 15, 2022) |
10.8 |
|
Share
Purchase Agreement, dated as of September 27, 2021, by and between the Registrant and Brighton Fintech Ltd. (incorporated by
reference to Exhibit 4.11 of the annual report on Form 20-F filed with the SEC on June 15, 2022) |
10.9 |
|
English
translation of Termination Agreement Re Existing Control Documents, dated as of January 15, 2022, by and among Beijing Lianji
Future Technology Co., Ltd., Beijing Lianji Technology Co., Ltd. and the shareholders of Beijing Lianji Technology Co., Ltd.
(incorporated by reference to exhibit 10.1 to current report on Form 6-K filed with the SEC on February 7, 2022) |
10.10 |
|
English
translation of Termination Agreement Re Existing Control Documents, dated as of January 15, 2022, by and among Beijing Lianji
Future Technology Co., Ltd., Mercurity (Beijing) Technology Co., Ltd. and the shareholders of Mercurity (Beijing) Technology
Co., Ltd. (incorporated by reference to exhibit 10.2 to current report on Form 6-K filed with the SEC on February 7,
2022) |
10.11 |
|
Promissory
note in the principal amount of up to USD$5,000,000 dated June 13, 2022 (incorporated by reference to exhibit 4.1 to current
report on Form 6-K filed with the SEC on June 17, 2022) |
10.12 |
|
Share
Purchase Agreement, dated as of November 11, 2022 (incorporated by reference to Exhibit 4.12 of the annual report on Form 20-F
filed with the SEC on April 25, 2023) |
10.13 |
|
Share
Purchase Agreement, dated as of November 30, 2022 (incorporated by reference to Exhibit 4.13 of the annual report on Form 20-F
filed with the SEC on April 25, 2023) |
10.14 |
|
Asset
Purchase Agreement, dated as of December 15, 2022 (incorporated by reference to Exhibit 4.14 of the annual report on Form 20-F
filed with the SEC on April 25, 2023) |
10.15 |
|
Share
Purchase Agreement, dated as of December 23, 2022 (incorporated by reference to Exhibit 4.15 of the annual report on Form 20-F
filed with the SEC on April 25, 2023) |
10.16 |
|
Securities
Purchase Agreement dated as of January 31, 2023, for the issuance of an Unsecured Convertible Promissory Note (incorporated
by reference to Exhibit 4.16 of the annual report on Form 20-F filed with the SEC on April 25, 2023) |
10.17 |
|
The
Chief Executive Officer Employment Agreement with Mercurity Fintech Holding Inc. (incorporated by reference to Exhibit 4.17
of the annual report on Form 20-F filed with the SEC on June 15, 2022) |
10.18 |
|
The
Chief Operating Officer Employment Agreement with Mercurity Fintech Holding Inc. (incorporated by reference to Exhibit 10.1
of Form 6-K filed with the SEC on October 18, 2022) |
21.1 |
|
List
of Subsidiaries (incorporated by reference to Exhibit 8.1 of the annual report on Form 20-F filed with the SEC on April 25, 2023). |
23.1* |
|
Consent of Onestop Assurance PAC, independent registered public accounting
firm. |
23.2* |
|
Consent of Shanghai Perfect C.P.A. Partnership |
24.1* |
|
Power of Attorney (included on signature page to the Registration Statement
on Form F-1). |
99.1* |
|
Coinbase Prime Broker Agreement with Coinbase, Inc. |
107** |
|
Filing Fee Table |
|
|
|
* |
Filed herewith. |
|
|
** |
Previously filed. |
|
|
^ |
Certain schedules and exhibits
have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted
schedule or exhibit to the SEC upon request. |
|
|
+ |
Management contract or
compensatory plan or arrangement. |
Financial Statement Schedules:
All financial statement schedules
have been omitted because either they are not required, are not applicable or the information required therein is otherwise set forth
in the Company’s financial statements and related notes thereto.
Item 9. Undertakings
(a) |
The undersigned 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 20% change in the maximum aggregate offering price set forth in the “Calculation
of Registration Fee” table in the effective registration statement; |
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 purpose 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 such 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 (a)(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. Notwithstanding the foregoing, with respect to registration
statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required
by Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements and information are contained
in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3. |
(5) |
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. |
(6) |
That 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. |
(b) |
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 U.S. 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 of 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. |
SIGNATURES
Pursuant to the requirements
of the Securities Act of 1933, 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 on Form F-1 to be signed on its behalf by the undersigned,
thereunto duly authorized, on September 1, 2023.
MERCURITY FINTECH HOLDING INC. |
|
|
|
|
By: |
/s/
Shi Qiu |
|
|
Shi Qiu |
|
|
Chief Executive Officer |
|
POWER OF ATTORNEY
The undersigned officers
and directors of Mercurity Fintech Holding Inc. hereby constitute and appoint Shi Qiu with full power of substitution our true and lawful
attorney-in-fact and agents to take any actions to enable the Company to comply with the Securities Act, and any rules, regulations and
requirements of the SEC, in connection with this registration statement on Form F-1, including the power and authority to sign for
us in our names in the capacities indicated below any and all further amendments to this registration statement and any other registration
statement filed pursuant to the provisions of Rule 462 under the Securities Act.
Pursuant to the requirements
of the Securities Act of 1933, this amendment to the registration statement on Form F-1 has been signed by the following persons
in the capacities and on the dates indicated.
Signature |
|
Title |
|
Date |
/s/
Shi Qiu |
|
Chief Executive Officer and Director, |
|
September 1,
2023 |
Shi Qiu |
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/
* |
|
Chairperson of the Board of Directors |
|
September 1,
2023 |
Lynn Alan Curtis |
|
|
|
|
|
|
|
|
|
/s/
* |
|
Director |
|
September 1,
2023 |
Daniel Kelly Kennedy |
|
|
|
|
|
|
|
|
|
/s/
* |
|
Independent Director |
|
September 1,
2023 |
Zheng Cui |
|
|
|
|
|
|
|
|
|
/s/
* |
|
Chief Operating Officer and Director |
|
September 1,
2023 |
Qian Sun |
|
|
|
|
|
|
|
|
|
/s/ * |
|
Independent Director |
|
September 1,
2023 |
Hui
Cheng |
|
|
|
|
|
|
|
|
|
/s/
* |
|
Independent Director |
|
September 1,
2023 |
Xiang Qu |
|
|
|
|
|
|
|
|
|
/s/
* |
|
Independent Director |
|
September 1,
2023 |
Er-Yi Toh |
|
|
|
|
|
|
|
|
|
/s/
* |
|
Independent Director |
|
September 1,
2023 |
Cong Huang |
|
|
|
|
|
|
|
|
|
/s/
* |
|
Director |
|
September 1,
2023 |
Keith Tan Jun Jie |
|
|
|
|
|
|
|
|
|
/s/
* |
|
Chief Financial Officer |
|
September 1,
2023 |
Yukuan Zhang |
|
|
|
|
|
* |
Signed
by Shi Qiu pursuant to the power of attorney signed by each individual and previously filed with this Registration Statement on May
30, 2023. |
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 America of Mercurity Fintech Holding
Inc., has signed this registration statement in New York, NY on September 1, 2023.
|
COGENCY
GLOBAL INC. |
|
|
|
By: |
/s/
Colleen A. De Vries |
|
Name: |
Colleen A. De Vries |
|
Title: |
Senior Vice President on behalf of Cogency Global Inc. |
Exhibit 23.1
|
Onestop Assurance PAC |
Co. Registration No.: 201823302D |
Tel: 9644 9531 |
10 Anson road #13-09 |
International plaza |
Singapore-079903 |
Email: audit@onestop-ca.com |
Website: www.onestop-ca.com |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in
this Registration Statement on Form F-1 of Mercurity Fintech Holding Inc. (the “Company”) of our report dated April 25, 2023,
with respect to the consolidated financial statements of the Company for the year ended December 31, 2022, appearing in the Annual Report
on Form 20-F of the Company for the year ended December 31, 2022. Our report contains an explanatory paragraph regarding the Company’s
ability to continue as a going concern.
/s/ OneStop Assurance PAC
Singapore
September 1, 2023
Exhibit 23.2
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in this Registration Statement on Form F-1 of Mercurity Fintech Holding Inc. (the
"Company") of our report dated April 25, 2023, with respect to the consolidated financial statements of the Company for
the year ended December 31, 2020 and 2021, appearing in the Annual Report on Form 20-F of the Company for the year ended December
31, 2022.
![](https://www.sec.gov/Archives/edgar/data/1527762/000110465923097752/image_009.jpg)
Shanghai Perfect C.P.A. Partnership
Shanghai,
China
September 1, 2023
Exhibit 99.1
COINBASE PRIME BROKER AGREEMENT
General Terms and Conditions
This agreement (including, the Coinbase Custody Custodial Services
Agreement attached hereto as Exhibit A (the “Custody Agreement”), the Coinbase Master Trading Agreement attached hereto
as Exhibit B (the “MTA”), and all other exhibits, addenda and supplements attached hereto or referenced herein,
collectively, the “Coinbase Prime Broker Agreement”), is entered into by and between Mercurity Fintech Technology
Holding Inc., (“Client”), and Coinbase, Inc. (“Coinbase”), on behalf of itself and as agent
for Coinbase, Coinbase Custody Trust Company, LLC (“Coinbase Custody”), and, as applicable, Coinbase Credit, Inc.
(“Coinbase Credit,” and collectively with Coinbase and Coinbase Custody, the “Coinbase Entities”).
This Coinbase Prime Broker Agreement sets forth the terms and conditions pursuant to which the Coinbase Entities will open and maintain
the prime broker account (the “Prime Broker Account”) for Client and provide services relating to custody, trade execution,
lending or post-trade credit (if applicable), and other services (collectively, the “Prime Broker Services”) for certain
digital assets (“Digital Assets”) as set forth herein. Client and the Coinbase Entities (individually or collectively,
as the context requires) may also be referred to as a “Party”. Capitalized terms not defined in these General Terms and Conditions
(the “General Terms”) shall have the meanings assigned to them in the respective exhibit, addendum or supplement.
In the event of a conflict between these General Terms and any exhibit, addendum or supplement hereto, then the document governing the
specific relevant Prime Broker Service shall control in respect of such Prime Broker Service.
| 2. | Conflicts
of Interest Acknowledgement |
Client acknowledges that the Coinbase Entities
may have actual or potential conflicts of interest in connection with providing the Prime Broker Services including that (i) Orders
(as such term is defined in the MTA) may be routed to Coinbase’s exchange platform where Orders may be executed against other Coinbase
customers or with Coinbase acting as principal, (ii) the beneficial identity of the purchaser or seller with respect to an Order
is unknown and therefore may inadvertently be another Coinbase client, (iii) Coinbase does not engage in front-running, but is aware
of Orders or imminent Orders and may execute a trade for its own inventory (or the account of an affiliate) while in possession of that
knowledge and (iv) Coinbase may act in a principal capacity with respect to certain Orders (e.g., to fill residual Order
size when a portion of an Order may be below the minimum size accepted by the Connected Trading Venues (as defined in the MTA). As a
result of these and other conflicts, the Coinbase Entities may have an incentive to favor their own interests and the interests of their
affiliates over a particular Client’s interests and has in place certain policies and procedures in place that are designed to
mitigate such conflicts.
Client authorizes Coinbase to combine information
regarding all Prime Broker Services activities into a single statement. Coinbase will provide Client with an electronic account statement
every month, at a minimum. Each account statement will identify the amount of cash and each Digital Asset in Client’s Prime Broker
Account at the end of the period and set forth all Prime Broker Account activity during that period.
| 4.1 | In a written notice to Coinbase, Client may designate persons and/or entities authorized to act on behalf
of Client with respect to the Prime Broker Account (the “Authorized Representative”). Upon such designation, Coinbase
may rely on the validity of such appointment until such time as Coinbase receives Instructions from Client revoking such appointment or
designating a new Authorized Representative. |
| 4.2 | The Coinbase Entities may act upon instructions received from Client or Client’s Authorized Representative
(“Instructions”). When taking action upon Instructions, the applicable Coinbase Entity shall act in a reasonable manner,
and in conformance with the following: (a) Instructions shall continue in full force and effect until executed, cancelled or superseded;
(b) if any Instructions are ambiguous, the applicable Coinbase Entity shall refuse to execute such Instructions until any such ambiguity
has been resolved to the Coinbase Entity’s satisfaction; (c) the Coinbase Entities may refuse to execute Instructions if in
the applicable Coinbase Entity’s opinion such Instructions are outside the scope of its obligations under this Coinbase Prime Broker
Agreement or are contrary to any applicable laws, rules and regulations; and (d) the Coinbase Entities may rely on any Instructions,
notice or other communication believed by it in good faith to be given by Client or Client’s Authorized Representative.
Client shall be fully responsible and liable for, and the Coinbase Entities shall have no liability
with respect to, any and all Claims and Losses arising out of or relating to inaccurate or ambiguous Instructions. |
| 4.3 | Coinbase will comply with the Client’s Instructions to stake, stack
or vote the Client’s Digital Assets to the extent the applicable Coinbase Entity supports proof of stake validation, proof
of transfer validation, or voting for such Digital Assets. The Coinbase Entities may, in their sole discretion, decide whether or not
to support (or cease supporting) staking services or stacking or voting for a Digital Asset. |
| 5. | Representations,
Warranties, and Additional Covenants |
Client represents, warrants, and covenants that:
| 5.1 | Client has the full power, authority, and capacity to enter into this Coinbase Prime Broker Agreement
and to engage in transactions with respect to all Digital Assets relating to the Prime Broker Services; |
| 5.2 | Client is and shall remain in full compliance with all applicable laws, rules, and regulations in each
jurisdiction in which Client operates or otherwise uses the Prime Broker Services, including U.S. securities laws and regulations, as
well as any applicable state and federal laws, including AML Laws, USA PATRIOT Act and Bank Secrecy Act requirements, and other anti-terrorism
statutes, regulations, and conventions of the United States or other international jurisdictions; |
| 5.3 | Client is and shall remain in good standing with all relevant government agencies, departments, regulatory,
and supervisory bodies in all relevant jurisdictions in which Client does business, and Client will immediately notify Coinbase if Client
ceases to be in good standing with any regulatory authority; |
| 5.4 | Client shall promptly provide information as the Coinbase Entities may reasonably request in from time
to time regarding: (a) Client’s policies, procedures, and activities which relate to the Prime Broker Services, and (b) Client’s
use of the Prime Broker Services, in each case to the extent reasonably necessary for the Coinbase Entities to comply with any applicable
laws, rules, and regulations (including money laundering statutes, regulations and conventions of the United States or other jurisdictions),
or the guidance or direction of, or request from, any regulatory authority or financial institution; |
| 5.5 | Client’s use of the Prime Broker Services shall be for commercial, business purposes only, limited
to activities disclosed in the due diligence information submitted to Coinbase, and shall not include any personal, family or household
purposes. Client shall promptly notify Coinbase in writing in the event it intends to use the Prime Broker Services in connection with
any business activities not previously disclosed to Coinbase. Coinbase may, in its sole discretion, prohibit Client from using the Prime
Broker Services in connection with any business activities not previously disclosed; |
| 5.6 | Client’s Authorized Representatives have the (a) full power,
authority and capacity to access and use the Prime Broker Services and (b) appropriate sophistication, expertise, and knowledge
necessary to understand the nature and risks, and make informed decisions, in respect of Digital Assets and the Prime Broker Services; |
| 5.7 | This Coinbase Prime Broker Agreement is Client’s legal, valid, and binding obligation, enforceable
against it in accordance with its terms; and |
| 5.8 | Unless Client advises Coinbase to the contrary in writing, at all times, none of Client’s assets
constitute, directly or indirectly, plan assets subject to the fiduciary responsibility and prohibited transaction sections of the Employment
Retirement Income Security Act of 1974, as amended (“ERISA”), the prohibited transaction provisions of the Internal
Revenue Code of 1986, as amended, or any federal, state, local or non-U.S. law that is similar to the prohibited transaction provisions
of Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended, and Client shall immediately provide
Coinbase with a written notice in the event that Client becomes aware that Client is in breach of the foregoing. |
Coinbase, on behalf of itself and each other Coinbase Entity, represents,
warrants, and covenants that:
| 5.9 | It possesses and will maintain, all licenses, registrations, authorizations and approvals required by
any applicable government agency or regulatory authority for it to operate its business and provide the Prime Broker Services; |
| 5.10 | It has the full power, authority, and capacity to enter into and be bound by this Coinbase Prime Broker
Agreement; and |
| 5.11 | This Coinbase Prime Broker Agreement is its legal, valid and binding obligation, enforceable against it
in accordance with its terms. |
| 6. | No Investment Advice or Brokerage |
| 6.1 | Client assumes responsibility for each transaction in or for its Prime Broker Account. Client understands
and agrees that none of the Coinbase Entities are an SEC/FINRA registered broker-dealer or investment adviser to Client in any respect,
and the Coinbase Entities have no liability, obligation, or responsibility whatsoever for Client decisions relating to the Prime Broker
Services. Client should consult its own legal, tax, investment and accounting professionals. |
| 6.2 | While the Coinbase Entities may make certain general information available to Client, the Coinbase Entities
are not providing and will not provide Client with any investment, legal, tax or accounting advice regarding Client’s specific situation.
Client is solely responsible, and shall not rely on the Coinbase Entities, for determining whether any investment, investment strategy,
or transaction involving Digital Assets is appropriate for Client based on Client’s investment objectives, financial circumstances,
risk tolerance, and tax consequences. The Coinbase Entities shall have no liability, obligation, or responsibility whatsoever regarding
any Client decision to enter into in any transaction with respect to any Digital Asset. |
| 7. | Opt-In
to Article 8 of the Uniform Commercial Code |
Client Assets in the Trading Balance and Vault
Balance will be treated as “financial assets” under Article 8 of the New York Uniform Commercial Code (“Article 8”).
Coinbase and Coinbase Custody are “securities intermediaries,” the Trading Balance and Vault Balance are each “securities
accounts,” and Client is an “entitlement holder” under Article 8. This Agreement sets forth how the Coinbase Entities
will satisfy their Article 8 duties. Treating Client Assets in the Trading Balance and Vault Balance as financial assets under Article 8
does not determine the characterization or treatment of the cash and Digital Assets under any other law or rule. New York will be the
securities intermediary’s jurisdiction with respect to Coinbase and Coinbase Custody, and New York law will govern all issues addressed
in Article 2(1) of the Hague Securities Convention. Coinbase and Coinbase Custody will credit the Client with any payments
or distributions on any Client Assets it holds for Client’s Trading Balance and Vault Balance. Coinbase and Coinbase Custody will
comply with Client’s Instructions with respect to Client Assets in Client’s Trading Balance or Vault Balance, subject to
the terms of the MTA or Custody Agreement, as applicable, and related Coinbase rules, including the Coinbase Trading Rules (as such
term is defined in the MTA).
| 8. | General
Use, Security and Prohibited Use |
| 8.1 | Prime Broker Site and Content. During the term of this Coinbase Prime Broker Agreement, the Coinbase
Entities hereby grant Client a limited, nonexclusive, non-transferable, non-sublicensable, revocable and royalty-free license, subject
to the terms of this Coinbase Prime Broker Agreement, to access and use the Coinbase Prime Broker Site accessible at prime.coinbase.com
(“Coinbase Prime Broker Site”) and related content, materials, and information (collectively, the “Content”)
solely for Client’s internal business use and other purposes as permitted by Coinbase in writing from time to time. Any other use
of the Coinbase Prime Broker Site or Content is hereby prohibited. All other right, title, and interest (including all copyright, trademark,
patent, trade secrets, and all other intellectual property rights) in the Coinbase Prime Broker Site, Content, and Prime Broker Services
is and will remain the exclusive property of the Coinbase Entities and their licensors. Client shall not copy, transmit, distribute, sell,
license, reverse engineer, modify, publish, or participate in the transfer or sale of, create derivative works from, or in any other way
exploit any of the Prime Broker Services or Content, in whole or in part. “Coinbase,” “Coinbase Prime,” “prime.coinbase.com,”
and all logos related to the Prime Broker Services or displayed on the Coinbase Prime Broker Site are either
trademarks or registered marks of the Coinbase Entities or their licensors. Client may not copy, imitate or use them without Coinbase’s
prior written consent. The license granted under this Section 8.1
will automatically terminate upon termination of this Coinbase Prime Broker Agreement, or the suspension or termination of Client’s
access to the Coinbase Prime Broker Site or Prime
Broker Services. |
| 8.2 | Unauthorized Users. Client shall not permit any person or entity that is not the Client or an Authorized
Representative (each, an “Unauthorized User”) to access, connect to, and/or use Client’s Prime Broker Account.
The Coinbase Entities shall have no liability, obligation, or responsibility whatsoever for, and Client shall be fully responsible and
liable for, any and all Claims and Losses arising out of or relating to the acts and omissions of any Unauthorized User in respect of
the Prime Broker Services, Prime Broker Account, and/or the Prime Broker Site. Client shall notify Coinbase immediately if Client believes
or becomes aware that an Unauthorized User has accessed, connected to, or used Client’s Prime Broker Account. |
| 8.3 | Password Security; Contact Information. Client is fully responsible for maintaining adequate security
and control of any and all IDs, passwords, hints, personal identification numbers (PINs), API keys, YubiKeys, other security or confirmation
information or hardware, and any other codes that Client uses to access the Prime Broker Account and Prime Broker Services. Client agrees
to keep Client’s email address and telephone number up to date in Client’s Prime Broker Account in order to receive any notices
or alerts that the Coinbase Entities may send to Client. Client shall be fully responsible for, and the Coinbase Entities shall have no
liability, obligation, or responsibility whatsoever for, any Losses that Client may sustain due to compromise of Prime Broker Account
login credentials. In the event Client believes Client’s Prime Broker Account information has been compromised, Client must contact
Coinbase immediately. |
| 8.4 | Prohibited Use. Client shall not engage in any of the following activities with its use of the
Prime Broker Services: |
| 8.4.1. | Unlawful Activity. Activity that would violate, or assist in violation of, any law, statute, ordinance,
or regulation, sanctions programs administered in the countries where Coinbase conducts business, including but not limited to the U.S.
Department of Treasury’s Office of Foreign Assets Control (OFAC), or which would involve proceeds of any unlawful activity; publish,
distribute or disseminate any unlawful material or information; |
| 8.4.2. | Abusive Activity. Actions that impose an unreasonable or disproportionately large load on Coinbase’s
infrastructure, or detrimentally interfere with, intercept, or expropriate any system, data, or information; transmit or upload any material
to Coinbase systems that contains viruses, trojan horses, worms, or any other harmful or deleterious programs; attempt to gain unauthorized
access to Coinbase systems, other Coinbase accounts, computer systems or networks connected to Coinbase systems, Coinbase Site, through
password mining or any other means; use Coinbase Account information of another party to access or use the Coinbase systems, except in
the case of specific Clients and/or applications which are specifically authorized by a Client to access such Client’s Coinbase Account and information;
or transfer Client’s account access or rights to Client’s account to a third party, unless by operation of law or with the
express permission of Coinbase; and |
| 8.4.3. | Fraud. Activity which operates to defraud Coinbase or any other person or entity. |
| 8.5 | Computer Viruses. The Coinbase Entities shall not have any liability, obligation, or responsibility
whatsoever for any damage or interruptions caused by any computer viruses, spyware, scareware, Trojan horses, worms or other malware
that may affect Client’s computer or other equipment, or any phishing, spoofing or other attack, unless such damage or interruption
directly resulted from the Coinbase Entities’ gross negligence, fraud, or willful misconduct. Client agrees to access and use its
Prime Broker Account through the Coinbase Prime Broker Site to review any Orders, deposits or withdrawals or required actions to confirm
the authenticity of any communication or notice from the Coinbase Entities. |
| 9.1 | Taxes. Except as otherwise expressly stated herein, Client shall be fully responsible and liable
for, and the Coinbase Entities shall have no liability, obligation, or responsibility whatsoever for, the payment of any and all present
and future tariffs, duties or taxes (including withholding taxes, transfer taxes, stamp taxes, documentary taxes, value added taxes, personal
property taxes and all similar costs) imposed or levied by any government or governmental agency (collectively, “Taxes”)
and any related Claims and Losses or the accounting or reporting of income or other Taxes arising from or relating to any transactions
Client conducts through the Prime Broker Services. Client shall file all tax returns, reports, and disclosures required by applicable
law. |
| 9.2 | Withholding Tax. Except as required by applicable law, each payment under this Coinbase Prime Broker
Agreement or collateral deliverable by Client to any Coinbase Entities shall be made, and the value of any collateral or margin shall
be calculated, without withholding or deducting of any Taxes. If any Taxes are required to be withheld or deducted, Client (a) authorizes
the Coinbase Entities to effect such withholding or deduction and remit such Taxes to the relevant taxing authorities and (b) shall
pay such additional amounts or deliver such further collateral as necessary to ensure that the actual net amount received by the Coinbase
Entities is equal to the amount that the Coinbase Entities would have received had no such withholding or deduction been required. Client
agrees that the Coinbase Entities may disclose any information with respect to Client Assets, the Prime Broker Account, Custodial Accounts,
Trading Accounts, and transactions required by any applicable taxing authority or other governmental entity. The Client agrees that the
Coinbase Entities may withhold or deduct Taxes as may be required
by applicable law. From time to time, Coinbase Entities shall ask Client for tax documentation or certification of Client’s taxpayer
status as required by applicable law, and any failure by Client to comply with this request in the time frame identified may result in
withholding and/or remission of taxes to a tax authority as required by applicable law. |
| 10. | Prime
Broker Services Fees |
| 10.1 | Client agrees to pay all commissions and fees in connection with the Orders and Prime Broker Services
on a timely basis as set forth in the Fee Schedule, attached hereto as Appendix 1. Client authorizes the Coinbase Entities to pay themselves
for fees and commissions relating to the Trading Account and Custodial Account by deducting fees from the Vault Balance or Trading Balance,
as applicable, to satisfy Client’s fees owed. |
| 10.2 | Client acknowledges that Coinbase’s fees may include but are not limited to: (a) bank wire
fees to deposit and/or withdraw Client Cash; (b) internal transfers from its Vault Balance to its Trading Balance; and (c) external
withdrawals of Client Assets. Client further acknowledges that Coinbase Custody will charge fees for any balance of Digital Assets that
Client keeps in the Vault Balance. |
| 11.1 | Client and Coinbase Entities each agree that with respect to any non-public, confidential or proprietary
information of the other Party, including the existence and terms of this Coinbase Prime Broker Agreement and information relating
to the other party’s business operations or business relationships (including the Coinbase Entities’ fees), and any arbitration
pursuant to Section 22 (collectively, “Confidential Information”), it (a) will not disclose such Confidential
Information except to such party’s officers, directors, agents, employees and professional advisors who need to know the Confidential
Information for the purpose of assisting in the performance of this Coinbase Prime Broker Agreement and who are informed of, and agree
to be bound by obligations of confidentiality no less restrictive than those set forth herein and (b) will protect such Confidential
Information from unauthorized use and disclosure. Each Party shall use any Confidential Information that it receives solely for purposes
of (i) exercising its rights and performing its duties under the Coinbase Prime Broker Agreement and (ii) complying with any
applicable laws, rules and regulations; provided that, the Coinbase Entities may use Confidential Information for (1) risk management;
and (2) to develop, enhance and market their products and services. Confidential Information shall not include any (w) information
that is or becomes generally publicly available through no fault of the recipient; (x) information that the recipient obtains from
a third party (other than in connection with this Coinbase Prime Broker Agreement) that, to the recipient’s best knowledge, is not
bound by a confidentiality agreement prohibiting such disclosure; (y) information that is independently developed or acquired by
the recipient without the use of Confidential Information provided by the disclosing party; or (z) disclosure with the prior written
consent of the disclosing Party. |
| 11.2 | Notwithstanding the foregoing, each Party may disclose Confidential Information of the other Party to
the extent required by a court of competent jurisdiction or governmental authority or otherwise required by law; provided, however, the
Party making such required disclosure shall first notify the other Party (to the extent legally permissible) and shall afford the other
Party a reasonable opportunity to seek confidential treatment if it wishes to do so and will consider in good faith reasonable and timely
requests for redaction. For purposes of this Section 11, no affiliate of Coinbase shall be considered a third party of any Coinbase
Entity, and the Coinbase Entities may freely share Client’s Confidential Information among each other and with such affiliates.
All documents and other tangible objects containing or representing Confidential Information and all copies or extracts thereof or notes
derived therefrom that are in the possession or control of the receiving Party shall be and remain
the property of the disclosing Party and shall be promptly returned to the disclosing Party or destroyed, each upon the disclosing Party’s
request; provided, however, notwithstanding the foregoing, the receiving Party may retain one (1) copy of Confidential Information
if (a) required by law or regulation; or (b) retained pursuant to an established document retention policy. |
Client agrees that its use of data made available
to it through the Trading Platform’s application programming interface(s), which may include the prices and quantities of orders
and transactions executed on Trading Platform (collectively “Market Data”), is subject to the Market Data Terms of
Use, as amended and updated from time to time at https://www.coinbase.com/legal/market_data or a successor website.
| 13. | Recording
of Conversations |
For compliance and monitoring purposes, Client
authorizes each Coinbase Entity at its sole discretion to record conversations between such Coinbase Entity and Client or its Authorized
Representatives relating to this Coinbase Prime Broker Agreement, the Prime Broker Account and the Prime Broker Services.
| 14. | Security
and Business Continuity |
The Coinbase Entities have implemented and will
maintain a reasonable information security program that includes policies and procedures that are reasonably designed to safeguard the
Coinbase Entities’ electronic systems and Client’s Confidential Information from, among other things, unauthorized access
or misuse. In the event of a Data Security Incident (defined below), the applicable Coinbase Entity shall promptly notify Client and
such notice shall include the following information: (a) the timing and nature of the Data Security Incident; (b) the information
related to Client that was compromised; (c) when the Data Security Incident was discovered; and (d) any remedial actions that
have been taken and that the applicable Coinbase Entity plans to take. “Data Security Incident” means an incident
whereby (i) an unauthorized person acquired or accessed Client’s Confidential Information; or (ii) Client’s Confidential
Information is otherwise lost, stolen, or compromised, each case, while in the possession or control of the Coinbase Entities.
The Coinbase Entities have established a business
continuity plan that will support their ability to conduct business in the event of a significant business disruption. The business continuity
plan is reviewed and updated annually, and may be updated more frequently as deemed necessary by the Coinbase Entities in their sole discretion.
To receive more information about the Coinbase Entities’ business continuity plan, please send a written request to security@coinbase.com.
| 15. | Acknowledgement
of Risks |
Client hereby acknowledges, that: (i) Digital
Assets are not legal tender, are not backed by any government, and are not subject to protections afforded by the Federal Deposit Insurance
Corporation or Securities Investor Protection Corporation; (ii) Legislative and regulatory changes or actions at the state, federal,
or international level may adversely affect the use, transfer, exchange, and/or value of Digital Assets; (iii) transactions in Digital
Assets are irreversible, and, accordingly, Digital Assets lost due to fraudulent or accidental transactions may not be recoverable; (iv) certain
Digital Assets transactions will be deemed to be made when recorded on a public blockchain ledger, which is not necessarily the date
or time that Client initiates the transaction or such transaction enters the pool; (v) the value of Digital Assets may be derived
from the continued willingness of market participants to exchange any government issued currency (“Fiat Currency”)
for Digital Assets, which may result in the permanent and total loss of value of a Digital Asset should the market for that Digital Asset
disappear; (vi) the volatility of the value of Digital Assets relative to Fiat Currency may result in significant losses; (vii) Digital
Assets may be susceptible to an increased risk of fraud or cyber-attack; (viii) the nature of Digital Assets means that any technological
difficulties experienced by a Coinbase Entity may prevent the access or use of Client Digital Assets; and (ix) any bond or trust
account maintained by Coinbase Entities for the benefit of its customers may not be sufficient to cover all losses (including Losses)
incurred by customers.
| 16. | Operation
of Digital Asset Protocols |
| 16.1 | The Coinbase Entities do not own or control the underlying software protocols which govern the
operation of Digital Assets. Generally, the underlying software protocols and, if applicable, related smart contracts (referred to
collectively as “Protocols” for purposes of this Section 16) are open source and anyone can use, copy,
modify or distribute them. By using the Prime Broker Services, Client acknowledges and agrees that (i) the Coinbase Entities
make no guarantee of the functionality, security, or availability of underlying Protocols; (ii) some underlying Protocols are
subject to consensus-based proof of stake validation methods which may allow, by virtue of their governance systems, changes to the
associated blockchain or digital ledger (“Governance Modifiable Blockchains”), and that any Client transactions
validated on such Governance Modifiable Blockchains may be affected
accordingly; and (iii) the underlying Protocols are subject to sudden changes in operating rules (a/k/a “forks”),
and that such forks may materially affect the value, function, and/or even the name of the Digital Assets. In the event of a fork, Client
agrees that the Coinbase Entities may temporarily suspend Prime Broker Services (with or without notice to Client) and that the Coinbase
Entities may, in their sole discretion, determine whether or not to support (or cease supporting) either branch of the forked protocol
entirely. Client agrees that the Coinbase Entities shall have no liability, obligation or responsibility whatsoever arising out of or
relating to the operation of Protocols, transactions affected by Governance Modifiable Blockchains, or an unsupported branch of a forked
protocol and, accordingly, Client acknowledges and assumes the risk of the same. |
| 16.2 | Unless specifically communicated by the Coinbase Entities through a written public statement on the Coinbase
website, the Coinbase Entities do not support airdrops, metacoins, colored coins, side chains, or other derivative, enhanced or forked
protocols, tokens or coins, which supplement or interact with a Digital Asset (collectively, “Advanced Protocols”)
in connection with the Prime Broker Services. The Prime Broker Services
are not configured to detect, process and/or secure Advanced Protocol transactions and neither Client nor the Coinbase Entities will be
able to retrieve any unsupported Advanced Protocol. Coinbase shall have no liability, obligation or responsibility whatsoever in respect
to Advanced Protocols. |
Upon the termination of, or the occurrence of
a default or an event of default under, an agreement with a Coinbase Entity (including an “Event of Default” as such
term is defined in the PTC Agreement (in each case, at maturity, upon acceleration or otherwise) or the occurrence of an event that constitutes
“Cause” (as defined below) (each, a “Setoff Event”), each Coinbase Entity may set off and net the amounts
due from it or any other Coinbase Entity to Client and from Client to it or any other Coinbase Entity, so that a single payment (the
“Net Payment”) shall be immediately due and payable by the Client or the Coinbase Entity to the other (subject to
the other provisions hereof and of any agreement with a Coinbase Entity). If any amounts cannot be included within the Net Payment, such
amounts shall be excluded but may still be netted against any other similarly excluded amounts. Upon the occurrence of a Setoff Event,
each Coinbase Entity may also (a) liquidate, apply and set off any or all Client Assets (as such term is defined in the MTA) against
any Net Payment, unpaid trade credits, or any other obligation owed by Client to any Coinbase Entity and (b) set off and net any
Net Payment or any other obligation owed to the Client by any Coinbase Entity against (i) any or all collateral or margin posted
by any Coinbase Entity to Client (or the U.S. dollar value thereof, determined by Coinbase in its sole discretion on the basis of a recent
price at which the relevant Digital Asset was sold to customers on the Trading Platform); and (ii) any Net Payment, unpaid trade
credits or any other obligation owed by Client to any Coinbase Entity (in each case, whether matured or unmatured, fixed or contingent,
or liquidated or unliquidated). Client agrees that in the exercise of setoff rights or secured party remedies, the Coinbase Entities
may value Client Digital Assets using the same valuation methods and processes that are otherwise used when a Coinbase customer sells
an asset on the Trading Platform (as such term is defined in the MTA) or any other commercially reasonable valuation method as determined
by Coinbase in its sole discretion.
| 18. | Disclaimer
of Warranties |
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE
LAW, THE PRIME BROKER SERVICES AND THE COINBASE WEBSITE ARE PROVIDED ON AN “AS IS” AND “AS AVAILABLE” BASIS WITHOUT
ANY WARRANTY OF ANY KIND, AND THE COINBASE ENTITIES HEREBY SPECIFICALLY DISCLAIM ALL WARRANTIES WITH RESPECT TO THE PRIME BROKER SERVICES,
WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING THE IMPLIED WARRANTIES AND/OR CONDITIONS OF TITLE, MERCHANTABILITY, SATISFACTORY
QUALITY, FITNESS FOR A PARTICULAR PURPOSE, AND/OR NON-INFRINGEMENT. THE COINBASE ENTITIES DO NOT WARRANT THAT THE PRIME BROKER SERVICES, INCLUDING
ACCESS TO AND USE OF THE COINBASE WEBSITES, OR ANY OF THE CONTENT CONTAINED THEREIN, WILL BE CONTINUOUS, UNINTERRUPTED, TIMELY, COMPATIBLE
WITH ANY SOFTWARE, SYSTEM OR OTHER SERVICES, SECURE, COMPLETE, FREE OF HARMFUL CODE OR ERROR-FREE.
| 19.1 | Client shall defend and indemnify and hold harmless each Coinbase Entity, its affiliates, and their respective
officers, directors, agents, employees and representatives from and against any and all Claims and Losses arising out of or
relating to Client’s breach of this Coinbase Prime Broker Agreement, Client’s violation of any law, rule or regulation,
or rights of any third party, or Client’s gross negligence, fraud or willful misconduct. This obligation will survive any termination
of this Coinbase Prime Broker Agreement. Client shall not accept any settlement of any Claims or Losses if such settlement imposes any
financial or non-financial liabilities, obligations or restrictions on, or requires an admission of guilt or wrong-doing from, any indemnified
party pursuant to this Section 19, without such indemnified party’s prior written consent. |
| 19.2 | For the purposes of this Coinbase Prime Broker Agreement: |
| (a) | “Claim” means any action, suit, litigation, demand, charge, arbitration,
proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by
or before, or otherwise involving, any court or other governmental, regulatory or administrative body or any arbitrator or arbitration
panel; and |
| (b) | “Losses” means any liabilities, damages, diminution in value, payments, obligations,
losses, interest, costs and expenses, security or other remediation costs (including any regulatory investigation or third party subpoena
costs, reasonable attorneys’ fees, court costs, expert witness fees, and other expenses relating to investigating or defending any
Claim); fines, taxes, fees, restitution, or penalties imposed by any governmental, regulatory or administrative body, interest on and
additions to tax with respect to, or resulting from, Taxes imposed on Client’s assets,
cash, other property, or any income or gains derived therefrom; and judgments (at law or in equity) or awards of any nature. |
| 20. | Limitation
of Liability |
IN NO EVENT SHALL ANY COINBASE ENTITY, ITS
AFFILIATES, OR THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS, EMPLOYEES AND REPRESENTATIVES HAVE ANY LIABILITY TO CLIENT OR ANY THIRD
PARTY WITH RESPECT TO ANY BREACH OF ITS OBLIGATIONS HEREUNDER, EXPRESS OR IMPLIED, WHICH DOES NOT RESULT SOLELY FROM ITS GROSS NEGLIGENCE,
FRAUD OR WILLFUL MISCONDUCT. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EXCEPT FOR LIABILITIES SPECIFICALLY PROVIDED FOR HEREUNDER,
NEITHER PARTY HERETO SHALL BE LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR SIMILAR LOSSES, EVEN IF THE
OTHER PARTY HAD BEEN ADVISED OF OR KNEW OR SHOULD HAVE KNOWN OF THE POSSIBILITY THEREOF. NOTHING IN THIS COINBASE PRIME BROKER AGREEMENT
SHALL BE DEEMED TO CREATE ANY JOINT OR SEVERAL LIABILITY AMONG ANY OF THE COINBASE ENTITIES. IN NO EVENT SHALL ANY COINBASE ENTITY’S
AGGREGATE LIABILITY WITH RESPECT TO ANY BREACH OF ITS OBLIGATIONS HEREUNDER EXCEED THE AGGREGATE AMOUNT OF FEES PAID BY CLIENT TO SUCH
COINBASE ENTITY IN RESPECT OF THE PRIME BROKER SERVICES IN THE 12-MONTH PERIOD PRIOR TO THE EVENT GIVING RISE TO SUCH LIABILITY AND SOLELY
IN RESPECT OF CUSTODIAL SERVICES PROVIDED PURSUANT TO THE CUSTODY AGREEMENT, THE GREATER OF (i) THE AGGREGATE AMOUNT OF FEES PAID
BY CLIENT TO COINBASE CUSTODY IN RESPECT OF THE CUSTODIAL SERVICES IN THE 12-MONTH PERIOD PRIOR TO THE EVENT GIVING RISE TO SUCH LIABILITY
OR (ii) THE VALUE OF THE SUPPORTED DIGITAL ASSETS ON DEPOSIT IN CLIENT’S CUSTODIAL ACCOUNT(S) GIVING RISE TO SUCH LIABILITY
AT THE TIME OF THE EVENT GIVING RISE TO SUCH LIABILITY (THE VALUE OF WHICH SHALL BE CALCULATED AT THE AVERAGE UNITED STATES DOLLAR ASK
PRICE, AT THE TIME OF SUCH EVENT, OF THE THREE (3) LARGEST U.S.-BASED EXCHANGES (BY TRAILING 30-DAY VOLUME) WHICH OFFER THE RELEVANT
DIGITAL CURRENCY OR DIGITAL ASSET/USD TRADING PAIR, AS RELEVANT); PROVIDED, THAT IN NO EVENT SHALL COINBASE CUSTODY’S AGGREGATE
LIABILITY IN RESPECT OF EACH COLD STORAGE ADDRESS EXCEED ONE HUNDRED MILLION US DOLLARS (US$100,000,000).
The Coinbase Entities
shall use and disclose Client’s and its Authorized Representatives’ non-public personal information in accordance with the
Coinbase Privacy Policy, as set forth at https://www.coinbase.com/legal/privacy or a successor
website, and as amended and updated from time to time.
| 22.1 | Any Claim arising out of or relating to this Coinbase Prime Broker Agreement, or the breach, termination,
enforcement, interpretation or validity thereof, including any determination of the scope or applicability of the agreement to arbitrate
as set forth in this Section 22, shall be determined by arbitration in the state of New York or another mutually agreeable location,
before one neutral arbitrator. The arbitration shall be administered by JAMS pursuant to its Comprehensive Arbitration Rules and
Procedures, and the award of the arbitrator (the “Award”) shall be accompanied by a reasoned opinion. Judgment on the
Award may be entered in any court having jurisdiction. This Coinbase Prime Broker Agreement shall not preclude the Parties from seeking
provisional relief, including injunctive relief, in any court of competent jurisdiction. Seeking any such provisional relief shall not
be deemed to be a waiver of such party’s right to compel arbitration. The Parties expressly waive their right to a jury trial to
the extent permitted by applicable law. |
| 22.2 | In any arbitration arising out of or related to this Coinbase Prime Broker Agreement, the arbitrator shall
award to the prevailing party, if any, as determined by the arbitrator, all of its costs and fees. “Costs and fees” mean all reasonable pre-award
expenses of the arbitration, including the arbitrator’s fees, administrative fees, travel expenses, out-of-pocket expenses such
as copying and telephone, court costs, witness fees, and attorneys’ fees. |
| 22.3 | The Parties acknowledge that this Coinbase Prime Broker Agreement evidences a transaction involving interstate
commerce. Notwithstanding the provision herein with respect to applicable substantive law, any arbitration conducted pursuant to the terms
of this Coinbase Prime Broker Agreement shall be governed by the Federal Arbitration Act (9 U.S.C. §§ 1-16). |
| 23. | Term,
Termination and Suspension |
This Coinbase Prime Broker Agreement is effective as of the date written
below and shall remain in effect until terminated by Coinbase or Client as follows:
| (a) | Either Party may terminate this Coinbase Prime Broker Agreement in its entirety for any reason and without
Cause by providing at least 30 days’ prior written notice to the other party; provided, however, Client’s termination of this
Coinbase Prime Broker Agreement shall not be effective until Client has fully satisfied its obligations
hereunder. |
| (b) | Regardless of any other provision of this Coinbase Prime Broker Agreement, the Coinbase Entities may,
in their sole discretion, suspend, restrict or terminate the Client’s Prime Broker Services, including by suspending, restricting
or closing the Client’s Prime Broker Account and/or any associated Trading Account, Custodial Account or any credit account (as
applicable), for Cause, at any time and without prior notice to the Client. |
“Cause” shall mean:
(i) Client breaches any provision of this Coinbase Prime Broker Agreement; (ii) Client takes any action to dissolve or liquidate,
in whole or part; (iii) Client becomes insolvent, makes an assignment for the benefit of creditors, becomes subject to direct control
of a trustee, receiver or similar authority; (iv) Client becomes subject to any bankruptcy or insolvency proceeding under any applicable
laws, rules and regulations, such termination being effective immediately upon any declaration of bankruptcy; (v) Coinbase
becomes aware of any facts or circumstances with respect to the Client’s financial, legal, regulatory or reputational position
which may affect Client’s ability to comply with its obligations under this Coinbase Prime Broker Agreement; (vi) termination
is required pursuant to a facially valid subpoena, court order or binding order of a government authority; (vii) Client’s
Prime Broker Account is subject to any pending litigation, investigation or government proceeding and/or Coinbase reasonably perceives
a heightened risk of legal regulatory non-compliance associated with Client’s use of Prime Broker Services; or (viii) Coinbase
reasonably suspects Client of attempting to circumvent Coinbase’s controls or uses the Prime Broker Services in a manner Coinbase
otherwise deems inappropriate or potentially harmful to itself or third parties.
| (c) | Client acknowledges that the Coinbase Entities’ decision to take certain actions, including suspending,
restricting or terminating Client’s Prime Broker Account or Prime Broker Services, may be based on confidential criteria that are
essential to Coinbase’s risk management and security practices and agrees that the Coinbase Entities are under no obligation to
disclose the details of its risk management and security practices to Client. |
If any provision or condition of this Coinbase
Prime Broker Agreement shall be held invalid or unenforceable, the remainder of this Coinbase Prime Broker Agreement shall continue in
full force and effect.
Any waivers of rights by the Coinbase Entities
under this Coinbase Prime Broker Agreement must be in writing and signed by Coinbase on behalf of the relevant Coinbase Entities. A waiver
will apply only to the particular circumstance giving rise to the waiver and will not be considered a continuing waiver in other similar
circumstances. The Coinbase Entities’ failure to insist on strict compliance with this Coinbase Prime Broker Agreement or any other
course of conduct by the Coinbase Entities shall not be considered a waiver of their rights under this Coinbase Prime Broker Agreement.
All provisions of this Coinbase Prime Broker Agreement
which by their nature extend beyond the expiration or termination of this Coinbase Prime Broker Agreement shall survive the termination
or expiration of this Coinbase Prime Broker Agreement.
This Coinbase Prime Broker Agreement, Client’s
Prime Broker Account, and the Prime Broker Services will be governed by and construed in accordance with the laws of the State of New
York, excluding its conflicts of laws principles, except to the extent such state law is preempted by federal law.
The Coinbase Entities shall not be liable for
delays, suspension of operations, whether temporary or permanent, failure in performance, or interruption of service which result directly
or indirectly from any cause or condition beyond the reasonable control of the Coinbase Entities, including any act of God; embargo; natural
disaster; act of civil or military authorities; act of terrorists; hacking; government restrictions; any ruling by any Connected Trading
Venue, exchange or market; market volatility or disruptions in order trading on any Connected Trading Venue, exchange or market; suspension
of trading; civil disturbance; war; strike or other labor dispute; fire; severe weather; interruption in telecommunications, Internet
services, or network provider services; failure of equipment and/or software; failure of computer or other electronic or mechanical equipment
or communication lines; unauthorized access; theft; operator errors; outbreaks of infectious disease or any other public health crises,
including quarantine or other employee restrictions; acts or omissions of any Connected Trading Venue; or any other catastrophe or other
occurrence which is beyond the reasonable control of the Coinbase Entities.
| 29. | Entire
Agreement; Headings |
This Coinbase Prime Broker Agreement, together
with all exhibits, addenda and supplements attached hereto or referenced herein, comprise the entire understanding between Client and
the Coinbase Entities as to the Prime Broker Services and supersedes all prior discussions, agreements and understandings, including any
previous version of this Coinbase Prime Broker Agreement, and the Custodial Services Agreement between Client and any Coinbase Entity,
including all exhibits, addenda, policies, and supplements attached thereto or referenced therein. Section headings in this Coinbase
Prime Broker Agreement are for convenience only and shall not govern the meaning or interpretation of any provision of this Coinbase Prime
Broker Agreement.
Any modification or addition to this Coinbase
Prime Broker Agreement must be in writing and either (a) signed by a duly authorized representative of each party, or (b) accepted
and agreed to by Client.
Any assignment of Client’s rights and/or
licenses granted under this Coinbase Prime Broker Agreement without obtaining the prior written consent of Coinbase shall be null and
void. Coinbase reserves the right to assign its rights under this Coinbase Prime Broker Agreement without restriction, including to any
of the Coinbase Entities or their affiliates or subsidiaries, or to any successor in interest of any business associated with the Prime
Broker Services, provided that Coinbase shall notify Client within a reasonable amount of time after such assignment. Subject to the
foregoing, this Coinbase Prime Broker Agreement will bind and inure to the benefit of the Parties, their successors and permitted assigns.
| 32. | Electronic
Delivery of Communications |
Client agrees and consents to receive electronically
all communications, agreements, documents, notices and disclosures (collectively, “Communications”) that the Coinbase
Entities provide in connection with Client’s Prime Broker Account and Client’s use of Prime Broker Services. Communications
include: (a) terms of use and policies Client agrees to, including updates to policies or the Coinbase Prime Broker Agreement, (b) Prime
Broker Account details, including transaction receipts, confirmations, records of deposits, withdrawals or transaction information, (c) legal,
regulatory and tax disclosures or statements the Coinbase Entities may be required to make available to Client and (d) responses
to claims or customer support inquiries filed in connection with Client’s Prime Broker Account.
Coinbase will provide these Communications to
Client by posting them on the Prime Broker Site, emailing them to Client at the primary email address on file with Coinbase, communicating
to Client via instant chat, and/or through other means of electronic communication. The Client agrees that electronically delivered Communications
may be accepted and agreed to by Client through the Prime Broker Services interface. Furthermore, the Parties consent to the use of electronic
signatures in connection with Client’s use of the Prime Broker Services.
| 33.1 | All notices required or permitted to be given hereunder shall be in writing delivered to the Party at
its address specified below via an overnight mailing company of national reputation. Any Party that changes its notice address must notify
the other Party promptly of such change. |
If to any Coinbase Entity:
Legal Department
Coinbase, Inc.
If to Client, the address specified in its signature block
on the Execution Page.
| 33.2 | In the event of any market operations, connectivity, or erroneous trade issues that require immediate
attention including any unauthorized access to Client’s Prime Broker Account, please contact: |
To Coinbase:
To Client: the email address specified
in its signature block on the Execution Page.
It is solely Client’s responsibility
to provide Coinbase with a true, accurate and complete contact information including any e-mail address, and to keep such information
up to date. Client understands and agrees that if Coinbase sends Client an electronic Communication but Client does not receive it because
Client’s primary email address on file is incorrect, out of date, blocked by Client’s service provider, or Client is otherwise
unable to receive electronic Communications, Coinbase will be deemed to have provided the Communication to Client. Client may update
Client’s information via Client’s Prime Broker Account and visiting settings or by providing a notice to Coinbase as prescribed
above.
| 33.3 | To see more information about our regulators,
licenses, and contact information for feedback, questions or complaints, please visit https://www.coinbase.com/legal/licenses. |
To the extent Client is a natural person over
18 years of age, if Coinbase receives legal documentation confirming Client’s death or other information leading Coinbase to believe
Client is deceased, Coinbase will freeze Client’s Prime Broker Account (“Freeze Period”). During the Freeze
Period, no transactions may be completed until: (i) Client’s designated fiduciary has opened a new Prime Broker Account, as
further described below, and the entirety of Client’s Prime Broker Account has been transferred to such new Prime Broker Account,
or (ii) Client has received proof in a form satisfactory to Coinbase that Client is not deceased. If Coinbase has reason to believe
Client is deceased but Coinbase does not have proof of Client’s death in a form satisfactory to Coinbase, Client authorizes Coinbase
to make inquiries, whether directly or through third parties, that Coinbase considers necessary to ascertain whether Client is deceased.
Upon receipt by Coinbase of proof satisfactory to Coinbase that Client is deceased, the fiduciary Client designated in a valid will or
similar testamentary document will be required to open a new Prime Broker Account. If Client has not designated a fiduciary, then Coinbase
reserves the right to (i) treat as Client’s fiduciary any person entitled to inherit Client’s Prime Broker Account,
as determined by Coinbase upon receipt and review of the documentation Coinbase, in its sole and absolute discretion, deems necessary
or appropriate, including (but not limited to) a will, a living trust or a Small Estate Affidavit, or (ii) require an order designating
a fiduciary from a court having competent jurisdiction over Client’s estate. In the event Coinbase determines, in its sole and
absolute discretion, that there is uncertainty regarding the validity of the fiduciary designation, Coinbase reserves the right to require
an order resolving such issue from a court of competent jurisdiction before taking any action relating to Client’s Prime Broker
Account. Pursuant to the above, the opening of a new Prime Broker Account by a designated fiduciary is mandatory following the death
of Client, and Client hereby agrees that its fiduciary shall be required to open a new Prime Broker Account and provide required account
opening information to gain access to the contents of Client’s Prime Broker Account.
This Coinbase Prime Broker Agreement may be executed
in one or more counterparts, including by facsimile or email of .pdf signatures or DocuSign (or similar electronic signature software),
each of which shall be deemed to be an original document, but all such separate counterparts shall constitute only one and the same Coinbase
Prime Broker Agreement.
[Signatures on following page]
IN WITNESS WHEREOF, the Parties have caused this Coinbase Prime
Broker Agreement, including the Custody Agreement and MTA, to be duly executed and delivered as of the date below.
COINBASE,
INC. For itself and as agent for the Coinbase Entities |
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By: |
/s/
Alejandra Ugarte |
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Name: |
Alejandra
Ugarte |
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Title: |
Authorized
Signatory |
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Date: |
January 6,
2023 |
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CLIENT:
Mercurity Fintech Technology Holding Inc. |
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By: |
/s/
Shi Qiu |
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Name: |
Shi
Qiu |
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Title: |
CEO |
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Date: |
January 3,
2023 |
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Address: |
1330
avenue of Americas Fl33, New York 10019 |
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E-Mail: |
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EXHIBIT A
to the Coinbase Prime Broker Agreement
COINBASE CUSTODY CUSTODIAL SERVICES AGREEMENT
This Custody Agreement is entered into between
Client and Coinbase Custody and forms a part of the Coinbase Prime Broker Agreement between the Client and the Coinbase Entities. Capitalized
terms used in this Custody Agreement that are not defined herein shall have the meanings assigned to them in the other parts of the Coinbase
Prime Broker Agreement.
Coinbase Custody shall provide Client with a segregated custody account
controlled and secured by Coinbase Custody (“Custodial Account”) to store certain Digital Assets supported by Coinbase
Custody, on Client’s behalf (“Custodial Services”). Coinbase Custody is a fiduciary under § 100 of the
New York Banking Law and a qualified custodian for purposes of Rule 206(4)-2(d)(6) under the Investment Advisers Act of 1940,
as amended, and is licensed to custody Client’s Digital Assets in trust on Client’s behalf. Digital Assets in Client’s
Custodial Account shall (i) be segregated from the assets held by Coinbase Custody as principal and the assets of other customers
of Coinbase Custody, (ii) not be treated as general assets of Coinbase Custody, and except as otherwise provided herein, Coinbase
Custody shall have no right, title or interest in such Digital Assets, (iii) constitute custodial assets and Client’s property.
In addition, Coinbase Custody shall maintain adequate capital and reserves to the extent required by applicable law and shall not, directly
or indirectly, lend, pledge, hypothecate or re-hypothecate any Digital Assets in the Custodial Account.
| 2.1 | In General. The Custodial Services shall permit the Client (i) to hold its Vault Balance in
its Custodial Account and transfer Digital Assets to and from its Trading Balance, (ii) to deposit supported Digital Assets from
a public blockchain address controlled by Client into its Custodial Account, (iii) withdraw supported Digital Assets from its Custodial
Account to a public blockchain address controlled by Client and (iv) certain additional services as
may be agreed to between the Client and Coinbase Custody from time to time. Each such deposit or withdrawal shall be referred to
as a “Custody Transaction” and shall conform to Instructions provided by Client through the Coinbase Prime Broker Site. Client
shall only withdraw or deposit Digital Assets to public blockchain addresses and accounts owned by Client or an address for which Client
has conducted the necessary Know Your Customer (“KYC”) and anti-money laundering (“AML”) due diligence.
Digital Assets shall be held in Client’s Custodial Account in accordance with the terms of this Custody Agreement and shall not
be commingled with other clients’ Digital Assets. Coinbase Custody reserves the right to refuse to process or to cancel any
pending Custody Transaction to comply with applicable law or in response to a subpoena, court order or other binding government order,
or to enforce transaction, threshold and condition limits, or if Coinbase Custody reasonably believes that the Custody Transaction may
violate or facilitate the violation of an applicable law, regulation or rule of a governmental authority or self-regulatory organization. |
| 2.2 | Digital Asset Deposits and Withdrawals. Coinbase Custody will process supported Digital Asset Custody Transaction according to the
Instruction received from Client or Client’s Authorized Representatives, and Coinbase Custody does not guarantee the identity of
any user, receiver, requestee or other party. Client must verify all deposit and withdrawal information prior to submitting Instructions
to Coinbase Custody regarding a Custody Transaction. Coinbase Custody shall have no liability, obligation, or responsibility whatsoever
for Client Digital Asset transfers sent to or received from a wrong party or sent or received with inaccurate Instructions. Coinbase
Custody reserves the right to charge network fees (including miner fees) to process a Custody Transaction on Client’s behalf. Coinbase
Custody will calculate the network fee, if any, in its sole and absolute discretion, although Coinbase Custody will always notify Client
of the network fee at or before the time Client authorizes the Custody Transaction. Coinbase Custody reserves the right to delay any
Custody Transaction if it perceives a risk of fraud or illegal activity. |
| 2.3 | Digital Asset Storage and Transmission Delays. Coinbase Custody requires up to twenty-four
(24) hours between any request to withdraw Digital Assets from Client’s Custodial Account and submission of Client’s
withdrawal to the applicable Digital Asset network. Since Coinbase Custody securely stores all Digital Asset private keys in offline
storage, it may be necessary to retrieve certain information from offline storage in order to facilitate a withdrawal in accordance
with Client’s Instructions, which
may delay the initiation or crediting of such withdrawal. Client acknowledges and agrees that a Custody Transaction may be delayed, and
that Digital Assets shall not be deposited or withdrawn upon less than twenty-four (24) hours’ notice initiated from Client’s
Custodial Account. The time of such request shall be the time such notice is transmitted from Client’s Custodial Account. Coinbase
Custody makes no representations or warranties with respect to the availability and/or accessibility of (1) the Digital Assets,
(2) a Custody Transaction, (3) the Custodial Account, or (4) the Custodial Services. While Coinbase Custody will make
reasonable efforts to process Client initiated deposits in a timely manner, Coinbase Custody makes no representations or warranties regarding
the amount of time needed to complete processing as such processing is dependent upon many factors outside of Coinbase Custody’s
control. |
| 2.4 | Supported Digital Assets. The Custodial Services are available only in connection with those Digital
Assets that Coinbase Custody, in its sole discretion, decides to support, which may change from time to time. Prior to initiating a deposit
of Digital Asset to Coinbase Custody, Client must confirm that Coinbase Custody offers Custodial Services for that specific Digital Asset.
By initiating a deposit of any Digital Asset to a Custodial Account, Client attests that Client has confirmed that the Digital Asset being
transferred is a supported Digital Asset offered by Coinbase Custody. Under no circumstances should Client attempt to use the Custodial
Services to deposit or store Digital Assets in any forms that are not supported by Coinbase Custody. Depositing or attempting to deposit
Digital Assets that are not supported by Coinbase Custody may result in such Digital Asset being irretrievable by Client and Coinbase
Custody. Client shall be fully responsible and liable, and Coinbase Custody shall have no liability, obligation, or responsibility whatsoever,
regarding any unsupported Digital Asset sent or attempted to be sent to it, or regarding any attempt to use the Custodial Services for
Digital Assets that Coinbase Custody does not support. Digital Assets supported by Coinbase Custody shall be listed on the Coinbase Prime
Broker Site. Coinbase Custody recommends that Client deposit a small amount of supported Digital Asset as a test prior to initiating a
deposit of a significant amount of supported Digital Asset. Coinbase Custody shall provide Client with thirty (30) days’ written
notice before ceasing to support a Digital Asset, unless Coinbase Custody is required to cease
such support by court order, statute, law, rule (including a self-regulatory organization rule), regulation, code, or other similar
requirement. |
| 2.5 | Use of the Custodial Services. Client acknowledges and agrees that Coinbase Custody may monitor
use of the Custodial Account and the Custodial Services and the resulting information may be utilized, reviewed, retained and or disclosed
by Coinbase Custody for its internal purposes or in accordance with the rules of any applicable legal, regulatory or self-regulatory
organization or as otherwise may be required to comply with relevant law, sanctions programs, legal process or government request. |
| 2.6 | Independent Verification. If Client is subject to Rule 206(4)-2 under the Investment Advisers
Act of 1940, Coinbase Custody shall, upon written request, provide Client’s authorized independent public accountant confirmation
of or access to information sufficient to confirm (i) Client’s Digital Assets as of the date of an examination
conducted pursuant to Rule 206(4)-2(a)(4), and (ii) Client’s Digital Assets are held either in a separate account under
Client’s name or in accounts under Client’s name as agent or trustee for Client’s clients. |
| 2.7 | Third Party Payments. The Custodial Services are not intended to facilitate third party payments
of any kind. As such, Coinbase Custody has no control over, or liability for, the delivery, quality, safety, legality or any other aspect
of any goods or services that Client may purchase or sell to or from a third party (including other users of Custodial Services) involving
Digital Assets that Client intends to store, or have stored, in Client’s Custodial Account. |
| 2.8 | Termination, and Cancellation. If Coinbase Custody closes Client’s Custodial Account or terminates
Client’s use of the Custodial Services, Client will be permitted to withdraw Digital Assets associated with Client’s Custodial
Account for a period of up to ninety (90) days following the date of deactivation or cancellation to the extent not prohibited (i) under
applicable law, including applicable sanctions programs, or (ii) by a facially valid subpoena, court order, or binding order of a
government authority. |
| 3. | Coinbase
Custody Obligations |
| 3.1 | Bookkeeping. Coinbase Custody shall keep
timely and accurate records as to the deposit, disbursement, investment and reinvestment of the Digital Assets, as required by applicable
law and in accordance with Coinbase Custody’s internal document retention policies. |
| 3.2 | Insurance. Coinbase Custody shall obtain and maintain, at its sole expense, insurance coverage
in such types and amounts as shall be commercially reasonable for the Custodial Services provided hereunder. |
In addition to any
additional service providers that may be described in an addendum or attachment hereto, Client acknowledges and agrees that the
Custodial Services may be provided from time to time by, through or with the assistance of affiliates of, or vendors to, Coinbase Custody.
Client shall receive notice of any material change in the entities that provide the Custodial Services.
[Remainder of page intentionally left blank]
EXHIBIT B
to the Coinbase Prime Broker Agreement
COINBASE MASTER TRADING AGREEMENT
Client should carefully consider whether trading
or holding Digital Assets is suitable for its purpose, including in relation to Client’s knowledge of Digital Assets and Digital
Asset markets and Client’s financial condition. All investments involve risk, and the past performance of a financial product does
not guarantee future results or returns.
This Master Trading Agreement (“MTA”)
sets forth the terms and conditions for clients to trade Digital Assets through the Coinbase prime broker execution platform (“Trading
Platform”) and forms a part of the Coinbase Prime Broker Agreement between Client and the Coinbase Entities. Pursuant to this
MTA, Coinbase shall open a Trading Account for the Client on the Trading Platform consisting of linked accounts at Coinbase and Coinbase
Custody, each accessible via the Trading Platform (“Trading Account”). The Trading Platform shall provide Client with
access to trade execution and automated trade routing services and Coinbase Execution Services (as defined below) to enable Clients to
submit orders (“Orders”) to purchase and sell specified Digital Assets in accordance with this MTA and the Coinbase
Trading Rules set forth at https://www.coinbase.com/legal/trading_rules or a successor website (as amended and
updated from time to time, the “Coinbase Trading Rules”) (such services, the “Trading Services”).
Capitalized terms used in this MTA that are not defined herein shall have the meanings assigned to them in the other parts of the Coinbase
Prime Broker Agreement.
| 1. | Order Routing and Connected Trading Venue |
| 1.1 | The Trading Platform operates a trade execution service through which Client may submit Orders to purchase
or sell Digital Assets. After Client submits an Order, the Trading Platform will automatically route the Order (or a portion of the Order)
to one of the trading venues to which the Trading Platform has established connections (each such venue, a “Connected Trading
Venue”). Each Order will be sent, processed and settled at each Connected Trading Venue to which it is routed. Once an Order
to purchase Digital Assets has been placed, the associated Client Assets (as defined below) used to fund the Order will be placed on hold
and will generally not be eligible for other use or withdrawal. |
| 1.2 | With each Connected Trading Venue, Coinbase shall establish an account in its name, or in its name
for the benefit of clients, to trade on behalf of its clients, and the establishment of a Trading Account will not cause Client to
have a direct legal relationship, or account with, any Connected Trading Venue. The Trading Platform will not intentionally match
the buy and sell orders of its clients against each other and will not intentionally settle Orders against or otherwise trade with Coinbase’s principal funds. Client
acknowledges that Coinbase and its other clients may trade in their own interests on the Connected Trading Venues and could, therefore,
be the counterparty to a Client Order on a Connected Trading Venue. |
| 1.3 | Client acknowledges that Coinbase has sole discretion to determine the Connected Trading Venues with which
it will establish connections. Coinbase will direct Orders to the Connected Trading Venues on an automated basis and generally will not
manually route orders. In designing algorithms that determine an Order’s routing logic, Coinbase considers a variety of factors
relating to the Order and the Connected Trading Venues, including the speed of execution, whether the venue is able to consummate off-chain
transactions, the availability of efficient and reliable systems, the level of service provided, and the cost of executing orders. Coinbase
may receive cash payments or other financial incentives (such as reciprocal business arrangements) from Connected Trading Venues. |
| 1.4 | Coinbase makes no representation or warranty of any kind regarding any Connected Trading Venue, including
as to its financial condition, data, security or quality of its execution services, and shall have no liability, obligation, or responsibility
whatsoever for the selection or performance of any Connected Trading Venue. Digital Assets may trade at different prices on different
trading venues, and other Connected Trading Venues and/or trading venues not used by Coinbase may offer better prices and/or lower costs
than the Connected Trading Venue used to execute Client’s Order. |
| 1.5 | Coinbase acts in an agency capacity for purposes of certain Orders, and may also act in a principal capacity
for certain other Orders, as specified in the Coinbase Trading Rules. In the Request For Quotation (“RFQ”)
service, Coinbase may act as principal to fill Orders by providing indicative firm pricing in accordance with a variety of market factors,
at its sole discretion. Each Client should independently evaluate whether such services are appropriate given its own investing profile
and sophistication, among other considerations. |
| 2. | Client Trading Balance and Vault Balance |
| 2.1 | For purposes of this MTA, Client’s Digital Assets are referred to as “Client Digital Assets,”
Client’s cash is referred to as “Client Cash,” and Client Digital Assets and Client Cash are together referred
to as “Client Assets.” |
| 2.2 | Within the Trading Platform, Coinbase provides access to two types of accounts with balances relating
to Client Assets: (1) the “Trading Balance” (as described below in Section 2.3) and (2) the “Vault
Balance” (as described below in Section 2.5). The Trading Account provides a record of both the Trading Balance and the
Vault Balance. Client determines the allocation of its Client Digital Assets between the Trading Balance and the Vault Balance. Maintenance
of the Vault Balance shall be subject to the terms of the Custody Agreement; provided, however, Client’s Trading Balance
is separate from any Digital Assets Client maintains directly with Coinbase Custody. |
| 2.3 | Client Digital Assets credited to the Trading Balance are immediately available to Client for purposes
of submitting an Order. Coinbase holds Digital Assets credited to the Trading Balance in one of three ways: (i) in omnibus hot wallets
(each, an “Omnibus Hot Wallet”); (ii) in omnibus cold wallets (each, an “Omnibus Cold Wallet”);
and (iii) in Coinbase’s accounts with the Connected Trading Venues (“Coinbase
Connected Trading Venue Digital Asset Balance”). Client agrees that Coinbase has sole discretion in determining the allocation
of Digital Assets credited to the Trading Balance. Because Digital Assets credited to the Trading Balance are held on an omnibus basis
and because of the nature of certain Digital Assets, Client does not have an identifiable claim to any particular Digital Asset. Instead,
Client’s Trading Balance represents an entitlement to a pro rata share of the Digital Assets Coinbase has allocated to the
Omnibus Hot Wallets, Omnibus Cold Wallets and Coinbase Connected Trading Venue Digital Asset Balance. Coinbase relies on the Connected
Trading Venues for the Coinbase Connected Trading Venue Digital Asset Balance, and Client has no contractual relationship with the Connected
Trading Venues with respect to Digital Assets credited to the Trading Balance. |
| 2.4 | Client may maintain Client Cash in the Trading Balance but not in the Vault Balance. Coinbase holds Client
Cash credited to the Trading Balance in one of two ways: (i) in one or more omnibus accounts in Coinbase’s name for the benefit
of customers at one or more U.S. insured depository institutions (each, an “FBO account”) and (ii) in Coinbase’s
omnibus accounts at Connected Trading Venues. Coinbase will title
the FBO accounts it maintains with U.S. depository institutions and maintain records of Client’s interest in a manner designed
to enable receipt of Federal Deposit Insurance Corporation (“FDIC”) deposit insurance, where applicable and up to
the deposit insurance limits applicable under FDIC regulations and guidance, on Client Cash for the Client’s benefit on a pass-through
basis. Coinbase does not guarantee that pass-through FDIC deposit insurance will apply to Client Cash, since such insurance is dependent
in part on compliance of the depository institutions. Coinbase may also title its accounts at some or all Connected Trading Venues and
maintain records of Client interests in those accounts in a manner consistent with FDIC requirements for pass-through deposit insurance,
but availability of pass-through deposit insurance, up to the deposit insurance limits applicable under FDIC regulations and guidance,
is also dependent on the actions of the Connected Trading Venues and any depository institutions they use, which may not be structured
to provide pass-through deposit insurance. FDIC insurance applies to cash deposits at banks and other insured depository institutions
in the event of a failure of that institution, and does not apply to any Coinbase Entity or to any Digital Asset held by a Coinbase Entity
on Client’s behalf. Client Cash is immediately available to Client for purposes of submitting an Order, unless a restriction applies. |
| 2.5 | At Client’s election, all or a portion of Client Digital Assets may also be allocated to the
Vault Balance which is held in a Custodial
Account in Client’s name at Coinbase Custody pursuant to the Custody Agreement. Such Vault Balance will be divided between segregated
hot storage in Client’s name (“Hot Vault Balance”) and segregated cold storage in Client’s name (“Cold
Vault Balance”). Client shall have sole discretion to allocate Digital Assets between the Hot Vault Balance and Cold Vault
Balance. Digital Assets in the Hot Vault Balance may be transferred immediately to Client’s Trading Balance unless a restriction
applies. A transfer of Digital Assets in the Cold Vault Balance to Client’s Trading Balance will be subject to Coinbase Custody’s
standard cold storage withdrawal procedures. Client hereby appoints Coinbase as Client’s agent for purposes of instructing Coinbase
Custody to transfer Client Digital Assets between Client’s Vault Balance and Client’s Trading Balance. Client agrees that
an Instruction to Coinbase to settle an Order to or from Client’s Vault Balance constitutes authorization to Coinbase to transfer
Client Digital Assets to or from Client’s Vault Balance as necessary or appropriate to consummate such settlement. |
| 2.6 | In all circumstances and consistent with laws and regulations applicable to Coinbase, Coinbase will keep
an internal ledger that specifies the Client Assets credited to Client’s Trading Balance and enables Coinbase and its auditors and
regulators to identify Client and the Client Assets. |
| 2.7 | Coinbase treats all Client Assets as custodial assets held for the benefit of Client. No Client Assets
credited to the Trading Balance shall be considered to be the property of, or loaned to, Coinbase, except as provided in any loan agreement
between Client and any Coinbase Entity. Neither Coinbase nor any Coinbase Entity will sell, transfer, loan, rehypothecate or otherwise
alienate Client’s Assets credited to Client’s
Trading Balance unless instructed by Client pursuant to an agreement between Client and a Coinbase Entity. |
| 3. | Role of Coinbase Custody |
| 3.1 | To facilitate the Trading Services, Coinbase may at its sole discretion maintain portions of the Omnibus
Hot Wallet and the Omnibus Cold Wallet in one or more custodial FBO accounts with its affiliate, Coinbase Custody. In such circumstances,
although the Omnibus Hot Wallet and the Omnibus Cold Wallet are held in Coinbase’s
FBO accounts with Coinbase Custody, Client’s legal relationship for purposes of Digital Assets held in the Omnibus Hot Wallet and
the Omnibus Cold Wallet will not be, directly or indirectly, with Coinbase Custody and the terms, conditions and agreements relating to
those wallets are to be governed by this MTA. |
| 3.2 | Client Digital Assets held in the Hot Vault Balance and Cold Vault Balance are maintained directly between
Client and Coinbase Custody in Client’s name and are subject to the terms of the Client’s Custody Agreement. |
| 4. | Cash and Digital Asset Deposits and Withdrawals |
| 4.1 | To deposit Client Cash, Client must initiate a transfer from a linked bank account, a wire transfer,
a SWIFT transfer, a Silvergate Exchange Network deposit or other form of electronic payment approved by Coinbase from time to time to
Coinbase’s bank account, the instructions for which are available on the Coinbase Prime Broker Site. Coinbase will credit the Trading
Balance with Client Cash once the associated cash is delivered to Coinbase. |
| 4.2 | To withdraw Client Cash, Client may also initiate a withdrawal of Client Cash from the Trading
Balance at any time using the withdrawal function on the Trading Platform. |
| 4.3 | To deposit Client Digital Assets, Clients may transfer Client Digital Assets directly to the
Omnibus Hot Wallet or Omnibus Cold Wallet, the instructions for which are available on the Coinbase Prime Broker Site. Client may
transfer funds to and among its Hot Vault Balance or Cold Vault Balance. When Client transfers Digital Assets to Coinbase or
Coinbase Custody, it delivers custody and control of the Digital Assets to Coinbase, Coinbase Custody or Coinbase’s designee,
as applicable. Client represents and warrants that
any Digital Asset so transferred shall be free and clear of all liens, claims and encumbrances. |
| 4.4 | To withdraw Client Digital Assets, Client must provide applicable Instructions via the Coinbase
Prime Broker Site (“Withdrawal Transfer”). Once Client has initiated a Withdrawal Transfer, the associated Client Digital
Assets will be in a pending state and will not be included in the Client’s Trading Balance or Vault Balance. Client acknowledges
that Coinbase may not be able to reverse a Withdrawal Transfer once initiated. Client may withdraw Client Digital Assets at any time,
subject to delays for Digital Assets held in Cold Vault Balance, and any applicable account restrictions. |
| 4.5 | Client must verify all transaction information prior to submitting withdrawal Instructions to Coinbase,
as Coinbase cannot and does not guarantee the identity of the wallet owner or bank account to which Client is sending Client Digital Assets
or Client Cash, as applicable. Coinbase shall have no liability, obligation, or responsibility whatsoever for Client Cash or Client Digital
Asset transfers sent to or received from an incorrect party or sent or received via inaccurate Instructions. |
| 5. | Disruption to Trading Platform |
| 5.1 | Client acknowledges that electronic facilities and systems such as the Trading Platform are vulnerable
to disruption, delay or failure and, consequently, such facilities and systems may be unavailable to Client as a result of foreseeable
and unforeseeable events. Client understands and agrees that Coinbase does not guarantee uninterrupted access to the Trading Platform
or all features of the Trading Services. Client acknowledges that although Coinbase will attempt to provide notice of any scheduled or
unscheduled unavailability that would result in Client being unable to access the Trading Platform or the Trading Services, Coinbase cannot
guarantee advanced notice to Client. |
| 5.2 | Coinbase may, in its sole discretion, take any of the following actions, and in the case of clause (i),
shall use reasonable efforts to provide Client with as much prior notice as is practicable: (i) halt or suspend Trading Services,
including trading on the Trading Platform or the trading of any Digital Assets or currency, or (ii) impose
limits on the amount or size of Client’s Orders. Coinbase shall have no liability, obligation, or responsibility to Client as a
result of making any changes to or suspending the Trading Platform. |
| 6. | Coinbase Trading Rules and Order Types |
| 6.1 | Client agrees to comply with the Coinbase Trading Rules in effect at the time of any Order. Client
agrees to review and become familiar with the terms of the various types of Orders (each an “Order Type”) available
through the Trading Service. A detailed description of the terms of all Orders is contained in the Coinbase Trading Rules. Coinbase reserves
the right to modify the terms of any Order Type and the Coinbase Trading Rules at any time and without prior notice to Client, and
Client acknowledges that it is solely responsible for ensuring knowledge of applicable Order Types and Coinbase Trading Rules prior
to placing an Order. |
| 6.2 | Coinbase may modify the terms of, or cancel, any Order executed on Trading Platform if Coinbase determines
in its sole reasonable discretion that the Order was clearly erroneous according to the Coinbase Trading Rules. Coinbase shall have no
liability, obligation, or responsibility to Client as a result of exercising its rights under this Section 6. |
| 7. | Coinbase Supported Digital Assets |
Coinbase determines in its sole discretion which
Digital Assets to support for use with the Trading Services, as specified on the Coinbase Prime Broker Site. Not all Digital Assets supported
for Custodial Services are also supported for Trading Services.
| 8. | Coinbase Execution Services |
| 8.1 | At Coinbase’s sole discretion, Client may elect to submit Orders to Coinbase Execution
Services (“CES”), a Trading Service through which CES personnel will execute Orders on behalf of Client. CES will execute Orders by using automated
trade routing services through Client’s Prime Broker Account or by filling Orders on Coinbase’s over-the-counter (“OTC”)
trading service (“OTC Services”). Coinbase has sole and absolute discretion to accept or reject any Order. Coinbase
and Client may communicate regarding Instructions related to Orders on a mutually agreed communication medium, including instant messaging,
email, and telephone. |
| 8.2 | CES brokers Orders on a commercially reasonable basis as Client’s agent and may exercise discretion
in executing Orders. Client must pre-fund its Trading Balance and/or establish a credit arrangement with Coinbase prior to submitting
Orders. By electing to use CES, Client agrees that it is authorizing CES personnel to access its Prime Broker Account to initiate and
execute Orders. Client acknowledges that CES personnel will retain access to the Client Prime Broker Account until Client provides Coinbase
with Instructions to terminate such access. Absent express written agreement between the Parties, Coinbase will accept Orders only from
Authorized Representatives that are designated in the Client’s Prime Broker Account as having trading authority with respect to
the Prime Broker Account. |
| 8.3 | For OTC Services, CES personnel will confirm the terms of an Order (which terms shall include asset, quantity,
price, settlement timing and fees) with Client prior to executing the Order. Coinbase has policies and procedures in place that are reasonably
designed to prevent the disclosure of any Client identity to its OTC counterparty. Coinbase may, in its sole and absolute discretion,
accept the following statements (or similar or analogous statements) as Client’s final and binding agreement to the terms of an
Order: “done,” “I buy,” “bought,” “I sell,” or “sold.” A completed, executed
and settled Order will be reflected in Client’s Prime Broker Account. |
| 8.4 | For Orders fulfilled via OTC Services (“OTC Orders”), each of Client’s and its
OTC counterparty’s confirmations of the terms of the OTC Order deems such OTC Order as binding and final, and thereby executed.
Client’s failure to timely settle an executed OTC Order in accordance with the settlement terms will constitute a default under
the Coinbase Prime Brokerage Agreement. Upon Client’s default of an OTC Order: |
| (a) | In addition to all rights under this Coinbase Prime Broker Agreement, Coinbase may exercise any rights
of a secured creditor with respect to its interests in Client’s assets, and may exercise all other rights under agreements between
Client and any of the Coinbase Entities. The Coinbase Entities agree that they will exercise their secured creditor rights, including
rights to setoff under Section 17 of the General Terms, with respect to Client’s Trading Balance before exercising their secured
creditor rights with respect to the Vault Balance in the Client’s Custodial Account. |
| (b) | Client hereby grants to Coinbase a continuing first priority security interest in, lien on and right of
set off against all of Client’s right, title and interest, whether now owned or existing or hereafter acquired or arising, in Client’s
Trading Balance and Vault Balance in the Client’s Custodial Account together with proceeds
thereof, in order to secure repayment of costs, fees, and all other obligations of Client to Coinbase arising hereunder from time to time.
Client shall execute such documents and take such other actions as Coinbase shall reasonably request in order to perfect and maintain
the priority of the Coinbase’s security interest with respect to Client’s Trading Balance and Vault Balance in Client’s
Custodial Account. |
| (c) | Client hereby authorizes Coinbase Custody, as securities intermediary with respect to the Custodial Account,
to comply with all instructions and entitlement orders from Coinbase, as secured party, with respect to the disposition of assets in Client’s
Vault Balance in the Custodial Account as contemplated herein
without further consent or direction from Client or any other party. Coinbase Custody agrees to follow such instructions and entitlement
orders without further consent or direction from Client or any other party. |
| (d) | Without prior notice to Client, Coinbase shall have the right to: (i) transfer Client Assets
from Client’s Trading Balance to Coinbase
to settle the OTC Order subject to default, and/or (ii) liquidate or cancel outstanding OTC Orders (including OTC Orders that have
been submitted or are in the process of being fulfilled). |
| (e) | Without prior notice to Client, Coinbase may suspend or terminate the Client’s ability to receive
extensions of credit from Coinbase Credit, regardless of whether Client has cured the default. |
If the above actions are
not sufficient to satisfy all obligations of Client to Coinbase in respect of OTC Orders subject to default, Coinbase shall have the
right to liquidate any and all of Client’s assets and positions held with Coinbase or Coinbase Custody, including the Trading Balance
and Vault Balance in Client’s Custodial Account, to cover any Losses incurred by Client’s failure to settle the OTC Order.
In connection with liquidating such assets, Client authorizes Coinbase, in Coinbase’s sole discretion, to liquidate any of Client’s
Digital Assets in a commercially reasonable sale at the market price that otherwise applies to such Digital Assets at the time of liquidation,
without regard to whether Client would recognize a gain or loss on such sale or would recognize a greater or lesser gain or loss if different
Digital Assets were sold. Client understands that the value of Digital Assets may rise or fall quickly, and Coinbase has no obligation
to liquidate Client’s Digital Assets at a time that provides the best price for Client. Client agrees that Digital Assets held
in its Trading Balance and the Vault Balance in Client’s Custodial Account are of a kind or type customarily sold on recognized
markets, subject to standard price quotations and may decline speedily in value. Client agrees that if Coinbase exercises its setoff
rights or secured party remedies against Client’s Digital Assets, that Coinbase may value such Digital Assets using the same valuation
method and same process that is otherwise used when Digital Assets are sold on the Trading Platform or any other commercially reasonable
valuation method. A sale by Coinbase of Client’s Digital Assets, without notice, at a private sale using the valuation and method
described above shall be a commercially reasonable method of disposition.
| 9. | Determination
of Suitability; All Risks Not Disclosed |
Coinbase’s provision of the Trading Services is neither a recommendation
that Client enter into a particular Order nor a representation that any product described on the Trading Platform is suitable or appropriate
for Client. Many of the Trading Services described on Trading Platform involve significant risks, and Client should not use the Trading
Services unless it has fully understood all such risks and has independently determined that such Orders are appropriate. Any discussion
of the risks contained in this MTA or on the Trading Platform should not be considered to be a disclosure of all risks or a complete
discussion of the applicable risks.
| 10. | Characterization of Trading Services; Not a Registered Broker-Dealer
or Investment Adviser |
Client understands and acknowledges that no transactions executed
in connection with Client’s Trading Account or the Trading Services are securities transactions, and Coinbase is not registered
with the U.S. Securities and Exchange Commission as a broker-dealer or an investment adviser or licensed under any state securities laws.
Coinbase is not acting as a fiduciary in respect of Client (including in connection with its rights under this MTA) and does not have
any responsibility under the standards governing the conduct of broker-dealers, fiduciaries, investment advisers or investment managers.
Client agrees and acknowledges that any information or advice provided by Coinbase or any other Coinbase Entity does not and will not
serve as the basis of any investment decision by Client.
| 11. | Coinbase Corporate Accounts |
Coinbase and its affiliates may transact through
Trading Accounts on the Trading Platform (“Coinbase Corporate Accounts”) for purposes including inventory management,
to facilitate Client Orders, and for other corporate purposes. To the extent that a Coinbase Corporate Account transacts on the Trading
Platform, the Coinbase Corporate Account (i) will not have any special priority vis-a-vis Client Orders and will be subject to the
Coinbase Trading Rules, (ii) will trade only on Market Data available to all Clients, and (iii) will not access any non-public
data of other Clients. Coinbase’s internal ledger will indicate the amount of each Digital Asset held for each client and each such
Coinbase Corporate Account.
| 12. | Term, Termination and Suspension |
| 12.1 | Regardless of any other provision of this MTA, Coinbase may, in its sole discretion, suspend, restrict
or terminate the Client’s Trading Services, including by suspending, restricting or closing the Client’s Trading Account,
in accordance with the General Terms. |
| 12.2 | If Client is subject to termination, Client agrees to transfer any Client Assets off the Trading
Platform within thirty (30) days of receipt of the termination notice unless such transfer is otherwise prohibited (i) under
applicable law, including any sanctions programs, or (ii) by a facially valid subpoena or court order. Client agrees to
promptly provide Coinbase with Instructions as to where its Client Assets should be transferred, and agrees that failure to do so
within thirty (30) days of receipt of notice of termination may result in Client Assets being transferred to the Client’s
linked bank account or Digital Asset wallet on file, in each case subject to off-set for any outstanding obligations to any Coinbase
Entity in accordance with the General Terms. Final disbursement of assets may be delayed until any remaining obligations or
indebtedness have been satisfied. Client is responsible for all debits, costs, commissions, and losses
arising from any actions Coinbase must take to liquidate or close transactions in the Client’s Trading Account. |
If Coinbase is holding Client Assets in the Trading Balance, has no
record of Client’s use of the Trading Services for an extended period, and is otherwise unable to contact Client, Coinbase may
be required under applicable laws, rules or regulations to report these assets as unclaimed property and to deliver such unclaimed
property to the applicable authority. Coinbase may deduct a dormancy fee or other administrative charge from such unclaimed funds, as
permitted by applicable laws, rules or regulations.
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