UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report__________

For the transition period from _________to________

Commission file number 001-36896

Mercurity Fintech Holding Inc.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Cayman Islands

(Jurisdiction of incorporation or organization)

Room 1215, Xin’nan Block No.2
Yuehai Street

Nanshan District, Shenzhen City, 518000

Guangdong Province, People’s Republic of China

(Address of principal executive offices)

Shi Qiu

Chief Executive Officer

Mercurity Fintech Holding Inc.

Room 1215, Xin’nan Block No.2
Yuehai Street

Nanshan District, Shenzhen City, 518000

Guangdong Province, People’s Republic of China

Phone: +86 1870103001

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
American depositary shares, each representing 360 ordinary shares, par value US$0.00001 per share	MFH	The Nasdaq Capital Market

Ordinary Shares, par value US$0.00001 per share *		The Nasdaq Capital Market

* Not for trading, but only in connection with the listing on the Nasdaq Capital Market of American depository shares, each representing 360 ordinary shares

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Table of Contents

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

5,143,716,027 Ordinary Shares (excluding ordinary shares in the form of ADS that are reserved for issuance upon the exercise of share awards) as of December 31, 2021.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	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 13(a) of the Exchange 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.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:


U.S. GAAP ☒	International Financial Reporting Standards as issued by the International Accounting Standards Board ☐	Other ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

☐ Item 17 ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐

Table of Contents

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A.	Selected Financial Data

The following selected consolidated statements of operations data for the years ended December 31, 2019, 2020 and 2021, and selected consolidated balance sheet data as of December 31, 2019, 2020 and 2021, have been derived from our audited consolidated financial statements included elsewhere in this annual report. The selected consolidated statements of operations data for the years ended December 31, 2020 and 2021, and consolidated balance sheet data as of December 31, 2020 and 2021 are derived from our consolidated financial statements. The selected consolidated statements of operations data for the years ended December 31, 2017 and 2018, and consolidated balance sheet data as of December 31, 2017 and 2018 are derived from our consolidated financial statements not included in this annual report, which have been restated due to the divestiture of the discontinued operations in 2019. 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. Our historical results are not necessarily indicative of results expected for future periods. You should read this selected financial data section together with our consolidated financial statements and the related notes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report.

Selected Consolidated Financial Data


	For the year ended December 31,
	2017	2018	2019	2020	2021
	（Note）	（Note）	（Note）	（Note）	（Note）

	(US$ in thousands, except share and share related data)
Selected consolidated statements of operations data:
Revenues
Technical services	—	—	1,738	1,402	6
Digital asset mining	—	—			664
Total revenues	—	—	1,738	1,402	670
Cost of revenues			(257)	(79)	703
Gross (loss)/profit	—	—	1,481	1,323	(33)
Operating expenses:
Selling and marketing	—	—	—	—	—
General and administrative	(1,440)	(1,809)	(741)	(1,157)	(10,351)
Impairment of intangible assets	—	—	—	(835)	(2,124)
Total operating expenses	(1,440)	(1,809)	(741)	(1,992)	(12,475)
(Loss)/income from operations	(1,440)	(1,809)	740	(669)	(12,508)
Interest income, net	—	—	—	8	1
Other income, net	—	—	27	(33)	121
(Loss)/income before provision for income taxes	(1,440)	(1,809)	767	(693)	(12,386)
Provision for income tax benefits	—	—	—	—	—
(Loss)/Income from continuing operations	(1,440)	(1,809)	767	(693)	(12,386)
Discontinued operations:
Loss from discontinued operations	(160,459)	(121,431)	(1,992)	(958)	(8,360)
Net loss	(161,899)	(123,240)	(1,225)	(1,651)	(20,746)
Net loss attributable to holders of ordinary shares of Mercurity Fintech Holding Inc.	(161,899)	(123,240)	(1,225)	(1,651)	(20,746)

Table of Contents

Note: Due to the divestiture of our B2B business in July 2019, the results of operations from the B2B business has been reclassified as discontinued operations and the consolidated statements of operations for the year ended December 31, 2017 and 2018 have been restated to reflect such reclassification. Due to the adverse regulatory measures taken by the PRC government in 2021 on digital currency production and transaction, the Company's Board of Directors decided on December 10, 2021 to divest the PRC companies of the related business controlled through VIE agreements, and the divestiture was completed on January 15, 2022. Accordingly, the financial information related to the two divested VIEs subject to divestment have been reclassified in the accompanying audited consolidated financial statements as discontinued operations for all periods presented. The consolidated statements of operations and the consolidated statements of cash flows for the years ended December 31, 2019 and 2020 are adjusted retrospectively to reflect the change.


	As of December 31,
	2017	2018	2019	2020	2021

	(US$ in thousands)
Selected consolidated balance sheet data:
Total current assets	12,087	4,619	2,134	2,471	1,742
Total assets	134,173	5,025	8,871	10,961	9,939
Total current liabilities	20,837	20,289	837	708	1,372
Total liabilities	30,623	27,211	837	708	1,372
Total shareholders’ equity/(deficit)	103,550	(22,186)	8,035	10,253	8,567
Total liabilities and shareholders’ equity	134,173	5,025	8,871	10,961	9,939

B.	Capitalization and Indebtedness

Not applicable.

C.	Reasons for the Offer and Use of Proceeds

Not applicable.

D.	Risk Factors

Summary of Risk Factors

Risks Relating to Our Business and Industry

●

We have a limited operating history in an evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

●

We may need to recognize significant impairment losses in connection with past and future acquisitions, which may have a material and adverse effect on our results of operations.

●

We currently have a limited customer base. If we were to lose any of our customers, or if the volume of business with such customers decreases, our revenues may be adversely affected.

●

The further development and acceptance of blockchain technology and digital assets, which represent a new and rapidly changing industry, have several inherent risks that may impact our ability to provide the services that we are developing and may adversely affect an investment in us.

●

The growth of the blockchain industry in general, as well as the blockchain networks, is subject to a high degree of uncertainty.

●

As we acquire, dispose of or restructure our businesses, product lines, and technologies, we may encounter unforeseen costs and difficulties that could adversely affect our financial performance.

Table of Contents

●

If we fail to maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our ADSs may be adversely impacted.

●

The COVID-19 outbreak could significantly disrupt our operations and adversely affect our results of operations.

●

We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.

Risks Relating to Doing Business in China

●

Adverse changes in PRC regulation of internet businesses and companies could adversely affect our business.

●

Uncertainties concerning the PRC legal system may adversely affect us.

●

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions in the PRC against us or our management named in the prospectus based on foreign laws.

●

Regulation and censorship of information disseminated over the internet in the PRC could adversely affect our business, and we may be liable for any such information displayed on, retrieved from or linked to our website.

●

Governmental control of currency conversion may affect the value of our ADSs.

●

Fluctuations in exchange rates of the Renminbi may affect the results of our operations.

●

Our operations could be adversely affected by changes in the PRC’s political, economic and social conditions.

●

Under the PRC enterprise income tax law, we could be classified as a “resident enterprise” of the PRC. Such classification could result in unfavorable tax consequences for us and our non-PRC shareholders.

●

A failure by our shareholders or beneficial owners who are PRC citizens or residents in the PRC to comply with certain PRC foreign exchange regulations could restrict our ability to distribute profits, restrict our overseas and cross-border investment activities or subject us to liability under PRC laws, which could adversely affect our business and financial condition.

●

A failure to comply with PRC regulations regarding the registration of shares and share options held by our employees who are PRC citizens could subject such employees or us to fines and legal or administrative sanctions.

●

The heightened scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on our business operations, our acquisition or restructuring strategy or the value of your investment in us.

●

Increases in labor costs in the PRC may adversely affect our business and results of operations.

●

It may be difficult for overseas regulators to conduct investigations or collect evidence within PRC.

●

In light of recent events indicating greater oversight by the CAC over data security, we may be subject to a variety of PRC laws and other obligations regarding cybersecurity and data protection, and any failure to comply with applicable laws and obligations could have a material adverse effect on our business, financial condition, and results of operations.

●

The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in the PRC.

●

Table of Contents

●

Compliance with rules and requirements applicable to public companies could cause us to incur increased costs, which could negatively affect our results of operations.

Risks Relating to Our Business and Industry

We have a limited operating history in the evolving blockchain industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

We disposed of our business of providing integrated B2B services to food service suppliers and customers in July 2019. We started to provide blockchain-based digital asset infrastructure solutions services in May 2019. The limited history of our current operations in a rapidly evolving blockchain industry, may make it difficult for you to evaluate our business, financial performance and prospects, and our historical growth rate might not be indicative of our future performance. We cannot assure you that our current digital asset infrastructure solutions business will grow as rapidly as we expect or achieve the critical mass needed for long-term success. We design and develop digital asset transaction platforms based on blockchain technologies for customers to facilitate crypto-asset trading, asset digitalization and provide supplemental services for such platforms, such as customized software development services, maintenance services and compliance support services, which is still a new business model, and we face consistent challenges to innovate our business and service model to serve our customers. In addition, we commenced cryptocurrency mining operations in 2021 and plans to expand this line of business in the U.S. Given the limited history of our business model and the rapid and iterative developments in the blockchain technology sector, it may be difficult to predict if our expected business growth can be achieved in the future, and that the market might evolve in ways that are difficult to anticipate. You should consider our prospects considering risks and uncertainties that companies in a rapidly evolving market might encounter. These risks and difficulties include, but are not limited to:

●

a new and relatively unproven business model;

●

our ability to anticipate and adapt to a fast developing market and industry;

●

market acceptance of our digital asset trading products and services;

●

high expenditures associated with our technology upgrading, brand promotion and marketing activities;

●

our ability to attract customers and business partners in the blockchain and digital asset industry to generate sufficient cash flows;

●

Complexities in managing rapid expansion of personnel and operations; and

●

our ability to compete in the fast-changing marketplace.

We cannot be certain that our business strategy will be successful or that we will successfully address these risks. Failure to address any of the risks described above could have an adverse effect on our business, financial condition and results of operations.

We may need to recognize significant impairment losses in connection with past and future acquisitions, which may have a material and adverse effect on our results of operations.

We acquired Mercurity Limited (previously known as Unicorn Investment Limited), in May 2019 to establish our blockchain-based infrastructure solutions digital asset business. In March 2020, we acquired NBpay Investment Limited (“NBpay”) to further strengthen our capabilities in the blockchain-enabled payment solutions. In October 2021, we established Golden Nation Ltd. (“Golden Nation”) in the State of New York to develop the cryptocurrency mining business in the U.S. and may acquire other companies that are complementary to our business in the future.

We record goodwill when the purchase price paid in an acquisition exceeds the amount assigned to the fair value of the assets acquired and liabilities assumed, and we have intangible assets without determinable useful lives obtained from the acquisition of Mercurity Limited. We are required to test goodwill and intangible assets without determinable useful lives for impairment annually, or more frequently if events or changes in circumstances indicate that they might be impaired under ASC 350, “Intangibles – Goodwill

Table of Contents

and Other.” As of December 31, 2020, the carrying amount of goodwill amounted to approximately US$8.11 million and the intangible assets amounted to approximately US$0.38 million after the annual impairment test in 2020. In 2021, there was a change in our management and business team. Our business plan was reformulated by the board and management, and we had decided to discontinue the original business of Mercurity Limited and NBPay in mainland China due to the highly adverse regulatory measures taken by the Chinese government in the second half of 2021 on the production and trading of digital currencies. As a result, we recognized the impairment loss of goodwill of $8,107,014 for the year ended December 31, 2021, which is recorded as “loss/income from discontinued operations” in the consolidated income statement for the year of 2021. We have estimated the fair values of intangible assets from the acquisitions and recognized $372,995 as impairment loss for the year ended December 31, 2021. We may have to recognize significant impairment losses in connection with future acquisitions and business development, which may have a material and adverse effect on our results of operations.

We currently have a limited customer base. If we were to lose any of our customers, or if the volume of business with such customers decreases, our revenues may be adversely affected.

As of December 31, 2021, we had two customers. Due to our very limited customer base, any of the following events may cause a material decline in our revenue and have a material adverse effect on our results of operations:

●

reductions, delays or cessation of purchases from the existing customers;

●

loss of any of our existing customers and our inability to find new customers that can generate the same volume of business; and

●

Any of the existing customer’s failure to make timely payment for our services.

We cannot assure you that our relationships with these customers will continue to develop or that these customers will continue to generate material revenues for us in the future.

Blockchain technology and digital assets are subject to several inherent risks, including reliability risks, security risks, regulatory risks, and risks associated with human error, that may impact our ability to provide the services we are developing. For example, a blockchain-based platform’s functionality depends on the internet, and a significant internet outage could disrupt a platform’s operations until the outage is resolved; such outage may adversely affect the value of the digital assets traded on a platform. In addition, a hacking or service attack on a platform may cause temporary delays in block creation on the blockchain and in the transfer of digital assets recorded on the chain. Any disruptions, attacks or other security breaches, or the perception that our blockchain technology is unreliable for any reason, may have a material adverse effect on the value of the digital assets, investment in the digital assets and the operations and success of our business operations and financial results.

In addition, digital assets based on blockchain technology can only be transferred with the private key associated with a platform’s address in which the digital assets are held. To the extent a private key is lost, destroyed, or otherwise compromised and no backup of the private key is accessible, we will be unable to transfer the digital assets held in a platform’s addresses associated with that private key. Consequently, the digital assets associated with such address will effectively be lost, which would adversely affect an investment in digital assets.

We and our customers may be subject to the risks encountered by the digital asset exchanges we partner with, including malicious hacking, sale of a digital asset exchange, loss of the digital assets by the exchange, and other risks. Many digital asset exchanges do not provide insurance and may lack the resources to protect against hacking and theft. If a material amount of our digital assets or the digital assets of our customers are held by exchanges, we and our customers may be materially and adversely affected if an exchange suffers a cyberattack or incurs financial problems.

Furthermore, the recording of digital asset transactions is not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction or, in theory, control or consent of a majority of the processing power on a

Table of Contents

certain blockchain platform. Once a transaction has been verified and recorded in a block that is added to the blockchain, an incorrect transfer of digital assets or a theft of such digital assets generally will not be reversible. We, our customers and our partners may not be capable of seeking compensation for any such transfer or theft. It is possible that, through computer or human error, or through theft or criminal action, digital assets could be transferred in incorrect amounts or to unauthorized third parties. To the extent that we, our customers or our partners are unable to seek a corrective transaction with such third party or are incapable of identifying the third party that has received the digital assets through error or theft, we, our customers or our partners will be unable to revert or otherwise recover incorrectly transferred digital assets. To the extent that we, our customers and our partners are unable to seek redress for such error or theft, such loss could adversely affect our reputation and our business.

The growth of the blockchain industry in general, as well as the blockchain networks, is subject to a high degree of uncertainty.

The factors affecting the further development of the blockchain and digital asset industry include uncertainties regarding:

●

worldwide growth in the adoption and use of digital assets, and other blockchain technologies;

●

government and quasi-government regulations of digital assets and other blockchain assets and their use, or restrictions on or regulation of access to and operation of blockchain networks or similar systems;

●

the maintenance and development of the open-source software protocol of the blockchain networks;

●

changes in consumer demographics and public tastes and preferences;

●

the availability and popularity of other forms or methods of buying and selling goods and services, or trading assets including new means of using traditional currencies or existing networks;

●

general economic conditions and the regulatory environment relating to digital assets; and

●

the popularity or acceptance of blockchain-enabled transaction services.

Blockchain networks are based on software protocols that govern peer-to-peer interactions between computers connected to these networks. The suitability of the networks for our business, depends upon a variety of factors, including, but not limited to:

●

the effectiveness of the informal groups of developers contributing to the protocols that underlie the networks;

●

the effectiveness of the network validators (sometimes called “miners”) and the network’s consensus mechanisms to effectively secure the networks against confirmation of invalid transactions;

●

disputes among the developers or validators of the networks;

●

changes in the consensus or validation schemes that underlie the networks, including, without limitation, shifts between so-called “proof of work” and “proof of stake” schemes;

●

the failure of cybersecurity controls or security breaches of the networks;

●

the existence of other competing and operational versions of the networks, including, without limitation, so-called “forked” networks;

●

the existence of undiscovered technical flaws in the networks;

●

the development of new or existing hardware, software tools, or mechanisms that could negatively impact the functionality of the systems;

●

the price of blockchain-based digital assets associated with the networks;

Table of Contents

●

intellectual property rights-based claims or other claims against the networks’ participants; and

●

the maturity of the computer software programming languages used in connection with the networks.

The digital assets industry as a whole has been characterized by rapid changes and innovations and are continually evolving. Although blockchain networks and blockchain-based digital assets have experienced significant growth in recent years, the slowing or stopping of the development, general acceptance and adoption and usage of these networks and assets may materially adversely affect our business plans and results of operations.

As we acquire, dispose of or restructure our businesses, product lines, and technologies, we may encounter unforeseen costs and difficulties that could impair our financial performance.

We actively explore acquisition prospects that would complement our existing services, augment our market coverage and distribution ability, or enhance our capabilities. As a result, we may seek to acquire certain companies, products, or technologies, or we may reduce or dispose of certain product lines or technologies that no longer fit our business strategies. For regulatory or other reasons, we may not be successful in our attempts to acquire or dispose of businesses, products, or technologies, resulting in significant financial costs, reduced or lost opportunities, and diversion of management’s attention. Managing an acquired business, disposing of product technologies, or reducing personnel entails numerous operational and financial risks, including, among other things:

●

difficulties in assimilating acquired operations and new personnel or separating existing business or product groups;

●

diversion of management’s attention away from other business concerns;

●

amortization of acquired intangible assets;

●

adverse customer reaction to our decision to cease support for a product; and

●

potential loss of key employees or customers of acquired or disposed operations.

There can be no assurance that we will be able to achieve and manage successfully any such integration of potential acquisitions, disposition of product lines or technologies, or reduction in personnel or that our management, personnel, or systems will be adequate to support continued operations. Any such inabilities or inadequacies could have a material adverse effect on our business, operating results, or financial condition.

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 its regulations or policies may have adverse consequences on the development and the value of certain digital assets.

Blockchain and distributed ledger platforms are recent technological innovations, and the regulatory schemes to which digital assets may be subject have not been fully explored or developed. Regulation of digital assets varies from country to country as well as within countries. In some cases, existing laws have been interpreted to apply to blockchain-based technologies and digital assets, and in other cases, jurisdictions have adopted laws, regulations or directives that specifically affect digital assets, and some jurisdictions have not taken any regulatory stance on digital assets and or have explicitly declined to apply regulation. Accordingly, there is no clear regulatory framework applicable to blockchain platforms or digital asset products, and laws that do apply at times may overlap or change. Regulations in these areas are likely to rapidly evolve as government agencies take regulatory actions to monitor companies and their activities with respect to these areas.

In September 2021, ten PRC governmental authorities, including the People’s Bank of China (“PBOC”), jointly issued the “Notice on Further Preventing and Resolving the Risks of Virtual Currency Trading and Speculation” to clarify that cryptocurrency is not a legal tender in the PRC. Additionally, in September 2021, eleven governmental authorities, including the National Development and Reform Commission and the People’s Bank of China jointly issued the “Notice of Rectifying Virtual Currency Mining Activities” to strictly prohibit the virtual currency mining activities in the PRC. As of the date of this annual report, all cryptocurrency transactions in the PRC

Table of Contents

are considered illegal, including offshore exchanges to provide services to Chinese citizens. In response to such rapid and adverse regulatory changes in the PRC, we had to remodel our business plans and shift the business focus outside of the PRC.

Blockchain technologies are subject to unfavorable regulatory actions in one or more jurisdictions.

Blockchain technologies and digital assets have been the subject of scrutiny by various regulatory bodies around the world, including the PRC. We could be impacted by one or more regulatory inquiries or actions, including but not limited to restrictions on the use of blockchain technology, trading of digital assets, and use of cryptocurrencies, which could impede or limit the development of our anticipated blockchain-based digital asset infrastructure solutions and adversely affect the results of our operations. If the regulatory authorities in the U.S. or Singapore impose stringent regulations on the blockchain-based activities, our current lines of business will likely be materially and adversely affected and our financial results will likely decline.

Any harm to our Mercurity brand or reputation may materially and adversely affect our business and results of operations.

We believe that the recognition and reputation of our Mercurity brand is critical to our business and competitiveness in the digital asset industry. Many factors, some of which are beyond our control, are important to maintaining and enhancing our brand. These factors include our ability to:

●

enhance the quality and safety of our blockchain-based digital asset infrastructure solutions for our customers;

●

maintain or improve customers’ satisfaction with our trading platform products and related services;

●

increase brand awareness through marketing and brand promotion activities; and

●

preserve our reputation and goodwill in the event of any negative publicity on our platform products, internet security, data privacy, price, or other issues affecting us or the blockchain technology sector.

A public perception that we do not provide reliable digital asset infrastructure solutions or satisfactory services, even if factually incorrect or based on isolated incidents, could damage our reputation, diminish the value of our brand, undermine the trust and credibility we have established and have a negative impact on our ability to attract new customers or retain our current customers. If we are unable to maintain our reputation, enhance our brand recognition or increase positive awareness of our website, products and services, it may be difficult to maintain and grow our customer base, and our business and growth prospects may be materially and adversely affected.

Former officers and directors of the Company, Wei Zhu and Minghao Li, have been detained by the Police of China, and as such our reputation may be adversely affected and our marketing effectiveness may decline.

It came to the Company’s attention that both former officers and directors of the Company, Wei Zhu and Minghao Li, have been detained by the Police of PRC since February 2022 in connection with potential charges unrelated to their positions or activities as officers and directors of the Company. As a result, the Company, current directors and officers of the Company have been unable to get in touch with either former director directly and have experienced certain level of difficulty in maintaining the existing customers and transitioning the business operations. Therefore, our reputation may suffer due to the detentions of the former officers and directors and we may face a decline in our results of operations and our ability to market and sell our products and services.

Our former officer and director, Wei Zhu, was in control of the Company’s cryptocurrency and had physical control over the Company’s cold wallet. Related to Wei’s detention, we suspect that the PRC police put a hold on the Company’s cold wallet. If we do not recover our misplaced cold wallet in a timely and cost-efficient manner or at all, our business operations may be adversely affected and the attention of our management may be diverted to the recovery efforts of such cold wallet.

It come to our attention that former officers and directors of the Company, Wei Zhu and Minghao Li were detained by the Police of PRC around February 2022 (the “Police Matters”). Prior to the Police Matters, the Company stored approximately 105.2385 Bitcoins (“BTCs”) and 5,000,000 USD Coins (“USDCs”) at the online addresses which were maintained in the hardware cold wallet formerly kept by Mr. Wei Zhu, the Company’s then co-CEO and acting CFO. Mr. Wei Zhu was responsible for safeguarding the hardware cold

Table of Contents

wallet for the Company while the Company has put in place the cryptocurrency management and control procedures pursuant to which any transfer of the Company’s cryptocurrency requires the approval of the Company’s audit committee.

We suspect that in connection with the Police Matters, the PRC police put a hold on the Company’s cold wallet. We have engaged Deheng Law Firm as our PRC counsel attempting to recover such cold wallet and the cryptocurrency therein. If we do not recover our misplaced cold wallet in a timely and cost-efficient manner or at all, our business operations may be adversely affected and the attention of our management may be diverted to the recovery efforts of such cold wallet.

If we are unable to offer products or services that attract new customers and generate new purchases from existing customers, our business, financial condition and results of operations may be materially and adversely affected.

The blockchain and digital asset industry is characterized by constant changes, including rapid technological evolution, continual shifts in customer demands, frequent introductions of new products and solutions and constant emergence of new industry standards and practices. Thus, our ability to maintain current customers and attract new customers will depend, in part, on our ability to respond to these changes in a cost-effective and timely manner. We need to anticipate the emergence of new technologies and assess their market acceptance. However, research and development activities are inherently uncertain, and we might encounter practical difficulties in commercializing our research and development results, which could result in excessive research and development expenses or delays. Given the fast pace in which blockchain technologies have been and will continue to be developed, we may not be able to upgrade our technologies in a timely efficient and cost-effective manner, or at all.

We also need to invest significant resources in selling and marketing efforts. We take targeted business development approaches to reach out to our potential customers and provide them with our company profile through various means, such as emails and social network media. We also attend offline marketing activities to promote our presence and brand recognition in the blockchain and digital asset industry. To continue to reach potential customers and grow our current business, we must identify and devote more of our marketing expenditures to new and evolving marketing channels, which may include mobile and virtual channels. The opportunities in and sophistication of newer marketing channels generally are relatively undeveloped and unproven, making it difficult to assess returns on investment associated with such channels, and there can be no assurance that we will be able to continue to appropriately manage and fine-tune our marketing efforts in response to these and other trends in the industry. Any failure to do so could have a material adverse effect on our business, reputation, results of operations and financial condition.

We face intense competition in the blockchain industry.

As we transition to the blockchain technology services and cryptocurrency mining business, we will continue to face intense competition globally. New blockchain-based technologies are constantly evolving, and our competitors may introduce new crypto asset trading platforms and solutions that are superior to ours. In addition, our competitors may be able to adapt more quickly to new technologies or may be able to devote greater resources to the development, marketing and sale of their products than we can. We may never establish and maintain a competitive position in the hybrid financing and logistics management businesses.

Some of our current or future competitors have or may have longer operating histories, stronger research and development capabilities, greater brand recognition, larger customer bases or greater financial, technical or marketing resources than we do. Smaller companies or new entrants may be acquired by, receive investment from or enter into strategic relationships with well-established and well-financed companies or investors which would help enhance their competitive positions. We cannot assure you that we will be able to compete successfully against current or future competitors, and competitive pressures may have a material and adverse effect on our business, financial condition and results of operations.

If we fail to adopt new technologies or adapt our digital asset platforms and systems to changing customer requirements or emerging industry standards, our business may be materially and adversely affected.

To remain competitive, we must be able to develop new products or enhance the capabilities related to blockchain technology that we are developing to keep pace with our industry’s rapidly changing technology and customer requirements. However, the industry for blockchain technology has been characterized by rapid technological changes, new product introductions, enhancements, and evolving industry standards. Our business prospects depend on our ability to develop new products and applications for our technology in new markets that develop resulting from technological and scientific advances, while improving performance and cost-effectiveness. New technologies, techniques or products could emerge that might offer better combinations of price and performance than the blockchain

Table of Contents

technology solutions that are being developed by us. We must anticipate changes in technology and market demand. If we do not successfully innovate and introduce new technology into our anticipated technology solutions or effectively manage the transitions of our technology to new product and service offerings, our business, financial condition and results of operations could be adversely affected.

The successful operation of our business depends upon the performance and reliability of the internet and mobile telecommunications infrastructures in the PRC.

Our business depends on the performance and reliability of the internet and mobile telecommunications infrastructures in the PRC, Singapore, and the United States. In particular to telecommunication infrastructures in China, almost all access to the internet is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the Ministry of Industry and Information Technology of China. In addition, the national networks in the PRC are connected to the internet through state-owned international gateways, which are the only channels through which a domestic user can connect to the internet outside of the PRC. We might not have access to alternative networks in the event of disruptions, failures or other problems with the PRC’s internet infrastructure. In addition, the internet infrastructure in the PRC might not support the demands associated with continued growth in internet usage.

The failure of telecommunications network operators to provide us with the requisite bandwidth could also interfere with the speed and availability of our online platforms. We have no control over the costs of the services provided by the national telecommunications operators. If the prices that we pay for telecommunications and internet services rise significantly, or if the telecommunication network in the PRC is disrupted or fails, our gross margins could be adversely affected. Technical limitations on internet use could also be constituted or implemented. For example, restrictions could be implemented on personal internet use in the workplace in general or access to our website in particular. This could lead to a reduction of customers’ activities or a loss of customers altogether, which in turn could have an adverse effect on our financial position and results of operations. In addition, if internet access fees or other charges to internet users increase, our user traffic might decrease, which in turn could significantly decrease our revenues.

The proper functioning of our quantitative trading software is essential to our business. Any failure to maintain the satisfactory performance of our software could materially and adversely affect our business and reputation.

The satisfactory performance, reliability and availability of the cryptocurrency quantitative trading software designed and developed by us are critical to our ability to attract and retain customers and provide quality customer service. Any system interruptions caused by telecommunication failures, computer viruses, hacking or other attempts to harm our systems that result in the unavailability or slowdown of our platforms or reduced transaction processing performance could reduce the attractiveness of product and service offerings. Our servers may also be vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to system interruptions, website slowdown or unavailability, delays or errors in transaction processing, loss of data or the inability to accept and fulfill customer orders. Security breaches, computer viruses and hacking attacks have become more prevalent in our industry. We have experienced in the past, and may experience in the future, such attacks and unexpected interruptions. We cannot assure that our current security mechanisms will be sufficient to protect our IT systems from any third-party intrusions, viruses or hacker attacks, information or data theft or other similar activities. Any such future occurrences could reduce customer satisfaction, damage our reputation and result in a material decrease in our revenue.

Additionally, we must continue to upgrade and improve our quantitative trading software to meet the evolving demand of our customers, and failure to do so could impede our growth. However, we cannot assure you that we will be successful in executing these technology upgrades and improvement strategies. In particular, our systems may experience interruptions during upgrades, and the new technologies or infrastructures may not be fully integrated with the existing systems on a timely basis, or at all. If our existing or future software does not function properly, it could cause system disruptions and slow response times, affecting data transmission, which in turn could materially and adversely affect our business, financial condition and results of operations.

We may be unable to engage in further cryptocurrency mining activities, if we cannot attract or retain employees and/or consultants who have expertise in mining cryptocurrency.

If we cannot attract or retain skilled employees and/or consultants in the cryptocurrency mining business, our mining business may suffer. Because mining cryptocurrency requires expertise, our business may be materially and adversely affected if our current

Table of Contents

employees and consultants who have expertise in the business leave or if we cannot continue to attract employees and consultants with expertise in the field of mining cryptocurrency.

We may be unable to purchase adequate computer equipment to mine cryptocurrency at a competitive level due to supply shortages.

Mining cryptocurrency requires running high-end computers which process complex algorithms to add to the blockchain. Because mining cryptocurrency requires large amounts of computer processing power, there is a worldwide shortage of computer components that can mine cryptocurrency efficiently. There is a worldwide shortage of high-end graphics cards which can be enabled to function as computer processors for mining cryptocurrency. Further, other types of computer components, which can be used for mining, are in short supply. As more individuals enter the mining business the demand for components rises. Additionally, as more miners engage in mining the ability to successfully mine cryptocurrency requires more powerful components. If we are unable to obtain adequate components to mine cryptocurrency we will be unable to engage in mining. As such, we may be unable to acquire the components we need to successfully mine cryptocurrency which could adversely impact the price of our ADSs.

If we are unable to conduct our marketing activities cost-effectively, our results of operations and financial condition may be materially and adversely affected.

Historically, we have incurred a considerable number of expenses on a variety of different marketing and brand promotion efforts to enhance our brand recognition and increase sales of our services and products for our previous B2B business. We have a limited operating history of our current business and may need to make significant investments in sales and marketing to promote our brand recognition. Our brand promotion and marketing activities may not be well received by customers and may not result in the levels of sales that we anticipate. The marketing of blockchain-based solutions services to customers is evolving. This further requires us to enhance our marketing approaches and experiment with new marketing methods to keep pace with customer preferences. Failure to refine our existing marketing approaches or to introduce new marketing approaches cost-effectively could reduce our market share, cause our revenues to decline and negatively impact our profitability.

If our senior management is unable to work together effectively or efficiently or if we lose their services, our business may be severely disrupted.

Our success heavily depends upon the continued services of our management. In early May 2022, the Company restructured its executive team after the absence and later resignation of Wei Zhu, the Company’s former co-chief executive officer and acting chief financial officer. Currently, we rely on the expertise and experience of Mr. Shi Qiu, our chief executive officer, Mr. Cheng Hock Phuah, our chief financial officer, and our other executive officers. If our senior management cannot work together effectively or efficiently, our business may be severely disrupted. If one or more of our senior management were unable or unwilling to continue in their present positions, we might not be able to replace them easily or at all, and our business, financial condition and results of operations may be materially and adversely affected. If any of our senior management joins a competitor or forms a competing business, we may lose customers, know-how and key professionals and staff members. Our senior management has not entered into employment agreements and confidentiality and non-competition agreements with us. If any dispute arises between our officers and us, we may have to incur substantial costs and expenses in order to enforce such agreements in the PRC or we may be unable to enforce them at all.

We have limited insurance coverage and could incur losses resulting from liability claims or business interruptions.

We currently do not have any product liability insurance or business interruption insurance. As we continue to expand our business, we could be increasingly exposed to various liability claims related to our products and services. Any liability claims, business disruption, or natural disaster could result in substantial costs and the diversion of resources, which would have an adverse effect on our business and results of operations.

We might not be able to adequately protect our intellectual property rights.

We believe our domain name, technology know-how and other intellectual properties are important to our business and our future prospects. We have been investing resources to develop our own intellectual properties and we take prudent steps to protect our intellectual properties and know-how. But we cannot assure you such steps would be sufficient to prevent the infringement of our intellectual properties. If we fail to adequately protect our intellectual property rights, including our rights in know-how or our trademark, it could have an adverse effect on our operations.

Table of Contents

The validity, enforceability and scope of protection available under intellectual property laws with concerning the internet industry in the PRC are uncertain and still evolving. Implementation and enforcement of PRC intellectual property-related laws have historically been deficient and ineffective. Accordingly, protection of intellectual property rights in the PRC might not be as effective as in the United States or other western countries. Furthermore, policing unauthorized use of proprietary technology is difficult and expensive, and we might need to resort to litigation to enforce or defend our intellectual property rights or to determine the enforceability, scope and validity of our proprietary rights or those of others. Such litigation and an adverse determination in any such litigation, if any, could result in substantial costs and the diversion of resources and management’s attention.

Companies in the internet and technology industries are frequently involved in litigation based on allegations of infringement of intellectual property rights, unfair competition and other violations of third parties’ rights. From time to time, we could face allegations of trademark, copyright, patent and other intellectual property rights infringement by third parties. Such allegations of intellectual property rights infringements could come from our competitors and there could also be allegations that we are involved in unfair trade practices.

We may face intellectual property infringement claims or other related disputes, which could be time-consuming, costly to defend or settle and result in the loss of significant rights.

We may be subject to infringement claims from time to time or otherwise become aware of potentially relevant patents or other intellectual property rights held by other parties that may cover some of our technologies, products and services. We may enter into licensing agreements with third parties for the use of their proprietary technologies, primarily software development tools, in developing our platform products in the future. As with any business relationship, we may face disputes and lawsuits related to those intellectual property licensing agreements. As our operations grow, the likelihood of us becoming involved in intellectual property related lawsuits and disputes to protect or defend our intellectual property rights and the use of third-party intellectual property rights may increase.

Third parties may file claims against us or our customers alleging that our products, processes, or technologies infringe third-party intellectual property rights. Regardless of their merits or resolutions, such claims could be costly to defend or settle and could divert the efforts and attention of our management and technical personnel. We do not know whether we could prevail in any such proceeding given the complex technical issues and inherent uncertainties involved in intellectual property litigations. Any unfavorable results we may receive in such proceedings could have a material adverse effect on our business, financial condition and results of operations.

We are subject to changing laws and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of non-compliance.

We are subject to rules and regulations by various governing bodies, including, among others, the U.S. Securities and Exchange Commission (the “SEC”), which is charged with the protection of investors and the oversight of companies whose securities are publicly traded, and the various regulatory authorities in the PRC and the Cayman Islands, and subject to new and evolving regulatory measures under applicable law. Our efforts to comply with new and changing laws and regulations have resulted in and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

Moreover, because these laws, regulations and standards are subject to varying interpretations, their application in practice may evolve as new guidance becomes available. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices. If we fail to address and comply with these regulations and any subsequent changes, we may be subject to penalties and our business may be harmed.

The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, adopted rules requiring most public companies to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over financial reporting. In addition, when a company meets the SEC’s criteria, an independent registered public accounting firm must report on the effectiveness of the company’s internal control over financial reporting.

Table of Contents

Our management has concluded that our internal control over financial reporting as of December 31, 2021 was effective. However, if we fail to maintain effective internal controls over financial reporting in the future, our management and our independent registered public accounting firm may not be able to conclude that we have effective internal controls over financial reporting at a reasonable assurance level. This could result in a loss of investor confidence in the reliability of our financial conditions which in turn could negatively impact the trading price of our ADSs and result in lawsuits being filed against us by our shareholders or otherwise harm our reputation. Furthermore, we have incurred and anticipate that we will continue to incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

The COVID-19 outbreak could significantly disrupt our operations and adversely affect our results of operations.

Since December 2019, the severity of the outbreak of COVID-19 resulted in travel restrictions, quarantine and social distancing measures imposed by the local governments across the globe and materially affected general commercial activities globally. The COVID-19 outbreak made it difficult to perform our daily business operations, including marketing activities to promote our products and services to potential customers. In early 2022, the employees at our Shenzhen office were required by the local government to work from home intermittently for approximately six to eight weeks due to the regulatory restrictions to prevent the spread of COVID-19. In addition, the operations of our business partners and service providers in the PRC, such as Shanghai and Beijing, have been constrained by the COVID-19 related regulations from time to time since 2019. The COVID-19 related governmental actions and restrictions have given rise to sudden significant changes in regional and global economic conditions that interfered with sales and purchases of our products or services and our regular operations. We are currently unable to predict the duration and severity of the spread of the COVID-19, and responses thereto, and the impact on our business, results of operations, financial condition, cash flows and liquidity, as these depend on rapidly evolving developments, which are highly uncertain and will be a function of factors beyond our control, such as the continued spread or recurrence of contagion, the implementation of effective preventative and containment measures, the development of effective medical solutions, financial and other market reactions to the foregoing, and reactions and responses of communities and societies.

Any similar future outbreak of a contagious disease, other adverse public health developments in the PRC and around the world, or the measures taken by the governments of the PRC or other countries in response to a future outbreak of a contagious disease may restrict economic activities in affected regions, resulting in reduced business volume, temporary closure of our facilities and offices or otherwise disrupt our business operations and adversely affect our results of operations.

We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.

Our business could be materially and adversely affected by natural disasters or the outbreak of avian influenza, severe acute respiratory syndrome, or SARS, influenza A (H1N1), Ebola or another epidemic. Any such occurrences could cause severe disruption to our daily operations, including our fulfillment infrastructure and our customer service center, and may even require a temporary closure of our facilities. Earthquakes or other similar disasters affecting cities where we have major operations in PRC, Singapore and the U.S. could materially and adversely affect our operations due to loss of personnel and damages to property, including our inventory and our technology systems. Our operation could also be severely disrupted if our suppliers, customers or business partners were affected by health epidemics or other natural disasters.

Risks Relating to Doing Business in the PRC

Adverse changes in PRC regulation of internet businesses and companies could adversely affect our business.

The PRC government extensively regulates the internet industry, including foreign ownership of, and the licensing and permit requirements on companies in the internet industry. These internet-related laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant uncertainties. As a result, in certain circumstances it could be difficult to determine what actions or omissions could be deemed to violate applicable laws and regulations. Issues, risks and uncertainties relating to PRC regulation of internet businesses include, but are not limited to, the following:

●

new laws and regulations could be promulgated that will regulate internet activities. If these new laws and regulations are promulgated, additional licenses could be required for our operations. If our operations do not comply with these new regulations after they become effective, or if we fail to obtain any licenses required under these new laws and regulations, we could be subject to penalties; and

Table of Contents

●

we operate in the blockchain and digital asset industry that is characterized by constant changes, including rapid technological evolution, continual shifts in customer demands, frequent introductions of new technologies and new industry standards and practices, which could result in new laws and regulations. Currently, the laws and regulations relating to blockchain technologies are not established and detailed enough in China and other jurisdictions. As a result, we are subject to legal and regulatory uncertainties.

The interpretation and application of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the internet industry have created substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of, internet businesses in China, including our business. We cannot assure you that we have obtained all the permits or licenses required for conducting our business in China or will be able to maintain our existing licenses or obtain any new licenses required under any new laws or regulations. There are also risks that we could be found to violate the existing or future laws and regulations given the uncertainty and complexity of China’s regulation of internet businesses.

Uncertainties concerning the PRC legal system may adversely affect us.

The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions in a civil law system may be cited for reference but have limited precedential value. Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always consistent, and enforcement of these laws, regulations and rules involves uncertainties, which could limit the available legal protections.

In addition, the PRC administrative and court authorities have significant discretion in interpreting and implementing or enforcing statutory rules and contractual terms, and it could be more difficult to predict the outcome of administrative and court proceedings and the level of legal protection we could enjoy in the PRC than under some more developed legal systems. These uncertainties could affect our judgment on the relevance of legal requirements and our decisions on the measures and actions to be taken to fully comply therewith, and could affect our ability to enforce our contractual or tort rights. Such uncertainties could therefore increase our operating costs and expenses as well as adversely affect our business and results of operations.

Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and could have a retroactive effect. As a result, we might not be aware of our violation of any of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could adversely affect our business and impede our ability to continue our operations.

We are an exempted company incorporated under the laws of the Cayman Islands. A substantial portion of our assets is located in the PRC. In addition, many of our senior executive officers and directors reside within the PRC for a significant portion of the time and some of them are PRC nationals. As a result, it may be difficult for you to effect service of process upon us or those persons inside the PRC. It may also be difficult for you to enforce in U.S. courts 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. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would (i) recognize or enforce judgments of U.S. courts 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 federal securities laws of the United States or the securities laws of 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, regulations and interpretations based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of written arrangement with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the

Table of Contents

basic principles of PRC laws or national sovereignty, security or the 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.

Regulation and censorship of information disseminated over the internet in the PRC could adversely affect our business, and we could be liable for information displayed on, retrieved from or linked to our website.

China has enacted laws and regulations governing internet access and the distribution of products, services, news, information and other content through the internet. In the past, the PRC government has prohibited the distribution of information through the internet that it deems to violate PRC laws and regulations. If any of our internet content was deemed by the PRC government to violate any content restrictions, we would not be able to continue to display such content and could become subject to penalties, including confiscation of income, fines, suspension of business and revocation of required licenses, which could adversely affect our business, financial condition and results of operations. We could also be subject to potential liability for any unlawful actions of users of our website or for the content we distribute that is deemed inappropriate. It could be difficult to determine the type of content that could result in liability to us, and if we are found to be liable, we could be prevented from operating our website in China.

Governmental control of currency conversion could affect the value of our ADSs.

The PRC government imposes controls on the convertibility between the Renminbi and foreign currencies despite the significant reduction over the years by the PRC government of control over routine foreign exchange transactions under current accounts. Substantially all of our revenues are denominated in Renminbi. Under our current holding company corporate structure, our income is primarily derived from dividend payments from our PRC subsidiary. Shortages in the availability of foreign currency or other restrictions could restrict the ability of our PRC subsidiary to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency- denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade related transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, approval from SAFE or its local branch is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we might not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.

Fluctuations in exchange rates of the Renminbi may affect the results of our operations.

Substantially all of our revenues and expenses are denominated in RMB. The value of the RMB against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things. Since June 2010, the RMB has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or the PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.

As we rely on dividends and other fees paid to us by our subsidiary and affiliated consolidated entities in China, any significant revaluation of the Renminbi could adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. To the extent that we need to convert U.S. dollars we received from our initial public offering into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars to make payment for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us. In addition, since our functional and reporting currency is the U.S. dollar while the functional currency of our subsidiary and consolidated affiliated entities in China is Renminbi, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would have a positive or negative effect on our reported financial results, which might not reflect any underlying change in our business, financial condition or results of operations.

Our operations could be adversely affected by changes in the PRC’s political, economic and social conditions.

Substantially all of our assets and operations are located in the PRC. Accordingly, our business, financial condition, results of operations and prospects could be influenced to a significant degree by political, economic and social conditions in the PRC generally and by continued economic growth in the PRC as a whole. In addition, the increased global focus on social, ethical and environmental

Table of Contents

issues may lead to the PRC’s adoption of more stringent standards in these areas, which may adversely impact the operations of PRC-based companies including us.

The Chinese economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in the PRC is still owned by the government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over the PRC’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.

While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures might benefit the overall Chinese economy but could have a negative effect on us. For example, our financial condition and results of operations could be adversely affected by government control over capital investments or changes in tax regulations. In the past the PRC government has implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures could cause decreased economic activity in the PRC, which could adversely affect our business and operating results. Any significant increase in the PRC’s inflation rate could increase our costs and have an adverse effect on our operating margins. In addition, any sudden changes to the PRC’s political system or the occurrence of widespread social unrest could have negative effects on our business and results of operations.

Under the PRC Enterprise Income Tax Law and its implementation rules, or the Enterprise Income Tax Rules, an enterprise established outside of the PRC with “de facto management bodies” within the PRC is considered a resident enterprise and is subject to PRC enterprise income tax at the rate of 25% on its global income. The Enterprise Income Tax Rules define the term “de facto management bodies” as “establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise.” The only detailed guidance currently available regarding the definition of “de facto management body” as well as the determination of the tax residence of offshore incorporated enterprises whose primary controlling shareholder is a PRC company or a PRC corporate group, and such enterprises’ tax administrations are set forth in two notices, the Notice On Issues Relating to Determination of Chinese-Controlled Offshore Enterprise as PRC Resident Enterprises by applying the “De Facto Management Body,” or Circular 82, and the Administrative Measures of Enterprise Income of Chinese Controlled Offshore Incorporated Resident Enterprise (Trial), or Circular 45, issued by the PRC State Administration of Taxation, or the Circulars. The Circulars provide that a foreign enterprise controlled by a PRC enterprise or a PRC enterprise group would be classified as a “resident enterprise” with its “de facto management body” located within the PRC if all of the following requirements are satisfied: (i) the enterprise’s day-to-day operations management is primarily exercised in the PRC, (ii) decisions relating to the enterprise’s financial and human resource matters are made or subject to approval by organizations or personnel in the PRC, (iii) the enterprise’s primary assets, accounting books and records, company seals, board and shareholders’ meeting minutes are located or maintained in the PRC, and (iv) 50% or more of voting board members or senior executives of the enterprise habitually reside in the PRC. If all of these criteria are met, the relevant offshore enterprise controlled by PRC enterprises or PRC enterprise groups would be deemed to have its “de facto management body” in the PRC and therefore be deemed a PRC resident enterprise. The Circulars clarified in the areas of resident status determination, post-determination administration, as well as the exercise of competent tax authorities’ procedures. The Circulars also specify that when provided with a copy of the PRC tax resident determination certificate from a resident Chinese controlled offshore incorporated enterprise, a payer of PRC-sourced dividends, interest, royalties, etc. should not withhold 10% income tax on such payments to such Chinese controlled offshore incorporated enterprise. Although the Circulars apply only to offshore enterprises controlled by PRC enterprises and not those controlled by PRC individuals such as us, the determination criteria and administration clarification made in the Circulars reflect the PRC State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax residency status of offshore enterprises and how the administration measures should be implemented. There is no assurance that the PRC State Administration of Taxation will not apply the same or similar criteria as stated in the Circulars to determine whether the “de facto management body” of an offshore incorporated enterprise controlled by PRC individuals (like us) is located within the PRC in the future. If the PRC authorities were to determine that we should be treated

Table of Contents

as a PRC resident enterprise for the purpose of PRC enterprise income tax, a 25% enterprise income tax on our global income could significantly increase our tax burden and adversely affect our financial condition and results of operations.

According to the Enterprise Income Tax Law and the Enterprise Income Tax Rules, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreign enterprise investors will be subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a reduced withholding arrangement. We are a Cayman Islands holding company and substantially all of our income comes from dividends from our PRC subsidiary through our Hong Kong holding company. To the extent these dividends are subject to withholding tax, the amount of funds available to us to meet our cash requirements, including the payment of dividends to our shareholders and ADS holders, will be reduced.

The Enterprise Income Tax Rules provide that, (i) if the enterprise that distributes dividends is domiciled in the PRC, or (ii) if gains are realized from transferring equity interests of enterprises domiciled in the PRC, then such dividends or capital gains are treated as PRC-sourced income. It is not clear how “domicile” might be interpreted under the Enterprise Income Tax Law, and it could be interpreted as the jurisdiction where the enterprise is a tax resident. Therefore, if we are considered to be a PRC resident enterprise for tax purposes, any dividends we pay to our overseas corporate shareholders or ADS holders as well as gains realized by such shareholders or ADS holders from the transfer of our shares or ADSs could be regarded as PRC-sourced income and as a result subject to PRC withholding tax at a rate of up to 10%, subject to the provisions of any applicable tax treaty. If dividends we pay to our overseas individual shareholders or ADS holders, or gains realized by such holders from the transfer of our shares or ADSs, are treated as China-sourced income, the withholding rate would be 20%, subject to the provisions of any applicable tax treaty.

If we are required under the Enterprise Income Tax Law to withhold PRC income tax on any dividends paid to our non-PRC shareholders and ADS holders or if gains from dispositions of our shares or ADSs are subject to PRC tax, your investment in our ADSs or ordinary shares could be adversely affected.

Furthermore, the State Administration of Taxation promulgated the Announcement of the State Administration of Taxation on Issues concerning the Beneficial Owners in Tax Treaties in April 2018, or Circular 9, which provides guidance for determining whether a resident of a contracting state is the “beneficial owner” of an item of income under China’s tax treaties and tax arrangements. According to Circular 9, there exist many factors to exclude a resident of a contracting state from being treated as a beneficial owner, including but not limited to the following situations: (i) such resident of a contracting state is obliged to pay more than 50% of the income to the resident(s) of a third state (region) within 12 months of receipt of the income; and (ii) the business activities undertaken by such resident do not constitute substantive business activities. We cannot assure you that any dividends distributed by us to our non-PRC shareholders and ADS holders whose jurisdiction of incorporation has a tax treaty with China providing for the avoidance of double taxation will be entitled to the benefits under the relevant withholding arrangement.

The State Administration of Foreign Exchange, or SAFE, issued the Circular Relating to Foreign Exchange Administration of Offshore Investment, Financing and Return Investment by Domestic Residents Utilizing Special Purpose Vehicles, or SAFE Circular 37, that was promulgated and become effective on July 14, 2014. It requires a PRC natural person or a PRC company, or a PRC Resident, to file a “Registration Form of Overseas Investments Contributed by PRC Resident” and register with the local SAFE branch before it contributes assets or equity interests in an overseas special purpose vehicle, or SPV, that is directly established and controlled by PRC Resident to conduct investment or financing. Following the initial registration, the PRC resident is also required to register with the local SAFE branch timely for any major change in respect of SPV, including, among other things, any major change of SPV’s PRC Resident shareholder, name of the SPV, term of operation or any increase or reduction of the SPV’s registered capital, share transfer or swap, and merger or division. Failure to comply with the registration procedures of Circular 37 could result in the penalties including the imposition of restrictions on the ability of SPV’s PRC subsidiaries to dividends to its overseas parent company.

It remains unclear how this regulation and any future related legislation will be interpreted, amended and implemented by the relevant PRC government authorities. As of December 31, 2021, to the best of our knowledge, most of our PRC Resident shareholders with offshore investments had not registered their offshore investments with SAFE according to the predecessor regulation of Circular 37, namely the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Circular 75, which was replaced by the SAFE Circular 37 but

Table of Contents

still effective when the relevant PRC shareholders made their investments. If the PRC government determined that our PRC Resident shareholders are required to make the registration regarding their offshore investment under Circular 37, both they and us may be subject to fines by the PRC government.

We are committed to complying, and to ensuring that our shareholders and beneficial owners who are PRC citizens or residents comply with SAFE Circular 37 requirements. The rest of our PRC citizen or resident beneficial owners are also applying for registrations under SAFE Circular 37 with the relevant local counterpart of SAFE. However, we might not be fully informed of the identities of all our beneficial owners who are PRC citizens or residents, and we cannot compel our beneficial owners to comply with SAFE Circular 37 requirements. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC citizens or residents have complied with, or will in the future make or obtain the necessary any applicable registrations or approvals as required by, SAFE Circular 37 or other related regulations. Failure by such shareholders or beneficial owners to comply with SAFE Circular 37, or failure by us to amend the foreign exchange registrations of our PRC subsidiary, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects. Failure by us to amend the foreign exchange registrations in compliance with SAFE Circular 37 could subject us to fines or legal sanctions restrict our overseas or cross-border ownership structure, which could adversely affect our business and prospects. See “—We rely principally on dividends and other distributions on equity paid by our PRC and Hong Kong subsidiaries to fund any cash and financing requirements we might have. Any limitation on the ability of our PRC and Hong Kong subsidiaries to pay dividends to us could have an adverse effect on our ability to conduct our business.”

Pursuant to the Implementation Rules of the Administrative Measures on Individual Foreign Exchange, or the Individual Foreign Exchange Rules, promulgated by SAFE on January 5, 2007 and amended on May 2016, a relevant guidance issued by SAFE in March 2007 and Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company, or the Stock Option Rules, on February 15, 2012 that replaces the guidance issued in March 2007, PRC citizens who are granted shares or share options by an overseas-listed company according to its employee share option or share incentive plan are required, through the PRC subsidiary of such overseas-listed company or other qualified PRC agents selected by such PRC subsidiary, to register with SAFE and complete certain other procedures related to the share option or other share incentive plan. In addition, the PRC agent is required to amend the SAFE registration with respect to the stock incentive plan if there is any material change to the stock incentive plan, the PRC agent or the overseas entrusted institution or other material changes. For participants who had already participated in an employee share option or share incentive plan before the date of the guidance, the guidance requires their PRC employers or PRC agents to complete the relevant formalities within three months of the date of the guidance. We and our PRC citizen employees who have been granted share options, or PRC option holders, are subject to these rules. If we or our PRC option holders fail to comply with these rules, we or our PRC option holders could be subject to fines and legal or administrative sanctions.

The State Administration of Taxation has issued several rules and notices to tighten the scrutiny over acquisition transactions in recent years, including the Notice on Certain Corporate Income Tax Matters Related to Indirect Transfer of Properties by Non-PRC Resident Enterprises issued in February 2015, or SAT Circular 7. Pursuant to SAT Circular 7, except for a few circumstances falling into the scope of the safe harbor provided by SAT Circular 7, such as open market trading of stocks in public companies listed overseas, if a non-PRC resident enterprise indirectly transfers PRC taxable properties (i.e. properties of an establishment or a place in the PRC, real estate properties in the PRC or equity investments in a PRC tax resident enterprise) by disposing of equity interest or other similar rights in an overseas holding company, without a reasonable commercial purpose and resulting in the avoidance of PRC enterprise income tax, such indirect transfer should be deemed as a direct transfer of PRC taxable properties and gains derived from such indirect transfer may be subject to the PRC withholding tax at a rate of up to 10%. SAT Circular 7 sets out several factors to be taken into consideration by tax authorities in determining whether an indirect transfer has a reasonable commercial purpose, such as whether the main value of equity interest in an overseas holding company is derived directly or indirectly from PRC taxable properties. An indirect transfer satisfying all the following criteria will be deemed to lack reasonable commercial purpose and be taxable under PRC law without considering other factors set out by SAT Circular 7: (i) 75% or more of the equity value of the intermediary enterprise being transferred is derived directly or indirectly from the PRC taxable properties; (ii) at any time during the one-year period before the indirect transfer,

Table of Contents

90% or more of the asset value of the intermediary enterprise (excluding cash) is comprised directly or indirectly of investments in the PRC, or 90% or more of its income is derived directly or indirectly from the PRC; (iii) the functions performed and risks assumed by the intermediary enterprise and any of its subsidiaries that directly or indirectly hold the PRC taxable properties are limited and are insufficient to prove their economic substance; and (iv) the foreign tax payable on the gain derived from the indirect transfer of the PRC taxable properties is lower than the potential PRC income tax on the direct transfer of such assets. Further, SAT Circular 7 embodies a voluntary reporting regime, and both the foreign transferor and the transferee, and the PRC tax resident enterprise whose equity interests are being transferred may voluntarily report the transfer by submitting the documents required in SAT Circular 7.

Although SAT Circular 7 provides clarity in many important areas, such as reasonable commercial purpose, there are still uncertainties on the tax reporting and payment obligations concerning future private equity financing transactions, share exchange or other transactions involving the transfer of shares in non-PRC resident companies. Our company and other non-resident enterprises in our group may be subject to filing obligations or being taxed if our company and other non-resident enterprises in our group are transferors in such transactions, and may be subject to withholding obligations if our company and other non-resident enterprises in our group are transferees in such transactions. For the transfer of shares in our company by investors who are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist in the filing under the rules and notices. As a result, we may be required to expend valuable resources to comply with these rules and notices or to request the relevant transferors from whom we purchase taxable assets to comply, or to establish that our company and other non-resident enterprises in our group should not be taxed under these rules and notices, which may have a material adverse effect on our financial condition and results of operations.

We cannot assure you that the PRC tax authorities will not, at their discretion, adjust any capital gains and impose tax return filing obligations on us or require us to assist in the investigation of PRC tax authorities with respect thereto. We acquired Join Me Group (HK) Investment Company Limited, or JMU HK, in June 2015 and divested our B2C business in September 2015, and we may pursue acquisitions in the future that may involve complex corporate structures. If we are considered a non-resident enterprise under the PRC Enterprise Income Tax Law and if the PRC tax authorities make adjustments to the taxable income of these transactions under SAT Circular 7, our income tax expenses associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations.

Increases in labor costs in the PRC may adversely affect our business and the results of operations.

The economy of China has been experiencing increases in inflation and labor costs in recent years. As a result, the average wages in the PRC are expected to continue to grow. In addition, we are required by PRC laws and regulations to pay various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of our employees. The relevant government agencies may examine whether an employer has made adequate payments of the requisite statutory employee benefits, and those employers who fail to make adequate payments could be subject to late payment fees, fines and/or other penalties. If the relevant PRC authorities determine that we should make supplemental social insurance and housing fund contributions and that we are subject to fines and legal sanctions, our business, financial condition and results of operations could be adversely affected. We expect that our labor costs, including wages and employee benefits, would continue to increase. Unless we can pass on these increased labor costs to our customers by increasing the prices of our products and services, our financial condition and results of operations could be adversely affected.

It may be difficult for overseas regulators to conduct investigations or collect evidence within the PRC.

Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in the PRC. For example, in the PRC, there are significant legal and other obstacles to providing the information needed for regulatory investigations or litigation initiated outside the PRC. Although the authorities in the PRC may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanisms. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. While detailed interpretations of or implementation rules under Article 177 are yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase the difficulties you may face in protecting your interests.

Table of Contents

The regulatory requirements with respect to cybersecurity and data privacy are constantly evolving and can be subject to varying interpretations, and significant changes, resulting in uncertainties about the scope of our responsibilities in that regard. Failure to comply with the cybersecurity and data privacy requirements in a timely manner, or at all, may subject us to government enforcement actions and investigations, fines, penalties, suspension or disruption of our operations, among other things. The Cybersecurity Law, which was adopted by the National People’s Congress on November 7, 2016 and came into force on June 1, 2017, provide that personal information and important data collected and generated by a critical information infrastructure operator (the “CIIO”) in the course of its operations in the PRC must be stored in the PRC, and the Cybersecurity Review Measures which became effective on February 15, 2022, provided that if a critical information infrastructure operator purchases internet products and services that affect or may affect national security, it should be subject to cybersecurity review by the CAC. The Measures of Cybersecurity Review also requires that critical information infrastructure operators and services and data processing operators that possess personal data of at least one (1) million users must apply for a review by the Cybersecurity Review Office of the PRC, if they plan to conduct securities listings on foreign exchanges. On June 10, 2021, the Standing Committee of the National People’s Congress promulgated the Data Security Law, which took effect on September 1, 2021. The Data Security Law requires that data shall not be collected by theft or other illegal means, and also provides for a data classification and hierarchical protection system. The data classification and hierarchical protection system puts data into different groups according to its importance in economic and social development, and the damages it may cause to national security, public interests, or the legitimate rights and interests of individuals and organizations in case the data is falsified, damaged, disclosed, illegally obtained or illegally used. Due to the lack of further interpretations, the exact scope of what constitute a “CIIO” remains unclear. Further, the PRC government authorities may have wide discretion in the interpretation and enforcement of these laws. It also remains uncertain whether any future regulatory changes would impose additional restrictions on companies like ours.

However, it remains uncertain as to how the Cybersecurity Review Measures will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures. If any such new laws, regulations, rules, or implementation and interpretation come into effect, we expect to take all reasonable measures and actions to comply therewith. However, we cannot assure you that PRC regulatory agencies, including the CAC, would take the same view as we do, and we will not be subject to the cybersecurity review by the CAC or designated as a CIIO. We may experience disruptions to our operations should we be required to have a cybersecurity review by the CAC. Any cybersecurity review could also result in uncertainty to our trading, negative impacts on our share trading prices, and diversion of our managerial and financial resources.

The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex, including requirements in some instances that the anti-monopoly law enforcement agency be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise.

For example, the M&A Rules require that MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, if (i) any important industry is concerned, (ii) such transaction involves factors that impact or may impact national economic security, or (iii) such transaction will lead to a change in control of a domestic enterprise which holds a famous trademark or PRC time-honored brand. Moreover, the PRC Anti-Monopoly Law promulgated by the Standing Committee of the National People’s Congress effective 2008 requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds (i.e., during the previous fiscal year, (i) the total global turnover of all operators participating in the transaction exceeds RMB10 billion and at least two of these operators each had a turnover of more than RMB400 million within the PRC, or (ii) the total turnover within the PRC of all the operators participating in the concentration exceeded RMB2 billion, and at least two of these operators each had a turnover of more than RMB400 million within China) must be cleared by the anti-monopoly enforcement authority before they can be completed. In addition, in 2011, the General Office of the State Council promulgated a Notice on Establishing the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, also known as Circular 6, which officially established a security review system for mergers and acquisitions of domestic enterprises by foreign

Table of Contents

investors. Further, MOFCOM promulgated the Regulations on Implementation of Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors, effective 2011, to implement Circular 6. Under Circular 6, a security review is required for mergers and acquisitions by foreign investors having “national defense and security” concerns and mergers and acquisitions by which foreign investors may acquire the “de facto control” of domestic enterprises with “national security” concerns. Under the foregoing MOFCOM regulations, MOFCOM will focus on the substance and actual impact of the transaction when deciding whether a specific merger or acquisition is subject to security review. If MOFCOM decides that a specific merger or acquisition is subject to a security review, it will submit it to the Inter-Ministerial Panel, an authority established under Circular 6 led by the National Development and Reform Commission, and MOFCOM under the leadership of the State Council, to carry out security review. The regulations prohibit foreign investors from bypassing the security review by structuring transactions through trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. There is no explicit provision or official interpretation stating that the merging or acquisition of a company engaged in the internet content business requires security review, and there is no requirement that acquisitions completed prior to the promulgation of the Security Review Circular are subject to MOFCOM review.

In the future, we may grow our business by acquiring complementary businesses in China, Singapore, and the United States. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions in China could be time consuming, and any required approval processes, including obtaining approval from MOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions. We believe that it is unlikely that our business would be deemed to be in an industry that raises “national defense and security” or “national security” concerns. However, MOFCOM or other government agencies may publish explanations in the future determining that our business is in an industry subject to the security review, in which case our future acquisitions in the PRC, including those by way of entering into contractual control arrangements with target entities, may be closely scrutinized or prohibited.

The newly enacted “Holding Foreign Companies Accountable Act” and proposed “Accelerating Holding Foreign Companies Accountable Act” both call for additional and more stringent criteria to be applied to restrictive market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the Public Company Accounting Oversight Board (the “PCAOB”). Our audit reports included in this annual report are prepared by auditors who are not inspected by the PCAOB, and consequently you may be deprived of the benefits of such inspection.

Our independent registered public accounting firm that issues the audit report included in our annual report filed with the SEC, as auditors of companies that are traded publicly in the United States and a firm registered with the U.S. Public Company Accounting Oversight Board, or the PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditors are located in the PRC, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, our auditors are not currently inspected by the PCAOB. On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in China. The joint statement reflects a heightened interest in this issue that U.S. regulators have focused on in recent years. However, it remains unclear whether the SEC and PCAOB will take any further actions to address the issue.

Inspections of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

As part of a continued regulatory focus in the United States on access to audit and other information currently protected by national law, in particular China’s, in December 2020, the U.S. enacted the Holding Foreign Companies Accountable Act, or the HFCA Act, which includes requirements for the SEC to identify issuers whose audit reports are prepared by auditors that the PCAOB is unable to inspect or investigate because of restrictions imposed by non-U.S. authorities in the auditor’s local jurisdiction. The HFCA Act also requires public companies on this SEC list to certify that they are not owned or controlled by a foreign government and make certain additional disclosures on foreign ownership and control of such issuers in their SEC filings. On March 24, 2021, the SEC announced the adoption of interim final amendments to implement the foregoing certification and disclosure requirements and that it is seeking public comment on the requirements. Furthermore, the HFCA Act amends the Sarbanes-Oxley Act of 2002 to require the SEC to prohibit securities of any U.S. listed companies from being traded on any of the U.S. national securities exchanges, such as the NYSE and Nasdaq Stock Market, or in the U.S. “over-the-counter” markets, if the auditor of the U.S. listed companies’ financial statements is not subject to PCAOB inspections for three consecutive “non-inspection” years after the law becomes effective.

Table of Contents

Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (the “AHFCAA”), which, if signed into law, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three consecutive years. Pursuant to the HFCA Act, the PCAOB issued a Determination Report on December 16, 2021, which found that the PCAOB was unable to inspect or investigate completely certain named registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor Shanghai Perfect C.P.A Partnership (“Shanghai Perfect”).

If we continue having Shanghai Perfect to audit our consolidated financial statements, the SEC may list us on its provisional list and eventually recommend the Nasdaq Stock Market to delist our ADSs. There can be no assurance that we will not be identified by the SEC as an issuer whose audit report is prepared by auditors that the PCAOB is unable to inspect or investigate. There can be no assurance that, once we have a “non-inspection” year, we will be able to take remedial measures in a timely manner, and as a result, and there can be no assurance that we will be able to maintain the listing of our ADSs on a national stock exchange in the U.S., such as the NYSE or the Nasdaq Stock Market, or that you will always be allowed to trade our shares or ADSs. In the worst case, our ADSs could be delisted if we were unable to cure the situation to meet the PCAOB inspection requirement in time.

The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from any Chinese authority to list our ordinary shares on Nasdaq. However, if we were required to obtain any type of securities listing approval from the PRC government in the future and were denied such permission, we would not be able to continue listing on Nasdaq or offering securities to investors, and therefore our share price would significantly depreciate.

The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulations and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, insurance commissions, property and other matters. The central or local governments of these jurisdictions may impose new and restrictive regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations. Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China, and result in a material change in our operations and/or the value of our ordinary shares.

For example, the Chinese cybersecurity regulator announced on July 2, 2021, that it had begun an investigation of Didi Global Inc. (NYSE: DIDI) and two days later ordered that Didi Global Inc.’s application be removed from all the smartphone application stores in China.

Given the example of Didi Global Inc. and recent statements of by the Chinese government indicating an intent to exert more oversight and control overseas offerings and foreign investments in Chinese companies, our insurance agency business may be subject to various government and regulatory interference once our ordinary shares are listed on Nasdaq and such regulatory actions could significantly limit or completely hinder our ability to offer or continue to offer securities to non-Chinese investors and directly cause the value and trading prices of our ordinary shares to significantly decline or become worthless.

Although we are currently not required to obtain any permission from any PRC government to list our ADSs on Nasdaq, it will remain uncertain when and whether we will be required to obtain any permission from the PRC government to list our shares on Nasdaq in the future, and even when we obtain such permission in accordance with the new rules and regulations, it will be unclear whether such permission will be rescinded or revoked at some point in time.

Failure to make adequate contributions to various employee benefits plans as required by PRC regulations may subject us to penalties.

Companies operating in China are required to participate in various government sponsored employee benefit plans, including certain social insurance, housing funds and other welfare payment obligations, and contribute to the plans in such amounts in relation to their employees’ salaries, as specified by the local government where the business operations are. Such requirement to contribute to employee benefit plans has not been implemented consistently by the local governments in China given the different levels of economic development in different locations. Historically, we did not complete the relevant employee benefit plan registrations for some of our employees in China, and the social insurance and housing fund contributions we paid for certain of our employees may be found

Table of Contents

inadequate under PRC law. As of the date of this prospectus, we have not received any notice of warning or been subject to any administrative penalties or other disciplinary actions from the relevant governmental authorities for our historical shortfall in social insurance and housing fund contribution. However, we cannot assure you that local authorities will not impose penalties or other administrative actions on us for our historical noncompliance. If local authorities determine that we failed to make adequate contributions to any employee benefits as required by relevant PRC regulations in the future, we may be subject to penalties and fines and/or catch-up contributions to certain employee benefit plans. A large lump sum payment obligation due to certain labor law violations will likely negatively affect our financial condition and results of operations.

Risks Relating to Our ADSs

The trading price of our ADSs could be volatile, which would result in substantial losses to investors.

The trading price of our ADSs could be volatile and could fluctuate widely in response to factors relating to our business as well as external factors beyond our control. Factors such as variations in our financial results, announcements of new business initiatives by us or by our competitors, recruitment or departure of key personnel, changes in the estimates of our financial results or changes in the recommendations of any securities analysts electing to follow our securities or the securities of our competitors could cause the market price for our ADSs to change substantially. At the same time, securities markets could from time to time experience significant price and volume fluctuations that are not related to the operating performance of particular companies, as they did for example in late 2008 and early 2009. These market fluctuations could also adversely affect the market price of our ordinary shares.

The performance and fluctuation of the market prices of other companies with business operations located mainly in the PRC that have listed their securities in the United States could affect the volatility in the price of and trading volumes for our ADSs. In recent years, several PRC companies have listed their securities, or are in the process of preparing for listing their securities, on U.S. stock markets. Some of these companies have experienced significant volatility, including significant price declines in connection with their initial public offerings. The trading performances of these PRC companies’ securities at the time of or after their offerings could affect the overall investor sentiment towards PRC companies listed in the United States and consequently could affect the trading performance of our ADSs. These broad market and industry factors could significantly affect the market price and volatility of our ADSs, regardless of our actual operating performance. Any of these factors could result in large and sudden changes in the trading volume and price for our ADSs.

Substantial future sales of our shares in the public market, or the perception that these sales could occur, could cause our share price to decline.

Additional sales of our shares in the public market, or the perception that these sales could occur, could cause the market price of our shares to decline. As of May 27, 2022, we had 5,143,716,027 ordinary shares issued and outstanding (excluding ordinary shares in the form of ADSs that are reserved for issuance upon the exercise of share awards). If part or all of these shares are sold in the public market or if any other existing shareholders sell a substantial amount of their shares, the prevailing market price for our shares could be adversely affected. Such sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate.

If we fail to maintain Nasdaq minimum market value of publicly held shares, minimum bid requirements or minimum stockholder equity standard, our ADSs could face the risk of being delisted.

According to the Nasdaq listing standards, if the market value of publicly held shares falls below US$1 million for 30 consecutive business days, such company’s securities may be subject to delisting from Nasdaq Capital Market, unless such failure is cured within the grace period the company is eligible to, from the date on which Nasdaq notifies to the listed company of such failure. Prior to the transfer of the listing of our ADSs from the Nasdaq Global Market to the Nasdaq Capital Market in January 2020, we received letters from Nasdaq advising us that the market value of our publicly held shares no longer met the continued listing requirement of the Nasdaq Global Market. We cannot assure you that we will not fail to meet the continued listing requirement of the Nasdaq Capital Market in the future. If we are not in compliance with such requirement and fail to regain compliance, we may delist our ADSs.

Furthermore, according to the Nasdaq listing standards, if the trading price of a listed company’s listed securities falls below US$1.00 per share for a period of 10 consecutive business days, such company’s securities may be subject to delisting unless such failure is cured within the grace period the company is eligible to, from the date on which Nasdaq notifies to the listed company of such

Table of Contents

failure. On January 4, 2019 and March 2, 2020, respectively, we received two letters from Nasdaq advising us that our ADS had been trading at a price that would subject our ADSs to delisting if we fail to regain compliance with the Nasdaq minimum bid price requirements. We were granted a grace period of 180 calendar days, expiring on August 31, 2020, to regain compliance. We have regained compliance since June 5, 2020 as the closing bid price of our ADSs was at least US$1.00 for a minimum of ten consecutive business days during this 180-day period.

In addition, according to the Nasdaq listing standards, if the stockholders’ equity falls below US$2.5 million, such company’s securities may be subject to delisting from Nasdaq Capital Market, unless such failure is cured within the grace period the company is eligible to, from the date on which Nasdaq notifies to the listed company of such failure. Prior to the transfer of the listing of our ADSs from the Nasdaq Global Market to the Nasdaq Capital Market in January 2020, we received a letter from Nasdaq advising us that our stockholders’ equity no longer met the continued listing requirement of the Nasdaq Global Market. We cannot assure you that we will not fail to meet the continued listing requirement of the Nasdaq Capital Market in the future. In the event that we are not in compliance with such requirement and fail to regain compliance, we may delist our ADSs.

We have regained compliance with the minimum bid requirement as of the date of this annual report. However, we cannot assure that we will meet the requirements for continued listing.

On May 13, 2022 the Company received a deficiency notice from Nasdaq that stated the Company no longer complies with Nasdaq's Listing Rule 5250(c)(1) due to its failure to file Form 20-F for the period ended December 31, 2021 (the "Filing"). Nasdaq informed the Company that it has a period of 14 days until May 27, 2022 to submit a plan (the "Plan") to Nasdaq detailing how the Company plans to regain compliance with Nasdaq's continued listing requirements. As a result, if Nasdaq does not accept the Company's Plan, the Company may be subject to delisting.

We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.

Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

●

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K;

●

the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act;

●

the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

●

the selective disclosure rules by issuers of material nonpublic information under Regulation FD.

We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.

As a foreign private issuer, we are permitted to, and we plan to, rely on exemptions from certain Nasdaq corporate governance standards applicable to U.S. issuers, including the requirement that a majority of an issuer’s directors consist of independent directors. This might afford less protection to holders of our ordinary shares and ADSs.

Section 5605(b)(1) of the Nasdaq Listing Rules requires listed companies to have, among other things, a majority of its board members to be independent, and Section 5605(d) and 5605(e) require listed companies to have independent director oversight of executive compensation and nomination of directors. As a foreign private issuer, however, we are permitted to, and we plan to follow the home country practice in lieu of the above requirements. The corporate governance practice in our home country, the Cayman

Table of Contents

Islands, does not require a majority of our board to consist of independent directors or the implementation of a nominating and corporate governance committee. We have informed Nasdaq that we will follow home country practice in place of all of the requirements of Rule 5600 other than those rules which we are required to follow pursuant to the provisions of Rule 5615(a)(3).

●

Rule 5605(b), pursuant to which (i) a majority of the board of directors must be comprised of Independent Directors, and (ii) the Independent Directors must have regularly scheduled meetings at which only Independent Directors are present.

●

Rule 5605(c) (other than those parts as to which the home country exemption is not applicable), pursuant to which each company must have, and certify that it has and will continue to have, an audit committee of at least three members, each of whom must meet criteria set forth in Rule 5605(c)(2)(A).

●

Rule 5605(d), pursuant to which each company must (i) certify that it has adopted a formal written compensation committee charter and that the compensation committee will review and reassess the adequacy of the formal written charter on an annual basis, and (ii) have a compensation committee of at least two members, each of whom must be an Independent Director.

●

Rule 5605(e), pursuant to which director nominees must be selected, or recommended for the Board’s selection, either by Independent Directors constituting a majority of the Board’s Independent Directors in a vote in which only Independent Directors participate, or a nominations committee comprised solely of Independent Directors.

●

Rule 5610, pursuant to which each company shall adopt a code of conduct applicable to all directors, officers and employees.

●

Rule 5620(a), pursuant to which each company listing common stock or voting preferred stock, or their equivalents, shall hold an annual meeting of shareholders no later than one year after the end of the issuer’s fiscal year-end.

●

Rule 5620(b), pursuant to which each company shall solicit proxies and provide proxy statements for all meetings of shareholders and shall provide copies of such proxy solicitation to Nasdaq.

●

Rule 5620(c), pursuant to which each company that is not a limited partnership shall provide for a quorum as specified in its by-laws for any meeting of the holders of common stock; provided, however, that in no case shall such quorum be less than 331/3% of the outstanding shares of the company’s common voting stock.

●

Rule 5630, pursuant to which each company that is not a limited partnership shall conduct an appropriate review and oversight of all related party transactions for potential conflict of interest situations on an ongoing basis by the company’s audit committee or another independent body of the board of directors.

●

Rule 5635(a), pursuant to which shareholder approval is required in certain circumstances prior to an issuance of securities in connection with the acquisition of the stock or assets of another company.

●

Rule 5635(b), pursuant to which shareholder approval is required prior to the issuance of securities when the issuance or potential issuance will result in a change of control of the company.

●

Rule 5635(c), pursuant to which shareholder approval is required prior to the issuance of securities when a stock option or purchase plan is to be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, directors, employees, or consultants, subject to certain exceptions.

●

Rule 5635(d), pursuant to which shareholder approval is required prior to the issuance of securities in connection with a transaction other than a public offering involving:

the sale, issuance or potential issuance by the company of common stock (or securities convertible into or exercisable for common stock) at a price less than the greater of book or market value which together with sales by officers, directors or Substantial Shareholders of the company equals 20% or more of common stock or 20% or more of the voting power outstanding before the issuance; or

Table of Contents

the sale, issuance or potential issuance by the company of common stock (or securities convertible into or exercisable common stock) equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock.

Anti-takeover provisions in our charter documents could discourage a third-party from acquiring us, which could limit our shareholders’ opportunities to sell their shares at a premium.

Our fourth amended and restated memorandum and articles of association include provisions that could limit the ability of others to acquire control of us, modify our structure or cause us to engage in change-of-control transactions. For example, our board of directors will have the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix the designations, powers, preferences and relative, participating, optional and other rights, if any, and the qualifications, limitations and restrictions thereof, if any, including, without limitation, the number of shares constituting each such class or series, dividend rights, conversion rights, redemption privileges, voting powers, full or limited or no voting powers, and liquidation preferences, any or all of which could be greater than the rights associated with our ordinary shares. Preferred shares could thus be issued quickly with terms calculated to delay or prevent a change in control or make removal of management more difficult. In addition, if our board of directors issues preferred shares, the market price of our ordinary shares could fall and the voting and other rights of the holders of our ordinary shares could be adversely affected. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of us in a tender offer or similar transaction.

You might not receive certain distributions we make on our ordinary shares or other deposited securities if the depositary decides not to make such distributions to you.

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it is not lawful or reasonably practicable to make a distribution available to any holders of ADSs. For example, the depositary could determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions could be less than the cost of mailing them. In these cases, the depositary could decide not to distribute such property and you will not receive such distribution.

We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under U.S. law, you could have less protection of your shareholder rights than you would under U.S. law.

Our corporate affairs are governed by our fourth amended and restated memorandum and articles of association, the Cayman Islands Companies Act (As Revised), as amended, and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by noncontrolling shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States and provides significantly less protection to investors. In addition, some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.

There is uncertainty concerning Cayman Islands law related to whether a judgment obtained from the U.S. courts under civil liability provisions of U.S. securities laws will be determined by the courts of the Cayman Islands as penal or punitive. If such a determination is made, the courts of the Cayman Islands will not recognize or enforce the judgment against a Cayman Islands company, such as our company. As the courts of the Cayman Islands have yet to rule on making such a determination on judgments obtained from U.S. courts under civil liability provisions of U.S. securities laws, it is uncertain whether such judgments would be enforceable in the Cayman Islands. Maples and Calder (Hong Kong) LLP has advised us that although there is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States, a judgment obtained in such jurisdiction will be recognized and

Table of Contents

enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment:

●

is given by a foreign court of competent jurisdiction;

●

imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given;

●

is final and conclusive;

●

is not in respect of taxes, a fine or a penalty; 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.

You should also read “Item 10. Additional Information—B. Memorandum and Articles of Association—Differences in Corporate Law” for some of the differences between the corporate and securities laws in the Cayman Islands and the United States.

Your ability to protect your rights as shareholders through the U.S. federal courts could be limited because we are incorporated under Cayman Islands law.

Cayman Islands companies might not have the standing to initiate a derivative action in a federal court of the United States. As a result, your ability to protect your interests if you are harmed in a manner that would otherwise enable you to sue in a United States federal court could be limited to direct shareholder lawsuits.

You will have limited ability to bring an action against us or against our directors and officers, or to enforce a judgment against us or them, because we are incorporated in the Cayman Islands, because we conduct a majority of our operations in the PRC and because a majority of our directors and officers reside outside the United States.

We are incorporated in the Cayman Islands and conduct our operations exclusively in the PRC. All of our assets are located outside the United States. A majority of our officers and directors reside outside the United States and a substantial portion of the assets of those persons are located outside of the United States. As a result, it could be difficult or impossible for you to bring an action against us or against these individuals in the Cayman Islands or in the PRC in the event that you believe that your rights have been infringed under the applicable securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China could render you unable to enforce a judgment against our assets or the assets of our directors and officers. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state, and it is uncertain whether such Cayman Islands or PRC courts would be competent to hear original actions brought in the Cayman Islands or China against us or such persons predicated upon the securities laws of the United States or any state.

Shareholders of Cayman Islands exempted companies such as ourselves have no general rights under Cayman Islands law to inspect corporate records and accounts or to obtain copies of lists of shareholders of these companies (apart from our memorandum and articles of association and the register of mortgages and charges). Our directors have discretion under Cayman Islands law to determine whether or not, and under what conditions, our corporate records could be inspected by our shareholders, but are not obliged to make them available to our shareholders. This could make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

As a result of all of the above, public shareholders might have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a U.S. company.

Table of Contents

The voting rights of holders of ADSs are limited in several significant ways by the terms of the deposit agreement.

Holders of our ADSs will only be able to exercise their voting rights concerning the underlying ordinary shares under the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of voting instructions from a holder of ADSs in the manner set forth in the deposit agreement, the depositary will endeavor to vote the underlying ordinary shares in accordance with these instructions. You will not be able to directly exercise your right to vote with respect to the underlying ordinary shares unless you cancel your ADSs and withdraw the underlying ordinary shares and follow the requisite steps to be recognized as a holder of ordinary shares entitled to vote such shares. Under our fourth amended and restated memorandum and articles of association and Cayman Islands law, the minimum notice period required for convening a general meeting is 10 clear days. When a general meeting is convened, you might not receive sufficient notice of a shareholders’ meeting to permit you to withdraw the underlying ordinary shares represented by your ADs to allow you to cast your vote directly with respect to any specific matter at the meeting. In addition, the depositary might not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the shares representing your ADSs. Furthermore, the depositary will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you might not be able to exercise your right to vote and you could lack recourse if your ordinary shares are not voted as you requested.

Except as described in this annual report and the deposit agreement, holders of our ADSs will not be able to exercise voting rights attaching to the ordinary shares evidenced by our ADSs on an individual basis. Holders of our ADSs will appoint the depositary or its nominee as their representative to exercise the voting rights attached to the ordinary shares represented by the ADSs. You might not receive voting materials in time to instruct the depositary to vote, and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote. The deposit agreement provides that if the depositary does not timely receive valid voting instructions from the ADS holders, then the depositary must, with certain limited exceptions, give a discretionary proxy to a person designated by us to vote such shares. Furthermore, as a party to the deposit agreement, you waive your right to trial by jury in any legal proceedings arising out of the deposit agreement or the ADRs against us and/or the depositary.

You might not receive distributions on our ordinary shares or any value for them if it is unlawful or impractical for us to make them available to you.

The depositary of our ADSs has agreed to pay you the cash dividends or other distributions it or the custodian for our ADSs receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares your ADSs represent. However, the depositary is not responsible if it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed according to an applicable exemption from registration. The depositary is not responsible for making a distribution available to any holders of ADSs, if any government approval or registration is required for such distribution. We have no obligation to take any other action to permit the distribution of our ADSs, ordinary shares, rights or anything else to holders of our ADSs. This means that you might not receive the distributions we make on our ordinary shares or any value for them if it is unlawful or impractical for us to make them available to you. These restrictions could have an adverse effect on the value of your ADSs.

You might be subject to limitations on the transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary could close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary could close its books from time to time for several reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary could also close its books in emergencies, and on weekends and public holidays. The depositary could refuse to deliver, transfer or register transfers of our ADSs generally when our books or the books of the depositary are closed, or at any time if we think or the depositary thinks it is necessary or advisable to do so in connection with the performance of its duty under the deposit agreement, including due to any requirement of law or any government or governmental body, or under any provision of the deposit agreement.

Table of Contents

Compliance with rules and requirements applicable to public companies could cause us to incur increased costs, which could negatively affect our results of operations.

As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting requirements. We ceased to be an “emerging growth company” on December 31, 2020, and are no longer eligible for reduced disclosure requirements and exemptions applicable to emerging growth companies. We expect that our loss of emerging growth company status will require additional attention from management and will result in increased costs to us, which could include higher legal fees, accounting fees and fees associated with investor relations activities, among others. We have also incurred and will continue to incur costs associated with corporate governance requirements, including requirements of the Sarbanes-Oxley Act, as well as rules implemented by the SEC and Nasdaq Capital Market, has requirements in corporate governance practices of public companies. We expect these rules and regulations to continue to increase our legal, accounting and financial compliance costs and to make certain corporate activities more time-consuming and costly. Complying with these rules and requirements could be especially difficult and costly for us because we might have difficulty locating sufficient personnel in China with experience and expertise relating to U.S. GAAP and U.S. public company reporting requirements, and such personnel could command higher salaries relative to what similarly experienced personnel would command in the United States. If we cannot employ sufficient personnel to ensure compliance with these rules and regulations, we might need to rely more on outside legal, accounting and financial experts, which could be very costly. In addition, we will incur additional costs associated with our public company reporting requirements. We are evaluating and monitoring developments to these rules, and we cannot predict or estimate the amount of additional costs we might incur or the timing of such costs.

ITEM 4. INFORMATION ON THE COMPANY

A.	History and Development of the Company

We started to operate a group buying and B2C e-commerce platform in China through Beijing Wowo Tuan Information Technology Co., Ltd. in March 2010. To facilitate investment in our company, we incorporated Wowo Limited in Cayman Islands as a holding company in July 2011.

In April 2015, Wowo Limited completed the initial public offering and listed our ADSs on the Nasdaq Capital Market under the symbol “WOWO.” We raised approximately US$37.3 million in net proceeds from our initial public offering after deducting underwriting commissions and the offering expenses payable by us.

In June 2015, we acquired Join Me Group (HK) Investment Company Limited to establish our food services industry B2B business. We issued 741,422,780 ordinary shares and paid US$30.0 million as consideration for the acquisition.

In September 2015, we divested our group buying and B2C e-commerce businesses to focus our efforts on our food services industry B2B business.

In September 2015, we raised US$15.0 million in a private placement transaction with Mr. Maodong Xu.

In June 2016, we changed the trading symbol for our ADSs listed on the Nasdaq Global Market to “JMU.” In December 2016, we also changed our company name to JMU Limited.

In August 2016, TANSH Global Food Group Co., Ltd, which was formerly known as Xiao Nan Guo Restaurants Holdings Limited, a Hong Kong Stock Exchange listed company (Stock Code: 3666), through its wholly-owned subsidiary, acquired a 9.82% stake in our company via secondary transfers for a total consideration of HK$368 million (approximately US$47.5 million).

In July 2018, we changed the ratio of our ADSs to ordinary shares from one ADS representing 18 ordinary shares to one ADS representing 180 ordinary shares.

In May 2019, we acquired Mercurity Limited (previously known as Unicorn Investment Limited) to establish our blockchain-based digital asset infrastructure solutions business. We issued 632,660,858 new ordinary shares as consideration for the acquisition.

Table of Contents

In July 2019, we divested our B2B services to food-industry suppliers and customers by selling all the issued and outstanding shares of New Admiral Limited, or New Admiral, our former wholly-owned subsidiary, to Marvel Billion Development Limited, or Marvel Billion, in exchange for US$1.0 million in cash. In addition, the buyer and the divested entities agreed to waive all the rights and claims with respect to the liabilities owed by us to the divested entities.

In January 2020, we transferred the listing of our ADSs from the Nasdaq Global Market to the Nasdaq Capital Market.

In February 2020, we changed the trading symbol for our ADSs listed on the Nasdaq Capital Market to “MFH.”

In March 2020, we acquired the entire ownership of NBpay Investment Limited, or NBpay, to further strengthen our capabilities in the blockchain-enabled payment solutions. We issued 761,789,601 new ordinary shares to Mr. Kaiming Hu, our principal shareholder and the sole shareholder of Kuali Yitong, as consideration for the acquisition.

In April 2020, we changed our company name to “Mercurity Fintech Holding Inc.” to align the company name with our new blockchain-based digital asset infrastructure solutions business.

In May 2020, we changed the ratio of our ADSs to ordinary shares from one ADS representing 180 ordinary shares to one ADS representing 360 ordinary shares.

Our principal executive offices are located at Room 1215, Xin'nan Block No.2, Yuehai Street, Nanshan District, Shenzhen City, 518000, Guangdong Province, People’s Republic of China. Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited, P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC on www.sec.gov. You can also find information on our investor relationship website https://mercurityfintech.com/. The information on our website should not be deemed a part of this annual report.

On October 17, 2021, we incorporated Golden Nation Ltd. in the State of New York, which plans to develop the cryptocurrency mining business in 2022.

On October 22, 2021, we, through our wholly-owned subsidiary Ucon, entered into a cloud computing power purchase and sales agreement (the “Computing Power Purchase Agreement”) with Carpenter Creek LLC (“Bitdeer”), pursuant to which we have purchased and continue purchasing cloud computing power from Bitdeer with the bitcoin mining machines located in Tennessee in accordance with the specific cloud hashrate purchase orders. Based on the Computing Power Purchase Agreement, we will pay for the electricity costs and computing power costs incurred for mining bitcoins pursuant to our orders.

On January 15, 2022, the Company disposed both of the VIEs, both of which were under the control by Lianji Future, a wholly foreign owned subsidiary of the Company.

Over the course of 2021 and 2022, the Board of the Company has been reorganized. On April 13, 2022, Mr. Minghao Li, a former member of the Board, and Mr. Wei Zhu, a former member and co-chairperson of the Board, acting chief financial officer, and co-chief executive officer, resigned from all of their positions in the Company for personal reasons. It has come to our attention that both Mr. Minghao Li and Mr. Wei Zhu have been detained and are currently under criminal investigation by the police in the People’s Republic of China for potential charges unrelated to their positions or activities as officers and directors of the Company.

Prior to the Police Matters, the Company stored approximately 105.2385 Bitcoins (“BTCs”) and 5,000,000 USD Coins (“USDCs”) at the online addresses which were maintained in the hardware cold wallet formerly kept by Mr. Wei Zhu, the Company’s then co-CEO and acting CFO. Mr. Wei Zhu was responsible for safeguarding the hardware cold wallet for the Company while the Company has put in place the cryptocurrency management and control procedures pursuant to which any transfer of the Company’s cryptocurrency requires the approval of the Company’s audit committee.

We suspect that in connection with the Police Matters, the PRC police put a hold on the Company’s cold wallet. We have engaged Deheng Law Firm or Deheng as our PRC counsel attempting to recover such cold wallet and the cryptocurrency therein. Deheng is in the process of negotiating with Yancheng Public Security Bureau, Jiangsu Province, China on behalf of the Company to recover the

Table of Contents

cold wallet as of the date of this annual report. While the recovery of the cold wallet is important, the Company regards the event as a legacy event that should not impede the Company from executing its ongoing plans. The current management and board shares the opinion that the business model of the Company remains viable while facing the risks and challenges outlined in this annual report. To this, the Company has secured critical financial support to aid the transition process of the Company’s operations from China to the USA. During this phase, the Company has streamlined its operations in China while concurrently carrying out a reconstitution of its operational and management resources in the USA and Singapore. The Company is also planning to conduct intensive business development efforts going forward as we reset and rebuild the foundations for growth outside China.

On April 7, 2022, the Board of the Company appointed Mr. Xuehui He and Mr. Yunhui Jin as independent directors of the Board, and Mr. Wenjie Han, and Mr. Junjie (Keith) Tan as directors of the Board.

On April 13, 2022, Samuel Shen, Tony C. Luh, and Paul L. Gillis, each an independent director of the Company, resigned from the Board for the reasons discussed below. The directors resigned from the Board because each director did not agree with certain other members of the Board regarding their requests for an internal inquiry and confirmation of certain events in regards to the detentions of Wei Zhu and Minghao Li.

On May 6, 2022, the Board of the Company received and accepted the resignations of Laibin Ding, Wenjie Han and Yunhui Jin, as directors of the Board, and on May 7, 2022, the Board received and accepted the resignation of Xuehui He as a director of the Board.

On May 7, 2022, the Board of the Company elected Shi Qiu, Xiang Qu, and Er-Yi Toh as new directors of the Company effective immediately, among whom Xiang Qu and Er-Yi Toh are deemed independent under Nasdaq Rule 5605(a)(2). In addition, on May 7, 2022, the Board removed Hua Zhou as the Chairperson of the Board and elected Huahui Deng as the Chairman of the Board, effective immediately, while Hua Zhou remains as a member of the Board.

Furthermore, on May 7, 2022, the Board removed Hua Zhou as the Chief Executive Officer of the Company and appointed Shi Qiu as the new Chief Executive Officer of the Company, effective immediately. The Board also appointed Cheng Hock Phuah as its new Chief Financial Officer, effective May 7, 2022.

B.	Business Overview

Our Principal Business

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 to start blockchain technology 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 technology 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 the second half of 2021, we added cryptocurrency mining as one of our main businesses going forward. We have entered into digital asset mining pools by executing a business contract with a collective mining service provider to provide computing power to the mining pool and derived related revenue in 2021. In the year of 2022, we plan to focus on our future blockchain technology services, including designing and developing digital asset transaction platforms, digital asset quantitative investment software and other innovative and derivative services based on blockchain technologies.

Blockchain Technology 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 system, trading system, account management system, operation management system and mobile applications, and (iii) a variety of supplemental services, such as customized software development services, maintenance services and

Table of Contents

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. We are currently developing Version 3.0 of our digital asset trading 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 revenues from selling our cryptocurrency asset trading platform and providing supplemental services to one customer who purchased this 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. However, we preliminarily procured a new customer in Singapore to purchase a customized quantitative trading software system pursuant to the binding term sheet dated May 10, 2022.

We have developed an asset digitalization platform, which can provide blockchain-based digitalization solutions for traditional assets, such as fiat currencies, bonds and precious metals. These solutions include, among others, (i) standard process of white label asset tokenization, such as onboarding, compliance certification, asset custody and token issuance and asset redemption by token holders, (ii) comprehensive and customized solutions for asset tokenization, and (iii) blockchain-enabled smart contract management system, KYC and anti-money laundering compliance management system, trust audit management system and other products that can be purchased and used separately, as well as mobile applications. We launched Version 1.0 of our asset digitalization platform in 2019 to provide institutional customers with customized services and products. We are currently developing Version 2.0 of our asset digitalization platform. The core offerings of Version 2.0 will be SaaS platform products and application program interface or “API” services. 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.

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 and 2022, the revenue from this DeFi platform was immaterial in 2021 and we discontinued the development of such DeFi platform.

Cryptocurrency Mining

We have entered into digital asset mining pools by executing mining contracts with a collective mining service provider to provide computing power to the mining pool. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed digital assets award the mining pool operator receives, for successfully adding a block to the blockchain. The Company’s fractional share is based on the result of the computing power the Company contributed to the mining pool operator divided by the total computing power contributed by all mining pool participants in solving the current algorithm.

Our Customers

As of December 31, 2021, we had two customers. We entered into two master software development agreements with a customer in May 2018 and July 2019, respectively. The projects were completed in 2020. We entered into one agreement with a newly acquired customer in July 2020. Pursuant to the agreement, we have provided software design, development, testing, installation, configuration, integration and customized development services based on blockchain technologies and related supplemental services to this customer from July 29, 2020 to July 29, 2021. The contract value was approximately $210,000. Such customer made installment payments of product development and service fees to us upon the occurrence of each specified event set out in the agreement. In 2022, we preliminarily procured a new customer in Singapore to purchase a customized quantitative trading software system pursuant to the binding term sheet dated May 10, 2022.

Previous Business

In July 2019, we divested our B2B services to food-industry suppliers and customers by selling all the issued and outstanding shares of New Admiral, our former wholly-owned subsidiary, to Marvel Billion in exchange for US$1.0 million in cash. Prior to such divestment, we operated the following businesses from June 2016 to July 2019.

Table of Contents

Online Direct Sales

In our discontinued online direct sales business, we acquired products from suppliers and sold them directly to customers. We had been expanding our offering in direct sales since the acquisition of our previous B2B business in June 2015. We focused on the sale of standard new ingredients by conducting research and developments of new products and organizing the manufacture by factories to ensure the standardized process of operation.

Online Marketplace

In our discontinued online marketplace business, third-party sellers offered products to customers over our previous online marketplace. We acquired the B2B online marketplace in June 2015 and had been bringing new products and services to the online marketplace thereafter. To attract more third-party sellers, we did not charge commission on transactions on our previous online marketplace. We provided transaction processing and billing services on all orders on our online marketplace. We required third-party sellers to meet our standards of quality.

Marketing

We engage various marketing channels to expand our business to more business partners and customers. We provide various incentives to our customers to increase their spending and loyalty, and we send e-mails to our customers periodically with product recommendations or promotions. To enhance our brand awareness, we also have engaged in brand promotion activities.

In addition to the online marketing activities, we also utilize offline activities to attract more users and promote our brand recognition. For example, we attended offline meetings, such as the Blockchain Technology Conference in Hainan, to enhance our brand awareness and promote our presence in the industry.

Competition

The blockchain and digital asset industry is intensely competitive and is densely populated by global competitors touting blockchain capabilities, including Uniswap, Huobi, Bitbank, Wanxiang Blockchain, Bit One Group and Metaps Inc., among others. Our competitors may have entered the industry much earlier than us. They may be better capitalized, may have more industry connections, and may be able to adapt more quickly to new technologies or may be able to devote greater resources to the development, marketing and sale of their products than we can.

We anticipate that the blockchain and digital asset market will continually evolve and will continue to experience rapid technological change, evolving industry standards, shifting customer requirements, and frequent innovation. We must continually innovate to remain competitive. We believe that the principal competitive factors in our industry are:

●

brand recognition and reputation;

●

product quality;

●

transaction speed;

●

pricing;

●

ecosystem integration; and

●

customer service.

We believe that we are well-positioned to effectively compete on the basis of the factors listed above. However, some of our current or future competitors have or may introduce new platforms and solutions that are superior to ours.

Table of Contents

Seasonality

We have not experienced seasoned fluctuations in our current principal business. Due to our limited operating history in our current core business, the seasonal trends that we experienced are not necessarily indicative of the seasonal trends that we may experience in the future.

Intellectual Property

We regard trademarks, copyrights, domain names, know-how, proprietary technologies, and similar intellectual property as critical to our success, and from time to time we rely on copyright and trademark law and confidentiality, invention assignment and non-compete agreements with our employees and others to protect our proprietary rights. As of December 31, 2021, we had three trademarks registered in the PRC relating to certain operations of the former VIEs. After the divestiture of the VIEs, we have determined not to pursue nor use such three trademarks with respect to our current operations. As of the date of this annual report, we have registered a generic top-level domain name. Our registered domain name is www. mercurityfintech.com.

Regulations

This section sets forth a summary of the most significant rules and regulations that affect our business activities in the PRC.

Regulations Relating to Foreign Investment

Industry Catalogue Relating to Foreign Investment. Investment activities in the PRC by foreign investors are principally governed by the Guidance Catalogue of Industries for Foreign Investment, or the Catalogue, which was promulgated and is amended from time to time by the Ministry of Commerce and the National Development and Reform Commission. Industries listed in the Catalogue are divided into three categories: encouraged, restricted and prohibited. Industries not listed in the Catalogue are generally deemed as constituting a fourth “permitted” category. The current Special Administrative Measures (Negative List) for Admission of Foreign Investment (Year 2019) was promulgated in June 2019 and Industry Guidelines on Encouraged Foreign Investment (Year 2019) was promulgated in June 2019.Establishment of wholly foreign-owned enterprises is generally allowed in encouraged and permitted industries. Some restricted industries are limited to equity or contractual joint ventures, while in some cases Chinese partners are required to hold the majority interests in such joint ventures. In addition, restricted category projects are subject to higher-level government approvals. Foreign investors are not allowed to invest in industries in the prohibited category. Industries not listed in the Catalogue are generally open to foreign investment unless specifically restricted by other PRC regulations.

Through our WFOE and the VIEs, we were engaged in certain industries that are classified as “restricted” under the Catalogue. We engage in the development of computer network technology, technical consultancy and technical services, which belong to the permitted category. Under PRC law, the establishment of a wholly foreign owned enterprise is subject to the approval of, or the requirement for record filing with, the Ministry of Commerce or its local counterparts and the wholly foreign owned enterprise must register with the competent industry and commerce bureau. We have duly obtained the approvals from the Ministry of Commerce or its local counterparts for our interest in our wholly owned PRC subsidiaries and completed the registration of these PRC subsidiaries with the competent industry and commerce bureau.

The Ministry of Commerce issued the Interim Measures for Record-filing Administration of the Establishment and Change of Foreign-invested Enterprises, as amended in June 2018, which was replaced by Measures on Reporting of Foreign Investment Information promulgated in December 2019. According to Measures on Reporting of Foreign Investment Information, foreign investors carrying out investment activities in the PRC directly shall submit investment information to the Ministry of Commerce or its local counterparts. Pursuant to the Announcement [2016] No. 22 of the National Development and Reform Commission and the Ministry of Commerce dated October 8, 2016, the special entry administration measures for foreign investment apply to restricted and prohibited categories specified in the Catalogue, and the encouraged categories are subject to certain requirements relating to equity ownership and senior management under the special entry administration measures.

On January 1, 2020, Foreign Investment Law of the People’s Republic of China became effective. For foreign-invested enterprises established after the Foreign Investment Law, the organization form, institution and activity requirement shall be governed by the PRC Company Law and PRC Partnership Law. The established foreign-invested enterprises have a five-year transition period. During the

Table of Contents

transition period, the enterprises could retain the original organization form. Specific implementation measures will be further formulated by the State Council.

On August 5, 2020, the opinions of the general office of the State Council on further stabilizing foreign trade and foreign investment came into effect. The rules put forward requirements on expanding the online channels of foreign trade and improving the convenience of foreign business personnel to come to the PRC, which is of great benefit to the field of foreign investment.

Foreign Investment in Value-Added Telecommunications Businesses. The Regulations for Administration of Foreign-invested Telecommunications Enterprises promulgated by the PRC State Council in December 2001 and subsequently amended in September 2008 and February 2016 set forth detailed requirements with respect to capitalization, investor qualifications and application procedures in connection with the establishment of a foreign-invested telecommunications enterprise. These regulations prohibit a foreign entity from owning more than 50% of the total equity interest in any value-added telecommunications service business in the PRC and require the major foreign investor in any value-added telecommunications service business in the PRC have a good and profitable record and operating experience in this industry.

Regulations Relating to Blockchain Technology

Since May 2019, we started to engage in blockchain-enabled digital asset infrastructure solutions business. The PRC has promulgated laws and restrictions against illegal activities conducted through blockchain technologies.

In January 2019, the Cyberspace Administration of China promulgated the Administrative Regulation on Blockchain Information Services, which regulates the information services provided to the public through internet sites, applications, etc. based on blockchain technology or systems. It states that blockchain information services suppliers shall implement the responsibility for information content security management, establish and improve management systems such as user registration, information review, emergency response, and security protection, they shall also have the technical conditions suitable for their services, establish and disclose management rules and platform conventions, sign service agreements with blockchain information services users, etc. This is the first time China conducted compliance supervision on the blockchain.

The PRC Cryptography Law, which entered into force on January 1, 2020, is the latest normative legal document that regulates the blockchain industry. The term “cryptography” refers to products, technologies and services that use specific transformations to carry out encryption protection or security authentication for information, etc. The use of blockchain technology to encrypt and protect the information it collects is a “cryptography” under PRC law and shall be regulated by the PRC Cryptography Law.

Under PRC criminal law, the illegal use of blockchain technology may involves four types of crimes: crime of refusing to perform network security management obligations, crime of helping information network criminal activities, crime of violating citizens’ information and crime of endangering public safety. Among them, the crime of refusing to perform network security management obligations may cause the mass dissemination of illegal information, the leakage of user information and leads to a serious consequence, the loss of evidence in criminal cases in a serious circumstance and other serious circumstance. Refusing to make corrections after being ordered by the regulatory authority to make corrective measures is subject to imprisonment of up to three years, detention or control and a fine.

In September 2021, ten PRC governmental authorities, including the People's Bank of China (PBOC), jointly issued the "Notice on Further Preventing and Resolving the Risks of Virtual Currency Trading and Speculation" to clarify that cryptocurrency is not a legal tender in the PRC. Additionally, in September 2021, eleven governmental authorities, including the National Development and Reform Commission and the People's Bank of China jointly issued the "Notice of Rectifying Virtual Currency Mining Activities" to strictly prohibit the virtual currency mining activities in the PRC. As of the date of this annual report, all cryptocurrency transactions in the PRC are considered illegal, including offshore exchanges to provide services to Chinese citizens. In response to such rapid and adverse regulatory changes in the PRC, we had to remodel our business plans and shift the business focus outside of the PRC.

Regulations Relating to E-Commerce

Prior to July 22, 2019, our principal business was food-industry B2B services and we were subject to regulations relating to e-commerce. As a result of the divestiture of the previous food business, we are no longer subject to E-commerce related rules and regulations.

Table of Contents

Regulations Relating to Internet Content and Information Security

The Administrative Measures on Internet Information Services specify that internet information services regarding news, publications, education, medical and health care, pharmacy and medical appliances, among other things, are to be examined, approved and regulated by the relevant authorities. Internet information providers are prohibited from providing services beyond those included in the scope of their ICP licenses or filings. Furthermore, these measures clearly specify a list of prohibited content. Internet information providers are prohibited from producing, copying, publishing or distributing information that is humiliating or defamatory to others or that infringes the lawful rights and interests of others. Internet information providers that violate the prohibition may face criminal charges or administrative sanctions by the PRC authorities. Internet information providers must monitor and control the information posted on their websites. If any prohibited content is found, they must remove the offending content immediately, keep a record of it and report to the relevant authorities.

Internet information in the PRC is also regulated and restricted from a national security standpoint. The National People’s Congress, the PRC’s national legislative body, has enacted the Decisions on Maintaining Internet Security, which may subject violators to criminal punishment in the PRC for any effort to: (i) gain improper entry into a computer or system of strategic importance; (ii) disseminate politically disruptive information; (iii) leak state secrets; (iv) spread false commercial information; or (v) infringe intellectual property rights. The Ministry of Public Security has promulgated measures that prohibit use of the internet in ways which, among other things, result in a leakage of state secrets or a spread of socially destabilizing content.

In July 2019, the Cyberspace Administration of the PRC promulgated The Measures for Credit Information Management of Internet Untrustworthy Subjects (draft) to credit construction in the field of internet information services and strengthen credit information management of internet information service untrustworthy subjects. The draft lists four specific cases of serious untrustworthy activities and stipulates the subject of the above-mentioned acts shall be included in the blacklist of serious untrustworthy of internet information service. The validity period is three years, during which the subject will be restricted to engage in internet information service. Relatively minor behaviors which committed several times but have not reached the blacklist determination criteria will be included in the focus list.

In January 2021, the state Internet Information Office issued the administrative measures for Internet information services (Revised Draft for comments). The PRC has set up a blacklist system for Internet information services. Organizations and individuals whose licenses or records have been revoked by the competent authorities shall not re apply for relevant licenses or records within three years; organizations and individuals whose accounts have been cancelled or websites have been shut down by the competent authorities shall not re provide similar services for them within three years.

On July 10, 2021, the PRC State Internet Information Office issued the Measures of Cybersecurity Review, which requires cyberspace companies with personal information of more than one (1) million users that want to list their securities on a non-Chinese stock exchange to file a cybersecurity review with the Office of Cybersecurity Review of China. On December 28, 2021, a total of thirteen governmental departments of the PRC, including the PRC State Internet Information Office issued the Measures of Cybersecurity Review, which will become effective on February 15, 2022.

We (1) are not required to obtain permissions from any PRC authorities to offer to sell or issue our ADSs to non-Chinese investors, (2) are not covered by the permission requirements from the China Securities Regulatory Commission (the “CSRC”) and Cyberspace Administration of China (the “CAC”) or any other entity that is required to approve of the operations of ours and our subsidiaries, and (3) have not received nor been denied such permissions by any PRC authorities. Nevertheless, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,” or the July 6, 2021 Opinions, which were made available to the public on July 6, 2021. The July 6, 2021 Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Given the current PRC regulatory environment, it is uncertain whether and when we or our subsidiaries will be required to obtain any permission from the PRC government to list on a U.S. stock exchanges in the future, and even when we obtain such permission, whether it will be denied or rescinded.

Regulations Relating to Internet Privacy

In recent years, PRC government authorities have enacted laws and regulations on internet use to protect personal information from any unauthorized disclosure. The Administrative Measures on Internet Information Services prohibit ICP service operators from

Table of Contents

insulting or slandering a third-party or infringing upon the lawful rights and interests of a third-party. Under the Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT in 2011, an ICP operator may not collect any user personal information or provide any such information to third parties without the consent of a user. An ICP service operator must expressly inform the users of the method, content and purpose of the collection and processing of such user personal information and may only collect such information necessary for the provision of its services. An ICP service operator is also required to properly keep the user personal information, and in case of any leak or likely leak of the user personal information, the ICP service operator must take immediate remedial measures and, in severe circumstances, to make an immediate report to the telecommunications regulatory authority. In addition, pursuant to the Decision on Strengthening the Protection of Online Information issued by the Standing Committee of the National People’s Congress in December 2012 and the Order for the Protection of Telecommunication and Internet User Personal Information issued by the MIIT in July 2013, any collection and use of user personal information must be subject to the consent of the user, abide by the principles of legality, rationality and necessity and be within the specified purposes, methods and scopes. An ICP service operator must also keep such information strictly confidential, and is further prohibited from divulging, tampering or destroying of any such information, or selling or proving such information to other parties. Any violation of the above decision or order may subject the ICP service operator to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown of websites or even criminal liabilities. Furthermore, in June 2016, the State Internet Information Office issued the Administrative Provisions on Mobile Internet Applications Information Services, which became effective on August 1, 2016, to further strengthen the regulation of the mobile application information services. Pursuant to these provisions, owners or operators of mobile internet applications that provide information services are required to be responsible for information security management, establish and improve the protective mechanism for user information, observe the principles of legality, rightfulness and necessity, and expressly state the purpose, method and scope of, and obtain user consent to, the collection and use of users’ personal information. In addition, the new Cyber Security Law, which became effective on June 1, 2017, also requires network operators to strictly keep confidential users’ personal information that they have collected and to establish and improve user information protective mechanism. We have required our users to consent to our collecting and using their personal information, and established information security systems to protect user’s privacy.

On May 24, 2019, the Cyberspace Administration of the PRC promulgated the Cybersecurity Review Measures (Exposure Draft), which, together with the Article 35 of the Cybersecurity Law, focuses on the cyber security review. It has clear and detailed provisions on the review object, review scope and review process, and provides guidance for law enforcement agencies.

On May 28, 2019, the Cyberspace Administration of the PRC promulgated the Administrative Measures on Data Security, which further stipulates the network security protection obligations that network operators should perform under the PRC Cybersecurity Law, clarifies the standards for the collection, processing, using and security supervision of personal information and important data, and states that network operators shall make a filing with the local cyberspace administration when they collect important data or sensitive personal information for the purposes of business operations, any network operator that collects and uses personal information through products such as websites and applications shall develop and disclose the rules for collection and use separately.

In October 2019, the Information Security Technology - Personal Information Security Specification (Exposure Draft) was published to seek comments from the general public. Although the draft is a national recommended standard but not legally enforceable, from a practical point of view, existing internet companies were inquired by the Cyberspace Administration of the PRC for not conforming to the draft’s spirit and ordered to make rectification. In January 2020, National Information Security Standardization Technical Committee promulgated Information Security Technology - Basic Specification for the Collection of Personal Information by Mobile Internet Application (App) (Exposure Draft). This draft clarifies the basic requirements that mobile Internet applications should meet to collect personal information, which means that APP developers and operators who collect user’s personal information shall strictly comply with the requirement.

In December 2019, the Cyberspace Administration of China promulgated Provisions on the Ecological Governance of Network Information Contents, which took effect on March 1, 2020. Its goal is to meet the requirement of a network comprehensive management system and promote and create a good network ecology and network space. It specifies the obligations of network information content producers, network information content service platforms and network information content service users regarding related ecological governance.

Table of Contents

Regulations Relating to Intellectual Property Rights

The PRC has adopted comprehensive legislation governing intellectual property rights, including copyrights, patents, trademarks and domain names.

Copyright. Pursuant to the Copyright Law and its implementation rules, creators of protected works enjoy personal and property rights, including, among others, the right of disseminating the works through information networks. Pursuant to the relevant PRC regulations, rules and interpretations, internet service providers will be jointly liable with the infringer if they (a) participate in, assist in or abet infringing activities committed by any other person through the internet, (b) are or should be aware of the infringing activities committed by their website users through the internet, or (c) fail to remove infringing content or take other action to eliminate infringing consequences after receiving a warning with evidence of such infringing activities from the copyright holder. To comply with these laws and regulations, we have implemented internal procedures to monitor and review the content we have licensed from content providers before releasing on our website and remove any infringing content promptly after we receive notice of infringement from the legitimate rights holder.

Trademark. The Trademark Law and its implementation rules protect registered trademarks. The PRC Trademark Office of State Administration of Industry and Commerce is responsible for the registration and administration of trademarks throughout the PRC. The Trademark Law has adopted a “first-to-file” principle with respect to trademark registration. As of December 31, 2020, we had approximately one (1) trademark applications in China.

Domain Name. Domain names are protected under the Administrative Measures on the Internet Domain Names promulgated by the MIIT on November 1, 2017. The MIIT is the major regulatory body responsible for the administration of the PRC internet domain names, under supervision of which the CNNIC is responsible for the daily administration of .cn domain names and Chinese domain names. CNNIC adopts the “first to file” principle with respect to the registration of domain names. We have registered www.mercurity.com.

On November 27, 2017, the MITT issued the Notice of the Ministry of Industry and Information Technology on Regulating the Use of Domain Names in Providing Internet-based Information Services. Pursuant to this notice, internet access service providers shall, via the Record-filing System, regularly check the use of domain names by Internet-based information service providers, and shall, in the case that a domain name does not exist or is expired or has no real identity information, cease the provision of access services for the Internet-based information service provider concerned.

Regulations Relating to Employment

The Labor Contract Law and its implementation rules provide requirements concerning employment contracts between an employer and its employees. If an employer fails to enter into a written employment contract with an employee within one year from the date on which the employment relationship is established, the employer must rectify the situation by entering into a written employment contract with the employee and pay the employee twice the employee’s salary for the period from the day following the lapse of one month from the date of establishment of the employment relationship to the day prior to the execution of the written employment contract. The Labor Contract Law and its implementation rules also require compensation to be paid upon certain terminations, which significantly affects the cost of reducing workforce for employers. In addition, if an employer intends to enforce a non-compete provision with an employee in an employment contract or non-competition agreement, it has to compensate the employee on a monthly basis during the term of the restriction period after the termination or ending of the labor contract. Employers in most cases are also required to provide a severance payment to their employees after their employment relationships are terminated.

Enterprises in the PRC are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance funds, namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan, and a housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries, including bonuses and allowances, of the employees as specified by the local government from time to time at locations where they operate their businesses or where they are located. According to the Social Insurance Law, an employer that fails to make social insurance contributions may be ordered to pay the required contributions within a stipulated deadline and be subject to a late fee. If the employer still fails to rectify the failure to make social insurance contributions within the stipulated deadline, it may be subject to a fine ranging from one to three times the amount overdue. According to the Regulations on Management of Housing Fund, an enterprise that fails to make housing fund contributions may be ordered to rectify the noncompliance and pay the required contributions within a stipulated deadline; otherwise, an application may be made to a local court for compulsory enforcement. We have not made adequate contributions to employee benefit plans, as required by applicable PRC laws and regulations.

Table of Contents

Regulations Relating to Dividend Withholding Tax

Pursuant to the Enterprise Income Tax Law and its implementation rules, if a non-resident enterprise has not set up an organization or establishment in the PRC, or has set up an organization or establishment but the income derived has no actual connection with such organization or establishment, it will be subject to a withholding tax on its PRC-sourced income at a rate of 10%. Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, the withholding tax rate in respect to the payment of dividends by a PRC enterprise to a Hong Kong enterprise is reduced to 5% from a standard rate of 10% if the Hong Kong enterprise directly holds at least 25% of the PRC enterprise. Pursuant to the Notice of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, or Circular 81, a Hong Kong resident enterprise must meet the following conditions, among others, in order to enjoy the reduced withholding tax: (i) it must directly own the required percentage of equity interests and voting rights in the PRC resident enterprise; and (ii) it must have directly owned such percentage in the PRC resident enterprise throughout the 12 months prior to receiving the dividends. Furthermore, the Administrative Measures for Non-Resident Enterprises to Enjoy Treatments under Tax Treaties (For Trial Implementation), which became effective in October 2009, require that non-resident enterprises must obtain approval from the relevant tax authority in order to enjoy the reduced withholding tax rate. There are also other conditions for enjoying the reduced withholding tax rate according to other relevant tax rules and regulations. In November 2015, the Administrative Measures for Non-Resident Enterprises to Enjoy Treatments under Tax Treaties became effective and repealed the Trial Implementation, which was later replaced by the Administrative Measures on Non-resident Taxpayers Enjoying Treaty Benefits promulgated by State Taxation Administration in October 2019. Pursuant to the new Measures, non-resident taxpayers claiming treaty benefits shall be handled in accordance with the principles of “self-assessment, claiming benefits, retention of the relevant materials for future inspection.” Non-resident taxpayers who satisfy the criteria for entitlement to tax treaty benefits may, at the time of tax declaration or withholding declaration through a withholding agent, enjoy the tax treaty benefits, instead of being subject to approvals, simultaneously gather and retain the relevant materials pursuant to the provisions of these measures for future inspection and be subject to follow-up administration by the tax authorities.

Pursuant to the Notice of the Ministry of Finance, the State Administration of Taxation, the National Development and Reform Commission, and the Ministry of Commerce on the Applicable Scope of the Policy of Temporary Exemption of Withholding Taxes on the Direct Investment Made by Overseas Investors with Distributed Profits, or Circular 102, which became effective in January 2018, where an overseas investor uses profits distributed by a resident enterprise in the PRC for direct investment in an encouraged investment project, deferred tax payment policy shall apply if the stipulated criteria is satisfied, and withholding of income tax shall be waived in the interim.

Regulations Relating to Foreign Exchange

The principal regulations governing foreign currency exchange in the PRC are the Foreign Exchange Administration Regulations, most recently amended in August 2008. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of the PRC to pay capital expenses such as the repayment of foreign currency-denominated loans.

In August 2008, SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular No. 142, regulating the conversion by a foreign-invested enterprise of foreign currency-registered capital into RMB by restricting how the converted RMB may be used. SAFE Circular No. 142 provides that the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within the PRC. SAFE also strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested enterprises. The use of such RMB capital may not be changed without SAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used. In March 2015, SAFE issued SAFE Circular No.19, which took effect and replaced SAFE Circular No. 142 from June 1, 2015. Although SAFE Circular No.19 allows for the use of RMB converted from the foreign currency-denominated capital for equity investments in the PRC, the restrictions continue to apply as to foreign-invested enterprises’ use of the converted RMB for purposes beyond the business scope, for entrusted loans or for inter-company RMB loans. The sixth article of SAFE Circular No.19 relating to the administration of the exchange settlement and use of the capital in the foreign exchange account under other direct investments has been abolished by SAFE Circular No.39 in 2019.

Table of Contents

The following diagram illustrates our corporate structure as of the date of this annual report.

(1)Formerly known as Unicorn Investment Limited.

VIE Agreements

Exclusive Business Operation Agreement. Lianji Future and Lianji had entered into an exclusive business operation agreement, pursuant to which Lianji Future had the exclusive right to provide Lianji with technology development and application services. Without Lianji Future’s written consent, Lianji did not accept any technology development and application services covered by this agreement from any third party. Lianji agreed to pay comprehensive service charges on an annual basis and up to the full balance of Lianji’s total income after deduction of its costs and expenses. In addition, Lianji undertook, that without Lianji Future’s prior written consent, Lianji shall not enter into any transactions that may materially affected Lianji’s assets, obligations, rights or business operations. This agreement remained effective until Lianji Future ceased business operations.

Agreements that Provide Us with Effective Control over Lianji

Powers of Attorney. Each shareholder of Lianji issued a power of attorney, irrevocably appointing Lianji Future, as such shareholder’s attorney-in-fact to exercise all shareholder rights on behalf of such shareholder, including, but not limited to, the right to call shareholders’ meeting, the right to vote on all matters of Lianji that require shareholder approval, and the right to dispose of all or part of the shareholder’s equity interest in Lianji. Other than the foregoing circumstances, the power of attorney remained in force until the termination of the business operation agreement and during its effective term, shall not be amended or terminated without the consent of Lianji Future.

Exclusive Option Agreement. Lianji Future, Lianji and each of Lianji’s shareholders entered into an option agreement, pursuant to which Lianji’s shareholder has irrevocably granted Lianji Future an exclusive option, to the extent permitted by PRC law, to purchase, or have its designated person or persons to purchase, at its discretion all or part of the shareholder’s equity interests in Lianji or all or part of Lianji’s assets. The purchase price would be a nominal price unless where PRC laws and regulations require valuation of the equity interests or the assets, or promulgates other restrictions on the purchase price, or otherwise prohibits purchasing the equity interests or the assets at a nominal price. If the PRC laws and regulations prohibit purchasing the equity interests or the assets at a nominal price, the purchase price should be equal to the original investment of the equity interests made by such shareholders or the book value of the assets. Where PRC laws and regulations require valuation of the equity interests or the assets or promulgates other restrictions on the purchase price, the purchase price should be the minimum price permitted under PRC laws and regulations. However, if the minimum price permitted under PRC laws and regulations exceed the original investment of the equity interests or the book value of the assets, Lianji should reimburse Lianji Future the exceeding amount after deducting all taxes and fees paid under PRC laws and regulations. The shareholders of Lianji undertake, among other things, that without Lianji Future’s prior written consent, they would not

Table of Contents

take any actions that may have material effect on Lianji’s assets, businesses and liabilities, nor would they appoint or replace any directors, supervisors and officers of Lianji. These agreements have terms of ten years, which may be extended upon Lianji Future’s written confirmation prior to the expiry.

Equity Interest Pledge Agreement. Each shareholder of Lianji entered into an equity interest pledge agreement with Lianji Future and Lianji, pursuant to which, each shareholder pledged all of his or her equity interest in Lianji to Lianji Future to guarantee the performance by Lianji and its shareholders of their obligations under the master agreements, which included the business operation agreement the power of attorney and the exclusive option agreement. Each shareholder of Lianji agreed that, during the term of the equity interest pledge agreement, he or she would not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests without the prior written consent of Lianji Future. The equity interest pledge agreement would remain effective until Lianji and its shareholders discharged all of their obligations under the master agreements.

Agreements that Provide Us with Effective Control over Mercurity Beijing

Following our acquisition of NBpay in March 2020, we gained effective control over and received substantially all the economic benefits from Mercurity Beijing through a series of contractual arrangements among our wholly-owned subsidiary Lianji Future, Mercurity Beijing and its shareholder.

In July 2020, Kuaili Yitong changed its name to Mercurity (Beijing) Technology Co, Ltd ( Mercurity Beiijing).

Business Operation Agreement. Lianji Future and Mercurity Beijing entered into a business operation agreement, pursuant to which Lianji Future had the exclusive right to provide Mercurity Beijing with technology development and application services. Without Lianji Future’s written consent, Mercurity Beijing should not accept any technology development and application services covered by this agreement from any third party. Mercurity Beijing agreed to pay comprehensive service charges on an annual basis and up to the full balance of Mercurity Beijing’s total income after deduction of its costs and expenses. In addition, Mercurity Beijing undertook that without Lianji Future’s prior written consent, Mercurity Beijing would not enter into any transactions that may have material effect on Mercurity Beijing’s assets, obligations, rights or business operations. Unless otherwise agreed by the parties, this agreement would remain effective until Lianji Future ceased business operations.

Powers of Attorney. The shareholder of Mercurity Beijing issued a power of attorney, irrevocably appointing Lianji Future, as such shareholder’s attorney-in-fact to exercise all shareholder rights, including, but not limited to, the right to call shareholders’ meeting, the right to vote on all matters of Mercurity Beijing that required shareholder approval, and the right to dispose of all or part of the shareholder’s equity interest in Mercurity Beijing, on behalf of such shareholder. Other than the foregoing circumstances, the power of attorney would remain in force until the termination of the business operation agreement and during its effective term, shall not be amended or terminated without the consent of Lianji Future.

Option Agreement. Lianji Future, Mercurity Beijing’s shareholder entered into an option agreement, pursuant to which Mercurity Beijing’s shareholder irrevocably granted Lianji Future an exclusive option, to the extent permitted by PRC law, to purchase, or have its designated person or persons to purchase, at its discretion all or part of the shareholder’s equity interests in Mercurity Beijing. The purchase price should be a nominal price unless where PRC laws and regulations required valuation of the equity interests or the assets, or promulgates other restrictions on the purchase price, or otherwise prohibits purchasing the equity interests or the assets at a nominal price. If the PRC laws and regulations prohibit purchasing the equity interests or the assets at a nominal price, the purchase price should be equal to the original investment of the equity interests made by such shareholder or the book value of the assets. Where PRC laws and regulations required valuation of the equity interests or the assets or promulgates other restrictions on the purchase price, the purchase price should be the minimum price permitted under PRC laws and regulations. However, if the minimum price permitted under PRC laws and regulations exceeded the original investment of the equity interests or the book value of the assets, Mercurity Beijing should reimburse Lianji Future the exceeding amount after deducting all taxes and fees paid under PRC laws and regulations. The shareholder of Mercurity Beijing undertook, among other things, that without Lianji Future’s prior written consent, it would not take any actions that may have material effect on Mercurity Beijing’s assets, businesses and liabilities, nor shall he appoint or replace any directors, supervisors and officers of Kuali Yitong. These agreements had terms of ten years, which may be extended upon Lianji Future’s written confirmation prior to the expiry.

Equity Pledge Agreement. The shareholder of Mercurity Beijing entered into an equity pledge agreement with Lianji Future pursuant to which, the shareholder pledged all of his equity interest in Mercurity Beijing to Lianji Future to guarantee the performance by

Table of Contents

Mercurity Beijing and its shareholder of their obligations under the master agreements, which included the business operation agreement the power of attorney and the exclusive option agreement. The shareholder of Mercurity Beijing agreed that, during the term of the equity interest pledge agreement, he would not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests without the prior written consent of Lianji Future. The equity interest pledge agreement remained effective until Mercurity Beijing and its shareholder discharged all of their obligations under the master agreements.

The VIE termination arrangements

On December 24, 2021, the Board of the Company decided to dismantle the VIE structure and divest Lianji and Mercurity Beijing, which were controlled by the VIE agreements, due to the impact of the adverse policies issued by the Chinese government on their cryptocurrency business. Therefore, Lianji and Mercurity Beijing are listed as discontinued concerns in the audited consolidated financial statements for the year ended December 31, 2021, which is part of this annual report.

On January 15, 2022, Lianji Future and Lianji, signed a Termination Agreement Re Existing Control Documents with Wang Zhiyou and Zhou Jie, the shareholders of Lianji. According to the agreement, from the date thereof, Lianji Future no longer retains any right over Lianji under the Existing Control Documents and Lianji no longer needs to perform any obligation under the Existing Control Documents. However, the rights and obligations actually exercised by each Party based on any Existing Control Documents shall remain effective. Any income or other benefits of any nature funds obtained or actually received by any Party based on the Existing Control Documents need not be returned to the other Parties, and the existing accounts receivable and payable between the Parties shall still be paid. Meanwhile, Lianji Future, Lianji, Ucon, Mercurity Limited and the Company jointly signed an Agreement on Modification of Customer's Rights and Obligations. Lianji transferred all of its receivables and other creditor's rights to Lianji Future, and all debts owned by Lianji to Ucon. Mercurity Limited and the Company were borne by Lianji Future.

On January 15, 2022, Lianji Future and Mercurity Beijing, signed a Termination Agreement Re Existing Control Documents with Wang Zhiyou, the shareholders of Lianji. According to the agreement, from the date thereof, Lianji Future no longer retains any right over Mercurity Beijing under the Existing Control Documents and Mercurity Beijing no longer needs to perform any obligation under the Existing Control Documents. However, the rights and obligations actually exercised by each Party based on any Existing Control Documents shall remain effective. Any income or other benefits of any nature funds obtained or actually received by any Party based on the Existing Control Documents need not be returned to the opposite Party, and the existing accounts receivable and payable between the Parties shall still be paid. Meanwhile, Lianji Future, Mercurity Beijing, Ucon, Mercurity Limited and the Company jointly signed an Agreement on Modification of Customer's Rights and Obligations. Mercurity Beijing transferred all of its receivables and other creditor's rights to Lianji Future, and all debts owned by Mercurity Beijing to Ucon. Mercurity Limited and the Company were borne by Lianji Future.

D.	Property, Plants and Equipment

Our executive offices are rented premises located at Room 1215, Xin’nan Block No. 2, Yuehai Street, Nanshan Distric, Shenzhen City, 518000, Guangdong Province, People’s Republic of China. Our headquarters occupy a total of 3100 square feet. The lease of our headquarter office has a term of one calendar year, from June 1, 2022 to May 31, 2023 for an annual rent of approximately $59,297.00.

In addition, we have established the New York office (the “New York Office”) at 575 Lexington Avenue, 12-104, New York, NY 10022. The New York Office has the office space of approximately 600 square feet, a six-month of term lease for a monthly rent of $4,370.00 The lease for the New York Office commenced on May 27, 2022 and shall expire on November 30, 2022.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from

Table of Contents

those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report on Form 20-F.

A.	Operating Results

Overview

In the first half of 2021, our principal business is to design and develop digital asset transaction platforms based on blockchain technologies for customers to facilitate asset trading, asset digitalization and cross-border payments and provide supplemental services for such platforms, such as customized software development services, maintenance services and compliance support services. We started this business following our acquisition of Mercurity Limited (previously known as Unicorn Investment Limited) in May 2019.

In the second half of 2021, our board and the management changed and our future business plan was recalibrated. Blockchain technology services and cryptocurrency mining become the main business of the Company going forward.

Blockchain technology services include designing and developing digital asset transaction platforms, digital asset quantitative investment software and other innovative and derivative services based on blockchain technologies.

We have entered into digital asset mining pools by executing contracts with a collective mining service provider to provide computing power to the mining pool. In exchange for providing computing power, we are entitled to a fractional share of the fixed digital assets award the mining pool operator receives, for successfully adding a block to the blockchain. Our fractional share is based on the proportion of computing power we contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm. Providing computing power in digital asset transaction verification services is an output of our ordinary activities. The provision of such computing power is the only performance obligation in our contracts with the collective mining service provider. 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. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, 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 in these transactions.

Due to the extremely adverse regulatory measures taken by the PRC government in 2021 on digital currency production and transaction, our board decided on December 10, 2021 to divest the PRC companies of the related business controlled through VIE agreements, and the divestiture was completed on January 15, 2022. Accordingly, assets and liabilities, revenues and expenses, and cash flows related to the VIE entities subject to divestment have been reclassified in the accompanying consolidated financial statements as discontinued operations for all periods presented. The consolidated statements of operations and the consolidated statements of cash flows for the years ended December 31, 2019 and 2020 are adjusted retrospectively to reflect the change. Additionally, the presentation of the accompanying notes will not include the financial information for the year ended December 31, 2019 and 2020 if they were nil due to the disposal and related classification within discontinued operations mentioned above.

We had income from operations of US$0.7 million, loss of US$0.7 million and loss of US$12.5 million for the years ended December 31, 2019, 2020 and 2021, respectively. The changes in our board and management that occurred in 2021 also reshuffled our core business team, and resulted in the discontinuation of the original business contract. As a result, the blockchain technology services revenue generated in 2021 is only $128,207, of which $122,343 generated by businesses controlled by VIE agreements which are subject of divestment. These revenues are classified under loss/income from discontinued operations in the consolidated income statement. Due to the changes in our core management and business teams, many employees participating in the company's stock incentive plan were allowed to accelerate the vesting of their shares that have not yet reached the vesting period. Combined with the impact of the implementation of the additional stock incentive plan in 2021, the company's stock incentive expense recognized in 2021 reached $8 million. In addition, as a result of these changes, our professional expenses such as lawyers and financial consultants reached $1million in 2021.

Table of Contents

Divestment of VIE entities

Due to the extremely adverse regulatory measures taken by the PRC government in 2021 on digital currency production and transaction, the Company's board of Directors decided on December 10, 2021 to divest the PRC companies of the related business controlled through VIE agreements, and the divestiture was completed on January 15, 2022. As a result, revenue received by the VIE entities in 2021 will be presented as a non-continuing operating profit or loss in the 2021 consolidated financial statements.

Accordingly, assets and liabilities, revenues and expenses, and cash flows related to the VIE entities subject to divestment have been reclassified in the accompanying consolidated financial statements as discontinued operations for all periods presented. The consolidated statements of operations and the consolidated statements of cash flows for the years ended December 31, 2019 and 2020 are adjusted retrospectively to reflect the change. For more information of our discontinued operations, see Note 4 to our consolidated financial statements included elsewhere in this annual report.

Key Components of Results of Operations

Revenues

The company generated total revenue on a consolidated basis in the amounts of $670,171 for the year ended December 31, 2021.

The total revenue does not include revenues of $122,343 generated by businesses controlled by VIE agreements which are subject of divestment. These revenues are classified under loss/income from discontinued operations in the consolidated income statement.

The company has been deriving revenues from blockchain technology services, including providing digital asset infrastructure solutions based on blockchain technologies, cross-border remittance and DeFi platform since our acquisition of Mercurity Limited in May 2019 and our acquisition of NBpay in March 2020. The above services are collectively referred to as blockchain technology services. But in the second half of 2021, the board and the management of the Company changed and its business plan was recalibrated. In addition to blockchain technology services, cryptocurrency mining has also become the main business for the future.

Due to the change of the management and technical team in 2021, the original business contract discontinued, resulting in the blockchain technology services revenue of only $128,207 for the year ended December 31, 2021, of which $122,343 revenue generated by the VIE entities subject to divestment is shown as Loss/income from discontinued operations in the consolidated income statement, and $5,864 is shown as Revenue in the consolidated income statement.

In addition, the Company earned 11.75513345 Bitcoins through its participation in cryptocurrency shared mining and recognized revenue of $664,307 based on the daily market price at the time the Bitcoins were acquired.

Cost of Revenues

Our cost of blockchain technology services revenues currently consists of payroll of technical personnel. Our cost of blockchain technology services revenues was $nil in the consolidated income statement for the year ended December 31, 2021. In addition, $41,537 cost of blockchain technology services revenues for the year ended December 31, 2021 generated by the VIE entities subject to divestment is shown as Loss/income from discontinued operations in the consolidated income statement.

Our cost digital asset mining revenue consists primarily of direct production costs related to mining operations, including utilities and other service charges. Our cost of digital asset mining revenues was $702,679 for the year ended December 31, 2021.

Operating Expenses

Our operating expenses consist of general and administrative expenses. Our total operating expenses were $10,351,357 for the year ended December 31, 2021. Due to the changes in our core management and business teams, many employees participating in the company's stock incentive plan were allowed to accelerate the vesting of their shares that have not yet reached the vesting period.

Table of Contents

Combined with the impact of the implementation of the additional stock incentive plan in 2021, the company's stock incentive expense recognized in 2021 reached $8 million. In addition, as a result of these changes, our professional expenses such as lawyers and financial consultants reached $1million in 2021.

Our general and administrative expenses consist primarily of (i) salaries and benefits for employees, which are the salaries and benefits for our management, merchant service representatives and general administrative staff, (ii) office expenses, which consist primarily of office rental, maintenance and utilities expenses, depreciation of office equipment and other office expenses, and (iii) professional expenses, which consist primarily of legal expense and audit fees.

Impairment loss

Our impairment loss consists of the allowance for doubtful accounts receivable and the decrease in fair value of digital assets. Our total impairment loss was $2,123,904 for the year ended December 31, 2021.

In addition, $930 allowance for doubtful accounts receivable and $8,107,013 goodwill impairment loss generated by the VIE entities subject to divestment is shown as Loss/income from discontinued operations in the consolidated income statement.

Interest Income

Our interest income consists primarily of the interest income from our cash and short-term deposits with banks and compensation received for payments we made on behalf of the divested business. As of December 31, 2021, the Company did not incur borrowing interest expense.

Other Income

Other income consists primarily of the gain generated from our disposal of one cryptocurrency.

Critical Accounting Policies

The preparation of our consolidated financial statements and related notes requires our management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our management has discussed the development, selection and disclosure of these estimates with our board of directors. Actual results may differ from these estimates under different assumptions or conditions. An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements.

We believe that the following critical accounting policies are the most sensitive and require more significant estimates and assumptions used in the preparation of our consolidated financial statements.

You should read the following descriptions of critical accounting policies, judgments and estimates in conjunction with our consolidated financial statements and other disclosures included in this annual report.

Revenue Recognition

The Company generates revenues primarily from digital asset mining and technical services.

On January 1, 2019, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition (“ASC 605”), using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2019. Results for reporting periods beginning after January 1, 2019 are presented under ASC 606, while prior period amounts have not been adjusted and continue to be reported in accordance with historic accounting under ASC 605. The impact of adopting the new revenue standard was not material to consolidated financial statements and there was no adjustment to beginning retained earnings on January 1, 2019.

Table of Contents

Under ASC 606, an entity recognizes revenue as the Company satisfies a performance obligation when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer.

Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations it must deliver and which of these performance obligations are distinct. The Company recognizes revenue based on the amount of the transaction price that is allocated to each performance obligation when that performance obligation is satisfied or as it is satisfied.

The Company’s revenue recognition policies effective on the adoption date of ASC 606 are as follows:

Digital asset mining

The Company has entered into digital asset mining pools by executing contracts with the collective mining service provider to provide computing power to the mining pool. The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company provides computing power to the mining pool operator. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed digital assets award the mining pool operator receives, for successfully adding a block to the blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.

Providing computing power in digital asset transaction verification services is an output of the Company’s ordinary activities. The provision of such computing power is the only performance obligation in the Company’s contracts with mining pool operators or contracts with the collective mining service provider. The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date received, which is not materially different than the fair value at contract inception or the time the Company has earned the award from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant financing component in 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. There is currently no specific definitive guidance under US GAAP or alternative accounting framework for the accounting for digital assets recognized as revenue or held, and management has exercised significant judgment in determining the appropriate accounting treatment. In the event authoritative guidance is enacted by the FASB, the Company may be required to change its policies, which could have an effect on the Company’s consolidated financial position and results from operations.

Technical services

For software development, the Company recognizes revenue over time as the Company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced. The Company generally recognizes revenue using an input method with revenue amounts being recognized proportionately as costs are incurred relative to the total expected costs to satisfy the performance obligation. The Company believes that costs incurred as a portion of total estimated costs is an appropriate measure of progress towards satisfaction of the performance obligation since this measure reasonably depicts the progress of the work effort.

Service other than those associated with the design, development, creation, testing, installation, configuration, integration and customization of fully operational software. It may be a service performance obligation, which is distinct from performance obligation for software development. Our services are provided to customers for a fixed amount over the contract service period and revenue is recognized on a straight-line basis over the term of the contract.

Table of Contents

The Company does not disclose the value of unsatisfied performance obligations as the Company’s revenue contract is with an original expected length of one year or less.

Intangible Assets

Intangible assets with indefinite useful life are not amortized and are tested for impairment annually or more frequently, if events or changes in circumstances indicate that they might be impaired in accordance with ASC Subtopic 350-30, Intangibles-Goodwill and Other: General Intangibles Other than Goodwill (“ASC 350-30”). Our intangible assets are cryptocurrencies which are measured at cost. The cryptocurrencies received from cryptocurrency mining operations recognize the cost of intangible assets based on the market price at the time of acquisition. We estimated the fair values of the intangible assets and recognized $372,995 impairment loss for the year ended December 31, 2021.

Impairment of Goodwill

Goodwill represents the cost of an acquired business in excess of the fair value of tangible and identifiable intangible net assets purchased. We assign all the assets and liabilities of an acquired business, including goodwill, to reporting units.

Specifically, goodwill impairment is determined using a two-step process. The first step compares the fair value of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of the affected reporting unit’s goodwill to the carrying value of that goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill. Estimating fair value is performed by utilizing various valuation techniques, with the primary technique being a discounted cash flow.

Goodwill is tested for impairment at least once annually or more frequently if we believe indications of impairment exist. Impairment is tested using a two-step process. The first step compares the fair value of each reporting unit to its carrying amount, including goodwill.

If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit’s goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill. Estimating the fair value of reporting unit is performed by the DCF method.

The Company has determined to perform the annual impairment tests on December 31 of each year. The goodwill in the amount of $8,107,014 as of December 31, 2020 was attributable solely to the Mercurity Limited and NBPay business. In 2021, there was a change in our management and business team. Our business plan was reformulated and we had decided to discontinue the original business of Mercurity Limited and NBPay due to the highly adverse regulatory measures taken by the Chinese government in the second half of 2021 on the production and trading of digital currency. As a result, the Company recognized the impairment loss of goodwill of $8,107,014 for the year ended December 31, 2021, which is shown as Loss/income from discontinued operations in the consolidated income statement.

Income Taxes

We follow the liability method in accounting for income taxes in accordance with ASC topic 740 (“ASC 740”), Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. We record a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized.

Table of Contents

We apply the provision of ASC 740 to account for uncertainty in income taxes. ASC 740 clarifies the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the consolidated financial statements.

We have elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of income tax expense in the consolidated statements of operations.

Share-based Payments

Share-based payment awards with employees are measured based on the grant date fair value of the equity instrument issued, and recognized as compensation costs using the straight-line method over the requisite service period, which is generally the vesting period of the options, with a corresponding impact reflected in additional paid-in capital. For share-based payment awards with market conditions, such market conditions are included in the determination of the estimated grant-date fair value. In the second quarter of 2017, we elected to early adopt ASU No. 2016-09, Compensation Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting, to account for forfeitures as they occur. The cumulative-effect adjustment to accumulated deficits was nil as a result of the adoption of ASU 2016-09.

A change in any of the terms or conditions of share-based payment awards is accounted for as a modification of awards. The Company measures the incremental compensation cost of a modification as the excess of the fair value of the modified awards over the fair value of the original awards immediately before its terms are modified, based on the share price and other pertinent factors at the modification date. For vested awards, the Company recognizes incremental compensation cost in the period the modification occurred. For unvested awards, we recognize, over the remaining requisite service period, the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original award on the modification date.

Since our initial public offering in April 2015, the determination of the fair value of the ordinary shares has been based on the market price of our ADSs traded on the Nasdaq Global Market.

In determining the value of share options to employees, we have used the binomial option-pricing model, with assistance from the independent third-party appraiser. Under this option pricing model, certain assumptions, including risk-free interest rate, the contractual life of the options, the expected dividends on the underlying ordinary shares, the expected volatility of the price of the underlying shares for the contractual life of the options, the post-vesting forfeiture rate and the expected exercise multiple are required in order to determine the fair value of our options. Changes in these assumptions could significantly affect the fair value of share options and hence the amount of compensation expense we recognize in our consolidated financial statements.

In determining the value of ordinary shares to directors and executives, we have considered the fair value of the ordinary share and the expected dividend paid-out ratio. Because we have no plan to pay dividend, the fair value of the share granted to directors and executives is the fair value of the ordinary share.

The key assumptions used in the valuation of the employee share options are summarized in the following table:


					Modification
	Modification		Grants on		on
	on September 1,		July 1,		June 20,
	2015		2016		2017
Risk-free rate of return⁽¹⁾	0.47% - 0.88	%	1.46	%	1.25	%
Contractual life of the options⁽²⁾	5.0 years		10.0 years		5.0 years
Volatility⁽³⁾	60.3% - 65.1	%	54.8	%	41.0	%
Post-vesting forfeiture rate⁽⁴⁾	nil		nil		nil
Post-vesting forfeiture rate⁽⁵⁾	N/A		36.1	%	N/A
Exercise multiple⁽⁶⁾	3x / 2x		3x / 2x		3x / 2x

(1)	The risk-free rate of return is based on the yield curve of U.S. dollar China sovereign bonds as of the valuation dates as extracted from Bloomberg.

(2)	The contractual life of the options is based on the option grant letter.

Table of Contents

(3)	The volatility of the underlying ordinary shares during the life of the options was estimated based on the historical stock price volatility of listed guideline companies over a period comparable to the contractual life of the options.

(4)	We estimate the dividend yield based on our expected dividend policy over the expected term of the options.

(5)

The post-vesting forfeiture rate applied to options granted to general staff was based on our historical statistical data. 0% was applied to options granted to executive management with expectation that the executive management will not quit from the company over the contractual life of the options.

(6)

Exercise multiple is the ratio of the fair value of a share over the exercise price at the time which the option will be exercised, estimated based on a consideration of research study regarding exercise pattern from historical statistical data. A multiple of three was used for the executive management and a multiple of two was used for general staff.

Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements included elsewhere in this annual report.

Results of Operations

The following table presents selected financial data from our consolidated statements of operations for the periods indicated.

Due to the adverse regulatory measures taken by the PRC government in 2021 on digital currency production and transactions, our board decided on December 10, 2021 to divest the PRC companies of the related business controlled through VIE agreements, and the divestiture was completed on January 15, 2022. Accordingly, assets and liabilities, revenues and expenses, and cash flows related to the VIE entities subject to divestment have been reclassified in the accompanying consolidated financial statements as discontinued operations for all periods presented. The consolidated statements of operations and the consolidated statements of cash flows for the years ended December 31, 2019 and 2020 are adjusted retrospectively to reflect the change. As a result, the period-to-period comparisons of our results of operations can only provide very limited insight into the development of our operation and thus should not be relied upon as indicative of our future performance.


	For the Year Ended December 31,
	2019		2020		2021
Revenues
Technical services		1,738,000		1,402,300		5,864
Digital asset mining		—		—		664,307
Total revenues	$	1,738,000	$	1,402,300	$	670,171
Cost of revenues		(257,023)		(79,150)		(702,679)
Gross profit	$	1,480,977	$	1,323,150	$	(32,508)
Operating expenses:
General and administrative		(740,534)		(1,156,574)		(10,351,357)
Impairment Loss		—		(835,344)		(2,123,904)
Total operating expenses	$	(740,534)	$	(1,991,918)	$	(12,475,261)
(Loss)/income from operations	$	740,443	$	(668,768)	$	(12,507,769)
Interest income, net		—		7,983		1,083
Other income/(Expenses), net		26,859		(32,533)		120,877
(Loss)/income before provision for income taxes	$	767,302	$	(693,318)	$	(12,385,809)
Income tax benefits		—		—		—
(Loss)/Income from continuing operations	$	767,302	$	(693,318)	$	(12,385,809)

Discontinued operations:
Loss from discontinued operations		(1,992,602)		(957,955)		(8,360,322)
Net loss	$	(1,225,300)	$	(1,651,273)	$	(20,746,131)

Table of Contents

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

As a result of the divestiture of the two VIEs, assets and liabilities, revenues and expenses, and cash flows related to such VIE entities subject to divestment have been reclassified in the accompanying consolidated financial statements as discontinued operations for all periods presented. The consolidated statements of operations and the consolidated statements of cash flows for the years ended December 31, 2019 and 2020 are adjusted retrospectively to reflect the change. Additionally, the presentation of the accompanying notes will not include the financial information for the year ended December 31, 2019 and 2020 if they were nil due to the disposal and related classification within discontinued operations mentioned above.

Revenues

Our blockchain technology services revenues for the year ended December 31, 2020 was US$1.4 million from our blockchain technology services business respectively. The revenues do not include revenues of US$0.1 million generated by VIE entities subject to divestment. These revenues from VIE entities are reclassified under loss/income from discontinued operations in the consolidated income statement. Due to the change of the management and business team in 2021, the original business contract was discontinued, resulting in the blockchain technology services revenue of only US$128,207 for the year ended December 31, 2021, of which US$122,343 revenue generated by the VIE entities subject to divestment is shown as Loss/income from discontinued operations in the consolidated income statement, and US$5,864 is shown as Revenue in the consolidated income statement.

We earned 11.75513345 Bitcoins through our participation in cryptocurrency shared mining and recognized revenue of US$664,307 based on the daily market price at the time the Bitcoins were acquired for the year ended December 31, 2020. As cryptocurrency mining is a new business that the Board decided to add in the second half of 2021, no revenue from this business occurred in 2020.

Cost of revenues

Our cost of blockchain technology services revenues currently consists of the payroll of technical personnel. Our cost of blockchain technology services revenues was $nil in the consolidated income statement for the year ended December 31, 2021. In addition, US$41,537 cost of blockchain technology services revenues for the year ended December 31, 2021 generated by the VIE entities subject to divestment is shown as Loss/income from discontinued operations in the consolidated income statement. Our cost of blockchain technology services revenues for the year ended December 31, 2020 was US$0.2 million.

Our cost of digital asset mining revenue consists primarily of direct production costs related to mining operations, including utilities and other service charges. Our cost of digital asset mining revenues was US$702,679 for the year ended December 31, 2021. No cryptocurrency mining costs were incurred in 2020.

Operating expenses

Our operating expenses excluding general and administrative expenses and intangible assets impairment, increased from US$1.2 million for the year ended December 31, 2020 to US$10.4 million for the year ended December 31, 2021. This change was primarily due to an increase in employment cost.

We recorded US$1.2 million general and administrative expenses for the year ended December 31, 2020, which primarily was employment cost. Due to the changes in our core management and business teams, many employees participating in the company's stock incentive plan were allowed to accelerate the vesting of their shares that have not yet reached the vesting period. Combined with the impact of the implementation of the additional stock incentive plan in 2021, the company's stock incentive expense recognized in 2021 reached $8 million. In addition, as a result of these changes, our professional expenses such as lawyers and financial consultants reached $1million in 2021.

We recorded US$0.8 million and US$0.4 million intangible assets impairment due to the devaluation of one of the cryptocurrencies we held in 2020 and 2021.

Due to the changes of the company's management and business team in the second half of 2021, the Company did not recover the blockchain technology services receivable $1,092,208 from BGA FOUNDATION LTD and $54,923 from Beijing Qichi Trading Ltd.

Table of Contents

in a timely manner. At the end of 2021, the Company made provision for doubtful accounts. Meanwhile, the company is also taking legal action to recover the outstanding receivables. No allowance for doubtful accounts was recognized in 2020.

Net loss

Our net loss was US$1.6 million for the year ended December 31, 2020 compared to US$20.7 million for the year ended December 31, 2021. Among them, our loss from continuing operations was US$0.7 million for the year ended December 31, 2020 compared to US$12.4 million for the year ended December 31, 2021, our loss from discontinued operations was US$1.0 million for the year ended December 31, 2020 compared to US$8.4 million for the year ended December 31, 2021.

In 2021, following a change of the board and management, our business plan was recalibrated, and the original business of Mercurity Limited and NBPay were discontinued due to the highly adverse regulatory measures taken by the Chinese government in the second half of 2021 targeting the production and trading of digital currency. As a result, we recognized the impairment loss of goodwill of $8.1 million for the year ended December 31, 2021, which is shown as loss from discontinued operations in the consolidated income statement.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Due to the extremely adverse regulatory measures taken by the Chinese government in 2021 on digital currency production and transaction, the Company's board of Directors decided on December 10, 2021 to divest the Chinese companies of the related business controlled through VIE agreements, and the divestiture was completed on January 15, 2022.

Accordingly, assets and liabilities, revenues and expenses, and cash flows related to the VIE entities subject to divestment have been reclassified in the accompanying consolidated financial statements as discontinued operations for all periods presented. The consolidated statements of operations and the consolidated statements of cash flows for the years ended December 31, 2019 and 2020 are adjusted retrospectively to reflect the change. Additionally, the presentation of the accompanying notes will not include the financial information for the year ended December 31, 2019 and 2020 if they were nil due to the disposal and related classification within discontinued operations mentioned above.

Revenues

Our revenues for the year ended December 31, 2019 and 2020 were US$1.7 million and US$1.4 million from our blockchain-based digital asset infrastructure solutions business respectively.

Cost of revenues

Our cost of revenues for the year ended December 31, 2019 and 2020 were US$0.3 million and US$0.08 million, which consisted of payroll of technical personnel respectively.

Operating expenses

Our operating expenses excluding intangible assets impairment, consisting of general and administrative expenses, increased from US$0.7 million for the year ended December 31, 2019 to US$2.0 million for the year ended December 31, 2020. This change was primarily due to increase in employment cost. In 2020, we recorded US$0.8 million intangible assets impairment because of the devaluation of one of the cryptocurrencies we held. There was no intangible assets impairment in 2019.

Net loss

Our net loss was US$1.6 million for the year ended December 31, 2020 compared to US$1.2 million for the year ended December 31, 2019. Among them, our loss from continuing operations was US$0.8 million for the year ended December 31, 2019 compared to US$0.7 million for the year ended December 31, 2020, our loss from discontinued operations was US$2.0 million for the year ended December 31, 2019 compared to US$1.0 million for the year ended December 31, 2020.

Table of Contents

A.	Liquidity and Capital Resources

We had US$435,211, US$174,783 and US$440,636 in cash and cash equivalents as of December 31, 2019, 2020 and 2021, respectively.

Our net losses were US$1.2 million, US$1.6 million and US$20.7 million for the year ended December 31, 2019, 2020 and 2021, respectively, and our net cash used in operating activities were US$0.6 million, US$0.6 million and US$4.0 million in 2019, 2020 and 2021, respectively.

On September 8, 2021, the Company issued 571,428,570 ordinary shares to three investors through private placement for 105.2385 Bitcoins with a market value of $5 million. On October 19, 2021, the Company issued 571,428,570 ordinary shares to three investors through private placement for 5,000,000.00 USD Coins with a market value of approximately $5 million. These Bitcoins and USD Coins can be sold for cash at any time on cryptocurrency exchanges. We believe that our current cash balance and anticipated cash flows from operations will be sufficient to meet our anticipated capital needs in the next twelve months.

If there is any change in business conditions or other future developments, including any investments we may decide to pursue, we may also seek to sell additional equity securities or debt securities or borrow from lending institutions. Financing may be unavailable in the amounts we need or on terms acceptable to us, if at all. The sale of additional equity securities, including convertible debt securities, would dilute our earnings per share. The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may suffer.

The following table sets forth a summary of our cash flows for the periods indicated:


	For the Year Ended December 31,
	2019	2020	2021

	(in US$ thousands)
Net cash used in operating activities	(645)	(595)	(4,005)
Net cash (used in)/ provided by investing activities	588	(10)	2,594
Net cash provided by financing activities	—	300	1,676
Effect of exchange rate changes	135	45	3
Increase/(decrease) in cash and cash equivalents	78	(260)	269
Cash at the beginning of the period	357	435	175
Cash at the end of the period	435	175	443

Net cash used in operating activities

Net cash used in operating activities was US$4 million for the year ended December 31, 2021, reflecting a combination of net cash used in continuing operations of US$3.6 million. The net cash used in continuing operations was primarily due to a decrease in accounts receivable of US$0.4 million and a decrease in prepaid expenses and other current assets of US$1.7 million, net loss from continuing operations of US$2 million after excluding impairment, stock-based compensation and gain from disposal of intangible assets those three non-cash items, and a decrease in accrued expenses and other current liabilities and other non-current liabilities of US$0.2 million.

Net cash used in operating activities was US$0.6 million for the year ended December 31, 2020, reflecting a combination of net cash provided by continuing operations of US$0.4 million. The net cash provided by continuing operations was primarily due to a decrease in accounts receivable of US$0.8 million and a decrease in prepaid expenses and other current assets of US$0.7 million, net income from continuing operations of US$0.4 million after excluding impairment and stock-based compensation those two non-cash items, and a decrease in accrued expenses and other current liabilities and other non-current liabilities of US$0.2 million.

Net cash used in operating activities was US$0.6 million for the year ended December 31, 2019, reflecting a combination of net cash used in continuing operations of US$0.38 million and net cash provided by discontinued operations of US$0.26 million. The net cash used in continuing operations was primarily due to an increase in accounts receivable of US$1.6 million and an increase in prepaid expenses and other current assets of US$0.2 million, which were partially offset by net income from continuing operations of US$0.8 million and an increase in accrued expenses and other current liabilities and other non-current liabilities of US$0.3 million.

Table of Contents

Net cash (used in)/provided by investing activities

Net cash provided by investing activities was US$2.6 million for the year ended December 31, 2021, representing investing and disposal of digital assets through accepting payment, making payment and exchange for legal currencies.

Net cash used by investing activities was US$0.01 million for the year ended December 31, 2020, representing investing and disposal of digital assets through accepting payment, making payment and exchange for legal currencies, as well as cash acquired from acquisition of subsidiary and VIE.

Net cash provided by investing activities was US$0.6 million for the year ended December 31, 2019, representing proceeds from disposal of subsidiaries, VIE and VIE’s subsidiaries, net of cash disposed, as well as cash acquired from acquisition of subsidiary and VIE.

Net cash provided by financing activities

Net cash provided by financing activities was US$1.7 million for the year ended December 31, 2021, representing net cash provided by private placement, borrowings and paying for debt.

Net cash provided by financing activities was US$0.3 million for the year ended December 31, 2020, representing net cash provided by private placement.

Net cash provided by financing activities was nil for the year ended December 31, 2019.

Capital Expenditures

We did not have capital expenditures for the year ended December 31, 2021.

We did not have capital expenditures for the year ended December 31, 2020.

We did not have capital expenditures for the year ended December 31, 2019.

Inflation

Since our inception, inflation in the PRC has not materially affected our results of operations. According to the National Bureau of Statistics of China, the year-over-year percent changes in the consumer price index for December 2019, 2020 and 2021 were increases of 4.5%, 2.5% and 0.9%, respectively. Although we have not been materially affected by inflation in the past, we have experienced and expect to continue to experience upward pressure on our operating expenses.

Withholding Tax Obligation

In 2021, the company did not need to withhold income tax.

B.	Research and Development

Please refer to “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”

C.	Trend Information

Other than as described elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on our revenue, income from continuing operations, profitability, liquidity or capital resources, or that would cause our reported financial information not necessarily to be indicative of future operating results or financial condition.

Table of Contents

D.	Off-balance Sheet Arrangements

As of December 31, 2021, we did not have any outstanding off-balance sheet arrangements or commitments. We have no plans to enter into transactions involving, or otherwise form relationships with, unconsolidated entities or financial partnerships established for the purpose of facilitating off-balance sheet arrangements or commitments.

E.	Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2021:

Payment Due by Period

Less than

More than

Total

1 year

1-3 years

3-5 years

5 years

(in US$ thousands)

Operating Commitments

Lease

—

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.	Directors and Senior Management

The following table sets forth certain information relating to our directors and executive officers as of the date of this annual report


Directors and Executive Officers	Age	Position/Title
Shi Qiu	31	Chief Executive Officer and Director
Huahui Deng	36	Chairperson of the Board of Directors
Xiang Qu	35	Independent Director
Er-Yi Toh	38	Independent Director
Cong Huang	40	Independent Director
Keith Tan Jun Jie	29	Director
Hua Zhou	46	Director
Cheng Hock Phuah	51	Chief Financial Officer

Mr. Shi Qiu, age 31, is an entrepreneur with extensive experience in corporate management and business innovation in various industries, such as the media, fintech, and blockchain industries. From September 2015 to May 2018, Mr. Qiu co-founded and served as a Vice President of Newstyle Media Group, which received strategic investments from certain well-known technology companies in the PRC. Newstyle Media Group produced a popular Asian TV series “The Untamed,” which is currently available worldwide on the online streaming platform Netflix. From June 2018 to October 2018, Mr. Qiu served as the Head of Blockchain Business of North Mining Limited. Mr. Qiu then served as the Vice-General Manager of Ningbo Saimeinuo Supply Chain Management Ltd. from November 2018 until 2021. Since November, 2021, Mr. Qiu has served as the Chief Technology Officer (the “CTO”) of Singularity Future Technology (NASDAQ:SGLY). Mr. Qiu received a Bachelor’s Degree in Risk Management and Actuary from Zhejiang University and a Master's Degree in Government Management and Public Policy from Tsinghua University.

Mr. Huahui Deng, age 36, has more than eight years of experience in corporate governance and team management. Mr. Deng was appointed as a technical & sales manager of Fujian Tianma Science and Technology Group Co, Ltd from 2009 to 2017. As an early investor in cryptocurrencies, he has developed a strong interest in smart contract architecture that deals with enterprise level blockchain-as-a-service with a focus on the adoption of advanced IOT integration with real-world applications. Mr. Deng holds a bachelor’s degree from Tianjin University in the PRC.

Mr. Xiang Qu, age 35, is an experienced financial management professional with over ten (10) years of experience in the financial management and asset management industry. From 2010 to 2017, Mr. Qu joined Yiren Digital Ltd. (formerly known as Yixin Group, NYSE:YRD), a financial technology group in the PRC, where he served as the Chief Financial Officer and Senior Vice President. From 2017 to 2021, Mr. Qu served as a Co-Founder and the Chief Financial Officer of Yu Jin Capital. Mr. Qu currently serves as an executive director of the China Finance Forum and an executive director of the China Venture Capital Association. Mr. Qu received a Master’s Degree in Master of Business Administration from Fudan University.

Table of Contents

Mr. Er-Yi Toh, age 38, is currently the Chief Executive Officer and founder of Pytheas, a software company in Singapore providing travel Ecommerce services. Prior to founding Pytheas in 2011, Mr. Toh was a Research Analyst at NUS Risk Management Institute (RMI) from 2009 to 2010 where he was responsible for designing and building the data warehouse and financial model system. Mr. Toh received a Bachelor’s Degree of Engineering in Computer Engineering from Nanyang Technological University.

Mr. Cong Huang, age 40, is a renowned researcher and entrepreneur in financial technology innovation. After receiving the PhD degree in Statistics from Yale University, he worked at Columbia University as an Assistant Professor in the Statistics Department, conducting research focused on algorithms and implementations in data mining. After a period of time, he decided to leave campus to develop his career in financial innovation and technology. At Goldman Sachs (GS), he played a pivotal role in developing various new models and algorithms to improve the speed and accuracy of options pricing methods. At McKinsey & Company, he helped financial institutions implement strategic innovation and transformation initiatives. As a founding member of PingAn Lufax (Nasdaq: LU), he led the Innovative Product Department and developed numerous retail loan products from zero, which have been widely used for reference by Internet finance industry. As the CEO of Xiaoying Tech (Nasdaq: XYF), one of the top finance companies in China, he set up the management and operations structure to lift the trading volume from RMB100 million per month to RMB3 billion per month in two years. Meanwhile, Mr. Cong Huang is the founder and CEO of Weiyan Tech, a leading AI company that provides risk-control and marketing solutions for financial institutions. Mr Huang has Bachelor’s degree in Mathematics from the University of Science & Technology of China and a PhD degree from Yale University.

Keith Tan Jun Jie, age 29, is an expert in the financial investment industry in the private and public markets. Mr. Tan currently serves as the Chief Operating Officer in Evolve Family office, focusing on traditional equities and derivative products. In 2017, Mr. Tan consulted for the products derivatives trading team in Royal Dutch Shell, London, on derivatives trading optimization for the global derivatives oil market. In 2013, Mr. Tan served in the military and held the rank of Lieutenant where he acted as the platoon commander in a motorized infantry unit. During his time in the military, Mr. Tan was awarded several awards including the Sword of Merit given to the top 10% of graduating officers. Mr. Tan graduated with First Class Honors - Deans list, in Chemical Engineering from University College London, and obtained the Masters of Philosophy (MPhil) in Management, with Distinction, at the University of Cambridge.

Ms. Hua Zhou, age 46, served as our chairperson and chief executive officer from July 2019 to May, 2022 and as our director since May 2018. Ms. Zhou used to work at our company as a sales manager from 2011 to 2015. Ms. Zhou has over 10 years of experience in client and partner relationship management, M&A and marketing. Since 2017, Ms. Zhou has served as the Vice President of Strategic Partnership at Beijing Galaxy Fintech Group, a fin-tech company providing finance-related solutions to micro, small and medium enterprises. From 2015 to 2017, she worked as the Chief Executive Officer at iBeacon, a data-based marketing platform providing market targeting services to retailers. From 2009 to 2011, Ms. Zhou worked as the Director of Sales at WeLink Group. Prior to that, Ms. Zhou was Director of Clients at Focus Wireless Media, starting from 2007. Ms. Zhou holds a college degree from the China University of Petroleum.

Mr. Cheng Hock Phuah, age 51, has over thirty (30) years of work and investment experiences in diverse industries, including corporate finance, securities brokerage, asset management, mining, telecommunications, biotech, business process outsourcing, and the Food and Beverage Industry. Since 2015, Mr. Phuah has served as an advisor for a number of public companies listed in Singapore, Australia and Malaysia. Mr. Phuah obtained his Bachelor’s Degree in Economics from the University of London.

B.	Compensation

Compensation of Directors and Executive Officers

In 2021, we paid an aggregate of approximately US$115,000 in cash as salaries and fees to our three former independent directors. Due to the change in our management and business team in 2021, the Company underwent a restructuring process in the second half of 2021, and none of the Company's executives were paid in cash by the Company. Other than salaries, fees and share incentives, we do not otherwise provide pension, retirement or similar benefits to our officers and directors.

Share Incentive Plans

We adopted our share incentive plan in 2011, amended it in 2015, and new incentive plans in 2020, 2021 and 2022 or 2020 Plan, 2021 Plan and 2022 Plan, to attract and retain the best available personnel, provide additional incentives to our employees, directors and consultants, and promote the success of our business.

Table of Contents

The amended and restated 2011 share incentive plan provides for the grant of options, restricted shares and other share-based awards, collectively referred to as “awards.” For share incentive plan 2011, amended in 2015, our board of directors has authorized the issuance of ordinary shares of up to 15% of the issued and outstanding share capital of our company from time to time. The maximum aggregate number of shares which may be issued under 2020 plan is 150,000,000 shares. The maximum aggregate number of shares which may be issued under 2021 plan is 400,000,000 shares. The maximum aggregate number of shares which may be issued under 2022 plan is 1,100,000,000 shares.

Amended and Restated 2011 Share Incentive Plan

Plan Administration. Our compensation committee will administer the amended and restated 2011 share incentive plan. The committee determines the participants to receive awards, the type and number of awards to be granted, and the terms and conditions of each award grant.

Award Agreements. Awards granted under our amended and restated 2011 share incentive plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each grant, which may include the term of the award, the provisions applicable in the event that the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award. Unless specifically approved by our board of directors, the purchase price per share of an option shall not be less than 100% of the fair market value of the shares on the date of grant.

Transfer Restrictions. The right of a grantee in an award granted under our amended and restated 2011 share incentive plan may not be transferred in any manner by the grantee other than by will or the laws of descent and, with limited exceptions, may be exercised during the lifetime of the grantee only by the grantee.

Option Exercise. The term of options granted under the amended and restated 2011 share incentive plan may not exceed ten years from the date of grant. The consideration to be paid for our ordinary shares upon exercise of an option or purchase of ordinary shares underlying the option may include cash, check or other cash-equivalent, ordinary shares, consideration received by us in a cashless exercise, or any combination of the foregoing methods of payment.

Acceleration upon a Change of Control. If a change of control of our company occurs, (i) the compensation committee may determine that any outstanding unexercisable, unvested or lapsable awards shall automatically be deemed exercisable, vested and not subject to lapse immediately prior to the event triggering the change of control and (ii) the compensation committee may cancel such awards for fair value, provide for the issuance of substitute awards or provide that for a period of at least 15 days prior to the event triggering the change of control, such options shall be exercisable and that upon the occurrence of the change of control, such options shall terminate and be of no further force and effect.

Termination and Amendment. Our board of directors has the authority to amend or terminate our share incentive plan subject to shareholder approval to the extent necessary to comply with applicable laws. Shareholders’ approval is required for any amendment to the amended and restated 2011 share incentive plan that increases the number of ordinary shares available under the amended and restated 2011 share incentive plan or changes the maximum number of shares for which awards may be granted to any participant. Additionally, a participant’s consent is required to diminish any of the rights of the participant under any award previously granted to such participant.

2020 Plan

The following paragraphs summarize the principal terms of our 2020 Plan.

Type of Awards. The 2020 Plan permits the awards of options, restricted shares, restricted share units or other types of awards approved by compensation committee of the board.

Plan Administration. Our board of directors or compensation committee will administer the 2020 Plan. The committee or the board of directors, as applicable, will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each grant.

Table of Contents

Award Agreement. Awards granted under the 2020 Plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each award, which may include the term of the award, the provisions applicable in the event that the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.

Eligibility. Persons eligible to participate in the 2020 Plan include employees, consultants and all directors of our company.

Vesting Schedule. The vesting schedule of each award granted under 2020 Plan will be set forth in the relevant award agreement.

Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the relevant award agreement. Options that are vested and exercisable will terminate if they are not exercised prior to the time as the plan administrator determines at the time of grant. However, the maximum exercisable term is ten years from the date of grant.

Transfer Restrictions. Awards may not be transferred in any manner by the participant other than in accordance with the exceptions provided in the 2020 Plan or the relevant award agreement or otherwise determined by the plan administrator, such as transfers by will or the laws of descent and distribution.

Termination and Amendment of the 2020 Plan. With the approval of the board, our compensation committee has the authority to terminate, amend, suspend or modify the 2020 Plan. However, without the prior written consent of the participant, no such action may adversely affect in any material way any award previously granted pursuant to the plan.

2021 Plan

The following paragraphs summarize the principal terms of our 2021 Plan.

Type of Awards. The 2021 Plan permits the awards of options, restricted shares, restricted share units or other types of awards approved by compensation committee of the board.

Plan Administration. Our board of directors or compensation committee will administer the 2021 Plan. The committee or the board of directors, as applicable, will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each grant.

Award Agreement. Awards granted under the 2021 Plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each award, which may include the term of the award, the provisions applicable in the event that the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.

Eligibility. Persons eligible to participate in the 2021 Plan include employees, consultants and all directors of our company.

Vesting Schedule. The vesting schedule of each award granted under 2021 Plan will be set forth in the relevant award agreement.

Transfer Restrictions. Awards may not be transferred in any manner by the participant other than in accordance with the exceptions provided in the 2021 Plan or the relevant award agreement or otherwise determined by the plan administrator, such as transfers by will or the laws of descent and distribution.

Termination and Amendment of the 2021 Plan. With the approval of the board, our compensation committee has the authority to terminate, amend, suspend or modify the 2021 Plan. However, without the prior written consent of the participant, no such action may adversely affect in any material way any award previously granted pursuant to the plan.

2022 Plan

The following paragraphs summarize the principal terms of our 2022 Plan.

Table of Contents

Type of Awards. The 2022 Plan permits the awards of options, restricted shares, restricted share units or other types of awards approved by compensation committee of the board.

Plan Administration. Our board of directors or compensation committee will administer the 2022 Plan. The committee or the board of directors, as applicable, will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each grant.

Award Agreement. Awards granted under the 2022 Plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each award, which may include the term of the award, the provisions applicable in the event that the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.

Eligibility. Persons eligible to participate in the 2022 Plan include employees, consultants and all directors of our company.

Vesting Schedule. The vesting schedule of each award granted under 2022 Plan will be set forth in the relevant award agreement.

Transfer Restrictions. Awards may not be transferred in any manner by the participant other than in accordance with the exceptions provided in the 2022 Plan or the relevant award agreement or otherwise determined by the plan administrator, such as transfers by will or the laws of descent and distribution.

Termination and Amendment of the 2022 Plan. With the approval of the board, our compensation committee has the authority to terminate, amend, suspend or modify the 2022 Plan. However, without the prior written consent of the participant, no such action may adversely affect in any material way any award previously granted pursuant to the plan.

The following table summarizes, as of the date of this annual report, the outstanding options and restricted share units granted to our (current and former) executive officers, directors, and other individuals as a group under our amended and restated 2011 share incentive plan.


	Ordinary shares underlying		Exercise
	options awarded/Restricted		price		Date of
Name	Share Units		(US$/share)	Date of grant	expiration
Other Individuals as a Group	210,060,000	(1)	—	from 2011/2/1 to 2021/1/25	from 2018/9/1 to 2031/1/24
Other directors and officers as a group	56,700,000	(1)	—	from 2011/2/1 to 2021/1/3	from 2030/7/9 to 2031/1/2

*	Less than one percent of our total outstanding share capital.

(1)	Restricted share units


	Ordinary shares underlying		Exercise
	options awarded/Restricted		price		Date of
Name	Share Units		(US$/share)	Date of grant	expiration
Other Individuals as a Group	93,600,000	(1)	—	from 2021/1/3 to 2021/4/30	from 2031/1/2 to 2031/4/29
Executive officers	37,008,000	(1)	—	2020/11/24	2030/11/23

*	Less than one percent of our total outstanding share capital.

(1)	Restricted share units

Table of Contents


	Ordinary shares underlying		Exercise
	options awarded/Restricted		price		Date of
Name	Share Units		(US$/share)	Date of grant	expiration
Other Individuals as a Group	10,800,000	(1)	—	2021/8/25	2031/8/23
Other directors and officers as a group	384,999,480	(1)	—	2021/8/25	2031/8/23

*	Less than one percent of our total outstanding share capital.

(1)	Restricted share units

There are no outstanding options and restricted share units granted under the 2022 Plan.

C.	Board Practices

Duties of Directors

Under Cayman Islands law, our directors owe certain fiduciary duties to our company, including duties of loyalty, to act honestly, and to act in what they consider in good faith to be in our best interests. Our directors also have a duty to exercise the skills they actually possess and such care and, diligence that a reasonably prudent person would exercise in comparable circumstances. It was previously considered that a director need not exhibit in the performance of his duties a greater degree of skill than what may reasonably be expected from a person of his 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 fulfilling their duty of care to us, our directors must ensure compliance with our fourth amended and restated memorandum and articles of association. We have the right to seek damages if a duty owed by our directors is breached.

The powers of our board of directors include, among others:

●

convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;

●

issuing authorized but unissued shares;

●

declaring dividends and distributions;

●

exercising the borrowing powers of our company and mortgaging the property of our company;

●

approving the transfer of shares of our company, including the registering of such shares; and

●

exercising any other powers conferred by the shareholders’ meetings or under our fourth amended and restated memorandum and articles of association.

Terms of Directors and Executive Officers

We have seven directors on our board of directors, three of whom are independent directors. 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.

Table of Contents

●

such other matters that are specifically delegated to the compensation committee by our board of directors from time to time.

Nominating and Corporate Governance Committee

Our nominating and corporate governance committee consists of Cong Huang, Er-Yi Toh, and Xiang Qu with Cong Huang as the Chair of the Nominating and Corporate Governance Committee, effective May 7, 2022. We have determined that all the members of our compensation committee satisfy the “independence” requirements of Rule 5605(a) of Nasdaq Stock Market Marketplace Rules.

The nominating and corporate governance committee will be responsible for, among other things:

●

selecting and recommending to the board nominees for election by the shareholders or appointment by the board;

●

reviewing annually with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience and diversity;

●

making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and

●

advising the board periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any remedial action to be taken.

Corporate Governance

Our board of directors has adopted a code of business conduct and ethics, which is applicable to all of our directors, officers and employees. We have made our code of business conduct and ethics publicly available on our website.

In addition, our board of directors has adopted a set of corporate governance guidelines. The guidelines reflect certain guiding principles with respect to our board’s structure, procedures and committees. The guidelines are not intended to change or interpret any law, or our fourth amended and restated memorandum and articles of association.

Remuneration and Borrowing

The Board may determine the remuneration to be paid to the directors. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors. The directors may exercise all the powers of the company to borrow money and to mortgage or charge its undertaking, property and uncalled capital, and to issue debentures or other securities whether outright or as security for any debt obligations of our company or of any third-party.

Qualification

There is no requirement for our directors to own any shares in our company in order for them to qualify as a director.

Employment Agreements

The Board appointed Mr. Shi Qiu as the CEO for the Company, effective May 7, 2022. As of the date of this annual report, the current employment agreement (the “CEO Employment Agreement”) dated May 9, 2022 between Mr. Shi Qiu and the Company governs the terms and conditions of Shi’s employment, which is substantially in the form filed herein as Exhibit 10.1. Pursuant to the CEO Employment Agreement, we agreed to employ Mr. Shi Qiu as the CEO for an annual base salary of $36,000 with a three-month probationary period. During the employment, Mr. Shi Qiu shall be entitled to the paid medical leave, holidays and vacations, and be subject to certain non-solicitation and non-disclosure provisions set forth therein. We or Mr. Qiu may terminate the CEO Employment Agreement for cause, at any time, with one-month notice.

Table of Contents

The Board appointed Mr. Cheng Hock Phuah as the CFO for the Company, effective May 9, 2022. As of the date of this annual report, the current employment agreement (the “CFO Employment Agreement”) dated May 9, 2022 between Mr. Cheng Hock Phuah and the Company governs the terms and conditions of Mr. Phuah Cheng Hock’s employment, which is substantially in the form filed herein as Exhibit 10.2. Pursuant to the CFO Employment Agreement, we agreed to employ Mr. Phuah as the CFO for a monthly base salary of Singapore Dollars $13,000, payable in U.S. Dollars based on the last 7 days average exchange rate of USD to SGD on the Financial Reserve Website. Mr. Phuah’s employment is subject to a three-month probationary period. During the employment, Mr. Phuah shall be entitled to the paid medical leave, holidays and vacations, and be subject to certain non-solicitation and non-disclosure provisions set forth therein. We or Mr. Phuah may terminate the CFO Employment Agreement for cause, at any time, with one-month notice.

Our CEO and CFO have also agreed not to engage in any activities that compete with us, or to directly or indirectly solicit the services of our employees and clients, during employment and for a period of one year after termination of employment. Each of our CEO and CFO has agreed to hold in strict confidence any confidential information or trade secrets of our company. Each of our CEO and CFO also agrees to comply with all material applicable laws and regulations related to his or her responsibilities at our company as well as all material corporate and business policies and procedures of our company.

D.	Employees

As of December 31, 2021, we had a total of 13 employees, consisting of one executive, eight staff members in research and development, and four staff members in other functions. We had a total of 22 employees as of December 31, 2020 and 19 employees as of December 31, 2019.

The remuneration package for our employees includes salary, sales commissions and employee share option programs. In accordance with applicable regulations in China, we participate in a number of social insurance schemes, namely, a pension contribution plan, a medical insurance plan, an unemployment insurance plan, a personal injury insurance plan, a maternity insurance and a housing reserve fund for the benefit of all of our employees. We have not experienced any material labor disputes or disputes with the labor department of the PRC government since our inception.

E.	Share Ownership

The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of our ordinary shares as of the date of this annual report (unless otherwise indicated) by:

●

each of our directors and executive officers; and

●

each person known to us to own beneficially more than 5% of our ordinary shares.

Beneficial ownership is determined in accordance with the rules of the SEC and generally. includes voting power or investment power with respect to securities. The number of ordinary shares beneficially owned including ordinary shares such person has the right to acquire within 60 days after the date of this annual report. Such shares, however, are not deemed to be outstanding and beneficially owned for the purpose of computing the percentage ownership of any other shareholder. The total number of ordinary shares issued and outstanding as of May 27, 2022 was 5,143,716,229 shares (including 102,900,000 ordinary shares in the form of ADSs that are reserved for issuance upon the exercise of share awards).


	Ordinary
	Shares
	Beneficially
	Owned	Percentage
	Number	(%)
*Directors and Executive Officers:**	—	—
Shi Qiu	—	—
Huahui Deng	—	—
Xiang Qu	—	—
Er-Yi Toh	—	—
Cong Huang	—	—

Table of Contents

Keith Tan Jun Jie	—	—
Hua Zhou	—	—
Cheng Hock Phuah	—	—
Principal Shareholders
Jianming Jing(1)	453,998,870	8.82
Xiaojian Xu(2)	322,345,938	6.27

*	The business address of the directors and officers is Room 1215, Xin'nan Block No.2, Yuehai Street, Nanshan District, Shenzhen City, 518000, Guangdong Province, People’s Republic of China.

(1)	Representing 453,998,870 ordinary shares held by Jianming Jing. Jianming Jing is the spouse of Wei Zhu, the former co-Chairperson, co-chief executive officer and acting chief financial officer.

(2)	Representing 322,345,938 ordinary shares held by Xiaojian Xu.

None of our existing shareholders has voting rights that will differ from the voting rights of other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.	Major Shareholders

Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”

B.	Related Party Transactions

Nature of the relationships with related parties:


Name		Relationship with the Company
Kaiming Hu		Former shareholder of NBpay group, former shareholder of the Company holding more than 10% voting securities of the Company
Zhiyou Wang		Director of the Company’s affiliated company, shareholder of the Company
Guoda Technology (Shenzhen) Co., Ltd.		A company associated with Zhiyou Wang
Radiance Holding (HK) Limited		Shareholder of the Company

As of December 31, 2021, the following balance was due from the related party:


		As of December 31,
Net Amount due from the related party		2021
		US$
Kaiming Hu	(i)	—
Guoda Technology (Shenzhen) Co., Ltd.	(ii)	1,503

The amounts represent the receivables of $556,083 due from Mr. Kaiming Hu related to capital contribution. Due to the changes of the company's management and business team in the second half of 2021, the Company failed to collect the receivable from Mr. Kaiming Hu in a timely manner. At the end of 2021, the Company made provision for doubtful accounts. Meanwhile, the company is also taking legal action to recover the money.

ii.

The amounts represent the receivables of $1,503 due from Guoda Technology (Shenzhen) Co., Ltd. related to office lease fee settlement.

Table of Contents

As of December 31, 2021, the following balance was due to the related party:


		As of December 31,
Net Amount due to the related party		2021
		US$
Zhiyou Wang	(i)	849,607
Radiance Holding (HK) Limited	(ii)	273,000

The amounts represent the payables of $ 849,607 due to Zhiyou Wang related to the Company’s borrowing from shareholders because of a temporary shortage of funds.

ii.

The amounts represent the payables of $273,000 due to Radiance Holding (HK) Limited related to the Company’s borrowing shares from shareholders to pay agency fees with shares.

C. Interests of Experts and Counsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

A.	Consolidated Statements and Other Financial Information

Please refer to “Item 18. Financial Statements” for our audited consolidated financial statements filed as part of this annual report.

Legal Proceedings

From time to time, we may become a party to various legal or administrative proceedings arising in the ordinary course of our business, including actions with respect to intellectual property infringement, breach of contract and labor and employment claims. Excepts as otherwise disclosed in this annual report, we are currently not a party to, and we are not aware of any threat of, any legal or administrative proceedings that, in the opinion of our management, are likely to have any material and adverse effect on our business, financial condition, cash flows or results of operations.

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 declare a dividend at a general meeting of our company. 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 PRC subsidiary, our general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends, we will pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. 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 and ADS holders, we will rely on dividends distributed by Our WFOE. 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

Table of Contents

B.	Memorandum and Articles of Association

We are a Cayman Islands exempted company with limited liability and our affairs are governed by our memorandum and articles of association, and the Companies Act (As Revised), of the Cayman Islands, which is referred to as the Companies Act below. The following are summaries of material provisions of our fourth amended and restated memorandum and articles of association and the Companies Act insofar as they relate to the material terms of our ordinary shares.

Registered Office and Objects

Our registered office in the Cayman Islands is at Maples Corporate Services Limited, P.O. Box 309, Ugland House, Grand Cayman KY1-1104, Cayman Islands. The objects for which our company is established are unrestricted and we have full power and authority to carry out any object not prohibited by the Companies Act, as amended from time to time, or any other law of the Cayman Islands.

Board of Directors

A director is not required to hold any shares in our company by way of qualification. A director who to his knowledge is in any way, whether directly or indirectly, interested in a contract or arrangement or proposed contract or arrangement with us shall 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 knows that he is or has become so interested. Subject to any separate requirement for the approval of the audit committee of the board of directors under applicable law or the listing rules of Nasdaq, and unless disqualified by the chairman of the relevant board meeting, such director may vote with respect to any contract, proposed contract or arrangement in which he is so interested. A director may exercise all the powers of our company to raise or borrow money, and to mortgage or charge all or any part of its undertaking, property and assets (present and future) and uncalled capital, and issue debentures, bonds or other securities, whether outright or as collateral security for any debt, liability or obligation of our company or of any third-party. The directors may receive such remuneration as our board may from time to time determine. There is no age limit requirement with respect to the retirement or non-retirement of a director. See also “Item 6. Directors, Senior Management and Employees—C. Board Practices.”

Ordinary Shares

General

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 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. 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.

Table of Contents

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 in writing 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.

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 (a) 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; (b) the instrument of transfer is in respect of only one class of shares; (c) the instrument of transfer is properly stamped, if required and; (e) a fee of such maximum sum as the Nasdaq Capital 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.

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 Capital 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.

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 Capital Market and the applicable regulatory authority.

Table of Contents

Variations 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, modified or abrogated 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 special 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, modified or abrogated by the creation or issue of further shares ranking pari passu with such existing class of shares.

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 and our register of mortgages and charges). However, our fourth amended and restated articles of association provide our shareholders with the right to inspect our list of shareholders (on such days as our board of directors shall determine) and to receive annual audited financial statements.

Changes in Capital

We may from time to time by ordinary resolution: (a) increase the share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe; (b) consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares; (c) 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 (d) sub-divide our existing shares, or any of them into shares of a smaller amount; or (e) 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.

Under Cayman Islands law, we must keep a register of members and there should be entered therein: (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.

Table of Contents

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 majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must, in addition, represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are 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 (a) the statutory provisions as to the required majority vote have been met; (b) 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; (c) 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 (d) the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act .

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.

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.

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) a company acts or proposes to act illegally or ultra vires; (b) 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 (c) 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

Table of Contents

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 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.

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

Table of Contents

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 provide 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 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.

Table of Contents

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 of the Cayman Islands 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.

C.	Material Contracts

We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company,” elsewhere in this annual report or below.

Table of Contents

D.	Exchange Controls

The Cayman Islands currently has no exchange control regulations or currency restrictions. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Foreign Exchange.”

E.	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 ADSs and 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 ADSs and 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 ADSs or 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 ADSs or 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 and ADSs 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 and ADSs as of the date hereof. Except where noted, this summary deals only with ordinary shares and ADSs 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:

●

an individual citizen or resident of the United States;

Table of Contents

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 or ADSs, 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 or ADSs.

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 or ADSs, 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.

ADSs

If you hold ADSs, for U.S. federal income tax purposes, you generally will be treated as the owner of the underlying ordinary shares that are represented by such ADSs. Accordingly, deposits or withdrawals of ordinary shares for ADSs will not be subject to United States federal income tax. The U.S. Treasury has expressed concerns that intermediaries in the chain of ownership between a U.S. holder of an ADS and the issuer of the underlying share may be taking actions inconsistent with the beneficial ownership of the underlying share. Accordingly, the creditability of foreign taxes, if any, could be affected by actions taken by such intermediaries if, as a result of such actions, the U.S. holder of the ADS is not properly treated as the beneficial owner of the underlying share.

Taxation of Dividends and Other Distributions on the ADSs

Subject to the discussion under “—Passive Foreign Investment Company” below, the gross amount of any distributions on our ADSs or 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, or by the depositary, in the case of ADSs. 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 (or ADSs backed by such shares) that are readily tradable on an established securities market in the United States. Our ADSs are listed on the Nasdaq Capital Market, and thus, pursuant to the United States Treasury Department guidance, our ADSs are treated as readily tradable on an established securities market in the United States. Thus, we believe that dividends we pay on our ADSs will meet the conditions required for the reduced tax rate. Since we do not expect that our ordinary shares will be listed on an established securities market, we do not believe that dividends that we pay on our ordinary shares that do not back ADSs currently meet the conditions required for these reduced tax rates. There can be no assurance that our ADSs will continue to be considered readily tradable on an established securities market in later years.

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 represented by ADSs or are readily tradable on an established securities market in the United States, would be eligible for the reduced

Table of Contents

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 ADSs or 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 ADSs or 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 ADSs or 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 ADSs or 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 ADSs or 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 ADSs or 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 ADSs or 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 ADSs or ordinary shares) we make to the U.S. Holder and any gain realized from a sale or other disposition of our ADSs or 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 ADSs or ordinary shares will be treated as excess distributions. Under these special tax rules:

●

the excess distribution or gain will be allocated ratably over the U.S Holder’s holding period for the ADSs or ordinary shares,

●

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

●

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.

●

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.

Table of Contents

If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or 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, including our VIEs

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. Our ADSs, but not our ordinary shares, will be treated as traded on a qualified exchange upon their listing on the Nasdaq Capital Market, which constitutes a qualified exchange. We anticipate that our ADSs should qualify as being “regularly traded” but no assurance can be given in this regard.

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 ADSs held at the end of the taxable year over the adjusted tax basis in the ADSs, and (ii) deduct as an ordinary loss in each such taxable year the excess, if any, of the adjusted tax basis in the ADSs 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 ADSs 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 ADSs 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 ADSs or ordinary shares if we are a PFIC in any taxable year.

If a U.S. Holder owns (or is deemed to own) our ADSs or 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 ADSs or ordinary shares in an amount equal to the difference between the amount realized for the ADSs or ordinary shares and the U.S. Holder’s adjusted tax basis in the ADSs or 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 ADSs or 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 ADSs or 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

Table of Contents

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 or ADSs, 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 or ADSs.

F.	Dividends and Paying Agents

Not applicable.

G.	Statement by Experts

Not applicable.

H.	Documents on Display

We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we are required to file reports, including annual reports on Form 20-F, and other information with the SEC. As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of proxy statements to shareholders, and our executive officers, directors and principal shareholders are not subject to the insider short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act.

All information that we have filed with the SEC can be accessed through the SEC’s website at www.sec.gov. This information can also be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms.

We intend to furnish the depositary with our annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meeting and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs and, upon our written request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.

In accordance with Nasdaq Stock Market Rule 5250(d), we will post this annual report on Form 20-F on our website at ir.mercurity.com. In addition, we will provide hard copies of our annual report free of charge to shareholders and ADS holders upon request.

Table of Contents

I.	Subsidiary Information

For a list of our subsidiaries, see “Item 4. Information on the Company—C. Organizational Structure.”

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange Risk

Pursuant to the agreements with our current customer, the service fees we receive from our customer are denominated in U.S. dollars. Substantially all of our costs and operating expenses are paid in RMB. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge our exposure to such risk.

From July 21, 2005, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. For RMB against U.S. dollar, there was depreciation of approximately 5.7% and 1.3% in the years ended December 31, 2018 and 2019 respectively and appreciation of approximately 6.2% in the year ended December 31, 2020. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.

To the extent that we need to convert U.S. dollar into RMB for capital expenditures and working capital and other business purposes, appreciation of RMB against U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert RMB into U.S. dollar for the purpose of making payments for dividends on ordinary shares, strategic acquisitions or investments or other business purposes, appreciation of U.S. dollar against RMB would have a negative effect on the U.S. dollar amount available to us. In addition, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings or losses.

Interest Rate Risk

Our exposure to interest rate risk primarily relates to the interest income generated by excess cash, which is mostly held in interest-bearing bank deposits and lending to the discontinued business that was disposed. We had net interest income of US$8,181 for the year ended December 31, 2020. We had cash and cash equivalents of US$174,783 as of December 31, 2020. Assuming such amount of cash and cash equivalents are held entirely in interest-bearing bank deposits, a hypothetical one percentage point (100 basis-point) decrease in interest rates would decrease our interest income from these interest-bearing bank deposits for one year by approximately US$1,748. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in market interest rates. However, our future interest income may fall short of expectations due to changes in market interest rates.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A.	Debt Securities

Not applicable.

B.	Warrants and Rights

Not applicable.

C.	Other Securities

Not applicable.

Table of Contents

D.	American Depositary Shares

Fees and Charges Our ADS Holders May Have to Pay

Citibank, N.A. is our depositary. The depositary collects its fees for delivery and surrender of ADSs directly from investors depositing ordinary shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

An ADS holder will be required to pay the following fees under the terms of the deposit agreement:


Services:		Fees:
· Issuance of ADSs upon deposit of shares (excluding issuances as a result of distributions of shares)		Up to US$0.05 per ADS issued

· Cancellation of ADSs		Up to US$0.05 per ADS cancelled

· Distribution of cash dividends or other cash distributions (i.e., sale of rights and other entitlements)		Up to US$0.05 per ADS held

· Distribution of ADSs pursuant to (i) stock dividends or other fee stock distributions, or (ii) exercise of rights to purchase additional ADSs		Up to US$0.05 per ADS held

· Distribution of securities other than ADSs or rights to purchase additional ADSs (i.e., spin-off shares)		Up to US$0.05 per ADS held

· ADS Services		Up to US$0.05 per ADS held on the applicable record date(s) established by the depositary

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 14E. USE OF PROCEEDS

The following “Use of Proceeds” information relates to the registration statement on Form F-1 (File No. 333-201413) for our initial public offering of 4,000,000 ADSs, which became effective on March 31, 2015. We received net proceeds of approximately US$37.3 million from our initial public offering, which we have already all applied to our operations thereafter.

Table of Contents

ITEM 15. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as required by Rule 13a-15(b) under the Exchange Act.

Based upon that evaluation, our management has concluded that, our disclosure controls and procedures were effective as of December 31, 2021 in ensuring that the information required to be disclosed by us in the reports that we file and furnish under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed under the supervision of our chief executive officer and chief financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with the U.S. generally accepted accounting principles.

After our acquisition of Mercurity Limited and NBpay, the scope of our internal controls over financial reporting did not incur any significant change. We also performed a related assessment based on this new control environment and change in scope.

Our management, including our chief executive officer and chief financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, our management used the framework set forth in the report Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication and (v) monitoring.

Based on that evaluation, our management concluded that these controls were effective on December 31, 2021.

Attestation Report of the Registered Public Accounting Firm

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting, because we are neither a “large accelerated filer” nor an “accelerated filer” as such terms are defined in Rule 12b-2 under the Exchange Act.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16. [Reserved]

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Xiang Qu, chairman of our audit committee, meets the criteria of an audit committee financial expert as set forth under the applicable rules of the SEC and meets the criteria for independence set forth in Rule 10A-3 under the Exchange Act.

Table of Contents

ITEM 16B. CODE OF ETHICS

Our board of directors has adopted an Anti-corruption policy and revised code of business conduct and ethics which is applicable to our directors, officers and employees on November 24, 2020. We have filed our revised code of business conduct and ethics as an exhibit to this annual report.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by our principal external accounting firms.


	For the Year Ended December 31,
	2021		2020
Audit Fees	$	106,000	$	106,000
Audit-Related Fees	$	77,500	$	83,000
Tax Fees		—		—
All Other Fees	$	36,000		—
Total	$	219,500	$	189,000

Audit Fees —This category includes the audit of our annual financial statements and services that are normally provided by the independent auditors in connection with engagements for those fiscal years.

Audit-Related Fees — This category consists of assurance and related services by the independent auditors that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees”.

Tax Fees — This category consists of professional services rendered by the Company’s independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.

All Other Fees — This category consists of fees for other miscellaneous items.

The policy of our audit committee is to pre-approve all auditing and non-auditing services permitted to be performed by our independent registered public accounting firm.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

None.

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

On March 19, 2020, we dismissed Michael T Studer CPA P.C. (the Studer Group), or Michael T Studer, as our independent registered public accounting firm. The decision was not made due to any disagreements with Michael T Studer. Effective from March 19, 2020, we appointed Shanghai Perfect C.P.A Partnership, or Shanghai Perfect, as our new independent registered public accounting firm. The change of our independent registered public accounting firm was approved by the audit committee of our board.

Michael T Studer’s audit reports on our consolidated financial statements as of December 31, 2018 did not contain an adverse opinion or a disclaimer of opinion and were not qualified.

During each of the years ended December 31, 2018 and 2019 and the subsequent interim period through March 19, 2020, there were (i) no disagreements between us and Michael T Studer on any matter of accounting principles or practices, financial statement

Table of Contents

disclosure, or auditing scope or procedure, any of which, if not resolved to Michael T Studer’s satisfaction, would have caused Michael T Studer to make reference thereto in their reports, and (ii) no “reportable events” requiring disclosure pursuant to Item 16F(a)(1)(v) of the instructions to Form 20-F in connection with our annual report on Form 20-F.

We provided Michael T Studer with a copy of the disclosures from the first paragraph to the third paragraph under this Item 16F and requested from Michael T Studer a letter addressed to the Securities and Exchange Commission indicating whether it agrees with such disclosures. A copy of Michael T Studer’s letter dated June 5, 2020 is attached as Exhibit 15.1.

During each of the years ended December 31, 2018, 2019 and 2020 and the subsequent interim period through March 31, 2021, neither we nor anyone on behalf of us has consulted with Shanghai Perfect regarding (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and neither a written report nor oral advice was provided to us that Shanghai Perfect concluded was an important factor considered by us in reaching a decision as to any accounting, auditing, or financial reporting issue, (ii) any matter that was the subject of a disagreement pursuant to Item 16F(a)(1)(iv) of the instructions to Form 20-F, or (iii) any reportable event pursuant to Item 16F(a)(1)(v) of the instructions to Form 20-F.

After considering all the facts and circumstances, our audit committee determined that Shanghai Perfect would be capable of exercising objective and impartial judgment in connection with the audits of our financial statements.

Therefore, with respect to the independence matter described above, we concluded that a reasonable investor with knowledge of all relevant facts and circumstances would conclude that Shanghai Perfect was and would be capable of exercising objective and impartial judgment in connection with the audits of our financial statement for the fiscal year ended December 31, 2020 and future periods.

ITEM 16G. CORPORATE GOVERNANCE

We are incorporated in the Cayman Islands and our corporate governance practices are governed by applicable Cayman Islands law. In addition, because our ADSs are listed on The Nasdaq Capital Market, we are subject to Nasdaq’s corporate governance requirements. Nasdaq Stock Market Rule 5615(a)(3) permits a foreign private issuer like us to follow home country practices in lieu of certain requirements of Rule 5600, provided that such foreign private issuer discloses in its annual report filed with the SEC each requirement of Rule 5600 that it does not follow and describes the home country practice followed in lieu of such requirement.

Nasdaq Marketplace Rule 5615(a)(3) permits a foreign private issuer like us to follow home country practices in lieu of certain requirements of Rule 5600, provided that such foreign private issuer discloses in its annual report filed with the SEC each requirement of Rule 5600 that it does not follow and describes the home country practice followed in lieu of such requirement.

We have informed Nasdaq that we will follow home country practice in place of all of the requirements of Rule 5600 other than those rules which we are required to follow pursuant to the provisions of Rule 5615(a)(3).

●

Table of Contents

●

Rule 5610, pursuant to which each company shall adopt a code of conduct applicable to all directors, officers and employees.

●

Rule 5620(b), pursuant to which each company shall solicit proxies and provide proxy statements for all meetings of shareholders and shall provide copies of such proxy solicitation to Nasdaq.

●

Rule 5635(b), pursuant to which shareholder approval is required prior to the issuance of securities when the issuance or potential issuance will result in a change of control of the company.

●

Rule 5635(d), pursuant to which shareholder approval is required prior to the issuance of securities in connection with a transaction other than a public offering involving:

●

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

PART III

ITEM 17. FINANCIAL STATEMENTS

We have elected to provide financial statements pursuant to Item 18.

ITEM 18. FINANCIAL STATEMENTS

Our audited consolidated financial statements are included at the end of this annual report.

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Mercurity Fintech Holding Inc. (formerly known as JMU Limited):

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Mercurity Fintech Holding Inc. (formerly known as JMU Limited) (the "Company") as of December 31, 2021, the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Shanghai Perfect C.P.A Partnership

Shanghai Perfect C.P.A Partnership

Shanghai, the People’s Republic of China

June 13, 2022

We have served as the Company’s auditor since 2020

F-2

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

(In U.S. dollars, except for number of shares and per share (or ADS) data)


		December 31,		December 31,		December 31,
	Note	2021		2020		2019
ASSETS:
Current assets:
Cash and cash equivalents			440,636		174,783		435,211
Accounts receivable	5		—		1,527,641		1,648,000
Prepaid expenses and other current assets, net	6		1,295,362		102,455		7,707
Amounts due from related parties	15		1,503		665,916		42,857
Current assets of discontinued operations	4		4,403		—		—
Total current assets			1,741,904		2,470,795		2,133,775

Non-current assets:
Intangible assets, net	7		8,197,290		383,289		1,208,340
Goodwill	8		—		8,107,014		5,529,178
Deferred tax assets			—		—		—
Non-Current assets of discontinued operations	4		—		—		—
Total non-current assets		$	8,197,290	$	8,490,303	$	6,737,518

TOTAL ASSETS		$	9,939,194	$	10,961,098	$	8,871,293

LIABILITIES AND SHAREHOLDER’S EQUITY (CONTINUED):
Current liabilities:
Accrued expenses and other current liabilities	9		218,437		677,629		836,552
Amounts due to related parties	15		1,122,607		30,866		—
Current liabilities of discontinued operations	4		30,938		—		—
Total current liabilities		$	1,371,982	$	708,495	$	836,552

F-3

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (CONTINUED)

(In U.S. dollars, except for number of shares and per share (or ADS) data)


		December 31,		December 31,		December 31,
	Note	2021		2020		2019
LIABILITIES AND SHAREHOLDER’S EQUITY (CONTINUED):

Non-current liabilities:
Other non-current liabilities			—		—		—
Deferred tax liabilities			—		—		—
Non-current liabilities of discontinued operations	4		—		—		—
Total non-current liabilities		$	—	$	—	$	—

TOTAL LIABILITIES		$	1,371,982	$	708,495	$	836,552

Commitments and contingencies	17	$	—	$	—	$	—

Shareholders’ equity:
Ordinary shares ($0.00001 par value; 5,000,000,000 shares authorized as of December 31, 2019, 2020 and 2021, and 2,108,869,528, 2,978,278,329 and 4,937,916,229 shares issued and outstanding as of December 31, 2019, 2020 and 2021)	11		49,401		29,805		21,096
Additional paid-in capital			668,183,689		649,145,830		645,330,800
Accumulated deficits			(660,765,745)		(640,019,614)		(638,368,341)
Accumulated other comprehensive (loss)/income			1,099,867		1,096,582		1,051,186
Total shareholders’ (deficit)/equity		$	8,567,212	$	10,252,603	$	8,034,741

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	9,939,194	$	10,961,098	$	8,871,293

The accompanying notes are an integral part of these consolidated financial statements.

F-4

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

(In U.S. dollars, except for number of shares and per share (or ADS) data)


		For the year Ended December 31,
	Note	2021		2020		2019

Revenues:
Technical services			5,864		1,402,300		1,738,000
Digital asset mining			664,307		—		—
Total revenues		$	670,171	$	1,402,300	$	1,738,000

Cost of revenues			(702,679)		(79,150)		(257,023)
Gross profit		$	(32,508)	$	1,323,150	$	1,480,977

Operating expenses:
General and administrative			(10,351,357)		(1,156,574)		(740,534)
Impairment loss			(2,123,904)		(835,344)		—
Total operating expenses		$	(12,475,261)	$	(1,991,918)	$	(740,534)
(Loss)/income from operations		$	(12,507,769)	$	(668,768)	$	740,443

Interest income, net			1,083		7,983		—
Other income/(Expenses), net			120,877		(32,533)		26,859
(Loss)/income before provision for income taxes		$	(12,385,809)	$	(693,318)	$	767,302
Income tax benefits			—		—		—
(Loss)/Income from continuing operations		$	(12,385,809)	$	(693,318)	$	767,302

Discontinued operations:
Loss from discontinued operations			(8,360,322)		(957,955)		(1,992,602)
Net loss		$	(20,746,131)	$	(1,651,273)	$	(1,225,300)
Net loss attributable to holders of ordinary shares of Mercurity Fintech Holding Inc.		$	(20,746,131)	$	(1,651,273)	$	(1,225,300)

F-5

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

(In U.S. dollars, except for number of shares and per share (or ADS) data)


		For the year Ended December 31,
	Note	2021		2020		2019
Numerator
Net loss attributable to holders of ordinary shares of Mercurity Fintech Holding Inc.		$	(20,746,131)	$	(1,651,273)	$	(1,225,300)
Continuing operations			(12,385,809)		(693,318)		767,302
Discontinued operations			(8,360,322)		(957,955)		(1,992,602)

Denominator
Weighted average shares used in calculating basic net loss per ordinary share			3,888,373,404		2,675,881,652		1,723,033,130
Weighted average shares used in calculating diluted net loss per ordinary share			3,888,373,404		2,675,881,652		1,723,033,130

Net Loss per ordinary share
Basic			(0.00)		(0.00)		(0.00)
Diluted			(0.00)		(0.00)		(0.00)
Net Loss per ordinary share from continuing operation
Basic			(0.00)		(0.00)		(0.00)
Diluted			(0.00)		(0.00)		(0.00)
Net Loss per ordinary share from discontinued operation
Basic			(0.00)		(0.00)		(0.00)
Diluted			(0.00)		(0.00)		(0.00)

The accompanying notes are an integral part of these consolidated financial statements

F-6

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

(In U.S. dollars, except for number of shares and per share (or ADS) data)


			For the year Ended December 31,
	Note		2021		2020		2019

Net loss		$	(20,746,131)	$	(1,651,273)	$	(1,225,300)
Other comprehensive (loss)/income, net of tax of $nil:
Change in cumulative foreign currency trans adjustment			3,285		45,396		(166,607)
Comprehensive loss		$	(20,742,846)	$	(1,605,877)	$	(1,391,907)

The accompanying notes are an integral part of these consolidated financial statements.

F-7

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In U.S. dollars, except for number of shares and per share (or ADS) data)


						Accumulated	Total Mercurity
			Additional			other	Fintech Holding Inc.	Non	Total
			paid-in	Subscription	Accumulated	comprehensive	shareholders’	controlling	shareholders’
	Ordinary shares		Capital	receivable	deficit	loss	equity	interests	equity
	Number of
	Shares	Amount
Balance as of January 1, 2021	2,978,278,329	29,805	649,145,830	—	(640,019,614)	1,096,582	10,252,603	—	10,252,603
Share options exercised	3,602,880	36	13,058	—	—	—	13,094	—	13,094
Share-based compensation (Note 13)	603,177,880	6,032	8,343,830	—	—	—	8,349,862	—	8,349,862
Issuance of shares as a consideration for acquisition	—	—	—	—	—	—	—	—	—
Issuance of shares in the private placement (Note 11)	1,352,857,140	13,528	10,680,971	—	—	—	10,694,499	—	10,694,499
Net loss	—	—	—	—	(20,746,131)	—	(20,746,131)	—	(20,746,131)
Other comprehensive income	—	—	—	—	—	3,285	3,285	—	3,285
ions exercised with shares held by depository bank	—	—	—	—	—	—	—	—	—
Balance as of December 31, 2021	4,937,916,229	49,401	668,183,689	—	(660,765,745)	1,099,867	8,567,212	—	8,567,212

F-8

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED)

(In U.S. dollars, except for number of shares and per share (or ADS) data)


						Accumulated	Total Mercurity
			Additional			other	Fintech Holding Inc.	Non	Total
			paid-in	Subscription	Accumulated	comprehensive	shareholders’	controlling	shareholders’
	Ordinary shares		Capital	receivable	deficit	loss	equity	interests	equity
	Number of
	Shares	Amount
Balance as of January 1, 2020	2,108,869,528	21,096	645,330,800	—	(638,368,341)	1,051,186	8,034,741	—	8,034,741
Share options exercised (Note 11)	18,270,720	184	—	—	—	—	184	—	184
Share-based compensation (Note 13)	—	—	285,950	—	—	—	285,950	—	285,950
Issuance of shares as a consideration for acquisition	761,789,601	7,618	3,229,987	—	—	—	3,237,605	—	3,237,605
Issuance of shares in the private placement	90,000,000	900	299,100	—	—	—	300,000	—	300,000
Net loss	—	—	—	—	(1,651,273)	—	(1,651,273)	—	(1,651,273)
Other comprehensive income	—	—	—	—	—	45,396	45,396	—	45,396
Settlement of share options exercised with shares held by depository bank (Note 11)	(650,520)	7	(7)	—	—	—	—	—	—
Balance as of December 31, 2020	2,978,278,329	29,805	649,145,830	—	(640,019,614)	1,096,582	10,252,603	—	10,252,603

F-9

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED)

(In U.S. dollars, except for number of shares and per share (or ADS) data)


						Accumulated	Total Mercurity
			Additional			other	Fintech Holding Inc.	Non	Total
			paid-in	Subscription	Accumulated	comprehensive	shareholders’	controlling	shareholders’
	Ordinary shares		Capital	receivable	deficit	loss	deficit	interests	deficit
	Number of
	Shares	Amount
Balance as of January 1, 2019	1,476,208,670	14,768	634,016,215	—	(637,143,041)	(19,074,219)	(22,186,277)	—	(22,186,277)
Share options exercised (Note 11)	56,028	1	—	—	—	—	1	—	1
Share-based compensation (Note 13)	—	—	(53,967)	—	—	—	(53,967)	—	(53,967)
Issuance of shares as a consideration for acquisition	632,660,858	6,327	6,847,499	—	—	—	6,853,826	—	6,853,826
Disposal of subsidiaries and VIEs	—	—	4,521,053	—	—	20,292,012	24,813,065	—	24,813,065
Net loss	—	—	—	—	(1,225,300)	—	(1,225,300)	—	(1,225,300)
Other comprehensive income	—	—	—	—	—	(166,607)	(166,607)	—	(166,607)
Settlement of share options exercised with shares held by depository bank (Note 11)	(56,028)	—	—	—	—	—	—	—	—
Balance as of December 31, 2019	2,108,869,528	21,096	645,330,800	—	(638,368,341)	1,051,186	8,034,741	—	8,034,741

F-10

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In U.S. dollars, except for number of shares and per share (or ADS) data)


	For the year Ended December 31,
	2021		2020		2019

Cash flows from operating activities:
Net income/(loss)		(20,746,131)		(1,651,273)		(1,225,300)
Less: Net loss from discontinued operations		(8,360,322)		(957,955)		(1,992,602)
Net (loss)/income from continuing operations		(12,385,809)		(693,318)		767,302

Adjustments to reconcile net (loss)/income to net cash used in operating activities:
Impairment loss		2,123,904		835,344		—
Gain from disposal of intangible assets		(121,020)		—		(8,340)
Stock-based compensation		8,349,862		286,132		—
Changes in operating assets and liabilities, net of effect of acquisitions		—		—		—
Accounts receivable, net of allowance including net impact of acquisition of subsidiaries and VIE		380,510		835,533		(1,648,000)
Prepaid expenses and other current assets including net impact of acquisition of subsidiaries and VIE		(1,724,999)		(740,150)		204,830
Accrued expenses and other current liabilities including net impact of acquisition of subsidiaries and VIE		(241,143)		(161,626)		329,837
Other non-current liabilities		—		—		(29,540)
Net cash used in continuing operations		(3,618,695)		361,915		(383,911)
Net cash (used in)/provided by discontinued operations		(386,777)		(957,591)		(260,710)
Net cash used in operating activities		(4,005,472)		(595,676)		(644,621)

Cash flows from investing activities:

Digital assets received as payment		(5,864)		(17,863)		—
Digital assets used to pay expenses		2,174,319		7,571		—
Disposal of digital assets		425,988		—		—
Proceeds from disposal of subsidiaries, VIIE and VIE's subsidiaries, Net of cash disposed		—		—		516,930
Cash acquired from acquisition of subsidiary and VIE		—		—		—
Net cash (used in)/provided by continuing operations		2,594,443		(10,292)		516,930
Net cash used in discontinued operations		—		144		71,409
Net cash (used in)/provided by investing activities		2,594,443		(10,148)		588,339

The accompanying notes are an integral part of these consolidated financial statements.

F-11

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In U.S. dollars, except for number of shares and per share (or ADS) data)


	For the year Ended December 31,
	2021		2020		2019

Cash flows from financing activities:
Issuance of common stock		713,082		300,000		—
Borrowings		935,793		—		—
Cash paid for debt		(93,091)		—		—
Net cash provided by continuing operations		1,555,784		300,000		—
Net cash provided by discontinued operations		120,419		—		—
Net cash provided by financing activities		1,676,203		300,000		—

Effect of exchange rate changes by continuing operations		2,953		43,374		136,750
Effect of exchange rate changes by discontinued operations		403		2,022		(1,930)
Effect of exchange rate changes		3,356		45,396		134,820

Increase/(decrease) in cash and cash equivalents		268,530		(260,428)		78,538

Cash and cash equivalents, beginning of the year	$	174,783	$	435,211	$	356,673

Cash and cash equivalents of continuing operations, end of the year		440,636		142,557		281,486
Cash and cash equivalents of discontinued operations, end of the year		2,677		32,226		153,725
Cash and cash equivalents, end of the year	$	443,313	$	174,783	$	435,211
Supplement disclosure of cash flow information Interest paid		—		4		210,752

The accompanying notes are an integral part of these consolidated financial statements.

F-12

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES

Mercurity Fintech Holding Inc. (the “Company”), was 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., The Company completed its initial public offering (“IPO”) in National Association of Securities Dealers Automated Quotation (“NASDAQ”) on April 8, 2015.

Prior March 1, 2020, the Company and its subsidiaries, variable interest entities (“VIEs”) and VIEs’ subsidiaries were primarily engaged in the sale of rice, flavor, bean oil, seafood, wine and some other types of generic food and beverage products through its website www.ccjoin.com though operating a business-to-business (“B2B”) online e-commerce platform that provides integrated services to suppliers and consumers in the catering industry in the People’s Republic of China (“PRC”).

On May 21, 2019, the Company acquired Unicorn Investment Limited (“Unicorn”) and its subsidiaries and a VIE (“the Acquisition”). Pursuant to a share purchase agreement, the Company purchased all the issued and outstanding shares of Unicorn from its shareholder for the consideration of 632,660,858 newly issued ordinary shares of the Company. On that date, Unicorn, a developer of asset transaction platform products based on blockchain technologies, became a wholly owned subsidiary of the Company. On December 28, 2020, Unicorn changed its name from Unicorn Investment Limited to Mercurity Limited.

On July 22, 2019, the Company sold all of its equity interests in New Admiral Limited, a subsidiary of the Company, together with all of its subsidiaries and consolidated VIEs and their respective subsidiaries (collectively, the “Food Supply Chain Entities”), which were engaged in the Company’s food supply chain business (“the Disposal”). The sale was pursuant to a definitive agreement entered into between the Company and Marvel Billion Development Limited, company with limited liability incorporated under the laws of Hong Kong (the “Buyer”), in exchange for the Buyer’s payment of $1,000,000 and the assumption of $4,521,053 of net liabilities of the Food Supply Chain Entities.

This disposal represents a strategic shift and has a major effect on the Company’s results of operations. Accordingly, assets and liabilities, revenues and expenses, and cash flows related to the Food Supply Chain Entities have been reclassified in the accompanying consolidated financial statements as discontinued operations for all periods presented.

On March 1, 2020, the Company acquired NBpay Investment Limited (“NBpay”) and its subsidiaries and a VIE (“the Acquisition”). Pursuant to a share purchase agreement, the Company purchased all the issued and outstanding shares of Unicorn from its shareholder for the consideration of 761,789,601 newly issued ordinary shares of the Company. On that date, NBpay, a developer of asset transaction platform products based on blockchain technologies, became a wholly owned subsidiary of the Company.

In the first half of 2021, the principal business is to design and develop digital asset transaction platforms based on blockchain technologies for customers to facilitate asset trading, asset digitalization and cross-border payments and provide supplemental services for such platforms, such as customized software development services, maintenance services and compliance support services.

In the second half of 2021, the board and the management of the Company changed and the future business plan was recalibrated. Blockchain technology services and cryptocurrency mining have become the main business of the Company in the future.

F-13

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

On October 17, 2021, the Company incorporated Golden Nation Ltd. in New York, which plans to invest in and develop the cryptocurrency mining business in March 2022.

The Company has entered into digital asset mining pools by executing contracts with a sharing mining service providers to provide computing power to the mining pool. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed digital assets award the mining pool operator receives, for successfully adding a block to the blockchain. The Company's fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm. Providing computing power in digital asset transaction verification services is an output of the Company's ordinary activities. The provision of such computing power is the only performance obligation in the Company's contracts with mining pool operators or contracts with the sharing mining service providers. The transaction consideration the Company receives, if any, is noncash consideration, which the Company measures at fair value on the date received, which is not materially different than the fair value at contract inception or the time the Company has earned the award from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant financing component in these transactions.

Due to the adverse regulatory measures taken by the Chinese government in 2021 in the field of digital currency production and transactions, the Company's board of Directors decided on December 10, 2021 to divest the two Chinese operating companies of the related business controlled through VIE agreements, and the divestiture was completed on January 15, 2022.

Accordingly, assets and liabilities, revenues and expenses, and cash flows related to the VIE entities to be divested have been reclassified in the accompanying consolidated financial statements as discontinued operations for all periods presented. The consolidated statements of operations and the consolidated statements of cash flows for the years ended December 31, 2019 and 2020 are adjusted retrospectively to reflect the change. Additionally, the presentation of the accompanying notes will not include the financial information for the year ended December 31, 2019 and 2020 if they were nil due to the disposal and related classification within discontinued operations mentioned above.

As of December 31, 2021, the Company’s major subsidiaries and VIEs (collectively, the “Group”) are as follows:


	Date of	Place of	Percentage
	acquisition/	establishment/	of legal
	registration	incorporation	ownership
Subsidiaries:
Mercurity Limited	May 21, 2019	British Virgin Islands	100	%
Ucon Capital (HK) Limited (“Ucon”)	May 21, 2019	Hong Kong	100	%
Beijing Lianji Future Technology Co., Ltd. (“Lianji Future” or “WFOE”)	May 21, 2019	PRC	100	%
NBpay Investment Limited (NBPay Investment)	March 2, 2020	British Virgin Islands	100	%
NBpay Fintech Pte Ltd (NBpay)	March 2, 2020	Singapore	100	%
Golden Nation Ltd.	October 17, 2021	USA	100	%
VIE:
Beijing Lianji Technology Co., Ltd. (“Lianji Technology” or “VIE”)	May 21, 2019	PRC	N/A
Mercurity (Beijing) Technology Co., Ltd. (“Mercurity Beijing” or “VIE”)	May 21, 2019	PRC	N/A

F-14

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

The VIE arrangements

The PRC laws and regulations currently place certain restrictions on foreign ownership of companies that engage in e-commerce and other restricted businesses. Specifically, foreign investors are not allowed to own more than 50% of the equity interests in any entity conducting internet content and other restricted businesses. To comply with these PRC laws and regulations, the Company conducts substantially its businesses through the VIEs. To provide the Company’s control over the VIE and the rights to the expected residual returns of the VIE, Lianji Future, a wholly foreign-invested enterprise in China, or WFOE entered into a series of contractual arrangements as described below with VIE and its shareholders.

Prior to the acquisition of Mercurity Limited, Mercurity limited formed contractual arrangements through its wholly owned subsidiary Lianji Future with the VIE. As a result of the Company's acquisition of Mercurity limited, the Company through the Company’s wholly owned subsidiary, Lianji Future, has (1) power to direct the activities of the VIE that most significantly affect the entity’s economic performance and (2) the right to receive economic benefits of the VIEs that could be significant to the VIEs. Accordingly, the Company is considered the primary beneficiary of the VIEs and has consolidated the VIEs’ financial results of operations, assets, and liabilities in the Company’s consolidated financial statements. The Company also believes that this ability to exercise control ensures that the VIE will continue to execute and renew the exclusive business operation agreements and pay service fees to the Company. The ability to charge service fees in amounts determined at the Company’s sole discretion, and by ensuring that the exclusive services agreements are executed and renewed indefinitely, the Company has the right to receive substantially all of the economic benefits from the VIEs.

The following is a summary of the various VIE agreements:

Agreements that Transfers Economic Benefits and Risks to the Company

Exclusive Business Operation Agreement

Pursuant to the exclusive business operation agreement, VIE agrees to engage WFOE as its provider for market promotion and operation and maintenance services. VIE shall pay to WFOE service fees which may reach the full balance of VIE’s total income after deduction of its costs and expenses. This Agreement shall be canceled only if 1) The Parties unanimously agree to terminate this Agreement; 2) The Cooperation Period has expired, and the Parties are not intended to extend the Cooperation Period; or; 3) Any force majeure events render the performance of this Agreement to become impossible.

Agreements that Provide the Company with Effective Control over VIE

Equity Interest Pledge Agreement

The VIE’s shareholders have entered into an equity pledge agreement with the WFOE, under which the shareholders pledged all of the equity interests in VIE to WFOE as a guarantee for the VIE’s shareholders and VIE to perform all their obligations under the Master Agreement. The pledge refers to WFOE’s priority right to be repaid with the proceeds from the sale, auction or disposal of the pledged equity interests. The guarantee under this Agreement shall remain in force in respect of any obligations of the VIE’s shareholders and VIE under the amended Master Agreement. No invalidity, revocation or cancellation of the Master Agreement shall affect the validity of this Agreement. If any Master Agreement becomes invalid or is revoked or canceled for any reason, WFOE shall have the right to immediately realize its pledge

F-15

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

The VIE arrangements (continued)

Agreements that Provide the Company with Effective Control over VIE (continued)

Exclusive Option Agreement

The VIE’s shareholders have entered into an exclusive option agreement with WFOE, pursuant to which WFOE has an exclusive option to purchase or designate one or more persons to purchase, to the extent permitted by applicable PRC laws, rules and regulations, all or part of VIE’s equity interests held by its shareholders or a proprietary right to all or part of the assets owned by VIE. Unless the applicable laws and regulations of the PRC require an assessment of the purchased equity interests or assets or impose other restrictive provisions on the price of the equity interests or assets, the purchase price of the Purchased Equity Interests (“Equity Interest Purchase Price”) or the purchase price of the purchased assets (“Asset Purchase Price”) shall be subject to the nominal or symbolic price; if the laws and regulations of the PRC applicable to the exercise of the Exclusive Option by WFOE do not permit the transfer at the nominal or symbolic price, the Equity Interest Purchase Price shall be equal to the original investment price (“Original Investment Price”) paid by VIE’s shareholders for the Purchased Equity Interests, and the Asset Purchase Price shall be equal to the book value of the assets. If the laws and regulations of the PRC applicable to the exercise of the Exclusive Option by WFOE require an assessment of the purchased equity interests or assets or impose other restrictive provisions on the price of the equity interests or assets, WFOE and VIE’s shareholders agree that the purchase price shall be the minimum price permitted by the applicable law. If the minimum price permitted by the applicable law is higher than the Original Investment Price of the Purchased Equity Interests and the book value of the purchased assets, VIE’s shareholders shall reimburse WFOE the full excess amount after deduction of all taxes paid by VIE’s shareholders in accordance with the applicable laws and regulations of the PRC. The term of this Agreement is ten years unless terminated in advance in accordance with the provisions of this Agreement or the relevant agreement otherwise concluded by all parties. The term of this Agreement may be extended after the written confirmation by WFOE prior to the expiration of the term of this Agreement, and the extended term hereof shall be determined by WFOE.

Power of Attorney Agreement

The VIE’s shareholders have signed an irrevocable power of attorney agreement to appoint WFOE, or its designee, as the attorney-in-fact to act on VIE’s shareholders’ behalf on all rights that the shareholders have in respect of such shareholders’ equity interest in VIE conferred by relevant laws and regulations and the articles of association of VIE. The rights include but not limited to the rights to propose the convening of shareholders’ meetings, to receive any notices on the holding and rules of procedure of shareholders’ meetings, to attend and exercise voting rights at shareholders’ meetings of VIE (including but not limited to nominating, electing or appointing directors, general managers, chief financial officers and other senior managers of VIE and deciding on dividends and other matters) and to decide to sell or transfer all or part of shareholders’ equity interests in VIE. The period of validity of this Power of Attorney is the same as the term of the Exclusive Business Operation Agreement. If the above the Exclusive Business Operation Agreement is terminated in advance or extended in accordance with the Agreement, this Power of Attorney and the Exclusive Business Operation Agreement shall be simultaneously terminated or extended, and this Power of Attorney shall be extended for the same period as the Exclusive Business Operation Agreement. This Power of Attorney shall not be modified or terminated during the period of validity hereof without the written consent of WFOE.

F-16

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

The VIE arrangements (continued)

Agreements that Provide the Company with Effective Control over VIE (continued)

Risks in relation to the VIE structure

Assessing the legal validity and compliance of these above noted arrangements are a precursor to the Company’s ability to consolidate the results of operations and financial condition of the VIE. The Company, in consultation with its PRC legal counsel, believes that:(1) the ownership structure of the Group, including its PRC subsidiary and VIE is in compliance with all existing PRC laws and regulations; (2) each of the VIE agreements amongst the WFOE, the VIE and VIE’s shareholder governed by PRC laws, are legal, valid and binding, enforceable against such parties, and will not result in any violations of PRC laws or regulations currently in effects; and (3) the Group’s PRC subsidiary and VIE have the necessary corporate power and authority to conduct its business as described in its business scope under its business licenses, which is in full force and effect, and the Group’s business operations in the PRC are in compliance with existing PRC laws and regulations. The shareholder of the VIE are also shareholders of the Company and therefore have no current interest in seeking to act contrary to the contractual arrangements. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements and if the shareholders were to reduce their interest in the Company, their interests may diverge from that of the Company and that may potentially increase the risk that they would seek to act contrary to the contractual terms.

The Company’s ability to control the VIE also depends on the power of attorney. The Company, through WFOE, has to vote on all matters requiring shareholder approval in the VIE entities. As noted above, the Company believes this power of attorney is legally enforceable but may not be as effective as direct equity ownership.

In addition, if the legal structure and contractual arrangements were found to be in violation of any existing PRC laws and regulations, the PRC regulatory authorities could:

●revoke the Group’s business and operating licenses;

●require the Group to discontinue or restrict its operations;

●restrict the Group’s right to collect revenues;

●restrict or prohibit the Group to finance its business and operations in China;

●shut down the Group’s servers or block the Group’s website;

●require the Group to restructure its operations;

●impose additional conditions or requirements with which the Group might not be able to comply, levy fines, confiscate the Group’s income or the income of its PRC subsidiary or affiliated PRC entities; or

●take other regulatory or enforcement actions against the Group that could be harmful to its business.

The imposition of any of these penalties could result in a material adverse effect on the Group’s ability to conduct the Group’s business. In addition, if the imposition of any of these penalties causes the Group to lose the rights to direct the activities of the VIE, or the right to receive their economic benefits, the Group would no longer be able to consolidate the VIE.

The VIE termination arrangements

F-17

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

statements for the year ended December 31, 2021, Beijing Lianji Technology Co., Ltd. and Mercurity (Beijing) Technology Co., Ltd. are listed as discontinued concerns.

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

The VIE termination arrangements (continued)

On January 15, 2022, Beijing Lianji Future Technology Co., Ltd., Beijing Lianji Technology Co., Ltd.(VIE), signed a Termination Agreement Re Existing Control Documents with Wang Zhiyou and Zhou Jie, the 2b3np shareholders of Beijing Lianji Technology Co., Ltd.. According to the agreement, from the date hereof, each Party no longer retains any right under the Existing Control Documents and no longer needs to perform any obligation under the Existing Control Documents. However, the rights and obligations actually exercised by each Party based on any Existing Control Documents shall remain effective. Any income or other benefits of any nature funds obtained or actually received by any Party based on the Existing Control Documents need not be returned to the opposite Party, and the existing accounts receivable and payable between the Parties shall still be paid. Meanwhile, Beijing Lianji Future Technology Co., Ltd., Beijing Lianji Technology Co., Ltd., Ucon Capital (HK) Limited, Mercurity Limited and Mercurity Fintech Holding Inc. jointly signed an Agreement on Modification of Customer's Rights and Obligations. Beijing Lianji Technology Co., Ltd. transfered all of its receivables and other creditor's rights to Beijing Lianji Future Technology Co., Ltd., and all debts owned by Beijing Lianji Technology Co., Ltd. to Ucon Capital (HK) Limited, Mercurity Limited and Mercurity Fintech Holding Inc were borne by Beijing Lianji Future Technology Co., Ltd..

On January 15, 2022, Beijing Lianji Future Technology Co., Ltd., Mercurity (Beijing) Technology Co., Ltd. (VIE), signed a Termination Agreement Re Existing Control Documents with Wang Zhiyou, the shareholders of Beijing Lianji Technology Co., Ltd.. According to the agreement, from the date hereof, each Party no longer retains any right under the Existing Control Documents and no longer needs to perform any obligation under the Existing Control Documents. However, the rights and obligations actually exercised by each Party based on any Existing Control Documents shall remain effective. Any income or other benefits of any nature funds obtained or actually received by any Party based on the Existing Control Documents need not be returned to the opposite Party, and the existing accounts receivable and payable between the Parties shall still be paid. Meanwhile, Beijing Lianji Future Technology Co., Ltd., Mercurity (Beijing) Technology Co., Ltd., Ucon Capital (HK) Limited, Mercurity Limited and Mercurity Fintech Holding Inc. jointly signed an Agreement on Modification of Customer's Rights and Obligations. Mercurity (Beijing) Technology Co., Ltd. transfered all of its receivables and other creditor's rights to Beijing Lianji Future Technology Co., Ltd., and all debts owned by Mercurity (Beijing) Technology Co., Ltd. to Ucon Capital (HK) Limited, Mercurity Limited and Mercurity Fintech Holding Inc were borne by Beijing Lianji Future Technology Co., Ltd..

F-18

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

The VIE termination arrangements (continued)

The following financial statement balances and amounts of the VIEs were included in the accompanying consolidated financial statements as follows:


	For the year Ended December 31,
	2021	2020	2019
Cash and cash equivalents	—	32,226	153,725
Prepaid expense and other current assets, Net	—	700,538	7,707
Current assets of discontinued operations	4,403	—	—
Total current assets	4,403	732,764	161,432
Total assets	4,403	732,764	161,432

Accrued expenses and other current liabilities	—	104,350	70,781
Due to the related party	—	30,866	—
Current liabilities of discontinued operations	30,938	—	—
Total current liabilities	30,938	135,216	70,781
Total liabilities	30,938	135,216	70,781


	For the year Ended December 31,
	2021	2020	2019
Revenues	—	—	—
Loss from continuing operations	—	—	—
Loss from discontinued operations	(8,360,322)	(957,955)	(284,611)


	For the year Ended December 31,
	2021	2020	2019
Net cash provided by discontinued operations used in operating activities	(386,777)	(926,725)	82,608
Net cash provided by discontinued operations used in investing activities	—	144	71,409
Net cash provided by discontinued operations used in financing activities	120,419	927,995	—
Effect of exchange rate changes	403	(122,913)	—

The VIE contributed aggregate of nil of revenues and $284,611 of net loss for the year ended December 31, 2019, $79,289 of revenues and $957,955 of net loss for the year ended December 31, 2020, and $122,343 of revenues and $8,360,322 of net loss for the year ended December 31, 2021, respectively. These revenues and net losses are listed in Loss from discontinued operations of the consolidated statements of operations, as a result of the decision of the company's board of Directors to dismantle the VIE structure and divest the company controlled through the VIE agreement.

As of December 31, 2019, 2020 and 2021, excluding intercompany balance the VIE accounted for an aggregate of 1.8%, 6.69% and 0.04%, respectively, of the consolidated total assets, 8.5%, 19% and 2.25%, respectively, of the consolidated total liabilities. The assets not associated with the VIE primarily consist of cash and cash equivalents, accounts receivable and amount due from a related party.

F-19

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

1.	ORGANIZATION AND PRINCIPAL ACTIVITIES (CONTINUED)

The VIE termination arrangements (continued)

There are no consolidated VIE’s assets that are collateral for the VIE’s obligations and can only be used to settle the VIE’s obligations. There are no creditors (or beneficial interest holders) of the VIE that have recourse to the general credit of the Company or any of its consolidated subsidiaries. There are no terms in any arrangements, considering both explicit arrangements and implicit variable interests that require the Company or its subsidiaries to provide financial support to the VIE. Relevant PRC laws and regulations restrict the VIE from transferring a portion of their net assets, equivalent to the balance of its statutory reserve and its share capital, to the Company in the form of loans and advances or cash dividends. Please refer to Note 19 for disclosure of restricted net assets.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of the Group have been prepared in accordance with the U.S. generally accepted accounting principles (‘‘US GAAP’’).

Principle of consolidation

The consolidated financial statements of the Group include the financial statements of the Company, its consolidated subsidiaries, and VIEs for which the Company is the primary beneficiary. All significant intercompany transactions and balances have been eliminated upon consolidation.

Business combinations

Business combinations are recorded using the acquisition method of accounting. The assets acquired and the liabilities assumed are measured at their fair values as of that date. Goodwill is recognized and measured as the excess of the total consideration transferred at the acquisition date over the fair values of the identifiable net assets acquired.

Consideration transferred in a business acquisition is measured at the fair value as at the date of acquisition.

Discontinued operations

A disposal of a component of an entity or a group of components of an entity shall be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. Where an operation is classified as discontinued, a single amount is presented on the face of the consolidated statements of operations. The amount of total current assets, total non-current assets, total current liabilities and total noncurrent liabilities are presented separately on the consolidated balance sheets.

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Areas where management uses subjective judgment include, but are not limited to, provision for other receivables, estimating useful lives and impairment for intangible assets, impairment of goodwill, valuation allowance for deferred tax assets and share-based compensation. Changes in facts and circumstances may result in revised estimates. Actual results could differ from those estimates, and as such, differences may be material to the consolidated financial statements.

F-20

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Foreign currency

The functional and reporting currency of the Company is the United States dollar (“U.S. dollars”, “US$” or “$”). The functional currency of the Company’s subsidiary, Mercurity Limited, is U.S. dollars. The functional currency of the Company’s HK subsidiaries, Ucon, is Hong Kong dollars (“HK dollars”). The functional currency of NBPay Investment limited is the United States dollar (“U.S. dollars”, “US$” or “$”). The functional currency of NBPay Fintech Pte Ltd is the United States dollar (“U.S. dollars”, “US$” or “$”). The financial records of the Group’s subsidiary and VIE located in the PRC are maintained in their local currencies, the Renminbi (“RMB”), respectively, which are also the functional currencies of these entities.

Transactions denominated in currencies other than the respective entities’ functional currencies are re-measured into the functional currencies, in accordance with Accounting Standards Codification (“ASC”) 830 (“ASC 830”) Foreign Currency Matters, at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are re-measured into the functional currencies at the exchange rates prevailing at the balance sheet date. All foreign exchange gains or losses are included in the consolidated statements of operations.

Assets and liabilities are translated to the reporting currency at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average rate for the year. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of consolidated statements of comprehensive loss.

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and demand deposits placed with banks or other financial institutions which are unrestricted as to withdrawal and use and have original maturities less than three months.

Accounts receivable, net of allowance

The company’s accounts receivable accounting policy until December 31, 2019, prior to the adoption of the new Current Expected Credit loss (“CECL” standard).

Accounts receivable are presented in the Company’s consolidated balance sheets net of allowance for doubtful accounts. On a periodic basis, the Company evaluates the collectability of its accounts receivable and establishes an allowance for doubtful accounts based on past write-offs and collections, current credit conditions, the age of the balances and economic factors that may affect a customer’s ability to pay.

Prior to the acquisition of Unicorn, accounts receivable was all derived from the Food Supply Chain business which is classified as discontinued operations in the years ended December 31, 2019. The provision for doubtful accounts receivable of $43,826 were recognized for this business for the years ended December 31, 2019.

From January 1, 2020,the company adopted the new CECL rule and recognizes its estimate of expected credit losses as an allowance to its account receivable.

F-21

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounts receivable, net of allowance (continued)

The Company adopted this guidance effective January 1, 2020, with no material impact on its consolidated financial statements. The Company maintains the allowance for estimated losses resulting from the inability of the Company’s customers to make required payments. The allowance represents the current estimate of lifetime expected credit losses over the remaining duration of existing accounts receivable considering current market conditions and supportable forecasts when appropriate. The estimate is a result of the Company’s ongoing evaluation of collectability, customer creditworthiness, historical levels of credit losses, and future expectations. Changes in the allowance for credit losses are recognized in general and administrative expenses. Accounts receivable are written-off against the allowance for credit losses when management deems the accounts are no longer collectible.

Allowance for credit losses related to the Company’s accounts receivable was $1,147,131 as of December 31, 2021. Due to the changes of the company's management and business team in the second half of 2021, the Company failed to collect the blockchain technology services receivable $1,092,208 from BGA FOUNDATION LTD and $54,923 from Beijing Qichi Trading Ltd. in a timely manner. At the end of 2021, the Company made provision for doubtful accounts. Meanwhile, the company is also taking legal action to recover the money.

Intangible Assets

Intangible assets with indefinite useful life are not amortized and are tested for impairment annually or more frequently, if events or changes in circumstances indicate that they might be impaired in accordance with ASC Subtopic 350-30, Intangibles-Goodwill and Other: General Intangibles Other than Goodwill ("ASC 350-30"). Our intangible assets are cryptocurrencies which are measured at cost. The cryptocurrencies received from cryptocurrency mining operations recognize the cost of intangible assets based on the market price at the time of acquisition. We estimated the fair values of the intangible assets and recognized $372,995 impairment loss for the year ended December 31, 2021.

Impairment of goodwill

The Company annually, or more frequently if the Company believes indicators of impairment exist, reviews the carrying value of goodwill to determine whether impairment may exist.

The Company has determined to perform the annual impairment tests on December 31 of each year. The $8,107,014 goodwill as of December 31, 2020 was attributable solely to the Mercurity Limited and NBPay business. Since 2021, the Company has experienced a change of control, the new board and management have reformulated the Company's business plan, and the Company has decided to discontinue the original business of Mercurity Limited and NBPay due to the highly adverse regulatory measures taken by the Chinese government in the second half of 2021 targeting the production and trading of digital currency. As a result, the Company recognized the impairment loss of goodwill of

F-22

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

$8,107,014 for the year ended December 31, 2021, which is shown as Loss/income from discontinued operations in the consolidated income statement.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue recognition

The Company generates revenues primarily from digital asset mining and blockchain technical services.

The Company’s revenue recognition policies effective on the adoption date of ASC 606 are as follows:

Digital asset mining

The Company has entered into digital asset mining pools by executing contracts with the mining pool operators or executing contracts with the sharing mining service providers to provide computing power to the mining pool. The contracts are terminable at any time by either party and the Company’s enforceable right to compensation only begins when the Company provides computing power to the mining pool operator. In exchange for providing computing power, the Company is entitled to a fractional share of the fixed digital assets award the mining pool operator receives, for successfully adding a block to the blockchain. The Company’s fractional share is based on the proportion of computing power the Company contributed to the mining pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm.

F-23

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

from the pools. The consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the consideration it will receive, at which time revenue is recognized. There is no significant financing component in these transactions.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue recognition (continued)

Technical services

The Company does not disclose the value of unsatisfied performance obligations as the Company’s revenue contract is with an original expected length of one year or less.

Cost of revenue

The Company's cost of digital asset mining revenue consists primarily of direct production costs related to mining operations, including utilities and other service charges, but excluding depreciation and amortization, which are separately stated in the Company's consolidated statements of operations.

Cost of technical services revenues is payroll of technical personnel.

Operating leases

Leases where substantially all the rewards and risks of the ownership of the assets remain with the leasing companies are accounted for as operating leases. Payments made for the operating leases are charged to the consolidated statements of operations on a straight-line basis over the lease term and have been included in the operating expenses in the consolidated statements of operations.

F-24

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

Income taxes

The Company follows the liability method in accounting for income taxes in accordance to ASC topic 740 (“ASC 740”), Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income taxes (continued)

The Company applies the provision of ASC 740 to account for uncertainty in income taxes. ASC 740 clarifies the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the consolidated financial statements.

The Company has elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of income tax expense in the consolidated statements of operations.

Share-based payments

Share-based payment awards with employees are measured based on the grant date fair value of the equity instrument issued, and recognized as compensation costs using the straight-line method over the requisite service period, which is generally the vesting period of the options, with a corresponding impact reflected in additional paid-in capital. For share-based payment awards with market conditions, such market conditions are included in the determination of the estimated grant-date fair value. In the second quarter of 2017, the Company elected to early adopt ASU No. 2016-09, Compensation Stock Compensation (Topic 718): Improvement to Employee Share based Payment Accounting, to account for forfeitures as they occur. The cumulative-effect adjustment to accumulated deficits was $nil as a result of the adoption of ASU 2016-09.

A change in any of the terms or conditions of share-based payment awards is accounted for as a modification of awards. The Company measures the incremental compensation cost of a modification as the excess of the fair value of the modified awards over the fair value of the original awards immediately before its terms are modified, based on the share price and other pertinent factors at the modification date. For vested awards, the Company recognizes incremental compensation cost in the period the modification occurred. For unvested awards, the Company recognizes, over the remaining requisite service period, the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original award on the modification date.

Net loss per share

Basic loss per ordinary share is computed by dividing net loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Diluted loss per ordinary share reflects the potential dilution that could occur if securities were exercised or converted into ordinary shares. The Company had stock options and restricted share units, which could potentially dilute basic loss per share in the future. To calculate the number of shares for diluted loss per ordinary share, the effect of the stock options and restricted share units is computed using the treasury stock method. Potential ordinary shares in the diluted net loss per share computation are excluded in periods of losses from operations, as their effect would be anti-dilutive.

F-25

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

In accordance with ASC Topic 260, Earnings per Share (“ASC 260”), basic loss per share is computed by dividing net loss attributable to ordinary shareholders by the weighted average number of unrestricted ordinary shares outstanding during the year. Diluted loss per share is calculated by dividing net loss attributable to ordinary shareholders as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the period. Contingently issuable shares, including performance-based share awards and contingent considerations to be settled in shares, are included in the computation of basic earnings per share only when there is no circumstance under which those shares would not be issued. Contingently issuable shares are included in the denominator of the diluted loss per share calculation as of the beginning of the period or as of the inception date of the contingent share arrangement, if later, only when dilutive and when all the necessary conditions have been satisfied as of the reporting period end.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Net loss per share (continued)

For contracts that may be settled in ordinary shares or in cash at the election of the Company, share settlement is presumed, pursuant to which incremental shares relating to the number of shares that would be required to settle the contract are included in the denominator of diluted loss per share calculation if the effect is more dilutive. For the contracts that may be settled in ordinary shares or in cash at the election of the counterparty, the more dilutive option of cash or share settlement is used for the purposes of diluted loss per share calculation, pursuant to which share settlement requires the number of shares that would be required to settle the contract be included in the denominator whereas cash settlement requires an adjustment to be made to the numerator for any changes in income or loss that would result as if the contract had been classified as an asset or a liability for accounting purposes during the period for a contract that is classified as equity for accounting purposes, if the effect is more dilutive. Ordinary equivalent shares consist of the ordinary shares issuable upon the exercise of the share options, using the treasury stock method. Ordinary share equivalents are excluded from the computation of diluted loss per share if their effects would be anti-dilutive.

Comprehensive income (loss)

Comprehensive income (loss) is defined as the decrease in equity of the Company during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. Comprehensive gain (loss) is reported in the consolidated statements of comprehensive loss, including net loss and foreign currency translation adjustments, presented net of tax.

Segment reporting

The Company follows ASC 280, Segment Reporting. The Company’s Chief Executive Officer or chief operating decision-maker reviews the consolidated financial results when making decisions about allocating resources and assessing the performance of the Company as a whole and hence, the Company has only one reportable segment. The Company operates and manages its business as a single segment through the provision of design, development, creation, testing, installation, configuration, integration and customization of making fully operational software based on blockchain technologies and related services. The Company’s revenues are derived from British Virgin Islands and Asia pacific regions, no geographical segments are presented.

Fair value

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous

F-26

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

Authoritative literature provides a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is significant to the fair value measurement as follows:

Level 1 - inputs are based upon quoted prices for instruments traded in active markets.

Level 2 - inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based calculation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, cash flow models, and similar techniques.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair value of financial instruments

Financial instruments include cash and cash equivalents, amounts due from a related party and accounts receivable. The carrying values of cash, amounts due from a related party and accounts receivable approximate their fair values reported in the consolidated balance sheets due to the short-term maturities.

Financial assets and liabilities measured at fair value on a non-recurring basis include acquired assets and liabilities and goodwill based on Level 3 inputs in connection with business acquisitions.

Recent accounting pronouncements

As a company with less than US$1 billion in gross revenue for the last fiscal year, we qualify as an “emerging growth company” (“EGC”) pursuant to the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include a provision that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. We will take advantage of the extended transition period.

In February 2016, the FASB issued ASU2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing a right-of-use asset and a lease liability for all leases with terms longer than 12 months. Leases will be classified as either operating or financing. The definition of a lease has been revised when an arrangement conveys the right to control the use of the identified asset under the arrangement which may result in changes to the classification of an arrangement as a lease. The ASU expands the disclosure requirements of lease arrangements. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that reporting period, for public business entities. In September 2017, the FASB issued additional amendments providing clarification and implementation guidance. In January 2018, the FASB issued an update that permits an entity to elect an optional transition practical expedient to not evaluate land easements that existed or expired before the entity’s adoption of the new standard and that were not previously accounted for as leases. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach. In July 2018, the FASB issued an update, which provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect

F-27

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the prior comparative period’s financials will remain the same as those previously presented. The new standard becomes effective for the Company for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The standard requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements. The Company as an EGC has elected to adopt the new lease standard as of the effective date applicable to nonissuers and will implement the new lease standard on January 1, 2021 using the modified retrospective method. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. In addition, the Company will elect the transition practical referred to as the “package of three”, that must be taken together and allows entities to (1) not reassess whether existing contracts contain leases, (2) carryforward the existing lease classification, and (3) not reassess initial direct costs associated with existing leases. The Company is in the process of evaluating the impact on its consolidated financial statements, as well as the impact of adoption on policies, practices, systems and financial statement disclosures. As of December 31, 2021, the Company has US$66,667 of future minimum operating lease commitments that are not currently recognized on its consolidated balance sheets (see note 15).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent accounting pronouncements (continued)

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU provides more useful information about expected credit losses to financial statement users and changes how entities will measure credit losses on financial instruments and timing of when such losses should be recognized. This ASU is effective for annual and interim periods beginning after December 15, 2019 for the public business entities. As amended in ASU 2018-19, for companies that file under private company guidelines, this ASU will take effect for fiscal years beginning after December 15, 2022, and for interim periods within those fiscal years. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018, and interim periods therein. The Company as an EGC has elected to adopt the new ASU as of the effective date applicable to nonissuers and will implement the new ASU on January 1, 2023 using the modified retrospective method. The updates should be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). The Company is in the process of evaluating the impact on its consolidated financial statements upon adoption.

In January 2017, the FASB issued ASU 2017-04, ASC Topic 350 “Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment.” The standard eliminates the requirement to measure the implied fair value of goodwill by assigning the fair value of a reporting unit to all assets and liabilities within that unit (“the Step 2 test”) from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited by the amount of goodwill in that reporting unit. The standard will become effective for fiscal years beginning after December 15, 2022 and must be applied to any annual or interim goodwill impairment assessments after that date. Early adoption is permitted. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The amendments in ASU 2018-13 will be effective for us beginning after January 1, 2020 including interim periods within the year. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU No. 2018-13 and delay adoption of the additional disclosures until their effective date. We do not expect the amendments of this guidance to have a material impact on our consolidated financial statements.

F-28

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities: The amendments in this ASU are effective for public business entities with fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The amendments are also effective for private entities with fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.All entities are required to apply the amendments in this ASU retrospectively with a cumulative-effect adjustment to retained earnings at the beginning of the earliest period presented. Early adoption is permitted. The Company is in the process of evaluating the impact on its consolidated financial statements upon adoption.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We early adopted ASU 2019-12 in the fourth quarter of 2020. The impact of adoption of this standard on our consolidated financial statements, including accounting policies, processes, and systems, was not material.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent accounting pronouncements (continued)

In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815), which clarifies the interaction between the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323, and the accounting for certain forward contracts and purchased options in Topic 815. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. Effective January 1, 2021, we adopted this standard on a prospective basis. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements, including accounting policies, processes, and systems.

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. Under ASU 2020-06, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, or that do not result in substantial premiums accounted for as paid-in capital. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. The new guidance also requires the if-converted method to be applied for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. Adoption of the standard requires using either a modified retrospective or a full retrospective approach. Effective January 1, 2021, we early adopted ASU 2020-06 using the modified retrospective approach. The impact of adoption of this standard on our consolidated financial statements, including accounting policies, process, and systems, was nil.

F-29

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

3. CONCENTRATION OF RISK

Credit risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company places its cash and cash equivalents with financial institutions with high-credit ratings and quality.

There were only two customers for the year ended December 31, 2021, thus all revenue and accounts receivable were derived from these two customers.

Currency convertibility risk

From time to time, the Company’s businesses may be transacted in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts. After the strategic shift mentioned above, the Company’s business is mainly transacted in U.S. dollar resulting minor exposure to currency convertibility risk.

Foreign currency exchange rate risk

From July 21, 2005, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. For RMB against U.S. dollar, there was depreciation of approximately 1.3%, 6.2% and 2.3% in the years ended December 31, 2019, 2020 and 2021 respectively. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.

3. CONCENTRATION OF RISK (CONTINUED)

Foreign currency exchange rate risk (continued)

To the extent that the Company needs to convert U.S. dollar into RMB for capital expenditures and working capital and other business purposes, appreciation of RMB against U.S. dollar would have an adverse effect on the RMB amount the Company would receive from the conversion. Conversely, if the Company decides to convert RMB into U.S. dollar for the purpose of making payments for dividends on ordinary shares, strategic acquisitions or investments or other business purposes, appreciation of U.S. dollar against RMB would have a negative effect on the U.S. dollar amount available to the Company. In addition, a significant depreciation of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of the Company’s earnings or losses.

4. DISCONTINUED OPERATIONS

On December 24, 2021, the board of the Company decided to dismantle the VIE structure and divest Beijing Lianji Technology Co. and Mercurity (Beijing) Technology Co., Ltd., which were controlled by the VIE agreement, due to the impact of the adverse policies issued by the Chinese government on the original business. Therefore, in the financial statements for the year ended December 31, 2021, Beijing Lianji Technology Co., Ltd. and Mercurity (Beijing) Technology Co., Ltd. are listed as discontinued concerns.

F-30

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

The financial results of Beijing Lianji Technology Co. and Mercurity (Beijing) Technology Co., Ltd. are summarized set out below. The assets, liabilities, revenue and expenses have been reclassified as discontinued operations to retrospectively reflect the changes for the year ended December 31, 2021.


		For the year ended
		December 31, 2021
		US$
Carrying amounts of assets under disposal
Cash and cash equivalents		2,677
Accounts receivable		—
Inventories		—
Prepaid expenses and other current assets, net		1,726
Amounts due from related parties		—
Current assets of discontinued operations		4,403
Property and equipment, net		—
Non-current assets of discontinued operations		—
Total assets of discontinued operations		4,403
Carrying amounts of liabilities under disposal
Short-term bank borrowings		—
Accounts and notes payable		—
Accrued expenses and other current liabilities		3,194
Advance from customers		—
Amounts due to related parties		27,744
Current liabilities of discontinued operations		30,938
Amount due to related parties		—
Non-current liabilities of discontinued operations		—
Total liabilities of discontinued operations		30,938

4. DISCONTINUED OPERATIONS (CONTINUED)



		December 31, 2021
		US$
Revenues		122,343
Cost of revenues		(41,668)
Gross profit		80,675
General and administrative		(334,880)
Impairment loss (Note 8)		(8,107,943)
Loss from operations		(8,362,148)
Interest expense, net		91
Other income/(expenses), net		1,735
Loss before provision for income taxes		(8,360,322)
Income tax benefits		—
Net loss		(8,360,322)

Nature of the relationships with related parties:


Name		Relationship with the Company
Zhiyou Wang		Shareholder

F-31

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

As of December 31, 2021, the following balances were due from/ to the related parties:

Current liabilities


	For the year ended
	December 31, 2021
Amount due to related parties	US$
Zhiyou Wang	27,744	(i)

(i)	The amount represents the payable due to related parties relating to the daily operations.

5. ACCOUNTS RECEIVABLE, NET

Accounts receivable and allowance for doubtful accounts consist of the following:


	December 31,	December 31,	December 31,
	2021	2020	2019
	US$	US$	US$

Accounts receivable	1,147,131	1,527,641	1,648,000
Less: allowance for doubtful accounts (i)	1,147,131	—	—
	—	1,527,641	1,648,000

(i)

Due to the changes of the company's management and business team in the second half of 2021, the Company failed to collect the blockchain technology services receivable $1,092,208 from BGA FOUNDATION LTD and $54,923 from Beijing Qichi Trading Ltd. in a timely manner. At the end of 2021, the Company made provision for doubtful accounts. Meanwhile, the company is also taking legal action to recover the money.

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS, NET

Prepaid expenses and other current assets consist of the following:


	December 31,	December 31,	December 31,
	2021	2020	2019
	US$	US$	US$

Other receivables, net of allowance for doubtful accounts of $nil, $nil and $nil at December 31, 2019, 2020, 2021	—	91,266	2,566
Prepaid rental expenses	—	11,189	5,141
Prepaid professional service expenses	3,578	—	—
Prepaid for BTC mining cloud computing power	1,291,784	—	—
	1,295,362	102,455	7,707

F-32

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

7. INTANGIBLE ASSETS, NET

Intangible assets, net consist of the following:


	December 31,	December 31,	December 31,
	2021	2020	2019
	US$	US$	US$
Bitcion (i)	5,189,195	—	—
USD Coin (ii)	3,002,231	—	—
Others	5,864	1,218,633	1,208,340
Total Cryptocurrencies	8,197,290	1,218,633	1,208,340

Less: Accumulated impairment	—	(835,344)	—
Intangible assets, Net	8,197,290	383,289	1,208,340

(i)

As of December 31, 2021, the Company held 106.9936 Bitcoins with a total value of $5,051,163 based on the trading closing price shown on Feixiaohao platform. The company did not recognize any impairment loss on these Bitcoins in the consolidated financial statements for the year ended December 31, 2021. As the market price of bitcoin has declined significantly since 2022, the value of 106.9936 Bitcoins based on the closing price displayed on Feixiaohao platform on May 27, 2022 is $3,143,431. Nevertheless, the company remains confident about bitcoin's future market value.

(ii)	As of December 31, 2021, the Company held 3,005,537.5 USD coins with a total value of $3,005,417 based on the trading closing price shown on Feixiaohao platform. The value of 3,005,537.5 USD coins based on the closing price displayed on Feixiaohao platform on May 27, 2022 is $3,008,242.

7. INTANGIBLE ASSETS, NET (CONTINUED)

The movement of intangible assets for the year ended December 31, 2019, 2020 and 2021 is as follows:


	December 31,	December 31,	December 31,
	2021	2020	2019
	US$	US$	US$
Balance as of January 1, 2019, 2020 and 2021	383,289	1,208,340	—
Addition: received Cryptocurrencies payments (i)	10,000,363	17,863	1,200,000
Purchase	—	—	10,402
Mining out (ii)	664,307	—	—
Deduction: Payment made by Cryptocurrencies (iii)	(2,141,375)	(6,923)	—
Deduction: disposal of Cryptocurrencies (iv)	(336,299)	(647)	(2,062)
Impairment (v)	(372,995)	(835,344)	—
Balance as of December 31, 2019, 2020 and 2021	8,197,290	383,289	1,208,340

(i)	During the year ended 2021, the Company received Cryptocurrencies as payments, the fair market at the date the Cryptocurrencies were received was $10,000,363.

(ii)	During the year ended 2021, the Company mined out 11.75513 Bitcoin by purchasing cloud computing power, the fair market at the date the Cryptocurrencies were mined out was $664,307.

F-33

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

(iii)

During the year ended 2021, the Company used Cryptocurrencies with a book value of $2,141,375 to pay Bitcoin mining cloud computing power and professional services expenses. The fair market value at the date the cryptocurrencies were used to pay the expenses was $2,174,463.

(iv)	During the year ended 2021, the Company sold 6.86166 Bitcoins and a small number of other cryptocurrencies with a book value of $336,299 and get $440,404 into the Company's bank account.

(v)

At the year end, or more frequently when events or changes in circumstances indicate that it might be impaired in accordance with ASC350, “Intangibles-Goodwill and Other”, the Company is required to perform impairment tests. The Company performed the digital assets impairment test on June 30,2021 and record an impairment loss of $372,995.

8. GOODWILL

The changes in the goodwill balance for the year ended December 31, 2021 is as follows:


		For the year ended
		December 31, 2021
		US$

Balance as of January 1, 2021		8,107,014
Impairment loss (i)		(8,107,014)
Balance as of December 31, 2021		—

(i)

The Company has determined to perform the annual impairment tests on December 31 of each year. The $8,107,014 goodwill as of December 31, 2020 was attributable solely to the Mercurity Limited and NBPay business. Since 2021, the Company has decided to discontinue the original business of Mercurity Limited and NBPay due to the adverse regulatory measures taken by the Chinese government in the second half of 2021 targeting the production and trading of digital currency. As a result, the Company recognized the impairment loss of goodwill of $8,107,014 for the year ended December 31, 2021, which is shown as Loss/income from discontinued operations in the consolidated income statement.

9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:


	December 31,	December 31,	December 31,
	2021	2020	2019
	US$	US$	US$
Accrued payroll and welfare	56,989	142,826	59,897
Accounts payable	—	16,000	—
Payables for professional fees	157,643	517,934	736,227
Other tax payable	3,635	869	7,697
Other	170	—	32,731
Total accrued expenses and other current liabilities	218,437	677,629	836,552

F-34

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

10. INCOME TAXES

Cayman

Under the current laws of the Cayman Islands, the Company is not subject to tax on its income or capital gains.

Hong Kong

Under the Hong Kong tax laws, the Company’s subsidiaries in Hong Kong are subject to Hong Kong profits tax rate at 16.5%. No provision for Hong Kong profits tax was made for each of the three years ended December 31, 2021 on the basis that the Company’s Hong Kong subsidiaries did not have any assessable profits arising in or derived from Hong Kong for those years.

10. INCOME TAXES (CONTINUED)

Singapore

On March 2, 2020, the Company acquired NBpay’s subsidiary NBpay Fintech Pte Ltd. Under the Singapore tax laws, the Company’s subsidiary in Singapore is subject to Singapore profits tax rate at 17%. No provision for Singapore profits tax was made for the year ended December 31, 2021 on the basis that the taxable income of the Company’s Singapore subsidiary was less than the exempted amount.

People’s Republic of China

The enterprise income tax (‘‘EIT’’) law applies a uniform 25% EIT rate to both foreign invested enterprises and domestic enterprises. The EIT rate for the Company's entities operating in the PRC is 25%.

No taxable income was generated for both domestic and foreign entities of the Company. No income tax was credited to the Company.

The significant components of the Company's deferred tax assets were as follows:


	December 31,	December 31,	December 31,
	2021	2020	2019
	US$	US$	US$
Deferred tax assets
Net operating loss carry forwards	—	439,629	199,827
Valuation allowance	—	(439,629)	(199,827)
Total deferred tax assets	—	—	—

The Company considers the following factors, among other matters, when determining whether some portion or all of the deferred tax assets will more likely than not be realized: the nature, frequency and severity of recent losses, forecasts of future profitability, the duration of statutory carry forward years, the Company's experience with tax attributes expiring unused and tax planning alternatives. The Company's ability to realize deferred tax assets depends on its ability to generate sufficient taxable income within the carry forward years provided for in the tax law.

Since the Company has ceased to continue to operate all the businesses of the VIE entities in China, the uncovered losses incurred by the VIE entities in the previous years will not be covered in the next five years. Therefore, the Company's financial statements do not recognize deferred income tax assets for these uncovered losses.

F-35

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

10. INCOME TAXES (CONTINUED)

Unrecognized Tax Benefits (continued)

There were no aggregate undistributed earnings of the Company’s subsidiary and VIE located in the PRC available for dividend distribution. Therefore, no deferred tax liability has been accrued for the Chinese dividend withholding taxes that might be payable upon the distribution of aggregate undistributed earnings as of December 31, 2021.

The impact of an uncertain tax position on the income tax return is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes. The Company has concluded that there are no significant uncertain tax positions requiring recognition in the consolidated financial statements for the years ended December 31, 2019, 2020 AND 2021. The Company did not incur any interest and penalties related to potential underpaid income tax expenses and also does not anticipate any significant increases or decreases in unrecognized tax benefits within 12 months from December 31, 2021. The Company has no material unrecognized tax benefits which would favorably affect the effective income tax rate in future years.

Since the incorporation, the relevant tax authorities of the Company's subsidiary and located in the PRC have not conducted a tax examination. In accordance with relevant PRC tax administration laws, tax years from 2016 to 2021 of the Company's PRC subsidiary and VIE, remain subject to tax audits as of December 31, 2021, at the tax authority’s discretion.

11. ORDINARY SHARES

On April 8, 2015, the Company completed its IPO on NASDAQ by offering 4,000,000 ADSs, representing 72 million ordinary shares at price of $10 per ADS. On April 27, 2015, the Company issued an additional 220,000 ADSs, representing 3.96 million ordinary shares to the underwriter for exercising the overallotment option at price of $10 per ADS. The total proceeds from issuance of ordinary shares upon IPO are $37,294,600, after deducting the IPO related cost of $3,000,000.

Upon the completion of the IPO, all of the Company’s then outstanding Series A-1, Series A-2 and Series B preferred shares were automatically converted into 12,202,988, 122,029,877 and 30,507,471 ordinary shares respectively, and immediately after the completion of the IPO, the indebtedness owed to Mr. Maodong Xu (“Mr. Xu”), one of the Company’s shareholder, amounting to $69.4 million was converted into 124,835,802 ordinary shares.

On June 8, 2015, the Company issued 741,422,780 ordinary shares to the Company’s original shareholders for the acquisition of the Company. In addition, the Company initially agreed to issue 72,000,000 ordinary shares of the Company to Mr. Xu at a purchase price of $0.5556 per share, for a total purchase price of $40,000,000. On September 7, 2015, the Company and Mr. Xu reduced the number of shares to be purchased through a supplemental agreement resulting in a final subscription amount of $15,000,000 for 27,000,000 shares. On the same date, the Company issued an additional 27,000,000 ordinary shares to Mr. Xu in relation to his additional subscription.

On September 27, 2015, the Company issued and transferred 38,363,112 ordinary shares to its depositary bank representing 2,131,284 ADSs, to be issued to employees and former employees upon the exercise of their vested share options and the registration of their vested RSUs.

On July 31, 2018, the Company decided to change the ADS-to-Share ratio from the ratio of one (1) ADS to eighteen (18) Shares to a new ratio of one (1) ADS to one hundred eighty (180) Shares.

F-36

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

On May 21, 2019, the Company issued 632,660,858 ordinary shares to Unicorn’s original shareholders for the acquisition of Unicorn.

On May 3, 2020, the Company issued 761,789,601 ordinary shares to NBpay’s original shareholders for the acquisition of NBpay.

11. ORDINARY SHARES (CONTINUED)

On May 20, 2020, the Company issued 90,000,000 ordinary shares to an investor through private placement for US$300,000.

On August 13, 2020, the Company issued and transferred 36,000,000 ordinary shares to its depositary bank representing 1,000,000 ADSs, to be issued to employees and former employees upon the exercise of their vested share options and the registration of their vested RSUs.

On January 27, 2021 and March 3, 2021, the Company totally issued 210,000,000 ordinary shares to an investor through a private placement for US$700,000.

On March 1, 2021, the Company issued and transferred 394,200,000 ordinary shares to its depositary bank representing 1,095,000 ADSs, to be issued to employees and former employees upon the exercise of their vested share options and the registration of their vested RSUs.

On September 8, 2021, the Company issued 571,428,570 ordinary shares to three investors through a private placement for 105.2385 Bitcoins with a market value of $5 million.

On September 27, 2021, the Company issued and transferred 399,999,960 ordinary shares to its depositary bank representing 1,111,111 ADSs, to be issued to employees and former employees upon the exercise of their vested share options and the registration of their vested RSUs.

On October 19, 2021, the Company issued 571,428,570 ordinary shares to three investors through a private placement for 5,000,000.00 USD Coins with a market value of approximately $5 million.

As of December 31, 2019, 2020 and 2021, 37,462,294, 55,983,312 and 775,117,466 ordinary shares, respectively, out of these 868,563,072 ordinary shares had been issued to employees and former-employees upon the exercise of share options and the registration of vested RSUs. Therefore, as of December 31, 2019, 2020 and 2021, 636,818, 18,379,800 and nil common shares, respectively, remained for future issuance.

12. FAIR VALUE MEASUREMENT

Measured at fair value on a recurring basis

The Company had no financial assets and liabilities measured and recorded at fair value on a recurring basis as of December 31, 2019, 2020 and 2021.

Measured at fair value on a non-recurring basis

The Company measures the acquired assets and liabilities at fair value on a nonrecurring basis as result of the business acquisition. The fair value was determined using models with significant unobservable inputs (Level 3 inputs), primarily the management projection of the future cash flow and the discount rate.

F-37

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

The Company measures goodwill at fair value on a nonrecurring basis when it is annually evaluated or whenever events or changes in circumstances indicate that carrying amount of a reporting unit exceeds its fair value. The fair value was determined using models with significant unobservable inputs (Level 3 inputs) which primarily included management projections on the discounted future cash flow analysis including the discount rate using the weighted average cost of capital of 24% and expected revenue growth rates. Due to the business changes caused by the change of control of the Company and the adverse impact of the regulatory policies in mainland China, the Company ceased all the business of the main business entity in China controlled through the VIE agreement, and recognized a goodwill impairment loss of $8,107,014 for the year ended December 31, 2021.

13. SHARE BASED COMPENSATION

2011 Share Incentive Plan

On February 1, 2011, the Board of Directors approved the Company 2011 Share Incentive Plan (‘‘2011 Plan’’). The 2011 Plan provides for the grant of options, restricted shares, and other share-based awards.

The Company recognized compensation cost on the share options to employees under 2011 Plan on a straight-line basis over the requisite service period. The options granted during 2012 and 2013 vest ratably over 48 months and the options granted during 2014 vest on the first anniversary of the date of grant.

On July 27, 2015, the Board of Directors approved to grant 28,841,700 Restricted Share Units (“RSUs”) awards pursuant to the 2011 Plan. Each RSU represents the contingent right of the participant to receive an ordinary share. Each RSU is an agreement to issue ordinary share at the time the award vests with zero exercise price. The issued RSUs will vest 50%, and 50%, respectively, on each anniversary of the grant date. The Company recognizes share-based compensation cost on the RSUs on a straight-line basis over the vesting period from the grant date.

On September 1, 2015, the Board of Directors approved that all 3,312,618 unvested options and 28,639,900 RSUs granted under the 2011 Plan became vested and exercisable as of September 1, 2015. Meanwhile, the Board of Directors also approved that all vested and accelerated vested options and RSUs shall be exercised within 2 years from the acceleration date, i.e. September 1, 2017, which was subsequently extended by another 1 year approved by the Company on June 20, 2017. On August 31, 2018, the Company approved to extend the expiration date of these Accelerated Awards by another 1 year to September 1, 2019. On August 31, 2019, the Company approved to extend the expiration date of these Accelerated Awards by another 1 year to September 1, 2020. An amendment to an existing stock option to extend the exercise period is considered a modification of stock option. The incremental value of the stock option granted to the current employees is recorded as additional compensation cost and the fair value of the modified stock option granted to former employees is record as financial liability when it is material.

On July 1, 2016, under the 2011 Plan, the Board of Directors approved to grant 32,028,700 share options with exercise price of $0.20 per share to its employees and management. 40%, 30% and 30% of the shares subject to the options shall vest on the second, third and fourth anniversary of the vesting commencement date, respectively, provided that the optionee continues to be a service provider to the Company.

On July 1, 2016, the Board of Directors also approved to grant 10,430,000 RSUs awards pursuant to the 2011 Plan. Each RSU represents the contingent right of the participant to receive an ordinary share. Each RSU is an agreement to issue ordinary shares at the time the award vests with zero exercise price. The issued RSUs will vest 100% when the following two conditions are both met: a) on and after the first anniversary of the grant date and b) the market price of the Company’s ADS is not less than $7 per ADS. As the second condition was not met, nil RSU was vested as of December 31, 2019. The Company recognizes share-based compensation cost on the RSUs ratably over the 12 months from the grant date.

F-38

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

On July 9, 2020, the Board of Directors also approved to grant 550,001 RSUs awards pursuant to the 2011 Plan. Each RSU represents the contingent right of the participant to receive an ordinary share. Each RSU is an agreement to issue ordinary shares at the time the award vests with zero exercise price. The issued RSUs has a four-year time-based vesting schedule with a one-year cliff. After the cliff, 1/12 of the remaining granted shares vest each quarter until the four-year vesting period is over. The Company recognizes share-based compensation cost on the RSUs ratably over the 4 years from the grant date.

On January 3, 2021, the management approved to grant 123,000 RSUs awards pursuant to the 2011 Plan. Each RSU represents the contingent right of the participant to receive an ordinary share. Each RSU is an agreement to issue ordinary shares at the time the award vests with zero exercise price. The issued RSUs can be exercised immediately.

13. SHARE BASED COMPENSATION (CONTINUED)

2011 Share Incentive Plan (continued)

On January 25, 2021, the management also approved to grant 224,000 RSUs awards pursuant to the 2011 Plan. Each RSU represents the contingent right of the participant to receive an ordinary share. Each RSU is an agreement to issue ordinary shares at the time the award vests with zero exercise price. The issued RSUs can be exercised immediately.

On March 1, 2021, due to a big change in the Company's major shareholders, the management announced that all motivated employees could accelerate the exercise of all RSUs that had been granted but had not yet reached the exercise period, with zero exercise price.

2020 Share Incentive Plan

On November 24, 2020, the Board of Directors approved the Company 2020 Share Incentive Plan (“2020 Plan”). The 2020 Plan permits the awards of options, restricted shares, restricted share units or other types of awards approved by compensation committee of the board.

The Company recognized compensation cost on the share options to employees under 2020 Plan on a straight-line basis over the requisite service period.

On November 24, 2020, the Board of Directors also approved to grant 205,600 RSUs awards pursuant to the 2020 Plan. Each RSU represents the contingent right of the participant to receive an ordinary share. Each RSU is an agreement to issue ordinary shares at the time the award vests with zero exercise price. The issued RSUs issued RSUs has a four-year time-based vesting schedule with a one-year cliff. After the cliff, 1/12 of the remaining granted shares vest each quarter until the four-year vesting period is over. The Company recognizes share-based compensation cost on the RSUs ratably over the 4 years from the grant date.

On January 3, 2021, the management also approved to grant 140,000 RSUs awards pursuant to the 2020 Plan. Each RSU represents the contingent right of the participant to receive an ordinary share. Each RSU is an agreement to issue ordinary shares at the time the award vests with zero exercise price. The issued RSUs can be exercised immediately.

On January 25, 2021, the management also approved to grant 100,000 RSUs awards pursuant to the 2020 Plan. Each RSU represents the contingent right of the participant to receive an ordinary share. Each RSU is an agreement to issue ordinary shares at the time the award vests with zero exercise price. The issued RSUs can be exercised immediately.

F-39

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

On April 30, 2021, the management also approved to grant 20,000 RSUs awards pursuant to the 2020 Plan. Each RSU represents the contingent right of the participant to receive an ordinary share. Each RSU is an agreement to issue ordinary shares at the time the award vests with zero exercise price. The issued RSUs can be exercised immediately.

2021 Share Incentive Plan

On August 24, 2021, the Board approved the Company 2021 Share Incentive Plan (“2021 Plan’’). The 2021 Plan permits the awards of restricted shares, restricted share units or other types of awards approved by compensation committee of the board.

The Company recognized compensation cost on the share options to employees under 2021 Plan on a straight-line basis over the requisite service period.

13. SHARE BASED COMPENSATION (CONTINUED)

2021 Share Incentive Plan (continued)

On August 25, 2021, the management approved to grant 1,099,443 RSUs awards pursuant to the 2021 Plan. Each RSU represents the contingent right of the participant to receive an ordinary share. Each RSU is an agreement to issue ordinary shares at the time the award vests with zero exercise price. According to the decision of management, 527,777 RSUs can be exercised immediately, 50% of the rest 571,666 RSUs has a six months time-based vesting schedule, 50% of the rest 571,666 RSUs has a twelve months time-based vesting schedule.

1. Restricted Shares Award Granted to Employees

The following table summarizes the Company’s restricted shares award issued under the 2011 Plan for the year ended December 31, 2021(one share of RSU, or ADR equals to 360 shares of ordinary share ):


	Outstanding RSUs
	Number of Shares	Grant date Fair value
		(US$)
Unvested as of January 1, 2021	50,001	2.54
Grant	347,000	3.38
Vested and transfer to grantee	(691,000)	2.89
Forfeited and expected Forfeit	(43,500)	2.540
Unvested as of December 31, 2021	112,501	2.43

(a)	Restricted Shares Award Granted to Employees (continued)

The following table summarizes the Company's restricted shares award issued under the 2020 Plan for the year ended December 31, 2021(one share of RSU, or ADR equals to 360 shares of ordinary share):


	Outstanding RSUs
	Number of Shares	Grant date Fair value
		US$
Unvested as of January 1, 2021	205,600	2.84
Grant	260,000	3.57
Vested and transfer to grantee	(362,800)	3.36
Forfeited and expected Forfeit	(102,800)	2.84
Unvested as of December 31, 2021	—	—

F-40

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

(a)Restricted Shares Award Granted to Employees (continued)

The following table summarizes the Company's restricted shares award issued under the 2021 Plan for the year ended December 31, 2021(one share of RSU, or ADR equals to 360 shares of ordinary share):


	Outstanding RSUs
	Number of Shares	Grant date Fair value
		US$
Unvested as of January 1, 2021	—	—
Grant	1,099,443	2.95
Vested and transfer to grantee	(1,099,443)	2.95
Forfeited and expected Forfeit	—
Unvested as of December 31, 2021	—

13. SHARE BASED COMPENSATION (CONTINUED)

(b) Options Granted to Employees

The following table summarizes the Company’s employee share options under 2011 Plan for the year ended December 31, 2021:


				Weight
		Weight	Weight	average
		average	average	remaining	Aggregate
	Number of	exercise	grant date	contractual	Instrinsic
	Share	price	fair value	life	value
		US$	US$	US$	US$
Outstanding as of January 1, 2021	6,982,920	0.004	0.10	0.17	46,017
Grant	—	—	—	—	—
Exercised	(3,602,880)	0.012	0.005	—	28,038
Forfeited and expected Forfeit	(3,380,040)	—	—	—	—
Vested and expect to vest as of December 31, 2021	—	—	—	—	—
Exercisable as of December 31, 2021	—	—	—	—	—

$nil, $286,132 ($182 common stock and $285,950 additional paid-in capital) and $nil share-based compensation charged to operating expenses of continuing operations for the years ended December 31, 2019, 2020 AND 2021 under 2011 Plan.

The share-based compensation of $53,967 was credited to operating expenses of discontinued operations for the years ended December 31, 2019 under 2011 Plan, respectively. The July 1, 2016 grants of both the 32,028,700 share options and the 10,430,000 RSUs require participants have continuous employment to qualify for vesting of their benefits under the 2011 Plan. Accordingly, during the year ended December 31, 2019, the credit to operating expenses of discontinued operations of $53,967 is net of forfeitures related to terminated employees of $248,463 which represents prior charges for benefits that will never be received by the former employees. In addition, during the year ended December 31, 2019, the net credit of $53,967 includes a reduced charge of discontinued operations of $194,496 for the cost at benefits for remaining continuing employees (not terminated employees) still qualifying for benefits under the 2011 Plan.

On September 1, 2015, the Board of Directors approved that all 3,312,618 unvested options and 28,639,900 RSUs granted under 2011 Plan became vested and exercisable (“Accelerated Awards”) as of September 1, 2015. This was

F-41

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

accounted for as a modification. The share-based compensation of $7,503,976 from this modification was a one-time charge to operating expenses of discontinued operations for the year ended December 31, 2015. As all batches of options and RSUs outstanding as of September 1, 2015 were immediately vested on that date, the actual forfeiture rates were trued up, which resulted a reversal of $327,376 share-based compensation in discontinued operations for the year ended December 31, 2015.

On June 20, 2017, the Company approved to extend the expiration date of these Accelerated Awards by another 1 year to September 1, 2018, which was accounted for as a modification. The share-based compensation of $32,491 from this modification was a one-time charge to operating expenses of discontinued operations for the year ended December 31, 2017.

On August 31, 2018, the Company approved to extend the expiration date of these Accelerated Awards by another one year to September 1, 2019. On August 31, 2019, the Company approved to extend the expiration date of these Accelerated Awards by another one year to September 1, 2020.

13. SHARE BASED COMPENSATION (CONTINUED)

On August 31,2020, the Company approved to extend the expiration date of these Accelerated Awards to February 28, 2021. 270,720 shares of the 15,760,449 Accelerated Awards were excised and 8,506,809 shares were forfeited in 2020. 3,602,880 shares of the 6,982,920 Accelerated Awards were excised and the remaining 3,380,040 shares were forfeited after February 28, 2021, the extended expiration date.

The aggregated intrinsic value of stock options outstanding and exercisable as of December 31, 2019 and 2020 was calculated based on the closing price of the Company’s ordinary shares, $1.64 per ADS ($0.005 per ordinary share) and $3.05 per ADS ($0.008 per ordinary share) at December 31, 2019 and 2020, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2019 and 2020 was $280 and $9,399 respectively.

As of December 31, 2021, no unrecognized share-based compensation related to RSUs issued to employees and unrecognized share-based compensation related to share options of continuing operations remained.

The fair value of the options granted/modified was estimated on the date of grant/modification with the assistance of an independent third-party appraiser, and was determined using a binomial pricing model with the following assumptions:


	September 1,		July 1,		June 20,
	2015		2016		2017

Expected volatility ₍₁₎	60.3% - 65.1	%	54.8	%	41.0	%
Risk-free interest rate ₍₂₎	0.47% - 0.88	%	1.46	%	1.25	%
Expected dividend yield ₍₃₎	nil		nil		nil
Exercise price ₍₄₎	$0.01 -$0.20		$0.20		$0.01 -$0.20
Fair value of the underlying ordinary shares ₍₅₎	$0.38		$0.20		$0.12

(1)	Volatility

The volatility of the underlying ordinary shares during the life of the options was estimated based on average historical volatility of comparable companies for the period before the valuation date with lengths equal to the life of the options.

(2)	Risk-free rate

F-42

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

Risk free rate is estimated based on yield to maturity of PRC international government bonds with maturity term close to the life of the options.

(3)	Dividend yield

The dividend yield was estimated by the Company based on its expected dividend policy over the life of the options.

(4)	Exercise price

The exercise price of the options was determined by the Company's Board of Directors.

(5)	Fair value of underlying ordinary shares

13. SHARE BASED COMPENSATION (CONTINUED)

The estimated fair value of the ordinary shares underlying the options as of the respective valuation dates was determined based on a contemporaneous valuation. When estimating the fair value of the ordinary shares on the valuation dates, management has considered a number of factors, including the result of a third-party appraisal and equity transactions of the Company, while taking into account standard valuation methods and the achievement of certain events. The fair value of the ordinary shares in connection with the option grants on the valuation dates was determined with the assistance of an independent third-party appraiser.

After the Company listed on NASDAQ in April 2015, the closing market price of the ordinary shares of the Company as of the grant/modification date was used as the fair value of the ordinary shares on that date.

14. RELATED PARTY BALANCES AND TRANSACTIONS

Nature of the relationships with related parties:


Name		Relationship with the Company
Kaiming Hu		Previous owner of NBpay group, over 10% share holder of Mercurity
Zhiyou Wang		Director of Mercurity’s affiliated companys, share holder of Mercurity
Guoda Technology (Shenzhen) Co., Ltd.		A company associated with Zhiyou Wang
Radiance Holding (HK) Limited		Share holder of Mercurity

a)	As of December 31, 2021, the following balance was due from the related party:


		As of December 31,
Net Amount due from the related party		2021
		US$
Kaiming Hu (i)		—
Guoda Technology (Shenzhen) Co., Ltd. (ii)		1,503

The receivable due from Mr. Kaiming Hu is $556,083 at the end of December 31, 2021, related to capital contribution. Due to the changes of the company's management and business team in the second half of 2021, the Company failed to collect the receivable from Mr. Kaiming Hu in a timely manner. At the end of 2021, the

F-43

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

Company made provision for doubtful accounts. Meanwhile, the company is also taking legal action to recover the money.

ii.	The amounts represent the receivables of $1,503 due from Guoda Technology (Shenzhen) Co., Ltd. related to office lease fee settlement.

b)	As of December 31, 2021, the following balance was due to the related party:


Net Amount due to the related party		As of December 31,
		2021
		US$
Zhiyou Wang (i)		849,607
Radiance Holding (HK) Limited (ii)		273,000

i.	The amounts represent the payables of $849,607 due to Zhiyou Wang related to the Company's borrowing from shareholders because of a temporary shortage of funds.

ii.	The amounts represent the payables of $273,000 due to Radiance Holding (HK) Limited related to the Company's borrowing shares from shareholders to pay agency fees with shares.

15. COMMITMENTS AND CONTINGENCIES

Operating lease commitments

The Company leases certain office premises under non-cancellable leases. Rental expenses under operating leases for the years ended December 31, 2019, 2020 and 2021 were $nil, $18,589 and $101,508, respectively.

The future aggregate minimum lease payments under non-cancellable operating lease agreements were as follows:


Years ending December 31,		US$
2022		24,978
Total		24,978

16. MAINLAND CHINA CONTRIBUTION PLAN

Full time PRC employees of the Company are eligible to participate in a government-mandated multi- employer defined contribution plan under which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to these employees. The PRC labor regulations require the Company to accrue for these benefits based on a percentage of each employee’s income. Total provisions for employee benefits were $95,831, $290,135 and $93,096 for the years ended December 31, 2019, 2020 and 2021, respectively, reported as a component of operating expenses of continuing operations when incurred.

17. STATUTORY RESERVES AND RESTRICTED NET ASSETS

In accordance with the Regulations on Enterprises with Foreign Investment of China and their articles of association, the Company’s subsidiaries, VIE and VIE’s subsidiaries located in the PRC, being foreign invested enterprises established in the PRC, are required to provide for certain statutory reserves. These statutory reserve funds include one or more of the following: (i) a general reserve, (ii) an enterprise expansion fund or discretionary reserve fund, and (iii) a staff bonus and welfare fund. Subject to certain cumulative limits, the general reserve fund requires a minimum annual appropriation of 10% of after-tax profit (as determined under accounting principles generally accepted in China at each year-end); the

F-44

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

other fund appropriations are at the subsidiaries’ or the affiliated PRC entities’ discretion. These statutory reserve funds can only be used for specific purposes of enterprise expansion, staff bonus and welfare, and are not distributable as cash dividends except in the event of liquidation of our subsidiaries, our affiliated PRC entities and their respective subsidiaries. The Company’s subsidiary, VIE and VIE’s subsidiaries are required to allocate at least 10% of their after-tax profits to the general reserve until such reserve has reached 50% of their respective registered capital. As of December 31, 2019, 2020 and 2021, none of the Company’s PRC subsidiary and VIE has a general reserve that reached 50% of their registered capital threshold and therefore they will continue to allocate at least 10% of their after tax profits to the general reserve fund.

Appropriations to the enterprise expansion reserve and the staff welfare and bonus reserve are to be made at the discretion of the Board of Directors of each of the Company’s subsidiaries.

The appropriation to these reserves by the Company’s PRC subsidiary, VIE and VIE’s subsidiaries were all $nil for the years ended December 31, 2019, 2020 and 2021.

As a result of these PRC laws and regulations and the requirement that distributions by the PRC entities can only be paid out of distributable profits computed in accordance with the PRC GAAP, the PRC entities are restricted from transferring a portion of their net assets to the Company. Amounts restricted include paid-in capital and the statutory reserves of the Company’s PRC subsidiary, VIE and VIE’s subsidiaries.

17. STATUTORY RESERVES AND RESTRICTED NET ASSETS (CONTINUED)

The aggregate amounts of capital and statutory reserves restricted which represented the amount of net assets of the relevant subsidiary, VIE and VIE’s subsidiaries in the Company not available for distribution were $724,123, $1,439,369 and $268,195 as of December 31, 2019, 2020 and 2021, respectively, including $724,123, $1,439,369 and $268,195 of net restricted assets recorded under VIE and VIE’s subsidiaries in the Company.

18. SUBSEQUENT EVENTS

Dismantle the VIE structure and divest mainland Companies controlled by VIE agreements

On January 15, 2022, Beijing Lianji Future Technology Co., Ltd., Beijing Lianji Technology Co., Ltd.(VIE), signed a Termination Agreement Re Existing Control Documents with Wang Zhiyou and Zhou Jie, the shareholders of Beijing Lianji Technology Co., Ltd.. According to the agreement, from the date hereof, each Party no longer retains any right under the Existing Control Documents and no longer needs to perform any obligation under the Existing Control Documents. However, the rights and obligations actually exercised by each Party based on any Existing Control Documents shall remain effective. Any income or other benefits of any nature funds obtained or actually received by any Party based on the Existing Control Documents need not be returned to the opposite Party, and the existing accounts receivable and payable between the Parties shall still be paid. Meanwhile, Beijing Lianji Future Technology Co., Ltd., Beijing Lianji Technology Co., Ltd., Ucon Capital (HK) Limited, Mercurity Limited and Mercurity Fintech Holding Inc. jointly signed an Agreement on Modification of Customer's Rights and Obligations. Beijing Lianji Technology Co., Ltd. transfered all of its receivables and other creditor's rights to Beijing Lianji Future Technology Co., Ltd., and all debts owned by Beijing Lianji Technology Co., Ltd. to Ucon Capital (HK) Limited, Mercurity Limited and Mercurity Fintech Holding Inc were borne by Beijing Lianji Future Technology Co., Ltd.

F-45

Table of Contents

MERCURITY FINTECH HOLDING INC.

FORMERLY KNOWN AS JMU LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021

remain effective. Any income or other benefits of any nature funds obtained or actually received by any Party based on the Existing Control Documents need not be returned to the opposite Party, and the existing accounts receivable and payable between the Parties shall still be paid. Meanwhile, Beijing Lianji Future Technology Co., Ltd., Mercurity (Beijing) Technology Co., Ltd., Ucon Capital (HK) Limited, Mercurity Limited and Mercurity Fintech Holding Inc. jointly signed an Agreement on Modification of Customer's Rights and Obligations. Mercurity (Beijing) Technology Co., Ltd. transfered all of its receivables and other creditor's rights to Beijing Lianji Future Technology Co., Ltd., and all debts owned by Mercurity (Beijing) Technology Co., Ltd. to Ucon Capital (HK) Limited, Mercurity Limited and Mercurity Fintech Holding Inc were borne by Beijing Lianji Future Technology Co., Ltd.

Beijing Lianji Technology Co., Ltd. and Mercurity (Beijing) Technology Co., Ltd. are no longer controlled by the Company and the Company no longer owns any companies controlled by VIE agreement.

18. SUBSEQUENT EVENTS (CONTINUED)

An emergency caused by personal reasons of management and events that may cause significant losses to the company's assets

Mr. Wei Zhu, a director of the Board, the co-chairperson of the Board, the acting chief financial officer, and the co-chief executive officer of the Company, notified the Company of his resignation as a director, the co-chairperson, the acting chief financial officer, and the co-chief executive officer for personal reasons on March 28, 2022. Mr. Minghao Li, a member of the board of the directors (the "Board") of the Company, notified the Company of his resignation as a director for personal reasons on March 28, 2022. It has come to our attention that both Mr. Wei Zhu and Mr. Minghao Li have been detained and are currently under criminal investigation by the police in the People's Republic of China for potential charges unrelated to their positions or activities as officers and directors of the Company. The Company is not aware of the specific charges being investigated against each of Mr. Minghao Li and Mr. Wei Zhu.

As our former chief financial officer, Mr. Wei Zhu held the hardware cold wallet containing the Company's Bitcoin (BTC) and USD Coin (USDC) cryptocurrency. According to our communication with representatives from the Sheyang County Public Security Bureau of Yancheng City, Jiangsu Province, the Company suspected that during the course of the investigation, the police temporarily put a hold on the cold wallet which was maintained by Wei Zhu. The book value of the Bitcoins and USD Coins stored in the out-of-control wallet was $8,197,290. The Company verified that Bitcoins and USD Coins with a book value of $6,528,217 stored in the out-of-control wallet had been transferred to other unknown wallets.

The Company has engaged its PRC counsel, Deheng Law Offices, to actively communicate with the police to obtain information regarding the investigation and to release any of the Company’s assets that are currently or may be held by the police. The duration of the police investigation and its final results are unclear at this time and may be further delayed by the effects of COVID-19 restrictions in the PRC.

F-46


1.1		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)
2.1		Deposit Agreement by and among the Registrant and Citibank, N.A., as Depositary, and the Holders and Beneficial Owners of the American Depositary Shares issued thereunder, dated as of April 13, 2015 (incorporated by reference to exhibit 4.3 to our S-8 registration statement (File No. 333-206466) filed with the SEC on August 19, 2015)
2.2		Specimen American Depositary Receipt (included in Exhibit 2.1)
2.3		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)
4.1		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)
4.2*		2020 Share Incentive Plan
4.3		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)
4.4		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)
4.5		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. Specimen Certificate for Ordinary Shares (incorporated by reference to exhibit 10.1 to current report on form 6-K filed with the SEC on February 7, 2022)
4.6		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)
4.7*		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
4.8		Share Purchase Agreement, dated as of May 17, 2020, by and among the Registrant and Universal Hunter (BVI) Limited (incorporated by reference to exhibit 4.18 to the annual report on form 20-F filed with the SEC on June 12, 2020)
4.9*		Share Purchase Agreement, dated as of September 27, 2021, by and between the Registrant and Newlight X Ltd.
4.10*		Share Purchase Agreement, dated as of September 27, 2021, by and between the Registrant and Castlewood Fintech Ltd.
4.11*		Share Purchase Agreement, dated as of September 27, 2021, by and between the Registrant and Brighton Fintech Ltd.
4.12		Master Software Development Agreement, dated as of May 28, 2018, by and between Unicorn Investment Limited and BGA FOUNDATION LTD (incorporated by reference to exhibit 4.19 of our annual report on Form 20-F filed with the SEC on June 12, 2020)
4.13		Master Software Development Agreement, dated as of July 1, 2019, by and between Unicorn Investment Limited and BGA FOUNDATION LTD (incorporated by reference to exhibit 4.20 of our annual report on Form 20-F filed with the SEC on June 12, 2020)
4.14		Agreement for Software Development Services, dated October 12, 2020, by and between Mercurity Fintech Holding Inc. and Finblock Foundation LTD (incorporated by reference to exhibit 4.21 of our annual report on Form 20-F filed with the SEC on April 28, 2021)
4.15		English translation of Technical Service Agreement, dated July 29, 2020, by and between Beijing Lianji Technology Co., Ltd. and Beijing Qichi Trading Ltd (incorporated by reference to exhibit 4.21* of our annual report on Form 20-F filed with the SEC on April 28, 2021)
4.16*		Sales and Purchase Agreement, dated October 12, 2020, by and between Ucon Capital HK Limited and Carpenter Creek LLC.
4.17*		The Chief Executive Officer Employment Agreement with Mercurity Fintech Holding Inc.
4.18*		The Chief Financial Officer Employment Agreement with Mercurity Fintech Holding Inc.
8.1*		List of Subsidiaries of the Registrant
11.1*		Revised Code of Business Conduct and Ethics of the Registrant

12.1*		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002
12.2*		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002
12.3**		Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002
12.4**		Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002
15.1		Letter from Michael T Studer CPA P.C. to the SEC (incorporated by reference to exhibit 15.1 of our annual report on Form 20-F filed with the SEC on June 12, 2020)
15.2*		Consent of Shanghai Perfect C.P.A Partnership
101.INS*		XBRL Instance Document.
101.SCH*		XBRL Taxonomy Extension Schema Document.
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.

	Mercurity Fintech Holding Inc.
		(Registrant)

Date: June 15, 2022	By:	/s/ Shi Qiu
		Shi Qiu
		Chief Executive Officer

Date: June 15, 2022	By:	/s/ Cheng Hock Phuah
		Cheng Hock Phuah
		Chief Financial Officer


Consolidated Financial Statements		PAGE(S)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 03027)		F-2
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2019, 2020 AND 2021		F-3 – F-4
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021		F-5 – F-6
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021		F-7
CONSOLIDATED STATEMETNS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021		F-8 – F-10
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021		F-11 – F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021		F-13 – F-45

	Page
PART I	3
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	3
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE	3
ITEM 3. KEY INFORMATION	3
ITEM 4. INFORMATION ON THE COMPANY	33
ITEM 4A. UNRESOLVED STAFF COMMENTS	48
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS	48
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	60
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	70
ITEM 8. FINANCIAL INFORMATION	71
ITEM 9. THE OFFER AND LISTING.	72
ITEM 10. ADDITIONAL INFORMATION	72
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	86
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	86
PART II	87
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	87
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	87
ITEM 14E. USE OF PROCEEDS	87
ITEM 15. CONTROLS AND PROCEDURES	88
ITEM 16. [RESERVED]	88
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT	88
ITEM 16B. CODE OF ETHICS	89
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES	89
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	89
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	89
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	89
ITEM 16G. CORPORATE GOVERNANCE	90
ITEM 16H. MINE SAFETY DISCLOSURE	91
PART III	91
ITEM 17. FINANCIAL STATEMENTS	91
ITEM 18. FINANCIAL STATEMENTS	91
ITEM 19. EXHIBITS.	92